Iliyas Akmaral K.
L.N. Gumilyov Eurasian National University, Astana
Why the growth of sovereign wealth funds is attracting close
attention?
The global financial crisis had a strong negative impact on international
financial markets and the economic development of all countries led to large
corporate foreign debts. There is a relation between direct dependence on
global raw material market prices and the instability of global financial
system. They are undermining the stability of economy significantly and
threatening its further effective development.
Sovereign wealth funds have been
recognized as well-established institutional investors and important
participants in the international monetary and financial system. The term
sovereign wealth fund was first used in 2005. The Central Banking journal
described the shift from traditional reserve management to sovereign wealth
management [3].
With reference to Generally Accepted Principles and Practices
(GAPP) the International Working
Group of Sovereign Wealth Funds was established at a meeting of countries with
SWFs, 2008, in Washington, D.C at facilitated and coordinated by the
International Monetary Fund [4].
SWFs are defined as special
purpose investment funds or arrangements, owned by the general government.
Created by the general government for macroeconomic purposes, SWFs hold,
manage, or administer assets to achieve financial objectives, and employ a set
of investment strategies which include investing in foreign financial assets.
The SWFs are commonly established out of balance of payments surpluses,
official foreign currency operations, the proceeds of privatizations, fiscal
surpluses, and receipts resulting from commodity exports.
According to GAPP
definition SWF excludes, inter alia,
foreign currency reserve assets held by monetary authorities for the
traditional balance of payments or monetary policy purposes, operations of
state-owned enterprises in the traditional sense, government-employee pension
funds, or assets managed for the benefit of individuals.
According statement of generally accepted principles
and practices “Santiago principles” SWF consists of three key elements:
-
Ownership: SWFs are owned by the general government, which includes both central government and
subnational governments.
-
Investments: The investment
strategies include investments in foreign
financial assets, so it excludes those funds that solely invest in
domestic assets.
-
Purposes and Objectives: Established
by the general government for macroeconomic purposes, SWFs are created to
invest government funds to achieve financial
objectives [4].
In the
results, SWFs are special purpose investment funds that are owned by the general
government for macroeconomic purposes. SWFs hold, manage, or administer assets
to achieve financial objectives, and use a set of investment strategies that
include investing in foreign financial assets.
SWFs are a heterogeneous group, comprising fiscal stabilization funds,
reserve investment corporations, savings funds, pension reserve funds without
explicit pension liabilities and development funds.
The GAPP include by the following guiding objectives
for SWFs: to help maintain a stable global financial system and free flow of
capital and investment; to comply with all applicable regulatory and disclosure
requirements in the countries in which they invest; to invest on the basis of
economic and financial risk and return-related considerations; and to have in
place a transparent and sound.
Consider underlying principles and practices in
different institutional, constitutional, and legal settings existing in various
countries.
According to
Constitution of Republic of Kazakhstan is an unitary government that to the World Bank’s Ease of Doing
Business Index 2011, Kazakhstan holds 59th position, ahead of such countries as
the Czech Republic, China, Russia and Ukraine. According to rankings in The
Global Competitiveness Report 2010—2011 released by the World Economic Forum,
Kazakhstan holds 72nd position [1].
In response to the global economic instability of the
last few years, the government introduced a stimulus package aimed at ensuring
sustainability of the financial system, supporting the real estate and
construction sector, as well as small and medium enterprises and agriculture
and investing in innovative projects and infrastructure.
The Kazakhstan announced the creation of its own
sovereign fund. A document signed on October 13, 2008, by Kazakhstan’s
president Nazarbaev Nursultan officially introduced the fund[1].
Sovereign Wealth Fund “Samruk-Kazyna” is established in order to enhance
competitiveness and sustainability of national economy and prevent any
potential negative impact of changes in the world markets on economic growth of
the country. SWF “Samruk-Kazyna” accumulates shares of major national
companies, development institutions and social entrepreneurship corporations —
more than 400 companies in total [1].
SWF “Samruk-Kazyna” is to provide maximum support to the
Government of Kazakhstan, promptly and efficiently responding to the needs in attracting
investments into real economy, becoming more active in the regions, strengthening
inter-industry and inter-regional links and making maximum use of available advantages
and opportunities [5].
According to the report by the Chairman of the Board of
- “Samruk-Kazyna”, the Fund has provided
93 percent of all investments in the energy sector nationwide, 86 percent of investments
in oil refinery sphere and infrastructure, and 84 percent of the total amount of
investments in chemicals and pharmaceuticals.
In 2010, the Fund has managed to complete the implementation
of the governmental anti-crisis program, using 91 percent of the allocated funds
or KZT 1,087.5 trillion (KZT 147 = US$ 1).
The Fund is also responsible for realization of 21 projects
worth US$ 22 billion within the Program for Accelerated Industrial and Innovative
Development [2].
Several reasons why
the growth of sovereign wealth funds is attracting close attention.
-
As this asset pool continues to expand
in size and importance, so does its potential impact on various asset markets.
-
Some countries worry that foreign investment
by SWFs raises national security concerns because the purpose of the investment
might be to secure control of strategically important industries for political rather
than financial gain
-
Their inadequate transparency is a concern
for investors and regulators. For example, size and source of funds, investment
goals, internal checks and balances disclosure of relationships and holdings in
private equity funds.
-
SWFs are not nearly as homogeneous as
central banks or public pension funds. However they do have a number of interesting and unique characteristics
in common. These make them a distinct and potentially valuable tool for achieving
certain public policy and macroeconomic goals.
According to annual report 2009: 52 % of GDP of Kazakhstan
(USD 75 billion), 48 major industrial companies of Kazakhstan –the Fund’s assets,
60 % of the total deposit base of the country falls to the share of the banks with
the Fund’s participation. “Samruk-Kazyna” Fund is engaged in providing the business with a proper infrastructure, enabling the business
to increase its efficiency and 157 large and strategic investment projects to the
total amount of USD 109 billion – the total investment portfolio of the Fund
[5].
References
1. Association, Kazakhstan Foreign
Investors’ Council. 2010. Success stories: foreign investors in kazakhstan ideas for
potentional players. s.l. : http://www.invest.gov.kz, 2010.
2. Gov’t Reviews Annual Report by
Samruk Kazyna National Welfare Fund.2011 s.l. :
www.mfa.kz, Jan 25, 2011.
3. Rozanov, Andrew. 2005. Who holds the wealth of nations? Central
Banking Journal. (May) 2005
4. Sovereign wealth funds,
International working group of sovereign. 2008. SWF Generally
accepted principles and practices 'Santiago Principles'. s.l. : http://www.iwg-
swf.org/pubs/eng/santiagoprinciples.pdf, 2008.
5. Summary, executive. 2009. Strategic development priopities of
SWF Samruk-Kazyna.. s.l. : www.samruk-kazyna.kz,
2009.
[1] The Sovereign Wealth
Fund “Samruk-Kazyna” was the merger of Joint Stock Company “Sustainable
Development Fund”- “Kazyna”, and “Kazakhstan Holding for Management of State
Assets”- “Samruk”.)