Rethinking mineral wealth management – Business Daily

The company also announced that under the agreement it signed with its Kenya partners, Marula is due to receive 60 per cent of the net proceeds from the sale of this initial manganese export.

The news got me thinking about the former president of Tanzania, the late John Magafuli and about the subject of management of national resource revenues.

Have we clearly thought through how we want to manage our mineral wealth? I remembered how Magafuli faced incessant attacks from the Western media over his controversial disputes with multinational firms on the sharing of mineral revenues.

We need a sounder framework for managing national resource revenues because Kenya is on the cusp of a critical transition to being a major exporter of critical minerals such as manganese.

In October last year, the Cabinet declared 14 minerals as strategic and ruled that any activity touching on the specified minerals including prospecting, mining, trading, dealing and processing was to be undertaken by or in partnership with the state-owned National Mining Corporation (NMC).

Indeed, this was the key point in a recent statement by Mining Cabinet Secretary Hassan Joho, in a public statement where he charged that the ministry had discovered that unnamed unscrupulous parties have been prospecting and dealing in strategic minerals without the authority of the government.

Yet the truth of the matter is NMC is a fairly new entity that neither has the domain knowledge nor capacity to negotiate let alone enter into complex agreements with the multinationals at this pace.

I fished out the Auditor General’s latest report on NMC and this is what she says. That despite the fact that the ministry appointed an acting manging director to operationalise the parastatal way back in November 2018, a substantive chief executive was yet to be appointed.

The single largest expenditure item on its books of the corporation were expenses on allowances and travel claims by board. The audit found that board expenses consumed 43 per cent of the corporation’s operations and management budget.

In April 2019, a performance audit by the Auditor General on the State department of mining concluded that the department does a very poor job at monitoring payment of royalties by mining companies.

The audit found that the department was not generating accurate production and export data and was therefore not in a position to advise the government well on how revenue to expect from mining activities.

The best model is to manage national resource revenues through a sovereign wealth fund that comes with several advantages.

First, it allows you to save money for future generations. Secondly, you have a tool to help to manage adverse impacts on the macro-economy. A sovereign wealth fund could also be a good source of money to invest in infrastructure.

Sovereign wealth funds have what is known as a ‘fiscal rule’, stipulating that only returns from investment of the fund can be withdrawn and used to support national budgets.

Thus, a sovereign wealth fund will force a Finance minister onto managing his national budget deficit without looking at the money from national resource funds.

Botswana always earns plaudits for using its sovereign wealth fund — the ‘pulu fund’ — to successfully manage her diamond revenues. It is so well-run that it helped to give the country better sovereign ratings than some of the smaller European countries.

More than 10 years ago, Uhuru Kenyatta’s presidential taskforce on parastatal reforms recommended establishment of a sovereign wealth fund.

The recommendations came complete with a Kenya Sovereign Wealth Fund Bill.

To date, we don’t know what happened to the proposal.

The new sovereign wealth fund of Nigeria – the Nigerian Sovereign Investment Authority – was crafted along the lines of what the presidential task force proposed. Angola’s sovereign wealth fund has a target of mobilising $10 billion in five years.

And, we have seen cases where sovereign wealth funds have been deployed to bail out sectors of strategic importance. In Malaysia, Khazana Nasional bailed out Malaysia Airlines while Singapore’s sovereign wealth fund, Tamasek Holdings, was used to shore up the country’s capital markets during the Asian financial crisis of 1997.

We should not approach the management of our oil revenues with short-sightedness.