Norway has one,
Chile has one, Qatar has one. Sovereign wealth funds (SWF)seem to be the new
must-have accessory for African governments—especially those with freshly
discovered oil and gas reserves. In the past three years Angola, Ghana and
Nigeria have all set up funds. A string of other countries including Kenya,
Liberia, Mozambique and Tanzania are planning to follow suit. Generally, the
goal is to put aside and invest surplus revenues, a bit like a pension fund, so
they can be used when finite resources such as oil and gas run out. SWFs also
act as fiscal stabilisation mechanisms, giving governments access to liquid
assets they can draw on in times of need—crucial for resource-dependent
countries vulnerable to commodity price shocks. They can also channel
investment into specific projects like infrastructure development. A
well-managed SWF boosts credit ratings and lowers borrowing costs. It also
raises a country’s profile: where there is money to invest, bankers and
financial publications will queue up to know more.
But can countries like Angola and Nigeria, with high child
mortality rates, low life expectancy and entrenched poverty, justify holding
oil revenues out of their state budgets to put them into separate funds for a
rainy day?
“Our government tells us this fund is about saving for a
future generation,” said Elias Isaac, director of the Angola office of Open
Society Initiative for Southern Africa. “But how can you even think about that
when such a large portion of the current generation is living in poverty
without access to basic services?”
What are the guarantees that SWFs will be insulated from the
endemic corruption found in resource-rich African countries? Without full
transparency and oversight, he warns, funds set up to benefit a country can
turn into vehicles for patronage, corruption and squandered wealth. The Libyan
Investment Authority (LIA), set up in 2006 by the country’s former dictator,
Muammar Gaddafi, and run by his inner circle including his sons, is often cited
as an example of how a mismanaged SWF can do more harm than good. Full details
of what went on at the fund have never been disclosed. (Accounting firm
Deloitte valued the LIA assets at $66 billion, according to an April 2014
Bloomberg news article.) However, accounts published since Mr Gaddafi’s death
have reported a costly mix of corruption and incompetence by fund officials as
well as external managers hired to invest its assets.
Angola’s fund was launched in 2012 and claiming assets of $5
billion, it is sub-Saharan Africa’s second largest after Botswana’s Pula Fund. From
day one, the inclusion on the board of José Filomeno de Sousa dos Santos, the
eldest son of Angola’s president of 35 years, has overshadowed the Fundo
Soberano de Angola (FSDEA). Angolan opposition parties are not only displeased
with the involvement of Mr dos Santos, who is now chairman, and his close
business associates, but also with the lack of public consultation that
preceded the FSDEA’s formation. “Members of Parliament were not given an
opportunity to discuss the political scope of the fund or view its legal
framework,” lamented Alcides Sakala, a spokesman for Angola’s largest
opposition party, the National Union for the Total Independence of Angola. “The
result is a lack of transparency in the management of public affairs,” he
added. “While there is no separation of powers these abuses of power will
continue, encouraging corruption, embezzlement of public funds, and money
laundering.”
The most pressing issue for all African funds is the
plummeting price of oil. After years of surplus, Angola is staring at a deficit
of as much as 14% of GDP for 2015 due to the collapse in the price of crude,
the country’s main source of revenue. In January the government in Luanda
announced a public hiring freeze and other austerity measures. It has ignored
calls from the IMF to include a stabilisation tool within the FSDEA. So, while
Angola has a hotel school that promises to create jobs in the long-term, for
now it must borrow on the global markets at elevated prices to control its
deficit.
Does it make sense to borrow money at a higher cost than the
return on investment? Or is it wiser to put cash aside for future generations
while slashing public spending for those in the present?
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