Governments finding it difficult to spend Sovereign Wealth - Bawumia

Vice President Dr Mahamudu Bawumia on Friday alluded that most governments often find themselves in a dilemma in deciding either to spend their countries’ Sovereign Wealth Funds on the immediate needs of the citizenry or investing it in long-term infrastructure.

He observed that considering the fact that, every government had limited tenure of office to deliver on her promises, while the citizens had their daily needs, governments were often torn between either satisfying the immediate needs of the people or investing in long term infrastructural developments.

Dr Bawumia explained: ‘‘You all know that we operate within a political-economy and that patience on the one hand from the population, and on the other hand, from the politician is not normally there.

‘‘As a politician, I have a four-year horizon to look at…for the individual out there who voted for the politician, they have a daily horizon to look at, and so it’s a day-by-day matter.

‘‘Am I going to get food today or tomorrow…and so when you as a politician in charge of resources have to decide as to whether to spend the resources in investing in one area or the other, you may think it’s very good for the country down the road, the calculus on the other side would be saying we want the monies to be spent on my needs today’’.

‘‘And so you need to have a balance between those competing demands so that you can satisfy the needs today, while also providing for tomorrow, but I think that the whole political-economy and the sort of patience that we’ll need to put structures in place will be very important’’.

Vice President Bawumia made the observations at the 2018 African Sovereign Wealth Funds Summit in Accra held on the theme: ‘‘Financing Africa’s Transformation: The Role of Sovereign Wealth Funds’’

The event organised by the Afrochampions Initiative brought together African Sovereign Wealth Fund (SWFs) managers, investors, government officials and captains of industry to discuss best strategies of leveraging their sovereign wealth funds to transform their economies and accelerate development.

Sovereign Wealth Funds (SWFs) is a state-owned investment fund that invest in real and financial assets such as stocks, bonds, real estates, precious metals, or in alternative investments such as private equity fund or hedge funds.

SWFs are mostly invested globally, and often revenues from commodity exports or from foreign exchange reserves held by the Central Bank. It helps countries to best manage and invest their oil wealth and commodity exports for the future generations.

According to the 2018 African Sovereign Wealth Funds Index, there is a total of seven trillion dollars’ worth of sovereign wealth funds globally, with 12 African countries having a total of $90 billion, representing 1.4 per cent of the total global sovereign wealth funds.

The Index is a multi-year project designed around seven main indicators namely; governance and public disclosure, size of fund, domestic investment mandate and source of funding (diversification sources).

The rest of the indicators are: financial performance of the funds, economic impact and sustainability.

The 2018 SWFs Index ranked Nigeria, Rwanda and Ghana as countries on the continent with the best managed sovereign wealth funds in Africa in first, second and third order.

The Index mentioned other African countries that had established sovereign wealth funds as; Algeria, Libya, Senegal, Botswana, Gabon, Mauritania and Equatorial Guinea.

It is observed that majority of the SWFs were established by countries after they had discovered and started producing crude oil in commercial quantities except Rwanda, Morocco and Senegal that had set up SWFs although they do not produce oil or major mineral resource exports.

The Vice President, speaking on the topic: ‘‘Moving Africa beyond Aid: The Role of African Sovereign Wealth Funds’’ urged Ghanaian business community to take advantage of the platform to engage in strategic partners with their foreign counterparts for investment opportunities.

He said for African countries to move beyond aid, they should leverage on their resources and investment opportunities to create jobs for the teeming youth and accelerate economic growth.

Dr Bawumia underscored the need for African nations to commit more of their resources to addressing their socio-economic challenges by pulling more funds domestically so that they would be in better position to select favourable partners, negotiate on priority areas and terms of references as well as identifying synergies and opportunities.

Dr Bawumia said there were enough wealth and resources on the continent to aid her development efforts, noting that ‘‘dependency on the international donors and financiers also comes down to playing by their rules and committing to their terms, some of which may not be aligned to Africa’s development specific challenges’’.

The Vice President told the gathering that moving beyond aid concept was at the centre of the government’s policy and economic planning strategy, adding that in the next couple of decades, the focus of the nation would be to strategically deepen ties with her sister African countries through trade and investment and shift away from aid dependency.

He said the idea of Africa beyond aid was to move away from economic independency and mobilise funds domestically to accelerate development, noting that depending on aid was not sustainable in the long term and unacceptable, saying; ‘‘Sooner or later, fatigue would set in and narrowing fiscal space for development’’.

He said for SWFs to contribute positively towards the economic transformation of the African economies, there was the need for domestic revenue mobilisation.

Vice President Bawumia underscored the need for African countries to leverage on their infrastructure such as rail lines, roads, telecommunications and reliable aviation transport system so that they could link their markets to bolster intra-African trade.

He, therefore, lauded the African Continental Free Trade Area (ACFTA) Agreement signed by the 44 African nations in Rwanda earlier this year as the step in the right direction, adding that it would boost intra-African trade and accelerate economic growth.

He said investment in the human resource was one of the best strategies to accelerate economic development, noting that most developed nations around the world treaded through that trajectory to move them out of economic quagmire.

He, however, did not discount how physical infrastructural development could equally support the development efforts, noting that countries must find the right balance and synergies in developing their economies.

He, therefore, emphasised the need to enhance the savings and investment culture of African nations so that the SWFs could be used judiciously to develop their economies.

‘‘For you to save and grow your wealth funds, you need to be patient because it takes a while to build up the sizes you see other wealth funds grow significantly.

‘‘For the wealth fund to grow and to play a key role in transforming economies there got to be clear rules set up and patience

He said while managing the funds in a prudent manner, one would be thinking about a circumstance whereby the political authority changed and another government comes in to dissipate all the funds.

‘‘You’re also looking at a situation where you make sure as a country what you have been able to build up when the political authorities change when elections come and a new political party comes in place, you don’t want to see a situation where a new government comes in and basically dissipate all the efforts that have been made in building up a particular funds’

‘‘I remember meeting a former Governor, Charles Soludo from Nigeria some time ago after he had left office, and he could not really stop complaining about all this work he did in building up Nigeria’s foreign exchange reserves, and the new government came and spent a lot of it and he was pained by that efforts,’’ he stated.

The Vice President said sooner than later, a legislation would be passed to establish Integrated Bauxite Development Authority that would provide the framework for establishing Integrated Aluminium Bauxite industry that would leverage on about 900 million tonnes of the country’s bauxite deposits.

He said the nation would use her bauxite deposits as equity with private investors in order to harness them to accelerate economic development.

In this way, he said, the country’s aluminium refinery and smelter facilities would be optimally be utilised to the benefit of the people and the nation as a whole.