Like, every reflective Nigerian, I have always asked myself, “Why are things so bad?” “If we have oil, why is Nigeria so poor?” I did some digging and I realised that the primary reason why we’re in this situation is because Nigeria depends on the same oil, a commodity with guaranteed boom and bust cycles. The price of oil is guaranteed to be high for certain period and it’s also guaranteed to be low for certain periods. So, what do you do when you’re in a situation where you have excess for a time period but everyone knows that the rainy day is approaching? You save for the rainy day through a Sovereign Wealth Fund.
A Sovereign Wealth Fund is basically an investment vehicle that governments of resource dependent countries use to save surplus during commodity booms and then they use it as a cushion during the commodity crash. Norway’s Sovereign Wealth Fund is the largest in the world, with about $2.2 trillion in assets under management. There are others, like Saudi Arabia’s with $900 billion under management. Curiously enough, Norway’s Sovereign Wealth Fund started operating in the 90s, and when it was established in 1990, Norway was producing 1.6 million barrels per day while Nigeria was producing 1.8 million barrels per day.
However, Nigeria failed to institute a Sovereign Wealth Fund. We spent lavishly during the good times and had nothing saved up for the bad times and we’re suffering the consequences. When people talk about the good old days of Nigeria, when the naira was stronger than the dollar, when we loaned money to the World Bank and the IMF etc, they’re talking about the 1970s. The price of oil surged so much and Nigeria was flush with cash that we didn’t know what to do with it. Yakubu Gowon famously said during that period that the problem wasn’t money, but how to spend it. So, the money was basically wasted on frivolities. Then when the price of oil crashed in the 1980s, Nigeria had nothing to fall back on and that was the beginning of our woes.
The Excess Crude Account
In the return to Civilian Rule in 1999, Obasanjo, who was one of the military rulers during the 70s when we wasted our golden opportunity, decided to do something about it. The price of oil boomed again and this time, Obasanjo used the Excess Crude Account to save any extra above a budgetary benchmark. I went into more details on the politics and economic side of this on my substack. We’re here for legal analysis.
Legally, the Excess Crude Account predated Obasanjo. It was an extra budgetary account used by the military administration to make up for budgetary shortfalls. It was the source of the gulf war windfall of the Babangida years that was exposed by Pius Okigbo’s probe. The Abacha and Abdulsalami govt maintained it and Obasanjo inherited it. By the time Obasanjo left, we had $18 billion left in the Excess Crude Account.
However, it didn’t have much legal backing in the framework of the 1999 Constitution. The Excess Crude Account was plagued by constitutional challenges from the governors post-Obasanjo. Ultimately, the Goodluck Jonathan government responded by enacting the Nigerian Sovereign Investment Authority Act (NSIA Act), which established a Sovereign Wealth Fund for Nigeria. It is this Sovereign Wealth Fund that is the subject of this article.
Management of the Sovereign Wealth Fund
According to Section 1 of the NSIA Act, the Nigerian Sovereign Investment Authority is established as a body corporate with perpetual succession, empowered to sue and be sued in its own name. The Sovereign Wealth Fund it manages is governed by the Governing Council, established under Section 7, which is chaired by the President (or the Vice-President as his representative) and includes all 36 state governors, the Attorney-General of the Federation, the Minister of Finance, the CBN Governor, and other statutory and civil-society members. Day-to-day policy-setting and supervision fall to the Board of Directors, established under Section 15, while execution of Board policy and daily administration are the responsibility of the Managing Director/Chief Executive Officer under Section 21.
The current person occupying the role of Managing Director/CEO is Aminu Umar-Sadiq, who presented NSIA’s FY2025 audited results in April 2026. The Board of Directors is chaired by Olusegun Ogunsanya.
The Types of Funds under the Nigerian Sovereign Investment Authority
The NSIA Act in Section 4 establishes the following funds:
- The Future Generations Fund
- The Nigeria Infrastructure Fund
- The Stabilisation Fund
The Future Generations Fund, according to Section 39, is to be saved up till a time period when Nigeria no longer has access to oil revenues. This is looking at a future where oil becomes obsolete. Hopefully by then this fund would have saved up enough for the future generation.
According to S. 41, the Nigerian Infrastructure Fund is to be used to invest in the development of critical infrastructure in Nigeria in order to stimulate the growth and diversification of the Nigerian economy, attract foreign investment, and create jobs for Nigerians.
The Stabilisation Fund, according to S. 47, exists to supplement other funds available to the Federation for stabilisation purposes in times of economic stress, and the Minister of Finance may draw on it once the specified revenue shortfall trigger stated in S. 48 is met.
The Funding of Nigeria’s Sovereign Wealth Fund
Now this is the major bone of contention in the NSIA Act. According to Section 30 of the NSIA Act, funding for the NSIA is from an amount above the budgetary benchmark. The Act provides:
(1) Subsequent funding shall be derived from residual funds from the Federation Account transferred to the Authority in the manner specified in this Act, provided that the derivation portion of the revenue allocation formula shall not be included as part of this funding.
(2) Promptly upon revenues being received into the Federation Account each month, the Authority shall be funded from all amounts of residual funds above the Budgetary Smoothing Amount.
However, this part of the law has been the bone of contention. Governors have consistently challenged the constitutionality of this section, or any action that takes funds from the Federation Account to fund any external account like the Excess Crude Account. They claim that this provision is unconstitutional by the provisions of Section 162 of the Constitution.
Section 162(1) requires the Federation to maintain a single Federation Account into which all federally collected revenue must be paid. In addition, Section 162(3) requires that any amount standing to its credit be distributed among the three tiers of government on terms prescribed by the National Assembly. The governors’ argument was that setting revenue, above the budget benchmark, before it ever touched the Federation Account, amounted to a first-line charge that Section 162 does not permit.
