“Economic Lifelines Nigeria” from ABN Digital looks at the establishment of the Sovereign Wealth Fund in Nigeria, which was established as a reaction to the sharp fall in oil prices which came about with the global financial crisis in 2008.
The sharp decline in oil prices seen in the early stages of the global financial crisis in 2008 led to a 20 percent drop in the value of the naira in less than 2 months. And this weakness of the local currency increased operating costs for many businesses that relied on imported products. In a matter of months, segments of Nigeria’s capital markets, banking sector, downstream oil and manufacturing industries were in severe decline as authorities struggled to react to the sharp fall in the oil price. The price of oil fell from an all-time high of $147 per barrel to $32 a barrel in just 6 months. It is volatility like this that spurred the formation of Sovereign Wealth Funds across the world.
The sovereign wealth fund in Nigeria was created by law and aims to combat volatility in oil prices. It also acts as a tool of fiscal discipline; allowing the nation to save revenue and also to invest in infrastructure and sectors in the economy which require the much needed injection of petro dollars.