Part 21 Sovereign Wealth Fund of Gabon (Fonds Souverain de la Republique Gabonaise)--Reimaging the State in the Global Sphere: An Inventory of Sovereign Wealth Funds as Regulator and Participant in Global Markets

(Pix (C) Larry Catá Backer 2014)

This Blog Essay site devotes every February to a series of integrated but short essays on a single theme. For 2014 this site introduces a new theme:  Reimaging the State in the Global Sphere: An Inventory of Sovereign Wealth Fund as Regulator and Participant in Global Markets.

There have been a number of studies that have sought to provide an overarching structure for understanding SWFs. The easiest way to to this is to find the largest and most influential funds and then extrapolate universal behaviors or characteristics from them. This is a useful enterprise, it may erase substantial nuance that itself might provide the basis for a deeper understanding of SWFs within globalization and in the context of a state system in which not all states are created equal. In this sense, while the large SWFs are better known, they do not define the entire field of emerging SWF activity. This study provides a brief critical inventory of the emerging communities of sovereign wealth funds. Each post will consider a different and less well known SWF. Taken together, these brief studies might suggest the character and nature of the emerging universe of SWFs, and their possible rationalization.

This post considers the Sovereign Wealth Fund of Gabon (Fonds Souverain de la Republique Gabonaise).

(Pix Le Gabon.org)

The Sovereign Wealth Fund of Gabon (Fonds Souverain de la Republique Gabonaise FSRG) is another of the recently created African SWFs.  Its purpose. like that of Ghana, Mauritania and Angola, as well as that of Nigeria, represent an emerging pattern of fiscal discipline for developing states.  They all serve to detach and perhaps make more difficult, the ability of a state to dip into its wealth for current spending except as permitted under the framework established for the operation of this "special" account.  

In the past, Gabon has had trouble with insufficient fiscal management, overinflated public sector operating costs, and payment delays on public building projects. In an effort to better utilise income for economic growth, the government remodelled the Fund for Future Generations and launched a new sovereign wealth fund (SWF) in February, which will henceforth be managed exclusively by the newly created Strategic Investment Fund (FGIS). The FGIS will also be responsible for managing all of the government’s stakes.  (Gabon: Partnered for growth, Le Gabon.org Aug. 15, 2012). 

In the past, Gabon has had trouble with insufficient fiscal management, overinflated public sector operating costs, and payment delays on public building projects. In an effort to better utilise income for economic growth, the government remodelled the Fund for Future Generations and launched a new sovereign wealth fund (SWF) in February, which will henceforth be managed exclusively by the newly created Strategic Investment Fund (FGIS). The FGIS will also be responsible for managing all of the government’s stakes. - See more at: http://www.en.legabon.org/news/657/gabon-partnered-growth#sthash.TyzNWys5.dpuf

n the past, Gabon has had trouble with insufficient fiscal management, overinflated public sector operating costs, and payment delays on public building projects. In an effort to better utilise income for economic growth, the government remodelled the Fund for Future Generations and launched a new sovereign wealth fund (SWF) in February, which will henceforth be managed exclusively by the newly created Strategic Investment Fund (FGIS). The FGIS will also be responsible for managing all of the government’s stakes. - See more at: http://www.en.legabon.org/news/657/gabon-partnered-growth#sthash.TyzNWys5.dpuf

Thus the purpose of these SWFs may well be to increase or preserve national wealth, but the principal objective is directed inward rather than outward as a means of leveraging private power for public aims beyond national borders.  And, indeed, it is sometimes understood as a means of constraining corruption.

It is my considered argument that in nations such as Nigeria, Equatorial Guinea, Congo[Kinshasha] Gabon, Angola among others whereby natural resources endowed to those entities are explored and the revenue accruable from the export of those rare resources stolen by successive political administrations and diverted to private pockets, it would be imperative for such countries to consider establishing Sovereign Wealth Funds and for strong institutional and legal frameworks to be enforced for the national assets saved in form of sovereign wealth funds used to build functional infrastructure to promote better life for the greatest number of the citizenry. ( Emmanuel Onwubiko, Is Sovereign Wealth Fund a Right?, The Nigerian Voice, Jan. 14, 2013).

