Sovereign Wealth Funds around the Globe & in Africa
These funds can be the source of economic growth or rampant theft
**Note all data presented is from May 27th 2023. The assets under management of the nation’s sovereign wealth fund may be higher or lower than the numbers reported below by the time you read this article.
Sovereign wealth funds (SWF) are government owned investment firms that takes their excess funds & savings from their trade surpluses, government transfers, or profits from their state-owned commodity firms and invest them in stocks, bonds, private businesses around the world to chase excess returns for their nation’s economy, its citizens, and future generations. There are at least 50 nations with SWFs.
There are two types of SWFs: commodity SWFs like the oil based one of Abu Dhabi or a non-commodity one, where money comes from foreign currency reserves from current account surpluses Singapore’s GIC.
At its worst, SWF can be a black box of corruption, like in Venezuela:
“I’m shocked that we don’t know exactly what has happened to $105 billion (Venezuela’s sovereign wealth fund),” “That is not Chavez’s money. That money belongs to 29 million Venezuelans and as such the information should be available to everyone.” — Carlos Ramos, a Venezuelan Legislator
At its best, SWF can be engines of economic growth like in Saudi Arabia:
“Public Investment Fund(Saudi Arabia’s Sovereign Wealth Fund) is the main economic engine of Saudi Arabia & Vision 2030. We have 13 different sectors in focus. We have already established 71 companies and created half a million jobs. Public Investment Fund is an enabler to achieve the main KPIs of Vision 2030 ” — Mr. Al-Rumayyan, managing director at Saudi Arabia’s Public Investment Fund
Sovereign wealth funds can be funds that are invested to defend the nation’s currency in case natural resource prices decline (Stabilization Funds). SWFs can also be funds for citizens retirement (Future & Pension Funds). Lastly, the fund can also be a source of cash for strategic developments.
What isn’t a sovereign wealth Fund
There is no universal definition of a sovereign wealth fund. There is a blurry line between sovereign wealth funds, reserve funds, stabilization funds, invested central bank reserves, and government owned investment firms. Some pension funds are labeled as SWFs and some aren’t. Generally people think of a SWF as an investment fund partially or wholly owned by a government that invests in foreign assets.
For this reason and others, US’s social security fund is not labeled as a sovereign wealth fund. Other reasons include U.S.’s trust funds’ funding source, investment strategy, and purpose. America’s Social security fund’s funding source comes from taxing employed Americans, and takes those taxes to solely invest in U.S. treasury bonds. There are zero foreign assets in America’s Social Security Fund. SWFs like Saudi Arabia’s Public Investment Fund or Norway’s the Norwegian Oil Fund are SWFs because they get funds from the profits from their state-owned, oil firm (Saudi Aramco or Norway’s Equinor) to invest in real estate, bonds, stocks, private equity around the world. In addition, America’s social security fund is used only for retirement, while Norway and Saudi Arabia’s SWF is used to preserve wealth when natural resources run out, use funds for economic development(roads, bridges, expanding healthcare), or defend the currency in case commodity prices decline.
Why do SWF’s matter?
Sovereign wealth funds are especially important for countries that depend on selling commodities (like oil or gas) to make money. For example, UAE places a lot of its revenue from oil in its SWFs; as a result, when oil crashed in prices in the 80s and 90s, UAE was able to weather the storm. Nigeria, however, got absolutely hammered in the 80s and 90s, and was demoted from lower-middle income to low income country for a while until the 2010s when per capita income rose again. In 2011, Nigeria learned its lesson in finally made its own sovereign wealth fund..
Arguably the first SWF was France’s “Deposits and Consignments Fund” made in 1816. Or you could say Hong Kong’s Monetary Authority in 1935. But investopedia would say the SWF was made by Kuwait, which made the Kuwait Investment Authority in 1953. Then Kiribati made one in 1955, Abu Dhabi of UAE made one in 1976, Singapore in 1981, and Norway’s oil fund in 1990. These are the some of top SWFs:
The issue with the SWFInstitute is that they most nations are extremely secretive about how much money is in their fund. Some of these numbers are suspect. Think of these numbers are estimates! Some people prefer to just look at a country’s central bank reserves that the nations report to the World Bank as a guess of how many assets is truly used/are able to be used for a nation’s Sovereign Wealth Fund. Now here is a list that shows how much wealth would be available to each person if those funds were disbursed to the citizens today from the Sovereign Wealth Fund Institute.
You are probably thinking. Do African countries have sovereign wealth funds?
They in fact do!
In Africa, Botswana made a diamond fund called the Pula fund in 1994. Algeria made the oil & gas Revenue Regulation fund in 2000. By 2011-2012, more nations created their sovereign wealth funds. As of 2023, 22 African nations have a SWF. As a result of being a young fund, many of these nations’ assets per capita is low compared to the Gulf States, Singapore, Hong Kong, Brunei, Norway and South Korea.
it’s very good that African countries have a sovereign wealth fund. In the 80s and 90s when commodity prices plummeted, most African nations went nearly bankrupt, living standards plummeted and needed IMF loans to support their population. With a sovereign wealth fund, these 22 African countries will be able to stave off crises during the next commodity crash. The question is can these countries use their money wisely to expand the fund in the future? Will these countries be able to use their money to invest in future mega projects like Saudi Arabia? We will have to wait and see.
Sources:
Links are underlined!