Sovereign Wealth Funds in Africa: Unlocking State Capital for Growth
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Sovereign Wealth Funds (SWFs) are government-owned investment vehicles that manage and grow a country’s wealth, often using surplus revenues from commodities, fiscal surpluses, or foreign exchange reserves. Besides stabilising economies, SWFs have become vital tools for funding development, diversifying economies, and investing for future generations.
As of January 2025, the global sovereign wealth fund market was valued at USD 13 trillion, with China leading at USD 2.5 trillion, followed by the UAE (USD 2.3 trillion), Norway (USD 1.8 trillion), Singapore (USD 1.1 trillion), and Saudi Arabia (USD 1.0 trillion), according to Global SWF.
Africa’s Emerging Sovereign Wealth Landscape
Africa’s SWF ecosystem has grown swiftly over the past decade. UNCTAD’s 2024 report reveals that African countries now operate 36 SWFs and 16 public pension funds (PPFs), collectively managing over USD 400 billion, representing a 76% rise in assets under management and a 54% increase in the number of sovereign investors.
Growing interest from African governments reflects a shift towards establishing domestic vehicles capable of mobilising capital for infrastructure, energy, healthcare, and industrialisation. They are also becoming central to how nations plan, save, and invest in the future,” comments Mesfin Tafesse, Principal Attorney, Mesfin Tafesse Law Offices (ALN firm in Ethiopia).
According to Business Insider Africa, over 20 African nations now have sovereign wealth funds. Ethiopia leads with USD 46 billion, followed by Algeria (USD 13 billion), Zambia (USD 6 billion), and Botswana (USD 4 billion). Morocco, Nigeria, South Africa, and Tunisia each hold approximately USD 3 billion, mainly for infrastructure and stabilisation.
Governance, Structure and Challenges
Good governance is the foundation of effective SWFs. Research by the International Forum of Sovereign Wealth Funds (IFSWF) and Franklin Templeton underscores ongoing challenges for African SWFs, such as governance weaknesses, limited transparency, and underdeveloped investment policies.
In practice, many funds face challenges such as limited diversification, weak oversight, and opacity. The South African Institute of International Affairs (SAIIA) warns that without strong governance, SWFs risk becoming fiscal liabilities rather than strategic assets.
“Governance is the currency that determines whether a sovereign wealth fund earns trust. Without transparency, independence, and professional oversight, a fund meant to build national wealth can quickly become a national risk,” observes Devvrat Periwal, Partner, Anjarwalla Collins & Haidermota (ALN firm in UAE).
Independent boards, clear mandates, and transparent reporting are therefore vital for establishing credibility and attracting co-investors such as DFIs, pension funds, and private equity firms.
Transformative Roles in Africa’s Future
- Infrastructure and industrialisation
With public budgets under pressure, SWFs can help fund large-scale infrastructure projects or co-invest with DFIs. UNCTAD notes that sovereign funds in countries like Morocco, Ghana, and Senegal are increasingly investing in renewable energy, transport, and digital infrastructure.
- Stabilisation and Diversification
SWFs help governments stabilise fluctuations in commodity revenue and reinvest in non-resource sectors. For example, Middle Eastern SWFs from the United Arab Emirates, the Kingdom of Saudi Arabia, and Qatar are strategically focusing on high-visibility, high-potential investments in sectors such as renewable energy, AI, fintech, healthcare, and even sports as they aim to diversify their economies away from hydrocarbons. These nations have comprehensive government programmes designed to diversify their economies, societies, and cultures through 2030 and beyond.
- Strategic equity and state enterprise reform
Some SWFs hold and restructure state-owned enterprises or act as anchor investors in strategic industries, supporting growth beyond extraction. Consequently, some African SWFs have been used to promote regional integration by investing in key projects. For example, Ethiopia’s EIH invested in Djibouti’s Damerjog Liquid Bulk Port by acquiring a 30% stake in the project. The investment aims to enhance regional integration and generate more financing opportunities in Ethiopia and beyond.
Key Factors for Success
- Clear mandate and legal framework
The purpose and objectives of an SWF should be clearly defined and aligned with key development priorities. During crucial investment and cooperation, the fund should be positioned as an important investment vehicle. The mandate should also complement those of other state investment entities, such as pension funds and development banks. All parties should recognise the value that the SWF can add to national development beyond existing investor and government activities. - Governance and Accountability
Independent boards, public disclosure, and professional management establish trust and boost investor confidence. As custodians of state-owned assets, SWFs need to ensure the fund adopts world-class governance and operational models that safeguard the fund’s integrity and independence.According to BCG, SWFs can draw inspiration from the Santiago Principles of the International Forum of Sovereign Wealth Funds, which promote good governance practices and provide a legal framework, policies, rules, and operational model.
- Pipeline of Investable Opportunities
To deploy capital effectively, SWFs require viable projects and partnership structures. Unlike the Middle East and other developed nations, African countries often lack the financial means to capitalise and develop their SWFs. To leverage resources and achieve scale, African SWFs must collaborate with other SWFs, development finance institutions, and private sector players, with the fund taking the lead in scaling projects.
An SWF’s involvement in any project should be additive, unlocking opportunities for other investors and industry players that would not have been available. It should also be multiplicative, with the local SWF acting as the coordinator of other private and public investor opportunities, thereby amplifying the impact of its own invested capital.
“The most successful sovereign funds are catalysts, not competitors. Their role is to mobilise and coordinate capital, ultimately unlocking opportunities that would remain unreachable without their balance sheet strength and long-term investment horizon,” emphasises Adeolu Idowu, Managing Partner, Aluko & Oyebode (ALN firm in Nigeria).
Outlook: Navigating Risks and Opportunities
The future of African SWFs depends on their ability to shift from being savings tools to active development agents, as the continent aims to close investment gaps that hinder its Sustainable Development Goals. With growing global interest in frontier markets, SWFs could play a key role in attracting foreign capital into African infrastructure, energy transition, and industrialisation.
Yet, the risks persist: poor governance, over-expansion, weak project pipelines, and macroeconomic instability can hinder performance. These challenges would be best addressed through a shift from portfolio investors to strategic investing, alongside efforts to build a strong track record in governance and accountability by enhancing institutional capacity. Such measures would be necessary for these funds to drive long-term investments in sustainable development, including through partnerships with other international sovereign and public investors.
In summary, African sovereign wealth funds form a key part of the continent’s strategic toolkit for future growth. When well-governed and strategically utilised, they can serve as drivers of sustainable development rather than merely being repositories of resource wealth.
Sources
BCG | Business Insider Africa | Cleary Gottlieb | Oxford Academic | UNCTAD
