sovereign wealth fund
A sovereign wealth fund is money a country saves and invests from its resource earnings, so that the wealth outlives the resource.
In plain English
Oil runs out. Or its price collapses. Or the world stops wanting it. A sovereign wealth fund is the answer a wise country gives to that certainty, and it must be given while the money is still arriving.
The idea is simple and enormously difficult to execute. When resource revenues are high, save a portion rather than spending all of it. Invest that portion, globally, in assets that will still be producing income when the oil is gone or unwanted.
Norway is the example everybody cites, and rightly. It found oil, saved much of the proceeds, and now holds one of the largest funds in the world, which will support Norwegians long after the last barrel.
Nigeria has the Nigeria Sovereign Investment Authority, and it is worth being honest that it is very small relative to the oil revenue this country has earned across five decades.
The reason is not mysterious and it is not unique to Nigeria. Saving requires not spending, and there is always an urgent, genuine, morally compelling reason to spend today. Every year, forever.
It is precisely the same problem you have with your own salary, at a national scale. And the country fails at it for exactly the same reason that most people do.
Two countries earn identical oil revenue over thirty years. One saves and invests a portion every year. The other spends it all, always for good reasons. When the oil price collapses, one has a fund producing income and the other has memories and debt.
Questions people ask
Does Nigeria have one?
Yes, the Nigeria Sovereign Investment Authority. It is small relative to the oil revenue Nigeria has earned over the decades.
Why is Norway's so large?
Because it consistently saved a share of oil revenue over decades and invested it globally, resisting the constant pressure to spend it.
What is it invested in?
Typically global shares, bonds and infrastructure, deliberately outside the home economy, so the fund does not fall at the same moment the country needs it.
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