commodity based sovereign wealth funds

155 Pages·2017·1.61 MB·English

by  Omosalewa Olawoye

COMMODITY
 BASED
 SOVEREIGN
 WEALTH
 FUNDS:

AN
 ALTERNATIVE
 PATH
 TO
 ECONOMIC
 DEVELOPMENT

A
 DISSERTATION
 IN

Economics

and

Social
 Science
 Consortium

Presented
 to
 the
 Faculty
 of
 the
 University
 of

Missouri-­‐Kansas
 City
 in
 partial
 fulfillment
 of

the
 requirements
 for
 the
 degree

DOCTOR
 OF
 PHILOSOPHY

By

OMOSALEWA
 OLUYINKA
 OLAWOYE

B.A.,
 Laurentian
 University,
 2009

M.A.,
 University
 of
 Missouri,
 Kansas
 City,
 2015

Kansas
 City,
 Missouri

2016
©
 2016

OMOSALEWA
 OLUYINKA
 OLAWOYE

ALL
 RIGHTS
 RESERVE

  ii
COMMODITY
 BASED
 SOVEREIGN
 WEALTH
 FUNDS:
 AN
 ALTERNATIVE
 PATH
 TO

ECONOMIC
 DEVELOPMENT

Omosalewa
 Oluyinka
 Olawoye,
 Candidate
 for
 the
 Doctor
 of
 Philosophy
 Degree

University
 of
 Missouri,
 Kansas
 City,
 2016

ABSTRACT

Natural
  resource
  producing
  countries
  struggle
  with
  issues
  about
  how
  to

make
  use
  of
  their
  natural
  resources
  properly,
  allocate
  the
  funds
  from
  these

resources
 and
 how
 to
 ensure
 continuity
 of
 these
 resources
 and
 their
 effects
 through

the
 years.
 Commodity
 based
 sovereign
 wealth
 funds
 offer
 a
 channel
 through
 which

these
 can
 be
 achieved.
 This
 dissertation
 studies
 these
 funds
 with
 respect
 to
 how

they
 can
 be
 used
 to
 finance
 development
 in
 resource
 rich
 countries.

Each
  chapter
  examines
  natural
  resource
  funded
  sovereign
  wealth
  funds

called
 commodity
 based
 sovereign
 wealth
 funds
 (CBSWF),
 from
 different
 angles.

This
 includes
 analyses
 of
 what
 these
 funds
 are,
 how
 they
 are
 currently
 used,
 the

dangers
 in
 the
 current
 savings-­‐like
 investment
 strategy
 and
 then
 proposes
 new
 real

investment
 strategies
 that
 can
 encourage
 growth
 for
 these
 countries.
 The
 aim
 of

these
 analyses
 is
 to
 suggest
 these
 funds
 as
 an
 alternative
 path
 towards
 growth
 and

development
 in
 natural
 resource
 owning
 economies.

To
 achieve
 this,
 we
 look
 at
 the
 pre-­‐
 and
 post-­‐
 CBSWF
 era
 of
 some
 CBSWF

owning
 countries
 except
 for
 Iraq,
 Iran
 and
 Libya,
 which
 have
 recently
 experienced

  iii
wars
 that
 have
 disrupted
 these
 economies
 and
 countries.
 Some
 of
 the
 countries

being
 studied
 have
 recently
 adopted
 these
 funds
 or
 have
 not
 done
 anything
 with

these
  funds.
  Thus,
  it
  is
  difficult
  to
  analyze
  the
  effects
  of
  these
  funds
  in
  these

countries.
 We
 compare
 these
 countries’
 Gross
 Development
 Product
 (GDP)
 and
 their

Human
 Development
 Indicators
 (HDI).
 We
 analyze
 these
 data
 before
 and
 after
 these

funds
 were
 adopted
 in
 these
 countries
 to
 see
 how
 effective
 these
 funds
 have
 been

with
 respect
 to
 economic
 growth
 and
 development.
 We
 take
 a
 look
 at
 the
 failures
 of

the
 current
 savings
 led
 investment
 strategy
 of
 some
 countries
 that
 have
 adopted

these
 funds.
 Then
 we
 propose
 alternative
 real
 sector
 development
 financing
 that

ensures
 sustainable
 growth
 in
 these
 countries.
 This
 is
 done
 in
 order
 to
 advocate
 for

a
 real
 investment
 led
 growth
 in
 natural
 resource
 owning
 countries.

  iv
APPPROVAL
 PAGE

The
 faculty
 listed
 below,
 appointed
 by
 the
 Dean
 of
 the
 School
 of
 Graduate

Studies,
 have
 examined
 a
 dissertation
 titled
 “Commodity-­‐Based
 Sovereign
 Wealth

Funds:
 An
 Alternative
 Path
 to
 Economic
 Development,”
 presented
 by
 Omosalewa

Oluyinka
 Olawoye,
 Candidate
 for
 the
 Doctor
 of
 Philosophy
 degree,
 and
 certify
 that
 in

their
 opinion
 it
 is
 worthy
 of
 acceptance.

