23 December 2012

Mozambique: Government Considering Sovereign Wealth Fund

Photo: Leadership.
Gas flare in Nigeria.

Maputo — Mozambique is considering the possibility of using revenue from the exploitation of mineral resources to set up a sovereign wealth fund, but only if this does indeed help solve the problems facing the country.

Speaking on a joint radio and television programme on Saturday, focusing on the activities undertaken by the government over the past year, Prime Minister Alberto Vaquina said that the question of a sovereign wealth fund is under discussion, but no decision has yet been taken.

“If it’s just to keep money in international banks while we need the money here, then I don’t think it’s a good idea”, he said. “We still have many poverty-related problems. We need to build many more infrastructures. We need more schools, more roads, to support this generation and to prepare the future for the coming generations. If a sovereign wealth fund helps solve the difficulties facing the country, then I see no problem. We shall adopt the best solution to solve the problems of Mozambique”.

A sovereign wealth fund is an investment fund, aimed at maximizing long term returns. Such funds are generally set up by countries which have budgetary surpluses, and very little international debt. This is certainly not yet the case of Mozambique, where a large (albeit declining) share of the state budget is still financed by foreign grants and loans.

Some sovereign wealth funds are set up as hedges against volatility in government revenues, while others are essentially savings funds, laying money aside for future generations.

The largest sovereign wealth fund is the Norwegian government pension fund with assets of over 664 billion dollars. Other funds with enormous assets are owned by oil-rich Gulf states (such as Saudi Arabia and the United Arab Emirates) and China.

In comparison, sub-Saharan African sovereign wealth funds are small – Botswana’s “Pula Fund”, based on diamonds is worth 6.9 billion dollars, and the Angolan Sovereign Fund (based on oil revenues) contains five billion dollars.

If Mozambique were to set u a sovereign wealth fund, it would be based on the coal reserves of Tete province, and the huge natural gas fields off the northern coast. But exports of coal only began less than 18 months ago, and the production of Liquefied Natural Gas (LNG) will not begin until at least 2018.

“The matter is still under discussion”, insisted Vaquina. “But the resources are not yet available. We are discussing the egg while it is still inside the chicken”.

As for the problem of the failure of beneficiaries of the District Development Fund (FDD) to repay their loans, Vaquina said that local communities themselves should bring pressure to bear on the debtors.

The FDD is still commonly known as “the seven million”, because it began in 2006 as an allocation of seven million meticais (about 235,000 US dollars) from the state budget to each of the country’s 128 districts. The money was to be lent to people with viable projects that would create jobs, raise income and boost food production. This was to be a revolving fund, in which the money, once repaid, would be lent out to other beneficiaries.

But repayment rates have been extremely low, and Vaquina suggested that this was because inadequate criteria were used in selecting the beneficiaries.

“The question of managing the seven million has to do with carefully choosing people who, inside the community, give guarantees, and are known to be serious, honest and honourable”.

The money “belongs to the community”, stressed Vaquina, and so the beneficiaries should be those who “if they want to keep the good name they have in the community will not feel comfortable if they don’t pay what they owe”.

If a particular beneficiary promises to develop a small business but then does not do so, or undertakes it but does not repay the loan, that meant he was denying the chance for other households in the community to benefit from funds. “So there should be social pressure, and that has to happen inside the community”, said Vaquina, “so that the people selected feel ashamed if they use resources that are for the entire community solely for their own personal benefit”.

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