International financial organizations have added the SWF to it toolkit for fiscal discipline in developing states, as we have seen in other cases.  (e.g., Udaibir S. Das, Yinqiu Lu, Christian Mulder, and Amadou Sy, Setting up a Sovereign Wealth Fund: Some Policy and Operational Considerations, IMF Working Paper WP/09/179, 2009).  But this approach has been subject to criticism. "Resource-rich African countries are busy setting up sovereign wealth funds, but critics say the funds may not serve the long-term interests of poor countries that still need to invest in basics such as schools and roads. . . . [C]ritics say Africa could reap more from its resources by investing in education, energy, and transport to feed other industries, rather than parking the money in liquid but low-yield assets in safe havens, as sovereign funds tend to do." (African Countries Race To Build Sovereign Wealth Funds, African Globe, Feb. 14, 2014).

In any case, Gabonese policy determined that the establishment of a SWF was in its interests.

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. . . .

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. (Gabon Creates Latest Oil-Fueled SWF, AI-CIO, Feb. 7, 2012).

The Ministerial press communiqué establishing the  FSRG may be accessed HERE. In 2013 Gabon's Serge Mikoto, CEO of National Fund for Investment spoke with ABN's Wole Famurewa about how Gabon's sovereign wealth fund has been managed and how the company plans  to invest in other African countries to invest in other African countries.  SEE HERE.

But the story of FSRG is not one of creation out of while cloth.  According to the U.S. State Department:

Since 1998, Gabon maintained a reserve account at the BEAC to be used as a fund for future generations. In 2010, Gabon converted it to a Sovereign Wealth Fund (SWF) called the Sovereign Fund of the Gabonese Republic. The fund amounts to about $10 million and is managed by a presidential decree. In 2011, Gabon set up a stimulus fund to carry funds for capital projects over into the next budget year to improve the oversight and quality of spending and release resources for growth-enhancing and social projects. The Government reserves these funds for strategic projects in line with the “Emerging Gabon” economic agenda. (U.S. Department of State, Bureau of Economic and Business Affairs, Report--2012 Investment Climate Statement - Gabon (June 2012)).

The FSRG is funded from out of petroleum revenues. "Les ressources sont gérées par le Fonds Gabonais d'Investissements Stratégiques, ayant pour mission de les rentabiliser via des placements stratégiques." (Romuald 'YONGA, Guides de Fonds Souverains Africains, Oct. 2012).  It is placed under the direct control of the Presdient of the Republic.  (Frédéric Maury,  Gabon : le fonds souverain doté de 500 milliards de francs CFA  Jeune Afrique, Feb. 6, 2012,  "Il est placé sous l'autorité du président de la République Ali Bongo Odimba.").  The investment objectives of the FSRG is to diversify economic development in Gabon, rather than to project Gabonese wealth outside the state through investments in foreign state markets.  It is managed by the Bank of Central African States (BEAC).

Autrement dit, la mission de Serge Mickoto à la tête du FGIS est de rentabiliser via des placements stratégiques les ressources que l'État gabonais verse annuellement au FSRG et qui proviennent notamment des recettes pétrolières (environ 10 %). Autant dire que cet ancien directeur financier de BGFI Bank, premier groupe bancaire d'Afrique centrale, est l'une des personnes clés de la stratégie de diversification de l'économie gabonaise initiée par le président Ali Bongo Ondimba (ABO). (Stéphane Ballong, Gabon : Serge Mickoto prépare l'après-pétrole,  Jeune Afrique, April 23, 2012 ["In other words, the mission of Serge Mickoto the head of FGIS is to return a profit through the strategic investment of resources that the Gabonese government transfers annually to FSRG and which comes mainly from oil revenues (about 10%). Suffice it to say that the former CFO of BGFIBank first banking group in Central Africa, is one of the key people in the strategy of diversification of the Gabonese economy initiated by President Ali Bongo Ondimba (ABO)."]).

However, it appears that the Gabonese President has broadened the investment scope of the FSRG to include some strategic investments abroad in clearly identified strategic industries. "To achieve this objective, FSRG has invested both in Gabon and abroad in companies in the infrastructure, mining, port management and other key areas identified by the policies of President Ali Bongo. In this respect, the FGIS was one of the sources used for government involvement in public-private partnership (PPP) with the Singapore Aman Resorts, for an investment of at least $ 70 million over five years." (Biggie Malouana, Le Fonds gabonais d’investissements stratégiques s’adjuge 8% d’Oragroup, Gabon Review, 8 Oct. 2013 (The FSRG also took an 8% interest in Oragroup a pan-African banking group)).

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2011 Petroleum Revenue Management Act

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