Africa key to growth of global sovereign wealth

By Natsuko Waki

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 the future, a senior official at Investec says.

Experts estimate the $3-trillion state-owned industry managing national windfall surpluses for future generations will 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 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 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.

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 its economy. Sub-Saharan Africa’s second biggest economy has around $41.6 billion in foreign exchange reserves.

Green said the biggest growth in the continent is likely to come from oil-rich West Africa."

—Reuters