Columnists

Benefits of enacting Sovereign Wealth Fund Bill are many

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Oil exploration in northern Kenya. FILE PHOTO | NMG

Back in October 1962, Phillips Petroleum applied for permission from the Norwegian government to explore for oil and gas in the North Sea.

After a while and just before Christmas of 1969, the company announced the discovery of Ekofisk, which turned out to be the largest offshore oilfield ever discovered. This was when Norway’s success story started in earnest.

Norway is credited for having the largest sovereign wealth fund in the world, and with over $1 trillion, this equates to $190,000 for each of the country’s 5.2 million citizens. To put it into perspective, each Norwegian would get Sh19 million each were it to be dissolved and funds re-distributed.

A few years ago, the Presidential Task Force on Parastatal Reforms proposed the establishment of Kenya’s sovereign wealth fund. This report was presented to the president in October 2013.

In line with this, the government through Treasury drafted the Kenya National Sovereign Wealth Fund (SWF) Bill whose main aim is to ensure that there is proper management of the proceeds from oil, gas and mining industries.

This would lay the legal framework for managing oil and gas wealth from the discovered resources. A seed capital of Sh10 billion was injected into the fund.

The bill proposes the establishment of three main funds within it; stabilization fund, infrastructure and development fund, and a future generation fund.

Unfortunately, the bill is yet to be enacted into law. The development of the upstream oil and gas industry, as well as mining sector requires forward thinking in terms of policy. I believe the creation of the oil and gas wealth fund is a step in the right direction for three reasons.

Firstly, it would guide the investment of revenues from oil, gas and minerals both for the current and future generations. The setting up of a Stabilization Fund will work as a counter-cyclical economic stabilizer which will help in smoothening the country’s budget variations in income over a period of time.

READ: Can sovereign wealth fund help us avoid resource curse?

Secondly, it will support the funding of infrastructure in the country. As a growing and emerging economy, Kenya has major deficit in the requisite infrastructure.

Availability of an Infrastructure and Development Fund will provide the financial resources required for huge infrastructural investments. For example, Kenya’s funding gap for the public-private partnership infrastructural projects alone is estimated at $ 41 billion over the next couple of years.

Treasury secretary Henry Rotich is also quoted saying that Kenya requires a sustained investment of about Sh340 billion over a decade to meet the infrastructure needs as envisaged in Vision 2030. The revenues from oil, gas and minerals can help in closing these gaps.

Thirdly, the fund will address the issues of intergenerational equity. It will make available a pool of savings or some level of a back-up for the future generations. This is very important because these resources are non-renewable.

The above benefits will cut across various sectors due to the multidimensional nature of the interventions that the wealth fund provides. The multiplier effect of this will be huge to the economy and every citizen will feel the benefits.

Joe Watson Gakuo is CEO, Upstream Oil & Gas Ltd.