Africa’s SWFs Looking for Tie-Ups to Spur Growth

Sovereign Wealth Funds (SWFs) in Africa, which were established by their respective governments looking to tap funds, have been looking to have partnerships with foundations, development finance institutions, the private sector, and other government entities as part of their strategies.

Such partnerships enable SWFs to leverage additional resources and expertise to enhance their effectiveness.

They can also position themselves as partners of choice for these players by de-risking projects through their government links, local expertise, and access to differentiated deal flow, according to Victoria Barbary, Director of Strategy & Communications, International Forum of Sovereign Wealth Funds (ISWF).

Citing an example in an article for the Washington-based think tank Woodrow Wilson International Center, Victoria said that the Sovereign Fund of Egypt (TSFE) has formed strategic alliances with the Public Investment Fund (PIF) of Saudi Arabia and Abu Dhabi Developmental Holding Company (ADQ) to stimulate private investment in essential industries.

These partnerships are designed to unlock value in state-owned assets and drive economic growth in strategic sectors, to which TSFE has a dedicated sub-fund through which it can drive investment, she said.

Likewise, FONSIS of Senegal has also entered a strategic alliance with COFIDES, Spain’s strategic investment fund, to boost Spanish private investment in Senegal and the broader West African region. This partnership focuses on enhancing collaboration between Spanish companies and the Senegalese private and public sectors, particularly in renewable energy and infrastructure.

It has also collaborated with the Africa Climate Foundation (ACF) and the Global Green Growth Institute (GGGI) to launch the Renewable and Efficient Energy Fund, which supports small-scale renewable energy and energy efficiency projects in Senegal by providing subordinated debt, enabling these projects to secure financing from local commercial banks.

Other SWFs such as Fonds Mohammed VI pour l’Investissement in Morocco focus on building partnerships with the private sector and is pioneering innovative financing mechanisms tailored to the needs of Moroccan businesses.

For each dollar invested by the fund, a minimum of two dollars must come from private investors, ensuring a significant multiplier effect. This approach not only boosts the fund’s impact but also fosters a collaborative investment environment.

Another example is Ethiopian Investment Holdings (EIH), which launched in 2022 with $45 billion worth of state-owned assets. EIH is focused on leveraging these assets to fuel the expansion of the private sector, demonstrating a proactive approach to economic development. This fund is actively seeking partnerships with foreign direct investors to enhance its impact, showcasing a forward-thinking strategy in its operations.

Robust Governance

Africa’s SWFs often operate in environments with low public trust in institutions and the perception (justified or not) that corruption is widespread. However, to develop strong and impactful partnerships, they have had to maintain a laser-sharp focus on developing and strengthening their governance structures. They have needed to put in place safeguards to ensure transparency, accountability, and the alignment of the funds’ activities with national development goals. 

The first of these is ensuring that there is independent oversight of their operations and the Nigeria Sovereign Investment Authority (NSIA) has a board of directors that includes representatives from various sectors, ensuring diverse perspectives and accountability.

The directors ensure that NSIA has a robust risk management framework to ensure the institution’s success. This includes setting investment floors and diversifying portfolios to mitigate risks and ensure predictable returns. The independent oversight helps maintain transparency and trust in the fund’s operations, ensuring that decisions are made on a financial rational.

Second, transparency is a cornerstone of good governance for SWFs and over the past decade, public reporting by Africa’s sovereign wealth funds has improved dramatically, Victoria said.

Savings funds like the Botswana Pula Fund, funded by diamond-mining revenues, and the Ghana Petroleum Funds regularly publish detailed reports on their activities, investments, and financial performance.

“Strategic investment funds have also embraced international standards, such as the Santiago Principles, to ensure that they are operated in an independent and financially motivated manner,” she said.

As a critical part of building public trust and ensuring that funds meet their mandate, it is essential to engage with the public and involve stakeholders in decision-making processes. For instance, the Ghana Petroleum Funds have mechanisms for public consultation and stakeholder engagement, ensuring that the funds’ activities reflect the needs and priorities of the population, she added.