Kenya is making a second stab at establishing a sovereign wealth fund, with the Treasury publishing the Draft Kenya Sovereign Wealth Fund Bill 2025 to pave the way for the creation of the fund, which is to be managed and invested for the benefit of current and future generations of citizens of Kenya.
What is a sovereign wealth fund?
A sovereign wealth fund (SWF) describes an investment vehicle owned by a country that acts as an investment account or development tool, or a combination of both aspects. SWFs comprise money generated by the government, which is often tapped from a country’s surplus reserves from activities such as oil, mineral exploration and trade.
Sovereign wealth funds are designed to be a nest egg, allowing current funds to be deployed in a way that benefits future generations.
Countries with outsized revenues from resources such as minerals and oil have primarily created these types of funds, ensuring the windfall in resources creates a cash stockpile for the future, which comes in handy when the countries deplete their resources.
Funds in the Middle East, Norway and Russia have invested proceeds from oil and gas exports. Asian countries have funded their SWFs using trade surpluses from being net exporters, while Botswana, the only country with a SWF on the African continent, has invested revenues from diamond mining.
Kuwait created the Kuwait Investment Authority in 1953 to invest the government’s oil revenues on behalf of its future generations, with other countries following suit.
By 2010, the International Monetary Fund (IMF) estimated that there were over 50 sovereign wealth funds in operation covering over 35 countries, including Brunei, Kiribati, the United Arab Emirates (UAE) and the United States.
Which are the largest sovereign wealth funds?
The top five largest sovereign wealth funds as per data from the Sovereign Wealth Fund Institute running to January 2025 were the Norway Government Pension Fund Global ($1.7 trillion), the China Investment Corporation ($1.3 trillion), SAFE Investment Company-China ($1 trillion) and the Abu Dhabi Investment Authority ($1 trillion).
How are global sovereign wealth funds structured?
Norway’s Government Pension Fund Global is formally owned by the country’s Ministry of Finance, overseeing its overall investment strategy, ethical guidelines and investment framework.
The country’s Central Bank-Norges Bank-is responsible for managing the fund while the Norwegian Parliament makes decisions on matters of material importance to the fund’s risk level. The fund was established after Norway discovered oil in the North Sea to shield the economy from ups and downs in oil revenue.
Why is Kenya eyeing a sovereign wealth fund now?
Kenya has revived its goal of commercially exploiting oil fields discovered in Turkana in 2012.
The exploitation now led by Gulf Energy is expected to yield new revenue sources for the government, which will be placed in the sovereign fund alongside proceeds from the mining industry, including mining and prospecting licences, mining permits and leases and mineral royalties.
Kenya earned Sh226 billion from the mining sector in 2024, with the bulk of the proceeds of Sh154.1 billion being from mining licences.
How will the proposed Kenyan sovereign wealth fund work?
Kenya’s sovereign wealth fund will include resource flows from mining and petroleum. The fund will be split into three uses, including providing a buffer from fluctuations in resource revenues and managing extraordinary shocks to the economy, supporting strategic infrastructure investments and creating a savings pool for the future.
The Central Bank of Kenya (CBK) shall hold a bank account for the fund, which shall be used to receive, hold and disburse all proceeds of the fund.
The government is expected to create a board known as the Kenya Sovereign Wealth Fund Board, which shall manage, control and administer the assets of the fund.
The fund shall also have a secretariat led by a chief executive officer.
Where shall the Kenyan sovereign wealth fund invest its assets?
The bulk of the fund’s assets shall be invested in foreign currency-denominated instruments, including low-risk sovereign bonds, foreign currency deposits with other central banks and international settlement banks and bonds backed by multilateral institutions, including the World Bank and the IMF.
The fund is barred from investing in local bonds and stocks, speculative derivatives, arts and commodities.
Can sovereign wealth funds be abused?
The pilferage of the 1Malaysia Development Bhd (IMDB) sovereign wealth fund shows that such funds can be abused without proper safeguards. The fund raised billions of dollars in bonds to use in investment projects and joint ventures between 2009 and 2013.
The US and Malaysian authorities established that an estimated $4.5 billion (Sh581.5 billion) was diverted to offshore bank accounts and shell companies, with billions more unaccounted for. The SWF is now defunct.
