Non-renewable resources dominate nearly one quarter of the world's economies. Over half of these economies are developing, with many in Africa. Managing resource revenues is one of the most pressing challenges facing policymakers in Africa. For over a decade, these countries have been advised to follow ‘the Norwegian model’, saving resource revenues abroad, in offshore sovereign wealth funds for future generations. The three papers in this issue challenge that view. Together, they argue that there are three key motives for saving revenues abroad: intergenerational transfer, parking and stabilisation. The paper by Venables and Wills shows that only the second two are relevant for developing countries, which have pressing needs at home, arguing that revenues should be directed toward domestic investment to accelerate the countries along their development path. There are, however, other potential motives for investing resource rents offshore, in addition to intergenerational transfer, parking and stabilisation. These include political accountability, portfolio diversification of investment returns and Dutch disease considerations. Investment of resource rents in the domestic economy should be focused on projects with high social and financial returns, and is best achieved by collaboration between informed development banks and arms-length institutional investors.
Keywords: Africa; natural resources; sovereign wealth funds; absorption; infrastructure finance; development banks; long-term investors; E60; F34; F35; F43; G30; G38; H21; H63; H49; H54; O11; Q33
Journal Article. 8386 words.
Subjects: Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook ; International Finance ; Macroeconomic Aspects of International Trade and Finance ; Corporate Governance ; Corporate Regulation ; Taxation, Subsidies, and Revenue ; National Budget, Deficit, and Debt ; Publicly Provided Goods ; National Government Expenditures and Related Policies ; Economic Development ; Non-renewable Resources and Conservation