Sovereign Wealth Funds: Mere Fad or Value Added Tool for African States?

Abstract

Sovereign Wealth Funds (SWFs) have gained considerable attention recently, representing a large and growing pool of savings. African SWFs and national investment funds have been gaining in prominence over the past few years, especially in natural resource exporting countries of Africa.

Acknowledging that there is controversy about the relative merits of the SWFs and their added value, this paper discusses the multiple interests of using SWFs by African states, particularly those exporting natural resources. Attempting to contribute to the answer to the question whether African countries need SWFs or not, this paper argues that a well-structured and governed SWF with a clear and sound mandate and professional management and staffing can serve, along its traditional functions, signaling, capacity-building, and governance purposes in African states. Beyond their role in stabilizing local economies, we contend that SWFs can therefore play an important role in fostering economic and social progress as well as governance and political accountability.

Keywords: sovereign wealth funds, signaling, capacity building and governance functions