They took the federal government to court on this issue multiple times, but sadly, the courts couldn’t make a legal ruling on the issue as the cases were withdrawn to be settled out of court.
Regardless, we have an idea of how the Supreme Court would rule, because it adjudicated a similar matter in the case of Attorney-General of the Federation v Attorney-General of Abia State (No. 2) (2002) 6 NWLR (Pt. 764) 542, where it held that deductions from the Federation Account to fund Joint Venture Contracts and NNPC priority projects were unconstitutional, being inconsistent with Section 162(3). By parity of reasoning, funding the SWF by deducting an amount from the Federation Account before distribution sits on the same constitutionally shaky ground.
Royalty by Price: A More Resilient Source of Funding
Fortunately, the Sovereign Wealth Fund has gotten funding from another means: the Royalty by Price Provision of the Petroleum Industry Act. The Petroleum Industry Act provides, in Section 11 of its Seventh Schedule:
11.—(1) There shall be payable, in addition to the royalty set out in paragraph 10 for onshore, shallow water and deep offshore, a royalty by price with respect to crude oil and condensates at the rates set out below—
(a) below US $50 per barrel — 0%,
(b) at US $100 per barrel — 5%,
(c) above US $150 per barrel — 10%, and
(d) between US $50 and US $100 per barrel and between US $100 and US $150 per barrel the royalty by price shall be determined based on linear interpolation,
as an example, if in 2020 the price is US $75 per barrel, the royalty by price shall be 2.5%, and the price levels mentioned in sub-subparagraphs (a), (b), (c) and (d) shall apply to the year 2020, and at the beginning of 2021 and of each succeeding calendar year these price levels shall be increased by 2% relative to the values of the previous year.
(2) There shall be no royalty by price for frontier acreages.
(3) Royalty derived from “royalty by price” shall be for the credit of Nigerian Sovereign Investment Authority.
This is quite complicated at first glance, especially the mathematics section. And we’re lawyers, for most of us, maths isn’t our strongest suite. But I’ll explain what it means.
This basically means that when the price of crude is above $50, an extra royalty would be paid by oil companies. The clue to figuring the rate of the royalty is the provision that the royalty at $100 is 5% while at $150 it is 10%. The rate of increment from $50 to $100 is 5% and then from $100 to $150, it is another 5%. So, we’ll use that rate of increase to determine what the percentage would be at any point between $50 to $150. That’s why in the statute’s example of $75, the half way point between $50 and $100, the percentage is 2.5%.
There is also the provision which states that the threshold increases year over year. Meaning that every year, instead of $50 as the fixed threshold, it increases by 2% relative to the previous year’s value. The rationale for this isn’t far-fetched. It’s most likely a way to protect against inflation as the United States Dollar currently inflates at around 2% per year.
If we look at a lot of statutes in the past, we’d see instances where fines were fixed at ridiculously low sums, like 100 naira or so. At the time those statutes were enacted, 100 naira would have been worth a substantial amount, but due to inflation, it’s now a ridiculously cheap sum. By increasing the benchmark year on year, the provision keeps pace with dollar inflation.
Imagine 50 years down the line, when $50 is worth much less than $10 is worth today: having that as a fixed benchmark would be absurd, since it would mean oil companies pay the extra royalty at a much lower effective threshold — the equivalent of $10 in today’s money — which is fairly insignificant and would barely touch their profitability.
This royalty by price has fared much better than a budgetary benchmark provision. It has been the major funding source of the Sovereign Wealth Fund without raising ructions from the governors and other constitutional parties. This is likely because, unlike the ECA/Section 30 mechanism, it is levied on oil companies as a royalty rather than deducted from the Federation Account before distribution, sidestepping the Section 162 problem entirely.
Where are we Today?
Currently, as at the time of writing, the reported total assets of the Nigerian Sovereign Investment Authority stood at approximately ₦4.91 trillion, with a net asset value of about US$3.4 billion per the FY2025 audited results the Authority presented in April 2026. This year has seen the price of oil rise sharply, at points to well over $100 a barrel, following the outbreak of the US–Israel–Iran war in late February 2026. This then means that we’re expected to get substantially more funding for the Sovereign Wealth Fund via the royalty-by-price mechanism, although, as at the time of writing, the inflows for 2026 have not yet been reported by the NSIA. We’ll have till next year to see how much inflows we’ve gotten for that.
However, I do think that we would have gotten a much better windfall for the Sovereign Wealth Fund if the budgetary benchmark provision were applied instead. For 2026, Nigeria’s budgetary benchmark was initially set at $64.85 per barrel in President Tinubu’s December 2025 budget speech, and was later revised upward to $75 per barrel when the National Assembly passed the final ₦68 trillion Appropriation Act. With the price of oil ballooning well past $100 for stretches of the year, all that excess above even the revised $75 benchmark would, in a functioning Section 30 regime, have been swept into savings for a rainy day.
But that isn’t happening, because of the various unresolved constitutional challenges to an above-budgetary-benchmark funding mechanism for the Sovereign Wealth Fund. There is also going to be a lack of political will to go that route, because the Nigerian state is in need of any extra cash it can lay its hands on, considering our dire fiscal predicament.
On the balance, things are okay considering that the Sovereign Wealth Fund is being funded by the Royalty by Price Mechanism. But they can be better. So, I’m also going to be joining the chorus to make calls for the amendment of the constitution to give legal backing to the budgetary benchmark funding of our Sovereign Wealth Fund.
Our descendants would thank us for it.