An Introduction To Sovereign Wealth Funds – Guyana

To date, there have been numerous significant finds of oil reserves within our Maritime boundaries.  Several Contracts have been signed as we saw the transition of two governments.  With the first oil already started within the first half of 2020, the need for legislation for establishing a Sovereign Wealth Fund becomes ever more portentous. The government has already set up a US-based offshore account in the name, Natural Resource Fund. The focus now is not on the details of the fund but instead on the finds’ policies. In a recent press briefing, the Vice President, Bharrat Jagdeo stated that there would be no significant practical disbursement of funds of direct financial benefits to the citizens within the next three (3) years. Therefore there are no systematic strategic processes or rather developments geared towards the disbursement of the potential financial gains that are to be received from the refinery processes. 

After a lengthy electoral process, our new regime has set in motion several strategies to address the legal and administrative procedures to attain better-shared profits and even derive economic benefits from carbon emissions due to flaring. However, there is still no direct public participatory forum or general discussions on the Sovereign Wealth Fund structure.

For clarity, a Sovereign Wealth Fund (SWF) is a state-owned investment fund investing in real and financial assets, whereas it’s oil in Guyana’s case. This fund is expected to develop various sectors of our local economy; general infrastructure and resources, more specifically our local Agricultural and Natural Resources sectors. But what about our Human Resources Sector?

Before we get to that, let’s have an understanding of SWFs. Firstly, SWFs have been in existence for over a century. Their first uses were to the benefit of school attendees at different levels of learning. This was more localized to the North until 1953 when Kuwait, as a sovereign state, established the Kuwait Investment Authority (KIA). Kuwait’s fund has a current estimated value of US$600 billion.

There are numerous nations worldwide with SWFs that have acquired significant economic growth and development from the proceeds of oil. These oil giants such as Norway, Abu Dhabi, Kuwait, Saudi Arabia, and China all have well established and stable Sovereign Funds. Many of these countries have already approached Guyana, and a few have signed MoUs with our government. They offer years of experience and alliances in various sectors that range from data management to infrastructural development, to models of financial management. But what is an SWF used for?

Before we as a people or our elected government develop strategic plans and procedures for the use of the fund, a model must first be decided upon. There are two basic models. However, SWFs can be tailored to its purpose or service, but they are still built on two specific models. Therefore I ask, should our government eventualities the Stabilisation Model or the Savings Model? This must be decided upon and made public with detailed explanations of why and how the model will be used.

Whichever model is chosen, significant consideration must be given to our people’s current and future needs, whether socio-economic or socio-political. When we take the ‘Green Economy’ concept of the previous administration, the APNU/AFC government’s manifesto into consideration, we must also deliberate on the socio-cultural factors. Our current government, the PPP/C, is geared to ICT and an Education platform. Stemming from this, our government or we can model a sustainable SWF that supports a general idea of our country as a whole. The Stabilisation model can reduce our economic instability while a Savings model appropriates revenues for the future.

As an oil giant, Norway utilizes the Savings model and has seen significant development through its procedures, especially in the education and environmental sectors. However, we have seen the failure of this model with our neighbour Venezuela. If our administrators are to model an SWF that encompasses rivaling challenges and disappointment, they need to be more responsive to countries that have strong functioning SWFs.

The government of Norway owns and utilizes a two-part functioning fund known as The Government Pension Fund of Norway. Its subs are, The Government Pension Fund Global and The Government Pension Fund Norway. These funds operate independently with separate processes, investments, and ultimate goals. They focus primarily on stabilizing the country’s economy while providing adequate savings to offset future financial woes. Let’s not forget our current border controversy, which can foretell future sufferings. Therefore, it’s within our leaders’ interest to develop a fund that economically supports strategic approaches such as violent conflicts.

International laws generally aid the sustainability of effectively managed SWFs. Hence, it can be influential for our leaders to design local legislations that foster international support. On the other hand, SWFs can stimulate military and paramilitary forces with adequate resources to effectively ward off or defend our country from foreign and domestic threats. Therefore, a well thought out and effectively designed SWF is vital to the actualization of the purpose and use of the revenues of our emerging oil industry.