State eyes mega fund to manage country’s wealth

By Macharia Kamau

NAIROBI, KENYA: Kenya plans to set up a mega fund that will manage and re-invest revenues that the government gets mostly from natural resources as the country readies itself to start exploitation of oil and other minerals.

The proposed National Sovereign Wealth Fund, which will get a Sh10 billion seed capital from the National Treasury, will be used to support macroeconomic stability and public investment, notably development of infrastructure. The special fund seeks to help the country avoid ‘the resource curse’ that has afflicted many resource rich countries.

The Fund will also have a key mandate to set aside wealth acquired for Kenya’s future generations that will not immediately enjoy returns from oil and minerals that the country has discovered in substantial quantities.

A council chaired by none other than the president and made of cabinet secretaries from Treasury, mining, petroleum and planning ministries will have an oversight and advisory role to the Fund. The Attorney General, Chair of Revenue Allocation Committee and the Chair of the Sovereign Wealth Fund will also have seats on the council.

The Bill proposing to set up the Fund is contained in a report by the Presidential Taskforce on Parastatal Reforms and outlines a raft of reforms for State-run agencies, including disbanding of some, while merging others.

The Fund will have an initial capital of Sh10 billion from the Treasury, while subsequent funds will come from revenues from oil, gas and minerals, sale of national assets and dividends from State corporations.

The taskforce drafted a Bill, which states that the Fund would “undertake diversified portfolio of medium and long-term, local and foreign investment to build a savings base for purposes of national development, stabilising the economy at times of crisis… securing an income from the resources of today for future generations.”

‘Resource curse’

The Fund is fashioned similar to the ICDC (Industrial and Commercial Development Corporation) but more focused on revenues from oil and investments in infrastructure. ICDC will, however, be a major source of finances for the Fund, as dividends earned from its investments or proceeds from divesture from companies where ICDC has investments will be reassigned to the Sovereign Wealth Fund.

The Bill has provided for three distinct divisions within the funds — the Stabilisation Fund, Infrastructure Development Fund and the Future Generations Fund.

The Stabilisation Fund will handle revenues from oil and minerals, while the Infrastructure Development Fund will get a fraction of the dividends paid to government by State corporations. The exact amount that the infrastructure fund gets will be determined by Parliament.

“The purpose of the Stabilisation Fund shall be to manage the impact of fluctuation of mineral and petroleum revenues on the economic and the national budget,” the Bill reads in part.

“The purpose of the Infrastructure Development Fund is to provide definite and ongoing funding for infrastructure for economic and social development.”

The Bill also makes efforts to establish controls of the Future Generations Fund, limiting withdrawals from the Fund.

“The Future Generations Fund will provide future generations with a solid savings base from revenue accruing from minerals, petroleum reserves and exploitation of other exhaustible natural resources,” indicated the Bill. “The Cabinet Secretary shall ensure withdrawals from the Fund are restricted for purposes of giving full benefits to future generations… the Board shall re-invest all realised proceeds and dividends, and interest on portfolio investments into new or existing assets of the Future Generations funds.”

In creating a Wealth Fund, Kenya is following in the footsteps of other resource rich countries that have similar funds, some of which have grown to having assets valued at hundreds of billions of dollars.

Huge investments

Among these include Norway, whose Sovereign Wealth Fund is said to be among the best run and the largest globally and has assets that are in excess of $700 billion and expected to grow in excess of $1 trillion in 2019. It was formed in 1990 to handle revenues from the oil industry and has investments spanning the world, holding on average one per cent of the world’s shares and more than two per cent of all listed companies in Europe.

Other countries with similar successful Funds include the Middle Eastern oil producers, Russia, China and Singapore.

Sovereign Wealth Funds are gaining traction in Africa lately. Countries like Nigeria and Angola have launched such Funds in the recent months — Nigerian Sovereign Wealth Investment Authority, which was started with an initial capital of $1 billion and the Fundo Soberano de Angola (FSDEA) having $5 billion.

Botswana has the largest Sovereign Wealth Fund in sub-Saharan Africa with its Pula Fund having assets worth $7 billion. 

Among the largest Wealth Funds are Algeria’s Revenue Regulation Fund with $77.2 billion capital and the Libyan Investment Authority with assets valued at over $65 billion.

Kenya faces the challenge of governance in managing what the proposed fund. However, having an advisory council chaired by the President is expected to enhance governance and save it from the mega corruption and boardroom intrigues experienced among government corporations.