Supervisory
 Committee

Mathew
 Forstater,
 Ph.D.,
 Committee
 Chair

Department
 of
 Economics

Jimmy
 Adegoke,
 Ph.D.

Department
 of
 Geosciences

Douglas
 Bowles,
 Ph.D.

Social
 Science
 Consortium

Stephanie
 Kelton,
 Ph.D.

Department
 of
 Economics

Scott
 Fullwiler,
 Ph.D.

Department
 of
 Economics

  v
CONTENTS

ABSTRACT………………………..……………………………………….……………………………………..iii

LIST
 OF
 TABLES……………………………………………………….………………………………………vii

LIST
 OF
 ILLUSTRATIONS………….…….……………………………..…………………………………
 viii

ACKNOWLEDGEMENTS………………………………………………………..………………….……….
 ix

Chapter

1. INTRODUCTION..…………………….……………………………….………………….
 1

2. HOW
 THESE
 FUNDS
 ARE
 SPENT……………………………………….……..….
 20

3. FINANCIALIZATION
 AND
 RISKS..…………………….…………….……………..
 56

4. SUSTAINABLE
 DEVELOPMENT
 POLICY
 OPTIONS……………..………….
 85

5. VISION
 2030
 AND
 DEVELOPMENT
 PATHS
 IN

SUB-­‐SAHARAN
 AFRICA…………………………..…………….………………………………
 118

6. CONCLUSION
 AND
 DIRECTIONS
 FOR
 FUTURE
 RESEARCH………….
 129

REFERENCES…………………………………………………………………………………….…………...
 132

VITA……………………….………………………………………….…………………………………………..
 147

  vi
TABLES

Table

  Page

1.
 Qualitative
 Comparative
 Analysis
 Truth
 Table
 of

Commodity
 Based
 Sovereign
 Wealth
 Funds
 Countries..…………..………..…..
 54

2.
 List
 of
 Countries
 and
 Their
 Funds..………………………………….……………..…
 79

3.
 Fuzzy
 Qualitative
 Comparative
 Analysis
 of

Investment
 Ingredients
 and
 Outcomes.…………………………………………….…
 117

4.
 Development
 Path
 Table
 for
 Some

Sub-­‐Saharan
 African
 Countries…………………………………………………..………
 125

  vii
ILLUSTRATIONS

Figure

 Page

1. GDP
 Per
 Capita:
 Papua
 New
 Guinea.……………..…………………………….
 40

2. Sovereign
 Wealth
 Funds
 Financial

Portfolio
 Breakdown.……………………………………………………………………………
 63

3. Financialization
 Effects
 on
 the

GDP
 per
 Capita
 of
 CBSWF
 Countries…….…………………………..……………………
 64

4. Exchange
 Rate
 Trends
 from

February
 2006
 to
 March
 2015..………………………………….…..………………………
 68

5. Value
 of
 the
 Top
 15
 CBSWF.………………………………………………………..
 92

6. Percentage
 Share
 of
 the
 Top
 15
 CBSWF.………………………………………
 92

7. Employment
 Sector
 in
 Norway..……………………………………………….…
 97

8. Sustainable
 Paths
 for
 CBSWF
 Developing
 Countries.…………………..
 102

  viii
ACKNOWLEDGEMENTS

A
 popular
 African
 proverb
 says,
 “It
 takes
 a
 village
 to
 raise
 a
 child.”

My
 family
 and
 academic
 “village”
 have
 made
 my
 doctoral
 degree
 possible.

I
 would
 like
 to
 specially
 thank
 my
 advisor,
 Professor
 Mathew
 Forstater

for
  his
  support
  throughout
  my
  years
  in
  Kansas
  City
  and
  for
  being

someone
 I
 could
 trust
 and
 run
 to
 whenever
 I
 got
 stuck.
 I
 would
 also
 like

to
 thank
 the
 rest
 of
 my
 committee
 –
 Professor
 Jimmy
 Adegoke,
 Professor

Stephanie
 Kelton,
 Dr
 Scott
 Fullwiler
 and
 Dr.
 Douglas
 Bowles
 –
 for
 their

input
 and
 direction.
 My
 sincere
 gratitude
 goes
 to
 Dr
 Linwood
 Tauheed
 for

his
 help
 during
 the
 development
 of
 this
 dissertation.
 A
 special
 thank
 you

is
  extended
  to
  Dr.
  Louis-­‐Philippe
  Rochon
  for
  his
  support
  since
  my

undergraduate
 days
 and
 for
 being
 with
 me
 every
 step
 of
 the
 way
 since

then.

Last
 but
 definitely
 not
 least,
 I
 would
 like
 to
 thank
 my
 friends
 and

family
 especially
 my
 mother,
 Foyinsola
 Olawoye
 for
 being
 my
 biggest

cheerleader
 and
 encourager.

  ix
DEDICATION

Dedicated
 to
 the
 memories
 of
 my
 father,
 Raphael
 Iranola
 Olawoye,
 and
 my

brother,
 Oreoluwa
 Olawoye.

  x