Putting people before profit
Norway provides an example of how a country can use its mineral wealth for the benefit of its people.
The country’s economy has grown steadily since oil was first discovered along its coastline in the 1960s. Although oil production has now reached its peak, it is an important contributor to the country’s collective wealth.
The Norwegian sovereign wealth fund, through which the country invests the revenue it generates from its massive oil wealth, is said to be the second biggest sovereign fund in terms of assets after the United Arab Emirates’ Abu Dhabi fund.
Norway’s finance ministry says it is worth more than $500 billion (about R3.6 trillion).
The money is invested all over the world, with South Africa accounting for 0.83% of the 0.90% the Scandinavian country has invested in Africa.
Norwegian finance ministry official Ingvild Wold Stromsheim says every krone from petroleum is invested in the sovereign wealth fund and government aims for a return on investment of 4% every year.
She says the government only spends the return on things like infrastructure for the country’s 4.8 million population but keeps the rest for future generations.
“If we only spend the return we can do this for eternity. The importance of these returns in future will diminish as we grow the economy and the contribution in relation to its size in the economy will diminish,” Stromsheim says.
The government says the reason the fund is invested abroad is partly to “protect the domestic economy” and to allow it to develop without being overly reliant on an exhaustible natural resource.
Espen Erlandsen, the investment director at the Norwegian finance ministry, says the citizens are the ultimate owners of the fund through parliament.
“It is different from other state-owned enterprises where functions are delegated to private entities. Parliament plays an important role in the management of the fund, while the ministry is the formal owner and defines its investment strategy,” he says.
The sovereign wealth funds are said to be playing an increasingly important role in the global economy. In 2008, the International Monetary Fund estimated that their combined assets would increase from $3 trillion to about $10 trillion in five to 10 years.
Concerns have been raised about issues such as lack of transparency and the potential instability the funds could wreak on financial markets because of the uncertainty in their investment purposes.
But the Norwegian fund has had some stringent rules governing its investment strategy since 2004. The fund’s council on ethics regularly assesses companies’ ethical behaviour and withdraws investments from companies that violate its rules.
It also automatically excludes certain economic sectors, such as the tobacco industry and the antipersonnel mines industry, as it takes a dim view of their impact on global society.
Pablo Valverde, the council’s senior executive officer, says the aim is to make money without benefiting from other people’s suffering.
The companies that the council has recommended be excluded, according to its recent yearly reports, include:
» DRD Gold (2007), “owing to risk of complicity in present or future environmental damage”;
» Siemens (2008), “owing to a risk of the fund, through its investments in Siemens, contributing to gross corruption”; and
» Rio Tinto Plc and Rio Tinto Ltd (2008), “owing to an unacceptable risk that the fund, through continued ownership in these companies, will contribute to present and future environmental damage”.
Eli Lund, the council’s executive head of secretariat, says South African companies under the council’s observation are those in the mining sector.
“I find the cases are less morally clear-cut. Some companies and countries face difficult choices between development and pollution. In general, there are very few clear-cut cases.”