THE recently unveiled Welwitschia Fund that commenced with money estimated around N$300 million will derive its funding from multiple sources, President Hage Geingob has said.
The funding sources for the sovereign wealth fund, are comprised of a combination of streams, including a portion of royalties collected from the sale of natural, renewable and non-renewable mineral resources, taxes, divestiture from public investment holdings, as well as contributions from identified State Owned Enterprises and other parties, President Geingob affirmed this week.
“Furthermore, we are looking forward to the prospects and opportunities that will emanate from the recent discoveries of oil and the green hydrogen energy, which have the potential to further boost the Fund’s capital and ultimately contribute to the development of the Namibian economy,” Geingob further alluded.
Defending the Fund, Geingob said when one looks at Namibia’s current macroeconomic stance, some may question the wisdom of moving forward with the Sovereign Wealth Fund when the fiscal space is presently constrained and growth subdued, especially considering the Covid-19 pandemic shocks. However, the timing is perfect, in a sense, as Norway’s experience shows, Geingob said.
“In 1969, Norway discovered oil in the North Sea. For 20 years, they spent oil revenues as they were received, and Norway’s fiscal balance fluctuated wildly through the oil price shocks of the 1970s and 1980s. After oil prices collapsed in the late 80s, there was general regret that the windfall had been wasted and weariness at the fiscal instability. These feelings created broad support for a sovereign wealth fund when it was established in 1990.
“Moreover, evidence has shown that, when well managed and guided by clear objectives, withdrawal rules and a prudent investment strategy, a sovereign wealth fund’s assets and the returns it generates can have a significant beneficial effect on domestic public finances, monetary conditions, external accounts and balance sheet linkages with the rest of the world. This means that under the right circumstances, a sovereign wealth fund can be a potent tool in achieving economic growth. Similarly, it can also act as an important fall back and stabilizer during times of extreme shocks,” said Geingob.
He went on to say that a sovereign wealth fund can contribute to better income risk sharing between generations.
“The commonly accepted rationale for establishing a sovereign wealth fund is to save some of the revenues generated from the sale of a country’s nonrenewable resources for future generations. Hence, if one generation is negatively affected by an income shock, fiscal policy can redistribute income between generations using resources from the sovereign wealth fund; thus, smoothing the cost among many generations.
“Traditionally, sovereign wealth funds are known to invest or save resource revenues in major international markets for high returns for future generations. However, the persistent infrastructure financing gap in developing countries has motivated some governments to encourage their Sovereign Wealth Fund to invest part of the revenues domestically to accelerate the countries along their development path. The decision to invest domestically should be targeted towards projects with high social and financial returns and should be considered following a proper assessment of the domestic market’s absorption capacity. Moreover, efforts should be made to ensure that the SWF’s mandate does not duplicate that of other government institutions with investment mandates,” Geingob explained.
A nonobligatory provision has been made for 2.5 percent of the Namibian Welwitschia Fund’s portfolio to be invested locally, subject to the recommendations of the Investment Committee.