Small size blunts African sovereign wealth funds scope

Subject

African Sovereign Wealth Funds

Significance

Sub-Saharan African (SSA) sovereign wealth funds (SWFs) are yet to live up to the promise of transforming the structure of resource-rich countries by creating significant inter-generational assets such as improved infrastructure. On the one hand, political constraints in most establishing countries have limited capitalisation of funds. On the other, low returns on investments only provide marginal revenue diversification benefits. As a result, SWFs have largely failed as a mechanism for insulating minerals exporters from lower commodity prices.

Impacts

• With just 10% of SWF assets allocated to infrastructure, their chances of engineering a Botswana-style economic transformation are remote.
• Measures of overall institutional development will remain better predictors of the likely success of SWFs than fund-specific ones.
• A concentration of SWFs' investments in hotels and real estate will perpetuate a preference for consumption over intergenerational equity.