The development of African sovereign wealth funds is a slow process and missed targets are the norm, but a combination of the continent’s natural wealth, human resources and political will are facilitating progress.
The biggest African SWF is the Libyan Investment Authority (LIA), while Botswana's Pula Fund is the continent's oldest SWF. However, other funds are slow to mature. Altogether, Africa has 30 SWFs or sub-funds, most of which are relatively minuscule, with combined wealth of around US$100 billion.
This week sees the 10th anniversary of the founding of Rwanda’s Agaciro Development Fund, which aims to support Rwanda in its journey towards sustainable socio-economic development. The fund is financed by Government contributions (90%), by the fund’s investment returns, and by contributions of Rwandans and NGOs – which the Government recently stopped accepting during the COVID-19 crisis.
The fund’s mission is evolving as it aims for AUM of US$1 billion by 2030, from around US$200 million at present. CEO Gilbert Nyatani told Global SWF in December, “Setting up the fund was a very good decision – however, lots of things have changed since then and a reform is much needed now. Historically, we have had three mandates (stabilization, savings and infrastructure), but I think stabilization should be secondary. For instance, Agaciro did not have to intervene during Covid-19 because there were other resources (IMF, WB, etc.) and this makes me think that we should rather focus on the other two strategies, in order to reach our financial goals in 2030. Right now, there is no specific law avoiding withdrawals, but the leadership is very much behind us and we do not expect our capital to be depleted anytime soon.”
Yet, Agaciro is still a minnow in the sovereign wealth ocean and an example of how fund development can be an arduous process, despite grand objectives, as divestment hits market constraints and the market environment is still weighed down by infrastructural constraints and shallow capital markets. The process of establishing a sovereign wealth fund in Africa is, however, fraught with difficulties due to poor governance, lack of human resource capacity and few opportunities.
Nevertheless, the Nigeria Sovereign Investment Authority (NSIA), which was launched in 2013, has demonstrated that a multi-mandate mission is possible. For the ninth year in a row, the NSIA has consistently remained profitable, closing the 2021 financial year with a profit after tax of NGN153.8 billion (US$366 million), down 1.9% from 2020.
NSIA continues with its development focus and in July announced it was investing in a joint venture with OCP Africa to develop ammonia and a DAP industrial plant worth US$1.4 billion. The plant sited in Akwa Ibom State is expected to utilise Nigerian gas and Moroccan phosphate to produce 750,000 tonnes per annum (tpa) of ammonia and 1 million tpa of phosphate fertiliser. The plant is due to come online in 2025 and will be supplied with Nigerian natural gas and Moroccan phosphate. The project is currently at the development stage with equity equally shared between the Nigeria Sovereign Investment Authority (NSIA) and Morocco’s OCP. However, it has been on the drawing board for more than a year, underlining the slow progress investors can expect in Africa.
Many countries have looked up to the NSIA as a model to emulate. In May, Nambia launched its more conventional commodity-backed Welwitschia Fund with an initial injection of N$262 million (US$16 million), but with the expectation that it will be boosted by offshore oil resources discovered by TotalEnergies and Shell and funds raised through the privatization of 22 SOEs. It will collect royalties from mineral resources as well as a share of tax revenues. President Hage Geingob said at the launch the Welwitschia Fund would invest 2.5% of its portfolio locally to bridge the country’s infrastructure financing gap. Most of the SWF’s portfolio will comprise foreign holdings with the likelihood that the government will appoint external asset managers, as is the case for Botswana’s Pula Fund and the stabilization fund of the Nigerian Sovereign Investment Authority (NSIA).
In contrast, other funds are taking a more strategic direction, seeking to monetize existing state assets to stimulate economic development. In January, the Ethiopian government announced the establishment of the Ethiopian Investment Holdings (EIH) to serve as the country’s strategic investment arm. The fund will have an authorized capital of ETB100 billion (US$1.9 billion) and be seeded with over 43 public enterprises across different sectors, including Ethiopian Airlines, CBE and Ethio Telecom, as well as significant landholdings. We had the great pleasure of chatting with EIH’s CEO, Mr. Mamo Mihretu, and its Deputy CEO, Ms. Bilen Mammo, about the fund’s establishment and vision of the organization’s future.
In June, EIH’s CEO Mamo Mihretu and Deputy CEO Bilen Mammo told Global SWF, “EIH is the strategic investment arm of the Government of Ethiopia with three different mandates. The first is the pursuit of financing the national development plan and the creation of wealth for current and future generations. Second, changing the narrative around investment in Africa by becoming a world-class partner that de-risks investment. And finally, unlocking the commercial value of tangible and intangible assets by providing professional oversight and leveraging international best practices.”
With Ethiopia mired in conflict in Tigray, which exacted a heavy toll on the national economy, it is unlikely a sovereign fund will be an established active investor soon. Among the challenges posed by the war are the depreciation of the birr and the constraints on the supply of basic goods such as food, compounded by drought conditions – a situation that contributed to the infamous 1980s famine.
While African SWFs might be a slow-burn process, they are gradually emerging through a complex set of political and economic challenges to transform into agents of stabilization and strategic development, directed by their elected governments. Effective SWFs in the continent, backed by its pioneering enterprise culture and with strong governance arrangements, will enable self-directed growth without dependence on financing from the Bretton Woods institutions – just not at the pace SWF chiefs would like.
Image by Kevin Phillips from Pixabay
