African Outlook Online

Dayo's Standpoint

Lessons for Nigeria from Qatar

Lessons for Nigeria from Qatar

 

By Dayo Balogun

It is not uncommon for the good practices of a country to be adopted by other countries in the global world that we live in today. There are so many examples across the world where well-thought-out programs, policies and practises in economic investments, infrastructural investments, education, immigration and many more have been adopted and adapted to fit local prevailing circumstances.

Dr. Ngozi Okonjo-Iweala, Minister of Finance/Coordinating Minister of the Economy

One of such countries which, I believe, is thinking about the future and which I personally feel another country like Nigeria could learn from, is Qatar. The question is why choose Nigeria as country that could learn a lesson from Qatar and what exactly have I noticed Qatar doing that I feel Nigeria as a country could learn from?

 

I have picked Nigeria because of the similarities between her and Qatar. Both countries were previously colonised by the British. Both countries have vast oil and gas resources. The major substantial differences between the two countries are their population compared to their geographical landmass areas, the year both countries became independent, progress made since independence and present system of government.

 

While Nigeria gained independence on 1st October 1960 and became a republic three years later on 1st October 1963; Qatar gained her independence 11 years later on September 3rd, 1971. In 2010 census Qatar had a population of about 1.7Million people with Qatari national accounting for less than 300,000 people while the population of Nigeria in the 2006 census was just over 140Million. This year Qatar Statistics Authority estimate that the population of Qatar is just over 1.9Million while Nigeria`s population is estimated to be about 170Million. Qatar is governed by an absolute monarchy while Nigeria's system of government is democratically elected Federal Presidential Republic. Qatar geographical landmass is 11,571 square kilometres (4,467.6 square miles) and Nigeria cover 923,768 square kilometres (356,667 square miles)

 

In spite of the fact that Qatar became independent over 11 years after Nigeria as highlighted  earlier, Qatar has prospered with continued high real GDP growth. Although GDP growth slowed down to 6.3% in 2012 as the country got toward completing gas sector expansion, the economic policy and direction of Qatar is focussed on developing Qatar`s non associated natural oil and gas reserves. The country is focussed on making and increasing foreign investments in non-energy sectors. In fact, it is very easy to see that Qataris are very serious and are keeping to their strategy in their moves in United Kingdom and France in recent years.

 

Harrods the famous London store was sold to Qatar Holdings, the sovereign wealth fund of the State of Qatar for £1.5 billion. The sale was concluded in the early hours of 8 May 2010, when Qatari Prime Minister Hamad bin Jassim bin Jaber Al Thani flew to London to finalise the deal, saying that the acquisition of Harrods would add "much value" to the investment portfolio of Qatar Holdings while his deputy, Hussain Ali Al-Abdulla, called it a "landmark transaction." In addition, announcements have been made recently that Harrods brand is going to be taken into hotels soon. Just over a year ago, the Qataris bought the newly redeveloped W Hotel in London`s Leicester Square for a reported £200Million.

 

On Thursday 28 March 2013, the Qataris sealed another deal in London. They bought one of London`s most prestigious hotels, the five star, 13-storey InterContinental London Park Lane in a deal estimated to be worth more than £400Million. Not only that, the freehold of the land the hotel stands on was understood to have been bought by Qatar as well for about £100Million from the Crown Estate. In France, state of Qatar recently bought four luxury hotels including Hotel Concorde La Fayette near the famous Eiffel Tower for an undisclosed amount.

 

The Qatar Investment Authority which manages the sovereign wealth fund worth around $115Billion of the State of Qatar was established in 2005 by the government of Qatar to strengthen  the country`s economy by diversification into new asset sectors and investments. The prime objective for the establishment of the fund was to achieve revenue diversification for the country within ten to fifteen years of its establishment so as to minimise risk from Qatar`s reliance on her oil and gas.

 

For a country of less than 2 Million people that gained independence in 1971, they have not done badly for themselves. Factors of low population, small landmass and more importantly governance which is frowned at by the western government as being not democratic have not drawn Qatar back in the committee of nations. In fact, Qatar is world leader in terms of industrial growth, taxes and other revenues raised by the government, budget - revenues and expenditure, and GDP composition by sectors of the economy.

 

It is a fact that Nigeria is not only rich in oil and gas as Qatar but also rich in coal, bauxite, tantalite, gold, tin, iron ore, limestone, niobium, lead, zinc and blessed with vast fertile land but has not managed her natural resources well as Qatar has obviously done. Agriculture which used to be the principal foreign exchange earner of Nigeria and which should have been mechanized and industrialized for even higher foreign exchange continues to decline. It is history that at one time, Nigeria was the world's largest exporter of groundnuts, cocoa, and palm oil and a significant producer of coconuts, citrus fruits, maize, pearl millet, cassava, yams and sugar cane, today Nigeria imports food to feed her growing population.

 

First lesson from Qatar is the establishment of sovereign wealth fund for Nigeria with main strategy of investment in non oil and gas sector within and outside Nigeria like the Qataris have done. It will do Nigeria a lot of good to diversify revenue from oil and gas and not continue to solely rely on oil revenue. It is an interesting development that Nigeria established three sovereign wealth funds called Future Generations Fund, Nigerian Infrastructure Fund and Stabilization Fund in May 2011 when the Nigeria Sovereign Investment Authority (NSIA) Act 2011 was signed into law.  Many like me would ask why it took us that long from independence or civilian rule to get such fund established. But like many Nigeria creation, the devil is in details of the act establishing NSIA.

