Lessons From Norway’s Oil Fund Investment Losses

NII MOI CALLS FOR LOCAL CAPACITY

…To safeguard oil wealth

By J. Ato Kobbie, Managing Editor

A leading Ghanaian Economist, Dr. Nii Moi Thompson, has called for an
accelerated skills development in anticipation of the new challenges that the
country’s emerging oil producer status presents.

Speaking to The Business Analyst in the wake of recent losses suffered by
Norway
in its oil fund investments, Dr. Thompson said it was important that training
and education for those in responsible positions and those needed, as far as
the
country’s emerging oil economy status was concerned, to be accelerated to
enable
them measure up to the tasks required of them.
In this direction, he said there was the need to encourage young men and women
in tertiary institutions, to enter the various fields where their services
would
be most needed, in order for them to attain the necessary expertise and
experience to meet challenges.
Dr. Thompson said this was necessary to overcome the challenges that come up,
such as happened to Norway, an oil economy that lost hundreds of millions of
dollars because it relied on the expertise of ‘international experts’ to
analyse
and advise on its oil wealth investment.
He said it was important that the country develops the local capacity to
determine not only where to invest the country’s oil wealth, but also monitor
the performance of such investments and advise appropriately.
He said Government and sector participants must collaborate to have such
training countrywide, for instance, in a northern sector-southern sector
approach to create an even field for all Ghanaians.
Norway, touted as one of the world’s best examples of best practice in oil
revenue management, for which reason many watchers of Ghana’s oil sector have
advocated for Ghana to learn from that country, is fighting to recover losses
to
its oil fund.
The Norwegian Central Bank, Norges Bank, has dragged Citigroup Incorporated of
the United States of America (U.S.A.) to court, accusing it of providing
“untrue
statements and non-disclosure of material information to investors,” which led
to losses of about 835 million dollars to the Norwegian sovereign wealth fund.
The sovereign fund is the fund into which Norway invests its oil wealth for
future generations and its $459 billion Government Pension Fund Global, the
world’s second-largest, after Abu Dhabi’s, is managed by the Central Bank.

Ghana’s version of the Norwegian ‘Oil Fund’ for future generations has been
christened ‘The Heritage Fund,’ in the Petroleum Revenue Management Bill, which
is before Parliament, and already, some analysts have been advocating for
investing that fund on the international bonds market.

It is not clear however, how a clearer knowledge of the depth of the impact of
the financial crisis that hit the international bond market, would influence
the
debate on where and how best to invest Ghana’s ‘oil fund’ when it takes off.
First significant commercial oil production from Ghana’s Jubilee field is
scheduled to kick-start in November-December this year.

The Norwegian suit names 20 of Citigroup’s current and former executives and
directors, including: Chairman, Richard Parsons, current chief executive Vikram
Pandit, and his predecessor, Charles ‘Chuck’ Prince.
“Norges Bank lost in excess of 735 million dollars on its investments in
Citigroup common shares and in excess of 100 million dollars on its investments
in bonds and preferred shares,” stated a September 17 lawsuit, filed in a
Manhattan federal court.
The suit continued that due to the defendants’ repeated material untrue
statements and non-disclosure of material information to investors, plaintiff
purchased Citi securities at inflated prices (between January 2007 and January
2009).
The Norwegian Central bank argues further that “When the market slowly learned
the truth of Citi’s financial condition, Citi came close to insolvency, and
plaintiff lost a substantial amount of its investment.”

“Citi’s near-demise” according to the Norwegians, “had its genesis in the
company’s increasing willingness to take on risk for the sake of profit,
without
regard for -- and without disclosing -- the magnitude of the downside exposure
it faced if those risks materialized.”
The fund lost 23% of its value in 2008 when global markets took a dip, posting
a
record 633 billion kroner ($107.6 billion) loss in 2008 thus wiping out gains
made since the fund started investing the country’s oil revenue in 1996.

The oil fund had a 26 percent return last year.
“We believe the suit has no merit and will defend ourselves vigorously,” was
the
response from Danielle Romero-Apsilos, a Citigroup spokeswoman in a statement.

‘The case (title) is Norges Bank v. Citigroup, 10-cv-07202, U.S. District Court
for the Southern District of New York (Manhattan)’.