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Making the case for adoption of endowment funds
Nigeria’s GDP is growing below its population growth rate of 2.6%. The country is expected to become the third-most populous country in the world by 2050. This has serious implications for economic and human development in the absence of adequate funding. According to an Oxfam report in 2017, Nigeria was ranked 41st out of 41 countries in Africa for spending on healthcare, education and social security compared to South Africa that was ranked 2nd with a score of 0.512.
Nigeria has the highest number of out-of-school children in the world. According to UNICEF, 10.5 million children are believed to be out of school, a figure that represents approximately 20% of the total statistics. The national budgetary allocation of the education sector in 2017 of 7.3% was way below the UNESCO benchmark, of 15% to 20%. In 2017, the education budget should be in the region of N1.1tn.
Seeking alternative sourced of funding to boost social infrastructure
While Nigeria’s allocation to tertiary education has declined over the years, other countries have actively taken steps to increase their spending commitments in these sectors. Relying solely on the government to fund tertiary education is no longer adequate because of the growing government budget deficit and a need to focus on hard infrastructure such as transport network and power. See below the graph showing decline in federal university education budget per student capita in Nigeria.
The world over, the cost of providing tertiary education is expensive, however multiple avenues of funding are available, exclusive of government allocation and out-of-pocket payments. Nigeria needs to find sustainable strategies is through the adoption endowment funds, which have successfully established in the West and will take little or nothing to implement in Nigeria.
For instance, Harvard University’s endowment fund is estimated at $US 35.7billion, and managed by Harvard Management Company, a subsidiary of the University, which serves as the school’s investment manager. Harvard’s endowment fund is larger than the GDP of half the world’s economies. Contributions into the fund has enabled the school to provide industry-leading financial aid programs, ground-breaking scientific research and professorships in different fields.
From the table above, Nigeria’s revenue per student of US $566 when compared with selected universities in the US, UK, and Canada falls far short of these higher institutions with diversified income streams from various sources.
Endowment funds are essentially gotten from charitable donations, private investments, among other sources – this becomes the principal, which is then invested with a fund manager to earn income. The income earned is then used for very specific purposes that are articulated in a charter. In most advanced countries that publically finance education through fiscal spending, endowment funds are increasingly being adopted as an alternative and viable means for funding university education.
Most higher education institutions in Nigeria have significantly profound alumni members who make donations to their alma mater via registered or non-registered alumni associations. These donations can be structured into an endowment fund for better and sustainable outcomes. In return for their donations, the alumni members earn income in the form of return on investment on an annual basis or as predetermined in the endowment charter.
Furthermore, funds under management in an endowment fund can be loaned to government for infrastructure projects in local currency. This is because we expect most endowment funds to have low risk appetites, particularly in the short term. Therefore, many will opt for government bonds and treasury bills and become a significant holder of Nigeria’s debt like the Pension Funds.
The endowment funds are not the only solution to funding social inclusion and closing the infrastructure deficit, but it is one way that fosters fiscal and monetary discipline. There is an urgent need for Nigeria to create a system outside the government to improve the outcomes in the areas of health and education. The famed Rhodes scholarship program asks its scholars to “Give back what they took”, using this analogy, Nigerians that can, should be able to give something back to their schools and communities even if all they took was just a piece of paper.
Copied from Business Day Newspaper .