As Kenya embarks on creating a sovereign wealth fund, what lessons can we learn from Norway, the country with the world's largest sovereign wealth fund? Norway, a country of only 5.6 million people, has a sovereign wealth fund worth 2 trillion US dollars , larger than that of the United States with a population of 336 million.
Norway's sovereign wealth fund, officially known as Government Pension Fund Global, was established after Norway discovered vast oil and gas reserves in the North Sea. Then as now, the aim is to ensure long-term management of Norway's gas and oil resources so that the wealth benefits both current and future generations.
What prompted Norway to establish a sovereign wealth fund? By the early 1990s, Norway was earning huge amounts of dollars from its oil and gas fields in the North Sea. A decision was made not to spend the windfall but to invest the earnings outside the Norwegian economy in order to cushion the economy from fluctuations in global oil prices.
The first tranche of 300 million US dollars was deposited in the fund in 1996. By 2025, the fund had grown to more than US Dollars 1.5 trillion.
Kenyans may find it interesting to know that a 2001 law restricts government withdrawals to only 3 per cent of the fund's annual growth.
On the face of it, 3.0 per cent looks meager but it funds 20 per cent of the Norwegian government's annual budget!
Is such a restriction envisaged in Kenya's newly minted sovereign wealth fund? Would such a restriction even be entertained considering the current administration's appetite for using uncollected future revenues as collateral for current borrowings?
Over the years, the Norwegian Sovereign Wealth Fund's wealth has been derived from investments in equities, fixed income securities, real estate and renewable energy projects.
Currently, equities account for 71.3 per cent, fixed income securities 26.5 per cent, real estate 1.7 per cent and renewable energy projects 0.4 per cent.
How will the wealth of Kenya's newly minted Sovereign Wealth Fund be invested to achieve incremental growth?
More importantly, where will the resources to be deposited into Kenya's newly minted Kenya's Sovereign Wealth Fund come from? Are the envisaged sources already producing revenue flows?
Norway struck large North Sea oil and gas reserves in December 1969. Most of the 1970s was spent on creating the legal framework to regulate and manage oil and gas production from Norway's offshore fields. The Norwegian Sovereign Wealth Fund did not come into being until 1996. Was Norway lethargic or did it deliberately take time to ensure that the country's oil and gas resources were managed prudently and sustainably?
Since its inception, the Norwegian sovereign wealth fund has invested in 2,700 quoted companies spread across the entire world, making the fund the largest equity investor globally.
Interestingly, even our very own Equity Bank is a beneficiary of the Norwegian Sovereign Wealth Fund's equity investments.
Since 1998, the Norwegian sovereign wealth fund has generated an annual rate of return averaging 6.6 per cent. In the last 15 years, the fund has achieved an average rate of return of 8.5 per cent and a return of 15.11 per cent for the past 12 months.
What rate of return does the Kenya Sovereign Wealth Fund intend to achieve?
The Norwegian Sovereign Wealth Fund is managed by Norges Bank Investment Management, a department of the country's central bank.
We should now consider making a few comparisons. If a Kenyan CEO was in charge of managing a fund worth 2 trillion US dollars, what would his lifestyle look like? Would he consider travelling by road to and from work? Or would such a CEO consider road travel to be beneath his or her status?
Would the CEO of a Kenyan sovereign wealth fund commute to and from work by helicopter accompanied by a phalanx of heavily armed bodyguards?
Consider this: The CEO of the Norwegian Sovereign Wealth Fund, a very wealthy man by any standards, does not travel with heavily armed bodyguards. He does not commute to and from work by helicopter. Nicolai Tangen is his name.
When the Oslo weather permits, Mr Nicolai Tangen, the man who manages a sovereign wealth fund worth 2 trillion US dollars, commutes to work on an electric motorbike.
Can you imagine the governor of the Central Bank of Kenya or the CEO of any Kenyan parastatal commuting to work on a motorbike?
Mr Kamau is a former Business Editor of The Standard
