Sovereign Wealth Fund and Challenges of Fiscal Federalism in Nigeria

Abstract

Following the passage of the Nigerian sovereign investment authority Act 2011, by the National Assembly, the federal Government acting pursuant to the Act, set up the fund. It is customary for the government to distribute all revenue accruing to her in the Federation Account between the federal, state and local government councils according to a set formula. The establishment of the sovereign wealth fund received attacks and protest by the governors of the federating states, thus, raising the unsettled question of the concept of federalism in Nigeria. The view of many is that the concept of the Nigerian federalism is not determined by the judicious power and revenue sharing formula, rather by the result of the imposed federal system of government by the colonial master and the subsequent military regimes is the base for the frequent disputes and quarrels between the states and federal government in some national issues. The formation of the Governor’s forum as an association of all the governors in Nigeria is to protect the states from the political and fiscal interference of the federal government. By virtue of the provision of the constitution, the concept of federalism was entrenched in that the sovereignty of the nation was divided between the federal, states and local governments. The exercise of the legislative and executive powers by the federal system, particularly, as these powers touch on the sharing of the country’s revenue between the federating units. And at several occasions, attempts were made by the federal government through the National Assembly negating the principles of true federalism. This review has attempted to highlight on related concepts, legal base for Nigeria’s fiscal federalism and its challenges. It also provides an analytical framework linking it to a suitable theory. The significant finding of the study is the fact that there is an imbalance in the federal system and structures of federating units in Nigeria. The implication of the finding is that there will continue to be a developmental lacuna and ethnic squabbles among the federating units if the imbalances are not corrected. Recommendations were also offered to ameliorate the imbalance system and establishment of the fund.

Keywords: Sovereign Wealth Funds, Fiscal Federalism, Ethnic Squabbles, Federating unit, African Continent, Financial Management and Accounting.