Mineral Extraction 101 – Sovereign Wealth Fund – Not the Panacea

Go Lean Commentary

Let’s first establish the ground rules:

“Common Sense” is not common.

Got it? Good!

There are people in our Caribbean communities that believe that their member-state government need to setup a Sovereign Wealth Fund (SWF), double down on Natural Resources exports and pocket the proceeds into their Sovereign Wealth Fund.

This thinking has become more and more common, while not making any sense.

For starters, SWF assumes that the national government have “budgetary surpluses and have little or no international debt” …

… while in actuality, the Caribbean member-states have no surpluses at all. In fact, many of them are using credit facilities just to “make ends meet”.

Examine the full dimensions of SWF’s with the review of this encyclopedic information and VIDEO here:

Title: Sovereign wealth fund

sovereign wealth fund (SWF), sovereign investment fund, or social wealth fund is a state-owned investment fund that invests in real and financial assets such as stocks, bonds, real estate, precious metals, or in alternative investments such as private equity fund or hedge funds. Sovereign wealth funds invest globally. Most SWFs are funded by revenues from commodity exports or from foreign-exchange reserves held by the central bank. By historic convention, the United States’ Social Security Trust Fund, with US$2.8 trillion of assets in 2014, and similar vehicles like Japan Post Bank‘s JP¥200 trillion of holdings, are not considered sovereign wealth funds.

Some sovereign wealth funds may be held by a central bank, which accumulates the funds in the course of its management of a nation’s banking system; this type of fund is usually of major economic and fiscal importance. Other sovereign wealth funds are simply the state savings that are invested by various entities for the purposes of investment return, and that may not have a significant role in fiscal management.

The accumulated funds may have their origin in, or may represent, foreign currency deposits, gold, special drawing rights (SDRs) and International Monetary Fund (IMF) reserve positions held by central banks and monetary authorities, along with other national assets such as pension investments, oil funds, or other industrial and financial holdings. These are assets of the sovereign nations that are typically held in domestic and different reserve currencies (such as the dollareuropound, and yen). Such investment management entities may be set up as official investment companies, state pension funds, or sovereign funds, among others.

There have been attempts to distinguish funds held by sovereign entities from foreign-exchange reserves held by central banks. Sovereign wealth funds can be characterized as maximizing long-term return, with foreign exchange reserves serving short-term “currency stabilization”, and liquidity management. Many central banks in recent years possess reserves massively in excess of needs for liquidity or foreign exchange management. Moreover, it is widely believed most have diversified hugely into assets other than short-term, highly liquid monetary ones, though almost no data is publicly available to back up this assertion.

Early SWFs
Sovereign wealth funds have existed for more than a century, but since 2000, the number of sovereign wealth funds has increased dramatically. The first SWFs were non-federal U.S. state funds established in the mid-19th century to fund specific public services.[4] 

Nature and purpose
SWFs are typically created when governments have budgetary surpluses and have little or no international debt. It is not always possible or desirable to hold this excess liquidity as money or to channel it into immediate consumption. This is especially the case when a nation depends on raw material exports like oil, copper or diamonds. In such countries, the main reason for creating a SWF is because of the properties of resource revenue: high volatility of resource prices, unpredictability of extraction, and exhaustibility of resources.

Concerns about SWFs
The growth of sovereign wealth funds is attracting close attention because:

  • As this asset pool continues to expand in size and importance, so does its potential impact on various asset markets.
  • Some countries, like the United States, which passed the Foreign Investment and National Security Act of 2007, worry that foreign investment by SWFs raises national security concerns because the purpose of the investment might be to secure control of strategically important industries for political rather than financial gain.
  • Former U.S. Secretary of the Treasury Lawrence Summers has argued that the U.S. could potentially lose control of assets to wealthier foreign funds whose emergence “shake[s] [the] capitalist logic”[4] These concerns have led the European Union (EU) to reconsider whether to allow its members to use “golden shares” to block certain foreign acquisitions.[8] This strategy has largely been excluded as a viable option by the EU, for fear it would give rise to a resurgence in international protectionism. In the United States, these concerns are addressed by the Exon–Florio Amendment to the Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100-418, § 5021, 102 Stat. 1107, 1426 (codified as amended at 50 U.S.C. app. § 2170 (2000)), as administered by the Committee on Foreign Investment in the United States (CFIUS).
  • Their inadequate transparency is a concern for investors and regulators: for example, size and source of funds, investment goals, internal checks and balances, disclosure of relationships, and holdings in private equity funds.
  • SWFs are not nearly as homogeneous as central banks or public pension funds.
  • A lack of transparency and hence an increase in risk to the financial system, perhaps becoming the “new hedge funds”.[9]

