By: Nghiinomenwa Erastus
The government plans to use proceeds/money from mineral royalties, Sacu, fish quotas, budget surplus and selling off assets to capitalise/fund the proposed Sovereign Wealth Fund.
This is according to the final framework for the proposed fund released by the Ministry of Finance this month.
The Sovereign Wealth Fund (SWR), which is called Welwitschia Fund, plan to utilise five primary sources of revenue for its capitalisation but only when certain realities have been met for each source.
A sovereign wealth funds, in this case, is defined as government-owned funds set up for a variety of macroeconomic purposes and with wide-ranging stated objectives.
The first source will be a dedicated portion of receipts from the SACU – Common Revenue Pool.
However, it is only possible in years when the SACU receipts rebound to over 9,5% of GDP, then at least 2,5% of the receipts will be channelled to the fund.
According to the framework, the ratio will be revised over time as the impact of regional integration is expected to materialise on the SACU Common Revenue Pool.
In addition, when there are positive adjustments to SACU receipts, a third (33%) of the positive adjustment will be channelled to the fund.
The second source entails that 50% of the surplus is channelled to the fund in years of fiscal surpluses.
A fiscal surplus is when total tax revenues exceed government spending in any given year.
The third source will the renewable resources, particularly fisheries.
In this regard, 10% of revenue from the fishing quota will be directed to the fund.
The fourth source is the revenue from non-renewable resources (such as mining and environment sectors), where 15% will be charged from income derived from mineral royalties.
Moreover, the government will also use its proceeds from divestment/ the sale or disposal of its asset holding, properties and entities.
At least a third (33%) of the proceeds will be channelled to the fund unless otherwise the sale of the property was attached to a certain commitment.
According to the framework, the fund aims to save for future generations and fiscal and official reserve stabilisation.
As an initial temporary measure, while the legislation is taking shape, it is proposed that the fund be established as a reserve account and its management be delegated to the Bank of Namibia.
The Welwitschia Fund Act should then be developed concurrent with the formative stage of the fund and enacted by Parliament.
The objectives of the Fund range from fiscal stabilisation commitments, saving for future generations, reserve investment, contingent pension reserves, and developmental investment objectives.
The framework project that if managed prudently, SWFs could accumulate a significant asset base concerning the country’s GDP, contributing to the macroeconomic stability and public finance management objectives.
A high import bill dominates Namibia current account. At the same time, the country narrow domestic productive capacity tends to erode the accumulation of the official reserves at levels below the international benchmarks.
As well, overreliance on primary commodities and rain-fed agriculture renders Namibia highly vulnerable to exogenous shocks.
Meanwhile, Namibia’s sustainable development agenda aspires for an industrialised, knowledge-based economy with shared prosperity for all Namibians.
According to the Fund framework, this requires the state to exercise stewardship of the net economic benefits from the present utilisation of resource endowments and state assets for intergenerational benefits.
Moreover, to cushion the socio-economic transformation path from exogenous shocks while addressing the country’s unique and persistent structural challenges.
Apart from the intergenerational considerations, the establishment of the Welwitschia Fund could also play a stabilisation and shock absorption role by buttressing international reserves and cushioning the fiscal account from the excess effects of such volatility. Email: erastus@thevillager.com.na
