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In a recent report by the International Monetary Fund (IMF, 2015), exporters of nonrenewable commodities, account for 20 percent of world GDP and global exports. They are major destinations of foreign direct investment. The wealth derived from natural resources by these countries are expected to help finance investments for sustainable growth through provision of fundamental social services. Unfortunately, many of the countries have struggled to raise economic growth even in the face of rising commodity prices. The situation has become dire now that the price of oil has nosedived. With reversal of fortunes in the face of declining oil prices, oil-dependent economies instituted a variety of programs. According to IMF (2015), these efforts to jump-start economic growth have yielded no fruits. In many of the countries, fiscal policies have been procyclical with weak institutional framework.
Many oil-endowed countries, including Nigeria, have been unable to use their resources to project a long-term economic growth path, a condition often referred to as a resource curse. According to Mohaddes and Raissi (2017), the reasons for this situation include the pursuance of pro-cyclical fiscal policies, existence of fragile political systems and underdeveloped public financial management framework. While studying the Nigerian situation, Isabota and Odukoya (2013) argue that the volatility in the crude oil market results in an unsustainable growth given the susceptibility of the economy to external shocks due to low commodity prices. Omopariola (2002), reports that the discovery of oil in Nigeria was accompanied by a phenomenal increase in government expenditures, which resulted in an enlarged public sector. These oil revenue-induced public expenditures shifted the economic base away from agriculture into transportation, construction and other service sectors. Ayadi et al. (2018), report results which indicate that the Nigerian sovereign wealth fund has had no impact on moderating government spending. However, the creation of sovereign wealth fund has had some impact on fiscal balance during its short period of existence. They conclude that the impact of sovereign wealth fund on fiscal balance is not widely supported by all their test results. This conclusion is consistent with Ossowski et al. (2008) and Etemad (2014). According to Ossowski et al. (2008), funds are ineffective because they do not possess requisite characteristics such as quality of funds and an appropriate institutional framework.
Dixon and Monk (2011), report that the discovery of natural resources in many African countries has not brought good news to the respective economies. The economic growth experience endured in these countries has been lackluster. Van der Ploeg (2008), reports that the extractive industries in Sub-Saharan Africa had crowed-out investment resulting in poor job creation opportunities. Many of the countries have had to go through civil wars and strife associated with control of resource endowments. According to the IMF (2010), if Sub-Saharan African countries could improve the quality of their governance institutions, the reward would almost double in size of GDP per capita relative to developing countries in Asia.