ACTIVTRADES WEEKLY

By CHRIS ILLING

www.activtrades.bs

ROBERT Kennedy Jr said:

“Our landscapes connect us to our history; they are the source of our character as a people, as well as our health, our safety and our prosperity. Natural resources enrich us economically, yes. But they also enrich us aesthetically and recreationally and culturally and spiritually.”

Now the Bahamian government has the intention to implement a sovereign wealth fund (SWF) which will be in line with similar funds from various nations with the goal that the country in general can benefit from its natural resources. The funding for the SWF would include state-owned natural resource revenues ie sand, salt, aragonite, fisheries and possible oil.

A well-managed and effective SWF can help protect the economy’s non-commodity sectors from destabilising currency fluctuations while helping to spread the country’s wealth more equitably across generations.

The fund also aims to develop a broader base for economic growth by accumulating adequate international assets. Ageing populations create a need to fund future social and economic development.

A SWF has necessary conditions in order to succeed. Appropriate budget and monetary policies are the number one priority. Furthermore, the fund’s operations must be properly integrated in the overall policy framework.

Clear accountability procedures among the SWF governance and the public are important to prevent misuse and gain public support. The success of a SWF is contingent upon responsible investment policies.

Norway has the largest SWF world-wide with assets exceeding $1.1tn. The fund was created in 1990 to funnel Norway’s extensive petroleum sector revenue into diversified assets. The typical assets include equities in the global stock market, real estate and fixed income.

Nigeria meanwhile had a series of failed SWF’s based on poor plan discipline, ineffective executive capacity, public sector inefficiency, technology transfer syndrome and system corruption.

On the other hand, the Alaska Permanent Fund (APF) is a good example which was created in 1976 and has been paying out dividends since 1982 to all Alaskans each year.

The recent financial crises of 2008 and the Covid-Pandemic in 2020/21 made it abundantly clear that countries must broaden their income and investment source.

The number of SWFs has quickly expanded to all corners of the world. Their number has grown tremendously since 2000 to more than 8o with more still being created. The benefits include to cushion the negative effects of any unplanned shortfall in revenue streams, possible social security for the country’s residents and a tool to finance poverty reduction and increase economic development.

The world will be observing closely if The Bahamas will join the club of countries which host their own SWF for the benefits of present and future generations of Bahamians.