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Opinion & Analysis

KISERO: Sovereign wealth fund must top agenda

Members of parliament during a past sitting. FILE PHOTO | NMG
Members of parliament during a past sitting. FILE PHOTO | NMG  

We are in the season of manifestos by political parties. In our context, the idea of a manifesto has been reduced to the things politicians piously promise when seeking election and invariably forget after they win.

You just roll out a list of promises without bothering to indicate where the money will come from.

Five years down the road, and even after you have not honoured a promise- you can still include it in the new manifesto without explaining why you did not implement it.

I am saying this as an entry point to a discussion on one of the most critical policy questions of the day- namely a sovereign wealth fund.

We have been talking about establishing a sovereign wealth fund since 2013. As a matter of fact, the idea featured prominently in the Jubilee manifesto that year.

Picking up the thread from the last manifesto, the blue ribbon presidential task force on parastatal reforms formulated a detailed framework for managing resource revenues complete with a draft National Sovereign Wealth Fund Bill.

As a matter of fact, the Bill was approved by President Uhuru Kenyatta as far back as November 2013.

I must say that I find the thinking around the Bill enlightening. We planned to create three funds-namely, a savings fund for future generations, a stabilisation fund to stabilise revenues from volatile commodity prices, and an infrastructure fund.

When you look at it, this Bill was based on international best practice and envisaged being a game changer in the management of the nation’s oil wealth.

As it turned out, the Bill did not see the light of day. The upshot is that we are now in the precarious position whereby we are now trucking oil by road to Mombasa and world markets without a framework for managing oil revenues.

In the new manifesto, the only mention of a sovereign wealth fund is in the context of achievements under devolution where they claim to have established a benefits sharing framework for giving local communities a share of national resources.

To my understanding, this is in reference to the Petroleum Bill that is yet to become law due to wrangling between the Legislature, the Executive and county governments.

In their manifesto, Nasa has promised that in the first 90 days, they will enact the Petroleum Exploration Development and Production Bill 2016 that has been passed by the National Assembly.

The centrepiece of the Bill was to provide a much larger share of resource revenues than the centre was comfortable with.

Clearly, the fact that Nasa’s manifesto makes no mention of a sovereign wealth fund is yet another indicator that the idea has fallen down the pecking order.

Why do we need a sovereign wealth fund? First, natural resources are finite and get exhausted.

It follows that the revenues we generate need to be invested to benefit the people living today and future generations.

It sits very well with the 2010 Constitution, which calls for inter-generational equity in management of the nation’s resources.

Secondly, it is now accepted by international best practice that the best tool for managing oil revenues is a sovereign wealth fund.

Thirdly, being an emerging economy, Kenya will need to not only save revenues for when the oil runs out, but to devote some of the wealth in investing in infrastructure.

A sovereign wealth fund is ideally placed to make long-term investments in infrastructure because it has no liabilities unlike a pension fund that has to pay pensioners.

Indeed, the world over, sovereign wealth funds are today the dominant investors and co- investors in infrastructure.

And since oil revenues are volatile, Kenya will need a sovereign wealth fund to manage volatility in oil prices and minimise adverse impacts on price fluctuation.

If you needed any justification for a sovereign wealth fund for Kenya, just look at how sub-Saharan African oil exporters have mismanaged oil revenues.

We must bring back a sovereign wealth for Kenya to the top of the nation’s agenda.

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