S
overeign wealth funds have become pivotal instruments for economic development and diversification across Africa. Although Africa is rich in natural resources, many of the sovereign wealth funds on the continent are not traditional savings funds used to manage fiscal surpluses. Instead, the majority of these funds are strategic investment funds, which have been conceived in the context of scarce available resources. These institutions are funded from the budget or other government revenues and are used to help foster economic growth, development, and diversification. As such, they aim to achieve a dual impact: financial profitability and contributions to sustainable development, as well as job creation. The investment strategies of these funds are therefore often aligned with national economic plans and priorities. Although strategic investment funds have been established by governments worldwide, Africa has been the crucible of some of the most innovative strategies in their partnerships and investments, setting new boundaries for what these funds can achieve.
Strategic Partnerships
Most of Africa’s sovereign wealth funds have often arisen out of scarcity rather than abundance. As a result, partnerships with foundations, development finance institutions, the private sector, and other government entities are at the heart of their strategies. Partnerships enable sovereign wealth funds to leverage additional resources and expertise to enhance their effectiveness. They can also position themselves as partners of choice for these players by derisking projects through their government links, local expertise, and access to differentiated deal flow.
For example, 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.
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 sovereign wealth funds focus on building partnerships with the private sector. For example, Fonds Mohammed VI pour l’Investissement in Morocco 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 sovereign wealth funds 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, Africa’s sovereign wealth funds 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. For example, 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 sovereign wealth funds. Over the past decade, public reporting by Africa’s sovereign wealth funds has improved dramatically. 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. The International Forum of Sovereign Wealth Funds’ (IFSWF) 11 African members all publish self-assessments of their governance structure on our website to provide insights into the funds' legal frameworks, governance structures, and investment policies, ensuring that the funds operate in a transparent and accountable manner.
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. This approach helps build trust and legitimacy for the funds.
Looking to the Future
Africa’s sovereign wealth funds are key tools for helping to develop their countries’ economies and ensuring fiscal stability. Increasingly, they are looking to find innovative ways to partner with a range of institutions to channel investment into sectors, including infrastructure, healthcare, and agriculture, that are essential to their economies but have traditionally been hard to finance due to a lack of scale, poor project preparation, high perceived risks, and low margins. In the context of the energy transition, an increasing number of global investors are looking to finance infrastructure projects on the continent, for whom a trusted, government-linked, yet financially motivated partner is an attractive prospect. By playing this role, Africa’s sovereign wealth funds can help drive economic development and diversification across the continent.