The governments of SWF’s commit to follow certain rules:

  • Accumulation rule (what portion of revenue can be spent/saved)
  • Withdraw rule (when the Government can withdraw from the fund)
  • Investment (where revenue can be invested in foreign or domestic assets)[10]

Source: Wikipedia Online Encyclopedia – Retrieved January 27, 2021 from https://en.wikipedia.org/wiki/Sovereign_wealth_fund


VIDEO – Sovereign Wealth Funds I A Level and IB Economics – https://youtu.be/K-AKY_WsNv4

Sovereign Wealth Funds control over $7 trillion worth of assets and have become a significant feature of the global economic landscape. In this short revision video we identify countries with sovereign wealth funds and some of the investments they have been making.


Here is where the “common sense” matters. Have you ever loan someone money? (Of course you have, this is a rite of passage into adulthood). Now imagine someone owes you money and then gets a surplus (from which ever source); but instead of paying down the debt to you, they go out and acquire some luxury items instead – think cars, boats or RV’s.

You don’t need a PhD in Economics, to see the logical fallacies – mistaken belief based on unsound arguments – in that scenario. Yet, this is what many Caribbean people are asking from the stewards of their national governance. As citizens of their homeland, Caribbean people want to take ownership of the Natural Resources and exploit their value to benefit themselves more directly – they want to be dividend-receiving shareholders in any SWF. In addition, the actuality of Natural Resources is that they are not as valuable as projected in their Raw Material form. To garner real profits, “we” would have to add value by migrating the Raw Materials into Finished Goods.

An obvious fallacy

This has been the assertion all the while … here in this January 2021 Teaching Series from the movement behind the 2013 book Go Lean…Caribbean. Every month, this commentary engages in an effort to message about reforming and transforming the Caribbean economic engines. We continue to propose strategies, tactics and implementations that would make a positive impact.

This is submission 6-of-6, concluding this January series. This issue is consistent in our theme, as a SWF would have a major impact on Caribbean life and culture. We want to make sound decisions about how to use our Natural Resources, how to manage our debt obligations and how to enrich our people. All of these subjects involve heavy-lifting. See the full catalog of the January series here as follows:

  1. Mineral Extraction 101Raw Materials ==> Finished Goods
  2. Mineral Extraction 101Lesson from History: Jamaica’s Bauxite
  3. Mineral Extraction 101Industrial Reboot – Modern factories – Small footprints
  4. Mineral Extraction 101Commerce of the Seas – Encore
  5. Mineral Extraction 101Restoration after Extraction – Cool Sites
  6. Mineral Extraction 101 – Sovereign Wealth Fund – Not the Panacea

So if the purpose of the “promote more Mineral Extraction in the Caribbean” plan is just to generate additional revenues and have the beneficiaries of those revenues be the citizens themselves, then why does the Sovereign Wealth Fund strategy come “under fire”?

The answer is simple – it’s devoid of “common sense”.

  • Our Natural Resources in the form of Raw Materials is not so valuable so as to generate a lot of economic benefits.
  • Any new revenue stream we acquire must first be used to pay-off old debts, rather than funding dividend checks to shareholders.
  • Some Caribbean member-states have outstanding credit facilities where they are only able to make interest payments, so the principal remains high.

As related in a previous blog-commentary on economic fallacies, the situation in the Caribbean region is likened to …

… the imagery of an animal – a dog perhaps – foraging for food, but then gets distracted and “chases a squirrel up a tree”. The squirrel in the tree will never be a meal; it is just a waste of time and energy for the animal. This analogy conveys the waste of time associated with a frivolous and fallacious pursuit.

We do need help here in the Caribbean homeland for our “sovereign debt and wealth”; we need to reform and transform. This had been the motivation of the Go Lean movement from the very beginning. See this pronouncement from the opening Declaration of Interdependence at the outset of the book (Page 12):

xiv. Whereas government services cannot be delivered without the appropriate funding mechanisms, “new guards” must be incorporated to assess, accrue, calculate and collect revenues, fees and other income sources for the Federation and member-states. The Federation can spur government revenues directly through cross-border services and indirectly by fostering industries and economic activities not possible without this Union.

A Sovereign Wealth Fund, based on trading of our Natural Resources, is not the panacea for our macro-economic ailments. The cure, salve and prescription is still to do the hard-work and heavy-lifting of rebooting our societal engines – No short cuts! This was asserted in a recent Go Lean blog-commentary from October 10, 2020 that addressed the macro-economic disposition for just the Bahamas, but by extension, this assessment can apply to all the Caribbean member-states. See here:

They are in desperate need of alternative funding schemes, ones that mitigate debt. This theme, that debt is bad for Caribbean member-states, aligns with many previous commentaries from the movement behind the Go Lean book.

