The Rise of Africa's Sovereign Wealth Funds

The Rise of Africa's Sovereign Wealth Funds

Africa Sovereign Wealth Funds (SWF) have grown since the first one Botswana’s Pula Fund was established in 1994, with the total assets managed by African SWFs rising to US$ 97.9 billion. State governments continue to create these special-purpose investment funds using revenue from mineral resource exports, government finances and foreign currency reserves to meet their domestic funding gap for high-priority development projects. The role of African SWFs as long-term investors seeking positive risk-adjusted return is more prominent as governments attempt to reposition their countries from debt-dependent economic policies to pursue economic stabilisation and sustainable development through increased infrastructure project spending and natural resource monetisation.

The African SWF landscape is made up of 12 strategic funds which aim to achieve increased diversification and alternative allocations for better long-run performance, 9 stabilisation funds positioned to provide capital for infrastructure development or economic diversification and 9 savings funds used for wealth maintenance according to data from the GlobalSWF. The scale of the continent's funding gap includes $170 billion a year needed for infrastructure development, $2 trillion over 10 years required to solve the continent's housing backlog and $100 billion to connect 1.1 billion new African users with quality broadband internet access by 2030 according to the Africa Development Bank.

New wave of dealmaking 

Though the average investment made by African SWFs over the last couple of years is $84 million compared to $383 million for Middle Eastern SWFs, the growing desire for impactful investing is evident in recent dealmaking trends as they explore co-investing opportunities to ensure portfolio diversification, profitability and return on investment such as:

The agreement between Sengal's SWF FONSIS and the International Finance Corporation (IFC) to build 20,000 houses within 10 years.

The Qatar Investment Authority, role as an anchor investor in the Rwanda Social Security Board (RSSB) $250mn Virunga Africa Fund.

The establishment of the African Sovereign Investors Forum (ASIF) by UAE SWFs, Kuwait’s Authority, the AfDB and the sovereign funds of Djibouti, Ghana, Ethiopia, Gabon, Angola, Egypt, Morocco, Rwanda, Senegal and Nigeria to explore investments opportunities across the continent.

The Multi-mandate approach to profitability by Nigeria Sovereign Investment Authority (NSIA) with a recent investment in ammonia extraction and development using Moroccan phosphate and Nigerian gas to produce collectively over 750,000 tonnes per annum.

The SDG Namibia One $1.1 billion fund, making it the biggest hydrogen investment fund in Africa.

Namibia's commodity-backed Welwitschia Fund N$262 million (US$16 million) fund injection boosted by offshore oil resources.

More can be done to ensure African SWFs are delivering economic value to their state principals and society with better governance structures that ensure operational transparency and trust by applying SWF international standards. Define investment mandates that drive national development and agreements with domestic and global investors. Encourage co-investing opportunities and investment inflow and support the continent's green transition through dedicated funding transformation in line with ESG standards that can produce positive social and economic impact.