Governance
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development finance institutions. Khazanah is almost entirely owned by the Minister of Finance Incorporated,15 but one share of the company is owned by the Federal Lands Commission (Incorporated). Although FONSIS is currently solely owned by the state, its establishment law allows ownership of FONSIS to be divided between other government agencies.16 An arrangement also common to public capital SIFs, usually driven by political economy considerations, is to incorporate a governing council17 as a high-level governing mechanism within the ownership tier of the fund. This council represents broad government and societal ownership interests, plays an advisory role to the public capital SIF, and—depending on the jurisdiction—may or may not report directly to the parliament or other legislative body. Governing councils do not have legal ownership of the SIF but are often authorized by law to exercise specific ownership functions over the fund (see the discussion on ownership responsibilities in the next subsection). These councils are typically set up in public institutions and play a high-level advisory and supervisory role, such as providing input on the fund’s strategy and policies, weighing in on any increases or decreases in capital, reviewing investment activities and performance, and assessing the hiring and firing of executives. For example, NSIA’s current ownership structure, as mentioned earlier, is divided between the federal and subnational governments (see the case study in appendix A).18 As a result, NSIA’s governance structure includes a governing council representing these broad ownership interests (see box 4.2 for details). Such councils can enhance the political legitimacy of the SIF and its operations by ensuring broad representation from the spheres of government, business, the financial sector, policy, academia, and civil society.19 In the case of NSIA, for example, the federal government’s use of a representative governing council helped ensure state-level support when the fund was established. However, the composition of the governing council must strike an optimal balance between representation and capacity. Governing council members with expertise in investment, corporate governance, and the sectors in which the SIF is active can enhance the ability of the council to provide useful oversight of the SIF.
BOX 4.2
Governing council: The example of the Nigeria Sovereign Investment Authority According to the Nigeria Sovereign Investment Authority (Establishment, etc.) Act, 2011, the following government representatives, who are mostly proxy owners or have fiscal or monetary authority, have an automatic seat on the governing council: the President (who chairs the council), the 36 state governors, the Attorney General, the Minister of Finance, the minister in charge of the National Planning Commission, the governor of the central bank, and the chief economic adviser to the President, among others. Source: World Bank; see case studies in appendix A.
In addition, the President appoints to the council four reputable representatives of the private sector, two representatives of civil society (such as nongovernmental organizations or professional organizations focused on civil rights), two representatives of Nigerian youth, and four academics. The governing council reviews the fund’s strategies, policies, changes in capital, investment activities, and performance, as well as the hiring and firing of executives.
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