Journal Article

Should Countries Invest Resource Revenues Abroad When Demands for Public Infrastructure Are Pressing at Home? The Dilemma of Sovereign Wealth Funds in Sub-Saharan Africa

Joe Amoako-Tuffour

in Journal of African Economies

Volume 25, issue suppl_2, pages ii41-ii58
Published in print September 2016 | ISSN: 0963-8024
Published online October 2016 | e-ISSN: 1464-3723 | DOI: https://dx.doi.org/10.1093/jae/ejw015
Should Countries Invest Resource Revenues Abroad When Demands for Public Infrastructure Are Pressing at Home? The Dilemma of Sovereign Wealth Funds in Sub-Saharan Africa

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  • Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
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Setting aside some resource revenues for future generations is not controversial. So is the need to set aside some of the revenues as fiscal buffers against the risk of uncertain revenue flows. There is merit in both on equity and efficiency grounds. For capital-constrained resource-rich economies, the conundrum is whether to invest the savings in external financial assets, or to invest them in whole or in part in domestic infrastructure development. Conventional advice is for the former. There is growing voice, however, that there is room for both. An emerging strategy is to establish ‘umbrella’ sovereign wealth funds (SWFs) with three components each with a clear savings objective: for future generations, for budget smoothening buffers, and for public infrastructure investment. In sub-Saharan Africa Angola, Ghana and Nigeria are most recent examples. But will this innovation become a source of patronage or will it improve the efficiency of domestic infrastructure investment? What guidelines should countries follow to stay true to the objectives of SWF and at the same time meeting their development objectives?

Keywords: sub-Saharan Africa; natural resources; sovereign wealth funds; infrastructure investment; E60; F34; F43; O13; Q32

Journal Article.  8447 words.  Illustrated.

Subjects: Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook ; International Finance ; Macroeconomic Aspects of International Trade and Finance ; Economic Development ; Non-renewable Resources and Conservation

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