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Previously, I’ve argued that establishing Sovereign Wealth Funds (government owned and managed investments, typically separate from foreign reserves, and sourced through budget surpluses, resource revenues, taxes, and other instruments; or, in other words, giant mutual funds for national, subnational, and Indigenous governments) for non-renewable revenues would be prudent fiscal policy for Canada (Link to What Crisis? Report). One of the principal reasons why is because SWFs can lead to greater investment stability.

Sovereign Wealth Funds typically invest in foreign financial assets. For instance, in 2010, Norway’s Government Pension Fund Global (GPFG) owned shares in almost 8,300 companies in more than 50 countries around the world (Lucke, 2010).

Why are SWFs good for investment stability? Here are 8 functions it performs:

Mitigates Dutch Disease
The Dutch Disease is the phenomenon that occurs when an event (such as an oil boom) prompts a sharp rise in foreign investments into a country, which leads to the driving up of the country’s currency and, in turn, hurts trade. SWFs redirect revenues into funds, rather than directly back into the economy, which mitigates overheated government spending, creating fewer economic and business upheavals.
Protects inter-regional rivalries
By investing only in foreign assets, SWFs protect against inter-regional rivalries. This would be especially important within the Canadian context, as it avoids the already politically charged West-East economies.
Encourages fiscal discipline on governments
When governments do not have direct access to the influx of money made from resource booms or austerity during busts, it creates greater stability in investment environment. In 1998, Norway established the Norges Bank Investment Management (NBIM) and bestowed responsibility of investing the GPFG’s assets to this agency (Caner & Grennes, 2010). NBIM operates independently from, but is accountable to the Ministry of Finance.
Reduces nepotism and favoritism
By investing outside the country, SWFs reduce risks of nepotism and favoritism. Ultimately, it reduces risks around creating more stable investment environment.
Creates predictability of government budgets
SWFs which is critical to planning for infrastructure investments, as well as human capital development. This further builds certainty for investment.
Creates stability
Stable governments, both government services and government employees, create more stable work force and communities. Retaining highly skilled workforce across all sectors is critical, as this reduces risk for outside investment. SWFs can further build or reinforce confidence for long-term investors in their investments in energy projects.
Provides an investment tool to green-proof the resource sector
Investments in SWF can be directed, in part, into green technologies and green energy projects.
Builds intergenerational wealth
A key objective of SWFs is to spread wealth over generations, so that future generations continue to benefit from the development of a country’s non-renewable resources. This is especially important for countries that have limited natural resources.

– Featured photo via Flickr user . Shell, Creative Commons

featured research

From Treaty Peoples to Treaty Nation: A Road map for All Canadians

Although recent court cases have upheld Aboriginal title rights, the cooperative spirit of the treaties is being lost as Canadians engage in endless arguments about First Nations "issues." This book argues that the road ahead is clear: if all Canadians take up their responsibilities as treaty peoples, Canada will become a leader among treaty nations.

The Northern Review 39: Consultation and Resource Development in Northern Communities: Russia, Scandinavia & Canada

A special collection of open access essays, guest edited by Greg Poelzer and published in the Northern Review, focused on the intricate and dynamic formal and informal processes of consultation and engagement with northern communities and stakeholders in resource development.

Community Engagement in Environmental Assessment for Resource Development: Benefits, Enduring Concerns, Opportunities for Improvement

This paper discusses contemporary issues surrounding the efficiency of environmental assessment (EA) and the effectiveness of community engagement with focus on Canadian practice in the last two decades.

Governance in the Arctic: Political Systems and Geopolitics by Greg Poelzer and Gary N. Wilson

The second volume of the Arctic Human Development Report: Regional Processes and Global Linkages provides an update to the first AHDR (2004) in terms of an assessment of the state of Arctic human development; highlights the major trends and changes and identifies policy relevant conclusions and key gaps in knowledge.

What Crisis? Global Lessons from Norway for Managing Energy-Based Economies

Canadian governments currently feeling the pinch over sagging oil prices should aim to invest 100 per cent of natural resource revenues in sovereign wealth funds to help spread out the benefits over time.

More Than Voting by Greg Poelzer, Bonita Beatty, Loleen Berdahl

If Canada and Aboriginal people are going to find a common political path to dealing with conflict, the myth of the politically disengaged Aboriginal citizen needs to be expunged.

The Next Northern Challenge: The Reality of the Provincial North By Ken Coates and Greg Poelzer

Canada’s Provincial North is the vast sub-Arctic expanse that shares northern climates, has close to 1.5 million residents, holds enormous resource potential in oil and gas, forestry, mining, and hydro-electric development, is home to dozens of culturally distinct First Nations, Métis, and Inuit groups, and is facing enormous pressures for change.This region is, as a consequence, the next major public policy frontier for Canadian governments, including the Government of Canada, the seven provinces with significant northern regions, and the Aboriginal governments.

A Work in Progress: Completing the Devolution Revolution in Canada’s North By Ken Coates and Greg Poelzer

This report, co-authored by Ken Coates and Greg Poelzer, examines the process of devolution (the transfer of government power, authority, and resources from the national government to sub-national governments) and its implications for Canada's North. While the authors note that devolution will empower the territorial governments, they also outline some of the challenges presented by the transformation.

Strategic Environmental Assessment Opportunities and Risks for Arctic Offshore Energy Planning and Development

This paper examines stakeholder perceptions of the opportunities and risks of advancing Strategic Environmental Assessment (SEA) for offshore energy planning and development in Canada’s Beaufort Sea.

Northern Voices: A Look Inside Political Attitudes and Behaviours in Northern Saskatchewan

This report summarizes the findings of a three-year study on northern Aboriginal political culture.