New SWFs for 2010

Ashby Monk

Given the rapid growth in the number of SWFs we saw in 2009, it isn’t all that surprising to see the trend continue into 2010. Today, it was announced that both Ghana and Iran are considering setting up new SWFs.

For its part, Ghana wants a SWF to sequester a portion of their new oil revenues, which are set to start when their Jubilee energy field commences operations later this year. According to Ghana’s Finance Minister Kwabena Duffuor:

“We have held a couple of meetings already … it’s something we’re seriously working towards and we hope to put the proposals before cabinet in about a month.”

So Ghana joins Nigeria, Angola and Tunisia as African countries that are currently considering SWFs as a way to manage oil rents. However, according to a Reuters article by Natsuko Waki, these countries face a different set of constraints than SWF sponsors outside of Africa:

“…the challenges posed by such plans are significant: on the one hand is the need for a vehicle to invest windfall surpluses for future generations and ring-fence today’s wealth from greedy leaders…[also] investing offshore — as do the sovereign funds of major developed and emerging economies — would be political dynamite in Africa. In many African countries, badly in need of infrastructure and poverty reduction, the funds would be more likely to be deployed at home.”

These are some serious governance challenges. But for the new SWFs to be successful, they’ll absolutely need to overcome them. Indeed, we have seen situations where SWFs have, in effect, failed due to governance deficiencies brought on through corruption or greed.

This appears to be the case in Iran, where the government is now considering creating a new SWF to replace the one the country set up in 2000. The current SWF, known as the Oil Stabilisation Fund, is a contingency fund that has been so secretive that little is known about it. The OSF was given the lowest transparency rating by the SWF Institute and was deemed 0% GAPP compliant in recent academic research. Reports suggest that the fund topped $20 billion in 2008, but critics suggest that the government has squandered much of these windfall oil revenues.

Today, the government wants to close the current contingent fund so as to set up a new fund focused on development. While laudable, it appears that the new SWF would still be directly accountable to the ruling elite.

“Its board of trustees would include the president, the vice president in charge of planning, the oil minister, the economy minister, the central bank governor and two other ministers picked by the president.”

A new SWF for politicians’ pet projects? It’s hard to see how the outcome for the new SWF will be any different from the old SWF.

3 Responses to “New SWFs for 2010”

  1. 1 rachel February 2, 2010 at 4:49 pm

    Ashby, actually the best data I ever saw on the Iranian OSF came from the 2008 Article IV report on Iran. It detailed the amount of loans that the OSF lent out and the limited remaining FX in the fund. even in 2007/8, high water marks in the time of Oil savings, the Iranians didn’t seem to have too much saved.

    Of course to have an SWF basically implies actually having government savings, and even with oil at 80, my best guess is that Iran will still run a fiscal deficit this year. Nice SWF watch though.

  1. 1 Iran Unveils New SWF « Oxford SWF Project Trackback on February 9, 2010 at 4:12 pm
  2. 2 Ghana Petroleum Funds Take Shape « Oxford SWF Project Trackback on March 24, 2010 at 10:19 am

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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