SOURCES, GOVERNANCE STRUCTURE AND DEVELOPMENT CONTRIBUTION OF SOVEREIGN WEALTH FUNDS: APPLICATION OF INTERNATIONAL EXPERIENCES TO KENYA

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The quest  for more optimal approaches  for sustained  growth  and development, and the

harnessing of available resources is perpetual. An aspect of this is the continual search for strategies for effective development financing. This is one that achieves set goals without compromising national dignity and integrity. Economic independence is seen to go hand in hand with national self-determination, hence its pursuit by nations. Sovereign Wealth Funds have in the past 14 years increased in prominence. They are seen as an emerging strategy for relevant development financing. The term “sovereign” reflects the political economy element of the funds, as tools for economic latitude and self-determination. The creation of these funds has been globally observed as a means of seeking to effectively manage revenue from mineral  resource  endowments,  and  generally  National  Wealth.  The  study  of  Sovereign Wealth Funds is however still relatively new and emerging.

 

Kenya has proposed the establishment of a mixed commodity and non-commodity Sovereign Wealth Fund. The experience of various countries indicates that such funds, of either type, can  be  for  different  purposes,  and  not  necessarily  designed  in  the  same  way.  Factors important for consideration include:   the general approaches used by countries to set and build them up as determined by their capital sources and social, economic and political institutional context factors; the nature of policies, laws and guidelines developed and implemented in their structuring and utilization; their general functions and contributions as instruments for national development; among others.

 

 

This  Research  sought  to  investigate  the  experience  of  five  countries,  in  view  of  their Sovereign Wealth Fund source and political institutional determined designs, expected economic functions and contribution to development. A critical review of Kenya’s proposed framework against those of the five countries with the goal of making recommendations for the creation of the fund was done. Secondary data was sourced from government reports and publications  as  well  as  information  from  other  credible  public  and  non-public  entities. Primary data on Kenya’s case was collected through the administration of questionnaires to experts from the various sectors relevant to the study. The selection of the countries was informed by their ranking in terms of performance of their Sovereign Wealth Funds as well as the ease of accessibility to information on them.

 

The study concludes that a well-designed and built Sovereign Wealth Fund can be a suitable source of development financing for the country.

 

It recommends that the creation of the three types of funds proposed in the draft bill, should be done with an awareness of their diversity in the nature of operations. There is need to accurately project on the expected medium term and long term contribution of the extractives sector to Kenya’s economy and factor these considerations in the design. This is based on the inevitable exhaustion of minerals hence the limited time for setting up funds based on the sector. The Sovereign Wealth Fund legislation should provide for flexibility that will enable fiscal adjustments in tandem with the changing nature of contribution of the extractives sector to the economy. Reforms of state corporations considered as a possible source of revenue for one of the proposed funds will be required. The role of all the macro-economic and other national institutions relevant for various aspects of the fund should be clarified in order to inform  coordination.  Contribution  to  the  achievement  of  the  social  policy  objectives contained it the Kenya Vision 2030 should be weaved into the operational designs of the

 

funds, based on Kenya’s defined approach towards social development. A general mapping and projection of Kenya’s Economic sectoral performance, trends and goals should be undertaken to guide in the channelling of the funds for development.

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PROF. AMB. MARIA NZOMO
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