We are not limited to the Status Quo for Debt Management in the Caribbean. The challenge is money … or capital. We can be Better. We must be Better.

The Go Lean book presents a plan to reboot the region’s fiscal and monetary landscape. The starting approach is to form a cooperative among the region’s existing Central Banks, branding the cooperative as the Caribbean Central Bank (CCB). Then facilitating and regulating the Capital Markets in the region. (The Go Lean book – on Page 200 – identifies 9 different Stock Exchanges in the region).

So this is “common sense” … finally: optimizing our regional debt portfolio would be better than scarring-and-scotching the land and sea to extract Natural Resources or prospecting for precious minerals.

But we still do need additional revenues. What answers does the Go Lean roadmap offer in that regards?

The Go Lean book, serving as a roadmap for the introduction of the Caribbean Union Trade Federation (CU), presents an actual advocacy to present the strategies, tactics and implementations to optimize Government Revenue Sources. See here some of the specific plans, excerpts and headlines from Page 172, entitled:

10 Revenue Sources … for Caribbean Administration

1 Lean-in for the treaty for the  Caribbean Union Trade Federation (CU)

This will allow for the unification of the region into one market, thereby expanding to an economy of 30 member-states, 42 million people and a GDP of over $800 Billion (circa 2010 figures). The Trade Federation will function as a government-owned multi-national corporation to deliver the services for an integrated Caribbean administration. The CU will generate its own revenue streams, without charging fees back to member-states, plus return profits (minus reasonable reserves) back to the member-states as shareholders. The CU will implement the eco-system to collect the revenues and remain financially solvent, without incurring any deficits.

2 E-Payments Settlement

The CU will implement card-based and electronic payments for all e-Government transactions (see Appendix ZV on Page 353) and for all transactions in the monetary union. (Caribbean dollars will be mostly cashless). All settlement (MasterCard-Visa style and also ACH/Fed-Wire style) will be facilitated by the Caribbean Central Bank and interchange fees will be assessed – 1% range). This model also applies to Cruise passenger smart cards in which merchant transactions must be settled daily.

3 In-sourcing e-Government Services

The CU will deploy e-Delivery enterprises for many government services (i.e. property tax assessment/collections, voter registration/polling, records, etc.) and provide these services to the member-states in an outsourcing model. Transaction and maintenance fees will be charged to member-states, but the cost-benefit win-win will always prevail.

4 Property Tax Surcharge
5 Income/Sales Tax Add-ons
6 Industry Licensing (Security, e-Learning, Health Care Monitoring, Postal)
7 Regional Services: GPO, Lottery, Spectrum Auctions, Underwater Cables, Mining/Drilling Rights

Many CU services cross national borders and will garner the resultant revenues. This includes group purchasing (GPO), broadcast rights (spectrum auctions) and [a regional] lottery in conjunction with local state lotteries. The CU will petition the UN for an Exclusive Economic Zone for the waters between the islands. All economic activities in these non-state areas (underwater cables, oil/gas drilling, mines, etc.) will be regulated by the CU and the accompanying revenues garnered.

8 Prison Industrial Complex
9 Natural Disaster Insurance Fund
10 Capital Markets for Treasury Bonds

The points of optimizing Government Revenues and/or fostering best-practices in Debt Management is advanced Fiscal Management; it is not a “magical formula”; it is the viable technocratic heavy-lifting activities that needed to be done. Period!

This theme, better Fiscal Management for the full Caribbean region – individually and collectively – has been detailed in many previous blog-commentaries from the Go Lean movement; consider this sample list here:

http://www.goleancaribbean.com/blog/?p=21200 How to fix the COVID economy?
http://www.goleancaribbean.com/blog/?p=19572 MasterClass: Economics and Society
http://www.goleancaribbean.com/blog/?p=17377 Marshall Plan – Funding: How to Pay for Change
http://www.goleancaribbean.com/blog/?p=16848 Two Pies: Economic Plan for a new Caribbean
http://www.goleancaribbean.com/blog/?p=15796 Lessons Learned from 2008: Righting The Wrong
http://www.goleancaribbean.com/blog/?p=11647 Righting a Wrong: Puerto Rico’s Bankruptcy
http://www.goleancaribbean.com/blog/?p=10513 Transforming ‘Money’ Countrywide
http://www.goleancaribbean.com/blog/?p=8351 A 6-part Series on Economic Fallacies
http://www.goleancaribbean.com/blog/?p=7601 Beware of Vulture Capitalists
http://www.goleancaribbean.com/blog/?p=6563 Lessons from Iceland – Model of Economic Recovery

A Sovereign Wealth Fund is not a bad thing …

… it is good, if a Sovereign country has the funds – incoming revenues – and a sensible debt-to-GDP ratio. If on the other hand, the government is over-extended on debt and a large percentage of a nation’s budget goes to debt servicing, then it is only proper, decent and sensible to pay-down the debt before any scheme to issue dividend checks to citizens.

