Tuesday, 4 May 2021

African sovereign wealth funds are prioritizing the local over the global

The pandemic was “a boon” for African sovereign wealth funds that invest at home, providing a boost to sectors in which they were already invested including health, digital tech and agribusiness, the International Forum of Sovereign Wealth Funds (IFSWF) and investment firm Franklin Templeton said in a report. Products linked to those sectors were in high demand in 2020, and existing investments in areas such as medical facilities and supplies and pharma became increasingly profitable. This didn’t only prove a successful investment strategy, but it also encouraged SWFs to invest long-term, improving overall health services across Africa and helping to make countries more resilient to future economic and health shocks.

Covid has also helped to accelerate digitalization, and encouraged some funds to ramp up investments in ICT infrastructure to get more people online. This could potentially help Africa leverage its large youth population and develop a tech outsourcing industry that rivals that of India, creating well-paid jobs and slowing the brain drain caused by skilled workers seeking jobs abroad, according to the report. Among the eight established sovereign wealth funds surveyed in the report, investment in food and energy security is also an important mandate and priority area.

Prioritizing the local over the global: African SWFs are “a new breed of state-owned investors” that play a key role in attracting capital for their local economics, rather than for global financial markets, the report said. When the pandemic fully abates, these funds will continue to channel capital into their economies to drive growth post-covid, particularly those in countries with high debt and limited access to international debt markets.

This is exactly what the Sovereign Fund of Egypt has been doing: The SFE last year reshuffled investment priorities to focus on healthcare, pharma storage, electricity, agriculture, and other areas that were crucial to invest in at the onset of the pandemic. It established a sub-fund as a dedicated private equity vehicle specialized in healthcare, among other sub-funds with mandates to invest in infrastructure, fintech, and real estate.

African SWFs still pale in comparison to the world’s largest players: Total authorized capital held by the continent’s 13 sovereign funds in 2020 stood at only USD 22.8 bn, with the SFE’s USD 12.7 bn (EGP 200 bn) accounting for over a half of this figure, the report said. Compare this to Norway’s sovereign fund which stands at almost USD 1.3 tn or the Abu Dhabi Investment Authority, which holds almost USD 650 bn of assets.

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