The COVID-19 pandemic presented Africa’s sovereign wealth funds industry with the opportunity to accelerate investment themes they had already identified, such as health care, agribusiness and digital technology.
A report by the International Forum of Sovereign Wealth Funds, in partnership with Franklin Templeton, found that of those funds that invest domestically, “the pandemic has been a boon.” Demands as a result of the crisis stimulated domestic industries in which these funds already invested since their products and services were in high demand.
Two of the funds surveyed for the report said their existing investments in medical facilities, supplies and pharmaceuticals paid off as demand increased, with plans to invest further in the sector and improve their countries’ health-care services overall. “Such investments will make these countries more resilient to economic and health shocks in the future,” the report said.
Sovereign wealth funds based in Angola, Botswana, Ghana and Nigeria, which largely have stabilization and savings mandates, were used by their governments to finance public spending. One fund was forced to rebalance its portfolio and “cash in on some of the gains” from equity holdings in the second quarter. That fund — which was unnamed — also looking at its governance structure and whether the withdrawal rules needed strengthening to protect the fund’s value.
COVID-19 also caused some African sovereign wealth funds to think about their risk and return appetites, since inflows slowed “to a trickle.” Those funds with a purely stabilization and savings mandate said portfolios were largely invested in low-risk securities, with one stating they could no longer afford to be so conservative.
Two of the funds increased returns by allocating more to emerging markets or alternative sources of income.
Regarding attracting foreign investment, Africa is an “attractive investment location,” the report said, with a booming middle class, strong investment reruns and the capacity to develop new, transformative domestic industries. However, throughout the research for the report, “it was clear that the funds we spoke to have the common challenge that investment in the fifty-plus countries of Africa is perceived to be either extremely risky of humanitarian,” the report said.
In terms of assets, “African sovereign wealth funds are minnows” compared with the huge Middle East and Asian funds. Total assets — excluding the $65 billion Libyan Investment Authority, Tripoli, which are frozen under international sanctions — were $22.8 billion in 13 funds. More than half of that was in The Sovereign Fund of Egypt, Cairo’s $12.7 billion portfolio, according to IFSWF data.
Eight sovereign wealth funds in Africa were surveyed for the report, with a further 11 executives either at institutions operating a wealth fund or planning to establish one also taking part in interviews.
The majority (37.5%) of respondents were based in West Africa, 25% in Southern Africa, 25% in North Africa and 12.5% in East Africa.