Catalysing Economies: Can African Sovereign Wealth Funds Do More? 

Gilbert Ekhwugbe takes a look at the takeaways from the Brown Capital Management Africa Forum’s third High-level Meeting for Africa Sovereign Wealth Funds recently hosted by the Wilson Centre, Washington DC vis-à-vis Africa’s economic prospects following the challenges triggered by the Covid-19 pandemic and the Russia-Ukraine war.

The event was the Woodrow Wilson Centre for International Scholar’s Brown Capital Management Africa Forum High-level Meeting. The theme was, “Strengthening the Role of African Sovereign Wealth Funds in the International Financial System: Interplay between Policy, Governance, and Sustainability.”

The platform itself, the Wilson Centre, was instructive. Chattered by the U.S Congress some 54 years ago to connect incisive scholarship to urgent policy questions, Wilson Centre has maintained a top-10 place on the University of Pennsylvania’s Global Go To Think Tank Rankings Survey.

Equally, the high-level representation and participation underscored the import of the event and sovereign wealth funds (SWFs) to Africa’s economic future: 60 delegates from 18 countries; CEOs of African SWFs; senior officials from Africa; multilateral and pan-African organisations, business leaders, academic experts, ministers, US officials; and representatives from U.S and international financial and development institutions such as the African Development Bank (AfDB), the African Union, Power Africa, the Organization for Economic Co-operation and Development (OECD), Africa50, the United Nations Development Programme (UNDP), the US International Development Finance Agency, International Monetary Fund (IMF), World Bank, and world leading universities.

So also was the choice of Senior Director, Africa Investment Forum (AIF), AfDB, Chinelo Anohu, as the keynote speaker. According to the moderator, Monde Muyangwa, former Wilson Centre’s Africa Programme Director, ”Anohu has a long track record in formulating investment strategies and brings extensive knowledge of institutional investment practice and experience in attracting new capital, expertise in the development of innovative asset classes spanning pension funds, SWFs, private equity, and private family wealth fund.”

Monde, now Assistant Administrator (Africa), United States Agency for International Development (USAID), recalled that Anohu had served as the DG of the National Pension Commission of Nigeria for five years before joining the AfDB and played a pivotal role in the reform of Nigeria’s pension industry, including the enactment of the Nigerian Pension Reform Act of 2004, which established the National Pension Commission and introduced the Contributory Pension Scheme. She also championed a further reform of the industry ten years after, culminating in the Pension Reform Act 2014.

Why the focus on African SWFs?

Underscoring the essence of the high-level meeting, President and CEO of Wilson Centre, Ambassador Mark Greene, said the Covid-19 pandemic and the Russo-Ukrainian war had caused economic challenges that have negatively affected development and the wellbeing of the citizens in Africa and around he world.

Therefore, this is a crucial moment for all to think about how to pursue the opportunities, including those in SWFs that will take Africa and the world through these challenges.

“As government-owned investment funds, SWFs serve as critical tools for stabilising economy, promoting development and transferring wealth to future generations. In 2021, SWFs managed $9.1 trillion, representing 10 per cent of global Gross Domestic Product (GDP). This high-level meeting will seek to reflect on and share lessons learnt about the impact of global turbulence on the government and performance of these SWFs in Africa.

“How can SWFs adapt to these changing times and what roles can they play in stabilizing economies in creating vibrant economic growth that is so key to the continent’s future? It will show lessons on achieving profitability while also promoting social responsibility in environmental sustainability. It will explore strategic avenues for facilitating and expanding intra-African and international partnerships to strengthen the role of SWFs in the international financial system and how multilateral organisations can best support SWFs, ”he stated.

Founder and Executive Chairman of Brown Capital Management, Mr. Eddie Brown, regretted that, “Africa does not nearly get the attention it deserves and too often that attention is focused on its challenges, not on its opportunities.”

He said the spotlight on SWFs was, “to provide a forum where key stakeholders could gather to share experiences, collaborate to advance SWFs agendas.”

Africa’s SWFs Landscape

The first Sovereign Wealth Fund in Africa was established by Botwana in 1994. Since then, 22 other African nations have established SWFs, while more nations are considering or in the process of establishing one.

According to the market and consumer data firm, Statista, Asia topped the SWF table as of July 2022 with $4.97 trillion Asset under management (AUM). Middle East and North Africa came second with $3.91 trillion; Europe came third with $1.67 trillion; Oceania came fourth with $418 billion; North America came fifth with $337 billion; while Sub-Saharan Africa and Latin America came a distant sixth and seventh with paltry $55 billion and $27 billion, respectively. 

Even in the Middle East and North Africa regional-mapping, only Libya has a substantial AUM of $66 billion. Going by the Global Sovereign Wealth Fund data, of the 17 individual nations with the largest SWFs, 15 are major oil and gas exporters. Regrettably, Nigeria, for instance, can only boast of a marginal $3 billion in the Nigeria Sovereign Investment Authority (NSIA) despite the high oil prices in the international market.