 

The Act provides for the establishment of a Governing Council headed by the President. Other members of the Governing Council include Governors of the 36 states, the Ministers of Finance, Justice and Planning, the Governor of the Central Bank, the Chief Economic Adviser to the President, Chairman of the revenue, mobilization, allocation and fiscal commission, two representatives of the civil society, four eminent academics, two representatives of the Nigerian youths and two representatives of the private sector. The act stipulates that the Council shall in the discharge of its duties observe the independence of the Board and officers of the Authority.

 

My point is although Nigeria has created a sovereign fund, a great mistake has been made in its constitution and design and we have not learnt any lesson from the way other countries across the globe have constituted similar sovereign wealth funds and subsequently run them. The simple question is how Nigeria expects Nigeria Sovereign Investment Authority to be independent and meet set objectives under the governing council of president and all the 36 state governors for a start.

 

How can we place a vital organization like NSIA under a governing council of career politicians who have tendency to squander oil revenues through a combination of reckless spending and corruption and expect any meaningful results from it? The lesson from Qatar is that sovereign wealth funds should be managed by a board or governing body independent of government and with considerable amount of experience. For instance the board of Qatari Investment Authority is independent and has less than ten people with extensive financial experience and exist solely to serve the government and people of Qatar by strengthening their economy.

 

The Nigeria Sovereign Investment Authority which manages the sovereign wealth fund worth around $1Billion was established in 2011 by the government of Nigeria from what used to be known as Excess Crude Account. As opposed to strengthening of Nigeria`s economy by diversification into new asset sectors and investments like for instance how the Qataris have organized theirs; it is clear that the sovereign wealth funds of Nigeria exist to help stabilize the budget, substitute and supplement government expenditures. That might be the reason why it is very difficult to find any evidence whatsoever of where the Nigeria`s wealth funds have been spent since inception.

 

The second lesson from Qatar is the amount of funds available to the Sovereign Wealth Fund to carry out the objectives for its establishment. While Qatar could boost of colossal $115Billion which is clearly been invested in other diversified sectors within Qatar and overseas, Nigeria`s funds is estimated to be worth a meagre $1Billion and only accrue in line with the price of oil and gas and excess revenue not budgeted for by the government. For a country whose annual 2013 budget is worth $31.63Billion, it’s very sad to note that all the country`s authorities could set aside for an important fund as sovereign wealth fund is $1Billion!

 

Instead of having a specified and adequate allocation for investment in diversified sectors like the Qataris have done, the funds in Nigeria`s sovereign wealth funds only refer to a significant portion of oil and gas revenue above the budgeted revenue approved by the country`s parliament. The 2013 budget for instance was based on an assumption of a $79-per-barrel budget oil price, higher than the $75-per-barrel proposed by the executive arm of government. The global average oil price this year is at almost the same level as it was a year ago which means little or no money going into the Nigeria Sovereign wealth funds. It will definitely be wise for Nigeria to allocate adequate funds from the oil and gas revenue itself and not rely on the excess that accrue depending on the price of oil and gas.

 

Another great lesson from Qatar for Nigeria is the percentage of the country`s gross domestic product accounted for by taxes and other revenues. According to CIA World Factbook, taxes and other revenues account for estimated 39.9% of Qatar`s GDP as of year 2012 while it was as low as 8.6% of GDP in the same year in Nigeria. That makes me to wonder how many individuals and businesses are evading or avoiding paying tax in Nigeria. Perhaps the government of Nigeria can borrow a leaf from Qatar on their taxes and other revenues are collected.

 

It is no surprise to discover that the budget of Qatar is running at surplus while Nigeria`s is running at deficit. Qatar`s estimated actual budget in 2012 was $62.66Billion revenues - $51.19Billion expenditures (surplus of $11.47) while that of Nigeria was $23.48Billion revenues - $31.61Billion expenditures for the same year (deficit of $8.13Billion). Perhaps, if Nigeria reduces the vast amount spent on our complex and very huge recurrent government expenditures at the federal, state and local government levels, we would have started to address our unsustainable and ever increasing budget. One key area to start the reduction is Nigeria`s over bloated salaries and benefits for the politicians. Nigeria has 109 Senators in the senate and 360 members of the House of Representatives; each of Nigeria`s Senators is reported to cost the country around $1.7Million and the 360 Representatives about $1.2Million each per annum! Mind you, this is money the country does not have if the budget of Nigeria is anything to go by.

 

In a nutshell, Nigeria will benefit hugely by reconsidering not only the governance of the country`s sovereign wealth funds to make it more independent and an arms-length organization but also change the objective of the funds to one that is mainly focused on investment and realistic returns as shown in practice by the Qataris. If targets are not set and outcomes measured against set objectives, it will be difficult to measure the success or otherwise of funds. It is not uncommon for clear targets to be set for sovereign wealth funds as evidenced for instance in the Australia Future Fund which is required to target an average annual return of at least the Consumer Price Index (CPI) in addition to between 4.5% to 5.5% per year. Unlike examples of foreign investments highlighted for Qatar, Nigeria could focus her sovereign wealth funds on investments internally towards developing the country`s infrastructure. Nigeria has the potential to be great. It is hoped that those in charge of affairs will take the right steps towards the country`s greatness.