Will Norway's model of sovereign wealth fund work in Tanzania?

Author:Roe, Alan

A reality check

Several countries in Africa--including Ghana, Kenya, Mozambique, Tanzania, and Uganda--have recently discovered large oil and gas or other mineral resources, Other African countries such as Angola, Botswana, and Nigeria have been exploiting very large extractive wealth for many years. Natural resource wealth has often turned out to be a curse' rather than a blessing' for developing countries. The UNU-WIDER project Managing natural resource wealth' aims to find ways in which resource wealth could be managed more successfully in developing countries.

The newer extractive countries are rightly being encouraged to think carefully about how best to utilize the large additional government revenues from extractives (profit-share and taxes) that they now expect. They are being advised in particular to address the inter-generational issues, The establishment of some form of Sovereign Wealth Fund (SWF) is being mooted in almost all cases, and the example of the SWF of Norway is invariably referred to as an illustration of the benefits that such an institution might deliver. But what might this mean in practice and how viable might be any suggestion for, say Tanzania to build its proposed new Natural Resource Governance Fund on the Norwegian model?

Norway--scale, credibility, and legitimacy

In 25 years, the Norwegian SWF has accumulated assets that amount to almost $900 billion. That is equivalent to $178,000 for every one of Norway's 5 million population (adults and children) or more than $700,000 for a typical family of four. In the years since the fund was established, Norway has typically enjoyed large fiscal surpluses--often around 10% of GDP with oil and gas revenues contributing a significant part of this. Per capita income in Norway is circa $100,000. So it the government is able to invest even 40 per cent of these surpluses into the SWF then this is equivalent to adding another $4,000 a year to each Norwegian's implicit stake even before factoring in a real (inflation-adjusted) rate of return of more than four per cent per annum. Further, because the fund is so large, it can easily cover large absolute amounts of administrative costs, which still amount to much less than one halt of one per cent of the fund's total assets. Above all, the Norwegian fund enjoys a high level of credibility and legitimacy (in the eyes of the public, the government and the investor community) and has been able to retain this even in those years...

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