Africans should be asking these questions about their sovereign wealth funds (SWF):
1. Set clear fund objectives: Examples include saving for future generation, stabilizing the budget, earmarking natural resource revenue for development priorities.
2. Establish fiscal rules for deposits and withdrawals that align with the objectives. Botswana avoids such rules. Where funds are allowed to invest domestically, including in social spending, they should work with national budget processes. Angola’s sovereign fund can bypass normal budgetary procedures.
3. Establish investment rules, There have been notorious problems worldwide, one of Africa’s worst examples has been the Libyan Investment Authority under “brother leader” Gadhafi, when his son Saif al-Islam Gadhafi had almost sole discretion to manage approximately $65bn and billions went to close acquaintances. In October 2014 LIA went to the High Court in UK to sue Goldman Sachs for $1bn for nine 2008 transactions that were worthless by 2011, alleging Goldman exploited the fund’s limited financial experience but made $350m profit, claims which Goldman denies. Chad’s fund was repurposed for military spending. Some funds such as Botswana block domestic investment, Angola is among others which see it as core.
4. Clarify a division of responsibilities between the ultimate authority over the fund, the fund manager, the operational manager (day-to-day), and set and enforce ethical and conflict- of-interest standards.
5. Require regular and extensive disclosures of key information and audits. Fund transparency is increasing, for example the rigorous transparency requirements of the Sao Tome and Principe National Oil Account and public scrutiny of its operations. By contrast, Botswana is still “opaque” despite signing the Santiago Principles and both Equatorial Guinea, another signatory, and Libya “keep nearly all information about their activities secret”.
6. Establish strong independent oversight bodies to monitor fund behaviour and enforce the rules
(Source, Natural Resource Governance Institute, New York)