With the federal government initiating the establishment of a national sovereign wealth fund, Ottawa could learn valuable insights from Alberta’s experience in managing a similar fund to ensure its success.
Alberta introduced its sovereign wealth fund many years ago; however, frequent withdrawals by provincial governments prevented the fund from substantially growing over time.
The newly proposed Canada Strong Fund will receive an initial $25 billion contribution from the federal government and will also allow individual Canadians to contribute, with the funds designated for major national projects aimed at generating profits, as per government assertions.
Currently, the fund remains at the proposal stage, lacking detailed information on its design and structure.
Although experts generally support the concept of a sovereign wealth fund, they have raised inquiries regarding this particular fund, such as its revenue generation methods, supported projects, and differentiation from other federal entities and financial institutions.
“The devil is in the details,” remarked Charles St-Arnaud, Servus Credit Union’s chief economist. “The notion of investing in national infrastructure is commendable.”
St-Arnaud’s primary concern lies in understanding the fund’s future investment and revenue accumulation strategies.
“The intentions and outcomes are not entirely clear,” he stated.
Alberta’s case demonstrates the temptation faced by politicians to utilize the fund for short-term needs, particularly during deficit budgets, sacrificing long-term growth opportunities in the process.
Understanding Sovereign Wealth Funds
Governments worldwide have established over 100 sovereign wealth funds with the objective of building wealth, often funded by revenue from depleting resources like oil and gas.
These funds vary in size, from Norway’s substantial $2 trillion US fund to smaller accounts set up by U.S. states and certain Canadian First Nations.
The Canadian fund aims to invest in various sectors such as energy, infrastructure, mining, agriculture, and technology, with the federal government borrowing the initial capital.
“The Government of Canada can issue a 30-year bond at a 3.9% interest rate currently. Some projects yield returns of 10 to 15%,” noted Calgary Liberal MP Corey Hogan on CBC Radio’s The Calgary Eyeopener.
“This presents a significant return for Canadians and a way for all of us to benefit from the nation-building endeavors,” Hogan added.
Build Canada, an economic growth-focused think tank, has advocated for a federal sovereign wealth fund but has reservations about Ottawa’s current proposal.
“It’s essentially a sovereign wealth fund in name only,” remarked chief executive Lucy Hargreaves.
“Established sovereign wealth funds are typically funded by surpluses, not debt.”
Hargreaves likened the proposed fund to a war bond, encouraging Canadians to invest in projects the government aims to launch.
“Labeling it a sovereign wealth fund is misleading as it deviates from the operational norms of such funds,” Hargreaves added. Build Canada had proposed a model that accumulates wealth from various federal revenue sources like resource royalties, carbon taxes, windfall taxes, and potential provincial contributions.
