Lessons From Norway’s Oil Fund Investment Losses

NII MOI CALLS FOR LOCAL CAPACITY

…To safeguard oil wealth

By J. Ato Kobbie, Managing Editor

A leading Ghanaian Economist, Dr. Nii Moi Thompson, has called for an

accelerated skills development in anticipation of the new challenges that the

country’s emerging oil producer status presents.

Speaking to The Business Analyst in the wake of recent losses suffered by

Norway

in its oil fund investments, Dr. Thompson said it was important that training

and education for those in responsible positions and those needed, as far as

the

country’s emerging oil economy status was concerned, to be accelerated to

enable

them measure up to the tasks required of them.

In this direction, he said there was the need to encourage young men and women

in tertiary institutions, to enter the various fields where their services

would

be most needed, in order for them to attain the necessary expertise and

experience to meet challenges.

Dr. Thompson said this was necessary to overcome the challenges that come up,

such as happened to Norway, an oil economy that lost hundreds of millions of

dollars because it relied on the expertise of ‘international experts’ to

analyse

and advise on its oil wealth investment.

He said it was important that the country develops the local capacity to

determine not only where to invest the country’s oil wealth, but also monitor

the performance of such investments and advise appropriately.

He said Government and sector participants must collaborate to have such

training countrywide, for instance, in a northern sector-southern sector

approach to create an even field for all Ghanaians.

Norway, touted as one of the world’s best examples of best practice in oil

revenue management, for which reason many watchers of Ghana’s oil sector have

advocated for Ghana to learn from that country, is fighting to recover losses

to

its oil fund.

The Norwegian Central Bank, Norges Bank, has dragged Citigroup Incorporated of

the United States of America (U.S.A.) to court, accusing it of providing

“untrue

statements and non-disclosure of material information to investors,” which led

to losses of about 835 million dollars to the Norwegian sovereign wealth fund.

The sovereign fund is the fund into which Norway invests its oil wealth for

future generations and its $459 billion Government Pension Fund Global, the

world’s second-largest, after Abu Dhabi’s, is managed by the Central Bank.

Ghana’s version of the Norwegian ‘Oil Fund’ for future generations has been

christened ‘The Heritage Fund,’ in the Petroleum Revenue Management Bill, which

is before Parliament, and already, some analysts have been advocating for

investing that fund on the international bonds market.

It is not clear however, how a clearer knowledge of the depth of the impact of

the financial crisis that hit the international bond market, would influence

the

debate on where and how best to invest Ghana’s ‘oil fund’ when it takes off.

First significant commercial oil production from Ghana’s Jubilee field is

scheduled to kick-start in November-December this year.

The Norwegian suit names 20 of Citigroup’s current and former executives and

directors, including: Chairman, Richard Parsons, current chief executive Vikram

Pandit, and his predecessor, Charles ‘Chuck’ Prince.

“Norges Bank lost in excess of 735 million dollars on its investments in

Citigroup common shares and in excess of 100 million dollars on its investments

in bonds and preferred shares,” stated a September 17 lawsuit, filed in a

Manhattan federal court.

The suit continued that due to the defendants’ repeated material untrue

statements and non-disclosure of material information to investors, plaintiff

purchased Citi securities at inflated prices (between January 2007 and January

2009).

The Norwegian Central bank argues further that “When the market slowly learned

the truth of Citi’s financial condition, Citi came close to insolvency, and

plaintiff lost a substantial amount of its investment.”

“Citi’s near-demise” according to the Norwegians, “had its genesis in the

company’s increasing willingness to take on risk for the sake of profit,

without

regard for -- and without disclosing -- the magnitude of the downside exposure

it faced if those risks materialized.”

The fund lost 23% of its value in 2008 when global markets took a dip, posting

a

record 633 billion kroner ($107.6 billion) loss in 2008 thus wiping out gains

made since the fund started investing the country’s oil revenue in 1996.

The oil fund had a 26 percent return last year.

“We believe the suit has no merit and will defend ourselves vigorously,” was

the

response from Danielle Romero-Apsilos, a Citigroup spokeswoman in a statement.

‘The case (title) is Norges Bank v. Citigroup, 10-cv-07202, U.S. District Court

for the Southern District of New York (Manhattan)’.