Africa to contribute to SWF growth, says Investec

Africa will be a key driver in the global sovereign wealth funds industry in coming years as commodity-driven surpluses will allow the continent to invest for future generations, a senior official at Investec says.

Some estimate that the $3-trillion state-owned industry managing national windfall surpluses for future generations will more than double in size over the next 10 years.

John Green, global head of business development at the Anglo-South African investment banking group, says fiscal surpluses will be key to growing the region’s sovereign wealth funds (SWFs), which are likely to have a more domestic investment focus.

“Africa is very rich in commodities. Africa in aggregate has gone from a significant fiscal deficit, largely funded by aid, to a continent that has a fiscal surplus. That’s what has precipitated a lot of thinking around this issue.
But it’s still a very early stage,” Green told Reuters in an interview on Thursday.

Green, whose clients include African official institutions, said the region’s governments are utilising windfall gains to give medium-term fiscal support so investing for future generations could take some time.

“Africa hasn’t made that leap ... It all depends on how quickly resource surpluses return,” he said.

“It will happen far faster than we think. [My colleague] will tell you in the next five years there will be enough surplus around in many African countries to begin to properly build future generation funds. I agree with him.”

Libya’s $65-billion sovereign wealth fund, set up in 2006, is Africa’s biggest and invests mostly in European countries, such as Italy. It has also established a $20-billion joint investment fund with the Libyan Central Bank to invest inside Libya.

Nigeria’s Senate is working on legislation to create a SWF aimed at softening any impact falling oil prices may have on the Opec member’s economy. Sub-Saharan Africa’s second biggest economy has about $41,6-billion in foreign exchange reserves.

Green said the biggest growth in the continent is likely to come from oil-rich West Africa and these funds will likely focus on domestic infrastructure investments.

“For countries where they are generating windfall gains, thinking carefully how to deploy those gains for the medium term and long term is very important component of their obligation,” Green said.

“If you put a framework in place before the windfall is there it’s much easier to deal with when it comes. Many of them have had the taste of what the potential windfall would be and thinking about how they deal with those windfalls is something they should do more actively.”—Reuters

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