Mauritius has consistently shown resourcefulness. An instinctive ability to “trase” allowed us to navigate as a nation, with reasonable success. However, history occasionally throws moments that are beyond the daily hustle, to be grasped by the visionary. The signing of the Chagos agreement with the United Kingdom provides a financial settlement of historic proportions, worth tens of billions of rupees. How we act as trustees of this bounty will define whether Chagos becomes a true legacy for future generations. If these funds are absorbed into the government’s budget, they will quickly dissipate, eroded by persistent inflation and the ever-growing appetite of a rapidly ageing population. If channelled into a permanent investment vehicle of trust, this could provide new impetus for our economic development. What can we learn from others to seize this moment for our nation’s future?
Sovereign Wealth Funds their Background and History
Mauritius is unusual in not having a Sovereign Wealth Fund (SWF). While we have the Mauritius Investment Corporation (MIC), its inception, governance and investment scope differ significantly from the independent, intergenerational nature of a true SWF. Over 70 countries, many less developed economies than ours, have such entities. A SWF is a state-owned vehicle that holds and independently manages portfolios of assets and endowments on behalf of a country indefinitely into the future. Modern SWFs operate with a blend of three key long-term strategic missions:
(a) macroeconomic stabilisation,
(b) intergenerational savings,
and (c) strategic investments for development.
SWFs evolved from various ideological threads in economics. The basic premise rests on a very old idea in economics (and in common sense!): Do not waste a windfall; Save for a rainy day and smooth your spending over time. This was formalised in Milton Friedman’s permanent-income hypothesis which argues that households (and by analogy, countries) should base spending on sustainable income. The idea of independent management of SWFs flows from the theoretical rationale for central bank independence articulated by economists including Milton Friedman, Robert Barro, and David Gordon: Central banks perform better when monetary policy is insulated from day-to-day politics and entrusted to independent technocrats with clear rules. SWFs extend this logic of institutional independence from monetary policy to national wealth.
While the case for setting up SWFs comes from neoclassical economics, how they are used in practice derives from other schools of thought, notably New Keynesian macroeconomic stabilisation and insights from development economics for the state acting as anchor investor to catalyse private capital (following Albert Hirschman, Dani Rodrik and Paul Rosenstein-Rodan, among others).
The first SWF was created by Kuwait in 1953, followed by other oil-rich nations, that recognised that resource income was temporary, volatile, and needed to be converted into lasting wealth. Outside the resource giants, other countries saw the value of the model. Singapore with its legendary foresight, established two SWFs: Temasek in 1974 to professionalise the management of state-owned enterprises, and GIC in 1981 to manage foreign-exchange reserves. Hong Kong had set up its Exchange Fund as far back as 1935 to back its currency, eventually evolving into a SWF.
Closer to home, over 20 African states now have SWFs, including sizeable ones for Nigeria and Botswana. Our friends in Seychelles created mini quasi-SWFs for specific objectives. Among other small island economies, Kiribati with a population of only 130,000 set up a SWF in 1956, which is now worth some 3x its GDP. Similarly tiny Tuvalu, with only 11,000 inhabitants set up a SWF in 1987 which now manages assets worth 2x that small nation’s GDP.
Macro Benefits: Compounding and Resilience
SWFs typically target returns of 5-7% annually in hard currency consistently over long periods of time, with a very conservative risk appetite, an emphasis on capital preservation and low volatility of returns. This might appear unexciting, until we consider what happens when those returns are reinvested: Over decades, the multiplier effect of compounding turns consistent annual returns into transformational wealth.
Take Norway: When the SWF was launched in the 1990s, the country had only a few billion dollars in accumulated oil savings. Today, the fund’s assets reach USD 1.1 trillion, with the reinvested profits being more than double the hydrocarbon inflows. For Singapore, Temasek started in 1974 with an endowment of some USD 150 million comprising mostly of stakes in domestic companies. Thanks to professional, independent and smart management that has delivered excellent returns for a SWF, its portfolio has grown to some USD 287 billion by 2024, i.e. a growth of close to 2,000 times in 50 years! Even smaller funds show the same pattern: Botswana’s Pula Fund launched in 1994 with a starting portfolio of a few hundred million dollars, has grown to some USD 3.5 billion today despite USD 4 billion also withdrawn over the decades. The lesson is clear: SWFs are compounding machines. The earlier they start, the larger the multiplier over time.
