Africa: Continent Urged to Tap into Trillions Packed in Sovereign Wealth Funds

By NewsfromAfrica

DOHA- –African countries have been urged to find ways of tapping into the US $5 trillion Sovereign Wealth assets belonging to oil-exporting developing countries and China.

Participants at a session on investments held on the sidelines of the just-ended UNCTADXIII meeting in the Arab Gulf State were told that these funds grow at an average of 10 per cent every year and would constitute a real source for development resources that Africa needs.  

“Of the $5 trillion, only about $110 million goes into Foreign Direct Investments; these vast quantities of funds, present an opportunity for Africa to accelerate development, strengthen economies, create jobs and improve the lives of our people,” said participants.

According to ECA’s Information and Communication Service, the Doha discussions come in the wake of increased interest in Africa’s investment potential, fueled in part by the commodity boom and economic growth and improved macro-economic governance. In addition, with progress underway towards the creation of a Continental Free Trade Area (CFTA), prospects remain higher than ever, that the continent can significantly boost intra-African trade.

The session noted that regional integration is on the rise, as evidenced by the increased trade within the EAC, COMESA and SADC, presenting opportunities for minimizing fragmentation of economies.

Alan Kyerematen, head of the Africa Trade Policy Centre at the Economic Commission for Africa, projected that a CFTA would create a market of about one billion people.

“This is significant in that it can help to change the current dynamics, in which countries are simultaneously members of multiple Regional Economic Communities – RECs”, he argued.  

Besides, by fostering greater collaboration and cooperation between the RECs, the CFTA also has the potential to improve collective action to develop regional infrastructure and consolidate regional markets.

This would be enhanced by improved interconnectivity in all forms of transport and communication, as well as through the promotion of energy pooling to strengthen the regions’ competitiveness.

“The global financial crisis has made it less attractive for Sovereign Wealth Fund (SWF) countries to invest in unstable stock markets. These funds are best placed for more long-term investment, which is in line with the characteristics of development-enhancing investment projects, they agreed.

The session underscored the need for adequate policies and international cooperation to reduce the obstacles to SWF investment flows. Access to these funds is crucial and many obstacles exist, they observed.

According to the International Fund for Agricultural Development, over US$ 80 billion is needed to boost agriculture in least developing countries. In Africa, such funds could boost the development of its nascent agro-industry, improve productive capacities and upgrade infrastructure.

The challenge however, is for African governments to create a conducive environment to encourage sustainable investments through SWFs.  

SWF countries, including China, Kuwait and Qatar underscored the need for strong institutions and stable policy frameworks for investment.

What is needed, they argued, is a balance of interests, protecting both investors and host countries.