Thursday, June 12, 2008

Petronas: Managing Malaysia's Common Wealth

Guan Eng is right (see http://www.malaysiakini.com/news/84325) the wealth of Petronas needs to be made transparent. It's the rakyat's money.
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On how to manage this Common Wealth just take a look at Norway's policy on its oil bounty (see http://en.wikipedia.org/wiki/Norway). In 2006, oil and gas accounted for 58% of exports. To reduce over-heating from oil money and the uncertainty from the oil income volatility, and to save money for an aging population, the Norwegian state started in 1995 to save petroleum income (taxes, dividends, licensing, sales) in a sovereign wealth fund.
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The fund invests in developed financial markets outside Norway. The budgetary rule ("Handlingsregelen") is to spend no more than 4% of the fund each year (assumed to be the normal yield from the fund ). By January 2006, the pension fund had reached a value of USD 200 billion. During the first half of 2007, the pension fund became the largest fund in Europe, with assets totalling about USD 300 billion, equivalent to over USD 62,000 per capita.
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As such, the Norwegian state has savings equal to 100% of the Norwegian GDP. Norway has the largest capital reserve per capita of any nation (April 2007). Projections indicate that the Norwegian pension fund may become the largest capital fund in the world.
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It is the second largest state-owned sovereign wealth fund in the world, second only to the sovereign wealth fund of Abu-Dhabi. Conservative estimates tell that the fund may reach USD 800-900 billion by 2017. Other natural resource-based economies in countries like Russia and Chile are trying to learn from Norway by establishing similar funds.
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Why can't we do the same thing in Malaysia? It's not as if we need to re-invent the wheel. No need for lawatan sambil belajar. Just call the Norwegian embassy to invite their experts to come over to help us set it up!

1 comment:

nilesh said...

To understand Norway's Wealth better, read this.