In slumps or shocks, governments can, within limits, draw on SWF assets to smooth out aggregate demand without tax hikes, austerity or foreign borrowings. Singapore’s SWFs for example, provided USD 31 billion, or an impressive 9% of GDP to deal with COVID in 2020. Chile’s SWF was able to absorb a one-off budget deficit of over 4% of GDP to deal with the GFC in 2009. Oman’s SWF regularly smooths out fiscal deficits by 2-3% of GDP to stabilise that country’s public finances when oil and gas prices fall. Botswana’s SWF has done the same for diamond prices.
Over time the compounding effect has resulted in a stark correlation: Very few countries have Net Public Sector Assets, i.e. where government assets exceed government debt, and most of these are also countries with long-established SWFs. The contrast between the UK and Norway is eye-opening: Both countries started deriving sizeable revenues from North Sea hydrocarbons around 1970. Today, Norway’s government holds net financial assets close to four times its GDP. The UK never set up a SWF. Today, its government debt is some 96% of GDP. There is more to this divergence than the SWF aspect — demographics, fiscal discipline, taxation, institutions and politics all played roles, among others — but the SWF was a decisive foundation of Norway’s long-term economic strength.
Other examples where the overlap holds include resource rich countries such as Kuwait, UAE, and Qatar, as well as less resource-endowed economies including Singapore and Hong Kong. Even for countries which are not in net assets territory, a SWF provides resilience: New Zealand’s Super Fund has assets of some USD 43 billion, which in turn reduces its government net debt to a very comfortable level of less than 25% of GDP. While correlation is not causation, the alignment of durable SWF savings and sound public finances is not mere coincidence.
Catalysts for Transformation
SWFs drive transformation through anchoring investing, attracting private capital into transformational new sectors and projects. Botswana’s SWF partnered with De Beers to create a domestic diamond-cutting and polishing capability, creating thousands of skilled jobs and moving the country up the value chain. Temasek invested early in technology and biotech, which was key to eventually attracting private investors. Temasek also transformed the country’s infrastructure, attracting private investors into Port of Singapore and Changi Airport to create world leaders. Today, PSA (the holding company for the Port of Singapore) has a global portfolio comprising 77 coastal, rail, and inland logistics terminals across 180 locations in 45 countries.
Elsewhere, SWFs are catalysing energy transition by providing anchor investment in partnership with commercial private investors: Norway’s SWF for offshore wind projects in the North Sea, UAE’s Mubadala for Masdar, a global renewable energy company, and Oman’s SWF for the highly strategic port of Duqm.
Importantly, all those decisions, instrumental for the respective countries, were not taken by politicians but by the independent professional managers of these SWFs, based on the long-term objectives and mandates they were given.
The Benefit of Hindsight and a New Historic Opportunity
We had past opportunities for setting up a Mauritian SWF. Reserves peaked at around 6 months of imports in 1991 (c. USD 900 million at the time) when we benefited from preferential access for sugar and textile exports, and again in 2003 (c. USD 1.6 billion) with strong tourism revenues. If we had moved these reserves into a SWF at those times and compounded 6% annually, the fund would now hold about USD 6 billion, i.e. some 40% of GDP and 50% of public sector debt today. Clearly our public finances would be in a much more comfortable position than currently with our government debt to GDP over 80% and our creditworthiness under scrutiny.
Across the world, SWFs have turned temporary revenues into permanent prosperity, discipline into resilience, and mere ideas into actual transformation. The lesson is simple: when windfalls are thoughtfully and responsibly invested rather than spent, they become legacies. Whether large or small, resource-endowed or resource-scarce, the choice lies in whether countries build an enduring vehicle of trust for times ahead, outside political influence.
It is never too late. For Mauritius, the confluence of the Chagos bounty and the well-documented trials and tribulations of the MIC, create a unique moment of opportunity to finally set up our own Vehicle of Trust.
Ashwin Roy
Ashwin Roy, a Mauritian citizen based in London, has had a career spanning over 25 years in international private equity, successfully leading investments exceeding USD 750 million across Europe, India, and Africa. He served as Director of Private Equity for the Oman Investment Authority, that country’s sovereign wealth fund, from 2013 to 2016. Prior to this, Ashwin spent 13 years at CVCI Private Equity, part of Citigroup, the global financial services group. Currently, he is a Partner and Investment Committee member at INVL Private Equity, an asset manager with over EUR 2 billion in assets across the Baltics, Scandinavia, and Central Europe. He also acts as Senior Advisor to Strix AM, with private equity assets of over EUR 1 billion in Greece and South East Europe. A Laureate of the Royal College Curepipe in 1993, he earned a First-Class degree in Economics from King’s College, Cambridge, before qualifying as a Chartered Accountant with PWC in London. When not thinking about finance, Ashwin mostly loses debates with his wife and tries to interest his rebellious young daughter in his passions for music, the sea, Liverpool Football Club, and Mauritius.
