JOHANNESBURG Feb 13 Resource-rich African
countries are busy setting up sovereign wealth funds, but
critics say the funds may not serve the long-term interests of
poor countries that still need to invest in basics such as
schools and roads.
Three oil producers, Angola, Ghana and Nigeria, started
funds in the last two years. Before them, only Botswana, Gabon
and Equatorial Guinea had such schemes.
Other countries are following. Zambia and Liberia announced
plans for funds last month. Tanzania, Kenya, Uganda, Mauritius,
Mozambique and Zimbabwe have similar intentions.
The funds can serve useful purposes, analysts say. Commodity
earnings can be split into one fund for infrastructure and
another for savings that can be used as collateral for even
"Africa needs higher savings," said Razia Khan, the head of
Africa research at Standard Chartered Bank. "If it is done
properly, the sovereign wealth fund and the accumulation of
long-term savings essentially means that countries are improving
their creditworthiness and opening up access to bigger sources
of financing on more favourable terms. It does not preclude
investment in infrastructure."
But critics say Africa could reap more from its resources by
investing in education, energy, and transport to feed other
industries, rather than parking the money in liquid but
low-yield assets in safe havens, as sovereign funds tend to do.
Many successful wealth funds belong to countries with
surpluses and rich citizens, which can afford them. That is not
the case with many sub-Saharan African governments struggling to
feed or educate their people, said Kwame Owino, the chief
executive at the Nairobi-based Institute of Economic Affairs.
"It would be a luxury to have. The political will may exist,
but the economics of it suggest that a sovereign wealth fund is
not a good idea for many sub-Saharan countries," he said.
"In many of these countries as well, transparency is a big
problem and the amount of leakage that takes place in public
funds is a reason to be concerned."
Liberia is looking at various models of wealth funds,
including Norway's, the world's most transparent sovereign
wealth fund, Finance Minister Amara Konneh said. The west
African country also wants to avoid the so-called "Dutch
disease", where a dependence on resource extraction causes other
industries to wither.
Botswana's $6.9 billion Pula Fund was the continent's most
transparent on the Linaburg-Maduell index, with a rating of 6
out of 10. Nigeria's $1 billion kitty had a rating of 4 in the
third quarter of 2013. The country added $550 million to the
fund in February.
"We have a real governance deficit," said Aly-Khan Satchu, a
Nairobi-based independent analyst. "My concerns are that in a
majority of these countries where there is a commodity-related
windfall, it is proven already that in those countries the
governance is the poorest of all the African countries." He
cited Nigeria and Angola as example.
Angolan President Jose Eduardo dos Santos, who has been in
power for more than three decades, appointed his eldest son to
run the country's $5 billion fund in 2013. That undermined
confidence in how it will be managed, given the country's
reputation for squandering or siphoning off petrol dollars.
The southern African country began the FSDEA fund to lessen
its reliance on crude oil, which accounts for over 95 percent of
export income and 45 percent of economic output.
Botswana's Pula Fund - started in 1994 to invest surpluses
from diamond exports - came in handy during the global economic
crunch, when demand for the gems largely vanished. The mines
that gouge millions of tonnes of rock from the country's vast
interior closed down for four months in 2009.
It was the first time they had shut down in the former
British colony's 40-year history of diamond mining. Government
finances were thrown into disarray.
Neighbouring Angola's money bags have been stuffed with cash
since the end of the country's civil war in 2002. It is now
investing in developed-market equities and bonds issued by
sovereign agencies, investment-grade companies, high-yield
emerging market assets and Africa's hotel sector.
Nigeria's reserve was created in 2011 for three main
purposes. One is infrastructure, another is a collective savings
account and another is a so-called stabilisation fund, to
cushion against commodity price shocks. A remaining 15 percent
Unlike Asian and Middle Eastern wealth funds created to
reduce capital and avoid inflation, African funds are relatively
small. They are unlikely to have a similar impact on money
"Asia is able to attract more overseas capital and bigger
amounts," said Michael Maduell, president of the U.S.-based
Sovereign Wealth Fund Institute. "The whole hot-money effect
wouldn't affect African countries."
(Additonal reporting by Carolyn Cohn in London; Editing by Ed
Stoddard and Larry King)