Resource Funds: Another Side of the Austerity Die

Abstract

This article analyzes the trend of resource funds adoption among extraction economies. Using commodity-based sovereign wealth funds as a reference point, the article analyzes Norway’s success story in using its funds to foster development and its influence in Sub-Saharan Africa. The prevalent investment strategy of savings in financial assets abroad could be ideal, especially with respect to the intergenerational wealth transfer. However, this is not advisable for a country that still lacks basic needs. The austerity-like measures introduced to build these funds entail a reduction in current spending and/or an increase in natural resource taxes. The aim is to show that this system of hoarding, rather than reinvestments, poses several risks that a developing country cannot afford.

Keywords:

• austerity
• Sub-Saharan Africa
• sovereign wealth funds
• accumulation
• risks

JEL classifications:

• E60
• F34
• F43
• 013
• Q32

Notes

1 Please note that sovereign wealth funds are natural resource funds. They will be used interchangeably in this research.

2 Makhlouf 2010: 39.

3 Please note that years of sovereign wealth fund inception are in parentheses.

4 This refers more to Norway than Algeria because there is still a lot of room for reinvestment in Algeria. Norway is in the very high development category in the HDI measurement, while Algeria is in the high human development category.

5 Stockhammer (2004: 720). Words in parentheses are mine.