Plans are being floated for the creation of a Commonwealth “model law” aimed at helping countries manage profits gained from their natural resources.
On 24-25 June, senior officials from 17 member countries joined a two-day workshop on natural resource sovereign wealth funds (SWFs).
Delegates looked at how these state-owned investment funds, used to invest surplus revenue from natural resources such as oil and gas, could be leveraged to drive economic growth and social development.
The meeting included experienced countries with successful SWFs – such as Botswana and Trinidad & Tobago – as well as newcomers like Guyana and Cyprus that have only recently enacted laws to set them up.
The aim was to share experiences and knowledge amongst member states, and gain their feedback on a proposed model law to be developed by the Commonwealth, as a tool to support its technical assistance work in various countries.
According to the Commonwealth’s director of trade, oceans and natural resources, Paulo Kautoke, the model law would include frameworks for fiscal rules, governance and management structures, but would not require formal adoption or endorsement by member states.
He said: “When effectively managed, natural resource revenues can drive economic growth, poverty reduction and social development. But when ineffectively managed, natural resource revenues can lead to economic instability, inequality and corruption.
“Sovereign wealth funds matter because in their absence, billions of dollars of revenue would be squandered.”
Delegates agreed that SWFs should only be set up when there is a large surplus of revenue or likelihood of such a surplus. They looked at the role of fiscal rules in ensuring these funds achieve macroeconomic goals such as growth, jobs and price stability.
They also discussed the need to align investments with the Paris Agreement on climate change, and the importance of keeping to environmental, social and governance principles when investing.
Understanding investment risks was also a key issue, given how the public might react to losses.
Commonwealth economic adviser Daniel Wilde said: “We recognise there can never be a single law which perfectly fits all countries. But members have indicated that having a basic outline for legislation, based on international best practices, would be a valuable starting point when they are establishing new natural resource sovereign wealth funds.”
Building on the workshop outcomes, a model law will be drafted and circulated to countries for feedback. Dr Wilde expects the document to be finalised shortly afterwards.