A Namibian Sovereign Wealth Fund
T
he Namibian Government is establishing a Sovereign Wealth Fund (SWF) named “The Welwitschia Fund”. A policy framework released by the Ministry of Finance last August expounded on a June 2020 cabinet decision to establish a Sovereign Wealth Fund by laying out the foundational management and operating structures of the fund. Although not yet operational, the Welwitschia Fund is set to become one of Africa’s newest sovereign wealth funds. This state-owned fund will consist of two separate accounts. The first is a liquid stabilisation account that will be used to counteract the effects of negative macroeconomic shocks and protect the foreign reserve position. The second is a longer-term intergenerational savings account. The Bank of Namibia, under the jurisdiction of the Ministry of Finance, will manage both accounts. The Ministry of Finance views the creation of the Welwitschia Fund as a seminal moment in Namibia’s development. Inspired by Article 95 of the Constitution, which implores the state to “actively promote and maintain the welfare of the people”, the ministry believes that the fund will further this objective as it becomes a driver of “sustainable and inclusive development over time… promoting intergenerational prosperity”. But before it can become an agent of national change the fund needs funding. A Sovereign Wealth Fund is a pool of funds controlled by a government and invested primarily in foreign assets. That is
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the closest to a universal description of a Sovereign Wealth Fund. There is no strict definition of what sovereign wealth funds are or what they must do, so there is no single correct way to fund them. Historically, most sovereign wealth funds have been financed by trade surpluses derived from the sale of commodities. The commodity is usually oil. Norway’s Pension Fund, one of the largest single owners of public equities in the world, is the most prominent example of an oil-funded Sovereign Wealth Fund. Kuwait, Saudi Arabia and Abu Dhabi’s funds are also sustained by oil money. Botswana’s “Pula Fund” is supported by the nation’s diamond industry. In contrast, the United States Social-Security fund, although not typically considered a SWF despite being administered entirely by the US government, is funded through payroll tax revenues. Namibia is neither an oil-rich nation like Norway nor a generally wealthy nation like the US, so the capital for the Welwitschia Fund will come from a variety of sources. The stabilisation account has three stated sources of funding. In years where Namibia runs budget surpluses, half the surplus will be put into the fund. Additionally, 2.5% of SACU receipts (along with 33% of ex-post SACU positive adjustments) and 10% of the revenues from fishing quotas will be channeled into this account. The long-term intergenerational account will draw on funds derived from mineral royalties and divestitures from public assets. Crucially, all flows into the two accounts are predicated on public revenues returning to the pre-pandemic average of roughly 30.5% of GDP. Currently public revenues stand at 28.2% of GDP. Until that figure rises, which all else equal will coincide with a drop in
