Mozambique Plans Sovereign Wealth Fund From Gas Bonanza - What Could Go Wrong?

analysis

Mozambique's central bank has mooted investing more than half the revenue from its expected natural gas bonanza into a sovereign wealth fund. This might not be a bad move, but history suggests it is more likely to take the Angolan route than the Norwegian one -- and that would spell disaster on a grand scale.

A sovereign wealth fund is a sort of national savings account, but one that has managers who don't just dump the cash into a local bank. The cash is spread around, into a range of investments with an eye on getting a decent return. Over the long run, the capital generated can be used by future generations for public infrastructure or healthcare, that sort of thing. That's the theory.

Such funds are usually set up by economies heavily reliant on commodities, notably oil and gas. There may be a lot of debate about "peak oil" on a global scale, but at the national level you don't want the wells to run dry with nothing in the bank to show for it. In such a case, the ruling class has probably long since stolen or squandered the revenue derived, leaving the national tank to run on...

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