(February 7, 2012) — The West African Nation of Gabon has become the latest on the continent to launch a sovereign wealth fund to capitalise on oil sales income, following similar moves by nearby Ghana and Nigeria.
Gabon, which won independence from France in 1960, announced through its Council of Ministers this weekend that it intended to pool money earned from its oil production to fund domestic infrastructure projects.
The move was reported in the French press yesterday.
Gabon’s fund will be called the Fonds Souverain de la Republique and is targeted to raise €760 million. Once 25% of this target is reached, investment returns and surplus oil revenues will be used to hit the target.
The country’s GDP hit $14 billion in 2010, according to the government’s website, with a heavy slant on oil extraction. Oil is the country’s greatest export and a 10% levy on all revenue will be collected and pooled in the fund.
Oil revenues comprise roughly 46% of the government’s budget, 43% of GDP, and 81% of exports, according to the government. However, oil production has been declining rapidly from its high point of 370,000 barrels per day in 1997. Some estimates suggest that Gabonese oil will be expended by 2025, hence the creation of the fund to tap income while it is still available.
In a paper for the Center for Global Development last year, Adam Dixon and Ashby Monk said: “In the right circumstances….a SWF can be a useful addition to a country’s toolkit for combating the resource curse. But to increase the likelihood of success, these funds have to be designed with intent to deliver on promised results. In our experience, this requires good governance principles and practices. As such, the real challenge for resource-rich African countries is designing, governing, and managing a SWF that can realistically achieve the objectives set out for it by the government.”
Last year, Ghana announced it would create a fund to pool income from its oil revenue, following moves by Nigeria earlier in the decade. Previously the country had a small fund, according to the SWF Institute, but this announcement is the first serious approach at a well-managed investment vehicle.
Income from oil and other fossil fuels has been the foundation for many SWFs around the world. Most funds in the Middle East were created with excess revenues from natural resources and the largest European fund, Norway’s Government Pension Fund – Global was formed with income from the nation’s oil revenue.