Norway experience of economic transformation through natural resource management Vidar Ovesen Former Deputy Minister of Finance, Norway Adviser to the Oil for Development Programme, Norway Parliamentary Seminar Parliament of Zimbabwe Harare, 13 March 2014

Why do most countries have SWFs? Enable short and medium term stabilisation: ◦ Separating mineral revenues from public expenditures. ◦ Insulates the domestic economy from volatility in prices and production. ◦ Enables smoothening out expenditures over time. Provide for long term savings: ◦ Ensuring future generations can benefit from natural resource extraction. Mitigate real appreciation of the currency and Dutch disease

The Norwegian SWF model All revenues deriving from petroleum flow into the SWF (receipts and return). The SWF is a long term financial savings mechanism to ensure revenue from natural resources benefitting current and future generations (stabilisation and savings). The SWF is invested only in the international financial market based on diversification and a long term investment horizon. The SWF is integrated with the state budget and resources spent domestically are subject to decisions made by Parliament (fiscal policy guideline). The SWF is managed with a high level of transparency. 3

Transparency and accountability Citizens have a legitimate right to know how government resources & revenues are managed. Transparency & accountability prevent corruption, waste and bad governance. Building confidence - necessary to achieve public support and legitimacy in managing common resources. A prerequisite for consensus building which is paramount. Contribute to public awareness and increased understanding within the society at large.

Zimbabwe SWF Bill – some observations 1. SWF Funding Requires budget surpluses. Ideally, savings should not happen if it increases the budget deficit and debt. What matters is the net financial position (savings less debt).

Zimbabwe SWF Bill – some observations 2. The objective of the SWF Clause 4 b: “The object of the Fund is to support the development objectives of the Government, including its long-term economic and social development.” Clause 15: “(…) segregate any portion of the moneys of the Fund into one or more of the following separate accounts, to be styled “Sub-Funds”: (b) an Infrastructure Development Sub-Fund, to facilitate the achievement of the Fund’s object referred to in section 4(b) with respect to infrastructure development;” A financial savings instrument only or also a development fund? Should domestic investments circumvent the budget process?

Zimbabwe SWF Bill – some observations 3. The governance structure: Clause 11: ”The Minister may, in consultation with the President and in accordance with any instructions of the President, give the Board such directions in writing of a general character relating to the exercise by it of its functions as appear to the Minister to be requisite in the national interest.” Clause 14: “Moneys of the Fund not immediately required by the Board to fulfil the Fund’s objects may be invested in such a manner as the Board, with the approval of the Minister and the Minister responsible for finance considers appropriate.” Clause 15: “The Board may, with the approval of the Minister given subject to any directions the President may give the Minister, segregate any portion of the moneys of the Fund into one or more of the following separate accounts, to be styled “Sub- Funds” (…). “ Separate the responsibilities and duties of the policy makers/owner of the fund and the operational management Enable real delegation and checks and balances. Small and effective SWF Board.

Zimbabwe SWF Bill – some observations 4. Revenue receipts: Clause 14: “There shall be paid into the Fund— (a) such portion (not exceeding a quarter) of the royalties payable (…) in respect of each of the following minerals (…); and (b) a portion (…) not exceeding one quarter of the “special dividend” on the sales of (…) All mineral revenues transferred to the SWF or only a share of it? How to ensure the spending is considered within a broad macroeconomic framework?

Zimbabwe SWF Bill – some observations 5. Transparency: Clause 12: The Minister shall table before Parliament all reports submitted to him or her by the Board (…). Clause 16: The Board shall keep a schedule at its offices showing particulars of the Fund’s current investments in sufficient detail to enable members of the public to assess the Fund’s financial soundness, and the Board shall ensure that the schedule is available for inspection at all reasonable times by such persons. The Board shall create and maintain up to date a website which, among other things, will enable members of the public to have access to the schedule referred to in subsection (4) and to the investment mandate. More explicit provisions regarding regular public reporting and disclosure of information? Transparency builds confidence to the management of the mineral revenues.

Summary Important lessons can be learnt from Norwegian experiences, but the framework must be adjusted to local conditions. Some key principles are universal and regarded best international practice, and should be carefully considered. Every country must find its model based on local conditions and current institutional framework. Regardless of institutional framework, a successful management of mineral revenues requires fiscal discipline and political commitment.