Monday, October 28, 2013
Governance of Mineral Revenues for Ending Poverty
by Maniza Naqvi
One of the critical decisions in setting up a fund is how much to invest for now, how much to save for current generations (e.g. pensions), and how much to save for future generations (when, presumably, the natural resources have dried up). Examples of such funds include the Alaska Permanent Fund Corporation (APF), the Alberta Heritage Fund, Iran's Citizen Income Scheme, The Future Generations Funds in Kuwait (here and here); Norway's Government Pension Fund Global, the Pula Fund in Botswana and Wyoming's Permanent Wyoming Mineral Trust Fund .
Another set of questions are: How would such mineral revenues be managed and distributed to all citizens? And who would manage them and on what basis? What should be the guiding principles for the governance and management structure? The choices in structures for the governance and management of mineral revenues for direct dividend transfers and investments could determine whether the wealth gets transferred to all citizens, changes their lives and grows for future generations or whether it becomes an opportunity lost.
Pointers to what works for good governance and management:
· Decision for setting up an institution which can manage, invest and distribute mineral wealth is ratified by parliament as good economic and social policy. This institution can for the sake of description be called a Citizens' Wealth Fund (CWF).
· Legislation through Parliament for mineral wealth revenues management is based on the principle that it is the right thing to do because mineral wealth revenues are viewed as the property of all of the citizens of a country.
· Management of the CWF is set up on the principle that mineral wealth revenues should be grown through sound money management and capital investments to safeguard and create wealth for current and future generations.
· Citizens are viewed as clients who receive the benefits on their investment and income through Direct Dividend transfers, which they have the right to do with as they choose on the principle that each citizen can invest in their future as they wish.
· Governance of the CWF as a public institution is legislated by Parliament. The operations team of the Fund would be recruited competitively. The fund would have oversight from an independent Board chosen from members of academia, unions, private sector, and civil society. The Board should report to the Parliament. Media provides a watch dog and informative role of close scrutiny. The relatives of the President, Prime Minister and other officials of the Government would be ineligible to become members of the Board or on the staff of the fund.
· Sound economic and social policy underpins the sharing of revenues with all citizens. Policy depending on poverty and demographics could lead to a decision to transfer cash dividends to all citizens regardless of wealth immediately or as savings and pensions; or to target only the poor using mechanisms of poverty targeting; or they could be divided into various streams of investments: cash transfers to the poor, savings and pensions funds for all investments in education, health, agriculture, infrastructure, art and culture for all.
· Demographic targeting leads to choices on whether, if the population is young, direct dividend transfers now would benefit citizens' health, education and income outcomes. An aging population would benefit from pensions.
· Diversification of investments to benefit citizens includes providing a portion of each citizen's share as a monthly direct dividend transfer, while a portion of the dividend for each citizen would be withheld for the purpose of mandatory savings. The mandatory savings portion could be available to each citizen by a certain age and the pension fund would be made available at the retirement age in a country. All of the investment activities: dividend transfers, mandatory savings and pensions would be managed by the same money management team managing the investments for the overall funds so that citizens would benefit from their expertise in growing their wealth.
· Responsibilities and roles for different units in the CWF include: direct dividend transfers and money management; investments in education, health and social protection, investments in infrastructure investments; investments in arts and culture and science. Decisions on allocations to each area of responsibility and management would be approved by the Board and reported to Parliament.
Proposal for what else might work well:
A soundly managed CWF would need to have the attributes outlined above which are based on the experience of existing funds. Here is something that has not been tried and perhaps should be: An experienced and reputable international institution with both Investment Finance and Development experience could be the custodian and manager of such a CWF on behalf of a country. Similarly, philanthropists could contribute funds to such a CWF earmarked to a particular country to be managed on behalf of the poorest citizens of that country and the investment income from the contribution could be distributed as a direct dividend transfers. An ideal manager of CWFs would be an entity which has experience in: managing large trust funds on behalf of development partners; channeling these funds for development on their behalf; designing and supervising, poverty targeted cash transfers and community based investments.
The managing entity of the CWF would earn a fee in order to cover its management and operating costs for supervision and technical assistance on investments. This is normal practice for managing funds or trust funds. A mineral rich country with a high poverty head count could choose to provide a trust fund to such an entity to manage on its behalf. Direct dividend transfers would be made from this CWF to the citizens of the country. The rest of the investment income could be used for projects in health, education, social protection, housing, agriculture and infrastructure in that country. A Citizens Wealth Fund resourced by mineral wealth from so-called poor countries might just be the no strings and no aid attached easiest, fastest and most transparent way to end poverty.
Posted by Maniza Naqvi at 01:05 AM | Permalink