It is a reasonable expectation that government stewards would be reasonable in managing the public purse. This is the spirit and letter of the implied Social Contract:

Citizens surrender some of their freedoms and submit to the authority of the State in exchange for protection of remaining natural and legal rights.

Technocratic execution of the Social Contract is Good Governance; Good Governance is managing for the kind of society we want to live in:

As a democracy – of the people, by the people, for the people – what is done by the government is done on the people’s behalf, in our name.

“This is on us”.

In summarizing and concluding this 6-part series on Mineral Extraction we see the guidance for the paths in front of us:

  • We must cautiously-and-carefully explore new opportunities for our Natural Resources to be harvested to generate revenues for our people.
  • We must understand that the colonial orthodoxy continues, despite the centuries, in that Raw Materials continue to be valued minimally; only Finished Goods return the desired profit.
  • We must recognize that we have had a tarnished track record in the past and so now we must finally glean the wisdom of this ecosystem’s past and act prudently going forward.
  • Our bad decisioning many times resulted in scarring-and-scotching our terrain; we must now restore the environment. We have models to follow that will allow us to foster “cool” visitor sites for our previous excavated locations.
  • We need to implement factories, mills and refineries (Etc.) to add the value ourselves to our Raw Materials, so that we can keep the maximum profit here at home.
  • Striking it rich with some mineral exploration on land or the sea does not negate the need for “Best Practices” or Good Governance. We must still take care of our business. Our future societal prospects depend on our good planning and execution.

This is the challenge of shepherding the societal engines in the Caribbean region.

Challenge accepted!

This is the assertions of the book Go Lean…Caribbean and the charter of the Go Lean movement, to make the Caribbean homeland a better place to live, work and play.

Yes, we can!

We hereby urge all stakeholders to lean-in to this roadmap to empower and elevate our homeland. This is the Way Forward. Despite not being an easy journey, this roadmap for a unified-integrated-confederated Caribbean region is conceivable, believable and achievable.   🙂

About the Book
The book Go Lean…Caribbean serves as a roadmap for the introduction and implementation of the technocratic Caribbean Union Trade Federation (CU), for the elevation of Caribbean society – for all member-states. This CU/Go Lean roadmap has these 3 prime directives:

  • Optimization of the economic engines in order to grow the regional economy to $800 Billion & create 2.2 million new jobs.
  • Establishment of a security apparatus to ensure public safety and protect the resultant economic engines.
  • Improve Caribbean governance to support these engines, including a separation-of-powers between the member-states and CU federal agencies.

The Go Lean book provides 370-pages of turn-by-turn instructions on “how” to adopt new community ethos, plus the strategies, tactics, implementations and advocacies to execute so as to reboot, reform and transform the societal engines of Caribbean society.

Download the free e-Book of Go Lean … Caribbean – now!

Who We Are
The movement behind the Go Lean book – a non-partisan, apolitical, religiously-neutral Community Development Foundation chartered for the purpose of empowering and re-booting economic engines – stresses that reforming and transforming the Caribbean societal engines must be a regional pursuit. This was an early motivation for the roadmap, as pronounced in the opening Declaration of Interdependence (Pages 11 – 12):

xi. Whereas all men are entitled to the benefits of good governance in a free society, “new guards” must be enacted to dissuade the emergence of incompetence, corruption, nepotism and cronyism at the peril of the people’s best interest. The Federation must guarantee the executions of a social contract between government and the governed.

xii. Whereas the legacy in recent times in individual states may be that of ineffectual governance with no redress to higher authority, the accedence of this Federation will ensure accountability and escalation of human and civil rights of the people for good governance, justice assurances, due process and the rule of law. …

xvi. Whereas security of our homeland is inextricably linked to prosperity of the homeland, the economic and security interest of the region needs to be aligned under the same governance. Since economic crimes … can imperil the functioning of the wheels of commerce for all the citizenry, the accedence of this Federation must equip the security apparatus with the tools and techniques for predictive and proactive interdictions.

Sign the petition to lean-in for this roadmap for the Caribbean Union Trade Federation.

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