Urgent to set up a sovereign wealth fund

Login

Register

http://www.clubofmozambique.com/

Urgent to set up a sovereign wealth fund

9:34 CAT | 24 Jun 2019

Mateus Magala (left) seen here with Rogerio Zandamela, governor of Bank of Mozambique. [Photo: Notícias]

Mateus Magala, the Vice President for Corporate Services and Human Resources of the African Development Bank (AfDB), has warned that it is urgent for Mozambique to set up a sovereign wealth fund, and that fixing a date for its creation should be a priority.

Speaking on Friday at a debate on “Sovereign Wealth Funds in Mozambique: Opportunities and Challenges”, organised by the Bank of Mozambique, Magala said the success of such a fund would depend on clarity about its goals, the quality of its governance and management (including its independence), and the skills of the professionals who would work for it.

As for where such a fund should be domiciled, Magala considered that the Bank of Mozambique would be a suitable choice, but not the only option. “The more debate there is to reach consensus, the greater will be the legitimacy of the fund”, he said.

Discussing the creation of a sovereign wealth fund, Magala said, is important, because it could be decisive in the accumulation and distribution of wealth to be shared by all Mozambicans, today and in the future.

Mozambique is on the verge of a dramatic increase in its GDP, in its exports, and in government revenue thanks to the discovery of enormous quantities of natural gas in the Rovuma Basin, off the coast of the northern province of Cabo Delgado. The reserves are estimated at over 270 trillion cubic feet of gas, which will make Mozambique one of the largest producers and exporters of liquefied natural gas (LNG) in the world.

“Our focus today is the gas economy”, said Magala, “but the same discussion can easily be extended to other resources, such as coal, petroleum, minerals etc., which obey the same logic”.

What should be done with the enormous revenues from the natural gas?, he asked. The definitive answer to that question must be credible, domestically and internationally, “and it has to result from a wide-ranging discussion and profound social dialogue in order to reach domestic consensus, which at the same time should be internationally accepted, in terms of scientific rigour and the political and social comfort it will offer”.

All the decisions taken, Magala added, should recognise that the gas and the revenues deriving from it belong to all Mozambicans, including future generations. “Hence we must produce answers that promote inclusion and sustainability”, he said.

Magala said there seems to be a growing convergence in ideas about what to do with the gas revenues – namely to use them to promote diversification of the Mozambican economy, to transfer some of them to the State Budget to overcome the budget deficit and finance critical state activities, but also to set up a sovereign wealth fund as an instrument for the accumulation of wealth derived from the gas to be shared by current and future generations.

“It is not easy to decide on the model we should follow to determine the proportion of the income which should be used for expenditure, saving and investment, he said, “but the creation of a sovereign fund is the best bet at the moment in order to determine the proportion of the revenues that should be invested to ensure long term fiscal and economic sustainability, against what should be consumed immediately after obtaining the revenues”.

Source: AIM