On the contrary, Norway, which exports 1.2million barrels of oil per day, has over $1.3 trillion in savings in her Government Pension Fund Global also known as the ‘Oil Fund’. Saudi Arabia boasts of about $1 trillion in savings. Ditto the UAE. Others are: Kuwait – $738 billion, Qatar – $450 billion, Russia – $191 billion, Kazakhstan – $133 billion, Iran – $91 billion, Brunel – $60 billion, and Azerbaijan – $42 billion.

Need to tap domestic SWFs

The keynote speaker, Chinelo Anohu, called for stronger strategic partnerships and greater involvement of African SWFs build the continent’s economies back and better following the Covid-19 pandemic.

According to her, the pandemic has had unequalled and debilitating effects on growth prospects across Africa, further exposing the weaknesses of Africa’s physical and social infrastructure, and the fragility of its largely poor population – especially the youth and women. 40 million people have been pushed into extreme poverty in Sub-Saharan Africa alone, while two decades of development gains in achieving the SDGs have been eroded.

Thus, in the face of the current low investments rate, elevated debt levels and risks in the continent, and increased cost of borrowing due to rising inflation in the world’s major economies, local institutional investors, particularly the SWFs, are needed more than ever to channel both longer-term domestic savings and resources to productive uses, which can help drive more sustainable macro-economic growth

“Since the coronavirus pandemic struck, SWFs have increasingly focused on investing at home. According to the data from the International Forum of Sovereign Wealth Funds, in 2020, SWF funds brought about $12.7 billion in new investments directly into companies and projects in their domestic economies, more than triple the amount made in 2019.

“In Africa, this trend of looking inward for SWF investment brings new opportunities for financing critical infrastructure and human capital projects.

“Further development and appropriate regulation of local SWFs can potentially enable these financial institutions to evolve and become important sources of longer-term finance, including for infrastructure.

“Financing Africa’s ambitious development agenda calls for an enhanced role for African SWFs as strategic investors, who will support the rise of local and regional financial markets, the financing of the large-scale regional projects, and the industrialization agenda of the continent”, she stated.

She, however, lamented that African SWFs were being held back by several factors.

“SWFs are often held back from investing optimally in infrastructure and other critical asset classes. This is partly due to the fact that their mandates are not fully aligned with innovative structures that have emerged and they may lack the familiarity and skills needed to identify and evaluate quality projects”, she observed.

AIF: Bridging the gap

However, as a multi-stakeholder, multi-disciplinary platform, Anohu assures that the AIF, an initiative of the Dr. Akinwumi Adesina-led AfDB and their founding partners -Africa 50, Africa Finance Corporation, AfreximBank, Development Bank of Southern Africa, European Investment Bank, Islamic Development Bank and Trade and Development Bank, “stands ready to fill the gap.”

She said that AIF’s ability to leverage the convening power of the AfDB and other founding partners and the ability to crowd-in public and private sector financing for transformative projects with developmental impact, puts it in a vantage position to help African SWFs gain volume, traction and impact.

“During the pandemic, AIF and its founding partners initiated a unified COVID-19 response, under which 13 projects across 5 relevant sectors. These projects have a collective value of $3.68 billion, and each will help advance Africa’s self-sufficiency and resilience against future shocks.   AIF has curated over 300 deals, screened 188 deals valued at approximately $170 billion, and attracted investment interest for about $116.6 billion.

“In this year’s AIF virtual boardrooms alone, 136 originated deals were screened, while 41 deals valued at $57.8 billion were successfully curated for the boardroom presentation. These deals have drawn $32.8 billion in confirmed investment interests.

“For co-investment opportunities, the AIF presently offers projects across 32 African countries, spanning all critical sectors. Besides return on investment, the AIF emphasises projects that result in the biggest developmental impacts, ensuring that the investments do not only benefit the investors, but also the end users. From our 2021 boardroom deals alone, around 3.8 million jobs are expected to be created (both direct and indirect), with a million jobs specifically targeting women and women entrepreneurs.

“AIF also provides international investors a safe entry point for their in-Africa investment. Despite evidence of strong economic growth on the continent, investing in Africa is often deemed risky due to the challenging political and security environment in some markets. In this regard, the AIF capitalises on the vast expertise provided by its seven founding partners and provides a one-stop “shop” for global investors, offering quality, pre-cleared projects, as well as superior business intelligence to unlock bottlenecks where they exist, ”she explained.

Citing the $15 billion Lagos-Abidjan highway deal, which was featured in AIF’s March 2022 virtual boardroom meetings, Anohu maintained that it was necessary for African to start to promote big-ticket deals by pooling together expertise and resources.

All said, a lot can no doubt, be achieved by mobilsing domestic resources such as the African SWFs to catalyse and build up African economies; and it is up to the Africa, her development partners, investors, and stakeholders to take action.