Why earnings from sale of oil and minerals won't be invested locally

The billions of shillings that will be deposited into the Sovereign Wealth Fund from the sale of Turkana crude oil, mineral exports and privatisation of State entities will not be invested locally in what could be an attempt to prevent political meddling and also for the economy to rely heavily on what is seen as new money.

A proposed law has introduced stringent measures for the management of the money that will be going into the Fund, prohibiting investment in Kenyan real estate, local stocks and private equity. 

Instead, the Sovereign Wealth Fund Bill, 2026, requires earnings from extractive sectors to be invested in such assets as blue-chip companies listed on major global exchanges and foreign government bonds to shield it from local interference but also shocks that might hit the local economy and affect returns.

The Bill says assets of the Fund shall not be invested in “securities issued by a Kenyan issuer, real estate located in Kenya, funds, companies or similar arrangements, the primary purpose of which are to invest in Kenya.’’ 

“The Fund shall invest in speculative derivatives, unlisted real estate, private equity, art or commodities or another instrument as may be prescribed by the Cabinet Secretary by notice in the Gazette,” reads the Bill table by National Assembly Majority Leader Kimani Ichung’wah. 

The Bill creates three components within the Fund — stabilisation, infrastructure and future generations components — that will be allocated money for separate investments.

The stabilisation component will use returns from investments to cushion the economy from unforeseen shocks while the strategic infrastructure investment component will provide funding for infrastructure projects, also from the returns on investment. 

The most critical arm will be the future generations component, which is aimed at building a savings base for future generations.

The Bill prescribes where the different components will invest money, largely high quality foreign assets and denominated in major currencies such as the US dollar. 

“In the case of the future generations component, the qualifying instruments are, a financial instrument denominated in an internationally convertible currency — that has investment grade rating from internationally recognised rating agencies and that is issued by or guaranteed by the International Monetary Fund, World Bank or by a sovereign state other than the Republic of Kenya,” reads the Bill. 

Other areas that the assets can be invested in include interest-bearing deposits in the Bank for International Settlements, foreign central banks and major foreign commercial banks.

The SWF Bill also bars the Fund from lending to Kenyan government agencies. It should also not be used “as collateral for any borrowing”.

The proposed law also requires the SWF Board to competitively recruit fund managers to manage the Fund. An outsourced firm to manage the money and how it is invested is expected to enhance professionalism in management of the Fund while divorcing it from politics of the day.

“The board shall, through an open, competitive and transparent process, recruit and appoint such number of investment fund managers as may be required for the proper discharge of its functions,” reads the Bill. 

The Bill provides a road map for investing and multiplying earnings from oil and mining as well as sale of public assets. It also proposes the collapse of the three components into one when Kenya ‘significantly’ depletes mineral and petroleum resources. 

It is also banking on resurgence of the mining sector, which though tipped to have immense potential has always posted a lackluster performance. The mining sector has in recent past posted contractions following the exhaustion of the titanium mines in Kwale, which for about a decade accounted for more than two thirds of the sector’s earnings.

According to the Bill, the Fund will receive the government’s share of profit derived from upstream petroleum operations, royalties and bonuses from petroleum and mining activities as well as “monies from other sources as may be determined by the Cabinet Secretary and approved by the Cabinet”. 

The latter could include proceeds from the sale of state-owned entities such as the Kenyahttps://www.standardmedia.co.ke/counties/article/2001537505/turkana-oil-deal-sparks-concerns-over-skewed-revenue-sharing-deal Pipeline Company and Safaricom, part of which, the government has in recent past said, would be deposited into the sovereign wealth fund. This is a departure from earlier proposals where the Fund was to exclusively get money earned from the extractive sectors. 

The Bill also proposes the collapse of the three components into one component when Kenya ‘significantly’ depletes mineral and petroleum resources. 

“The cash balances held in the respective components of the Fund shall be consolidated into one single account of the Fund to be held at the Central Bank of Kenya after which the different components of the Fund shall cease to exist. All the net assets of the three components shall become assets of the Fund,”reads the Bill. 

“After the minerals and petroleum reserves are depleted, any withdrawal from the Fund shall be based on cumulative principal deposits and interests earned up to the date of declaration of depletion of resources, and only earnings and dividends from this base shall be drawn.”

It adds that money withdrawn following the depletion of resources shall be used to finance strategic infrastructure investment priorities only approved by the National Assembly in the Budget Estimates.