By Ashby Monk
This blog is a source of open discussion and engagement on the topic of sovereign wealth funds. As such, we welcome and indeed seek out all views and opinions on the subject. Today, we offer the second installment of what we hope will become a routine segment: “Q&A with a SWF expert, stakeholder or policymaker”. We are pleased to welcome Jason Mosley of Oxford Analytica. While Mr. Mosley’s views are his own, his perspective helps to further debate and facilitate understanding.
Ashby Monk: Jason, can you give us a little bit of background about you, Oxford Analytica and explain your interest in SWFs?
Jason Mosley: Oxford Analytica is an international, independent consulting firm that does strategic geopolitical analysis for clients that range from governments to Fortune 100 firms. My role within the firm is Senior Africa Editor, which means I am in charge of all Africa related content in our Daily Brief. I’m increasingly interested in SWFs because SWFs are increasingly interested in Africa! Moreover, on a more personal level, I lived in Ethiopia for two years in the 1990s and recently returned for a two week trip. I was very interested to see the impact that some of the Gulf SWFs were having in areas where I had spent a considerable amount of time. It raised my awareness to the issue.
Ashby Monk: That’s interesting. We’ve actually had a series of blog entries about the potential role for SWFs in African development. By the sounds of things, this is a phenomenon that you have personally seen. Generally speaking, do you think SWFs will have a large impact on African development?
Jason Mosley: Well aside from my anecdotal experience, we first need to recognize that none of the SWFs that we at Oxford Analytica list in the ‘top 20’ are from Sub-Saharan Africa (SSA). In fact, using a very broad definition of what constitutes a SWF, SSA only has around $20 billion in SWF assets, which comes mainly from Nigeria and Botswana, with Uganda, Mauritania and Angola adding under a billion combined. So, this suggests that (like the investments I saw in Ethiopia), SWF investment will need to come from outside Africa. To me, this suggests we need to better understand the investment strategies of the largest SWFs — in order to evaluate to what extent the SWF phenomenon will aid/bypass the region.
Ashby Monk: Some have suggested that SWF investments in Africa could be based on political criteria. Do you see SSA bound investments by SWFs as being political or commercial?
Jason Mosley: It is interesting, the same characteristics that give Western politicians pause — the potential for non-financial factors influencing the investment decision — gives some African economies hope. Because SWFs do not have creditors, they may be willing to invest in SSA based on an investment valuation process that can be enlarged to consider financial, political, social or any other factor. As you well know, Ashby, traditional financial institutions are less flexible when making investment decisions: pension funds in particular must maximize financial returns. I don’t see SWFs as being bound by such a strict level of governance (i.e. fiduciary duty). So, maybe SWFs have more flexibility to consider extra-financial factors in their valuation process? Honestly, we still don’t know enough about their investment decision-making and how it will impact SWF investments in Africa…but it is interesting to think about.
That said, my personal experience and expectation is that SWFs are looking for profit in SSA. So, even though they may have more flexible valuation metrics, they will still be looking for returns. Nevertheless, Western fears about SWFs and the south-south links you mentioned in a previous post will still play into Africa’s favor. I’m confident that there will be a continuing SWF presence in SSA over the medium to long term.
Ashby Monk: What is your take on World Bank President Robert Zoellick’s suggestion that global SWFs allocate 1% of their portfolios to African investments?
Jason Mosley: Zoellick’s call dovetails nicely with the idea that SWFs could play a role in development, and based on current estimates of SWF size, this would put $30 billion in potential investment on the table (roughly equal to all Official Development Assistance to SSA, and nearly double FDI inflows, for 2006). This would clearly be a significant increase in capital flowing to the region. An important difference to ODA would be the commercial nature. It’s not clear whether Africa suffers from a lack of finance, as its economies are relatively small compared to other regions. Nevertheless, SWF investment could stimulate sectors of the economy normally underserved by existing FDI, which is dominated by the extractive sector, and focused geographically in a handful of commodity exporting countries. In the search for returns, and with a different risk tolerance and valuation method, SWF investments could have significant knock on effects. The flip side of Zoellick’s call was his interest in a role for the Bank in steering SWF investments through Bank managed funds — this points to a key bottleneck for potential SWF investment in SSA: lack of local knowledge for good investment opportunities. It’s not just a problem for SWFs, and while the World Bank may be in a position to provide a steer, I’m not sure SWFs are ready to be guided (nor that they should be).
Ashby Monk: What types of investments do you see SWFs favoring in SSA?
Jason Mosley: One of the primary investment needs of SSA is infrastructure. Unleveraged, long-term investors such as SWFs are particularly suited for this type of investing. Through public-private partnerships, these investments can be particularly lucrative in politically stable countries, and even in some countries often considered slightly less stable (such as Nigeria or Angola).
One area where we’ve definitely seen investment has been in real estate, usually focused on serving the tourist sector. This is true in areas already associated with international tourism, such as Cape Town in South Africa, but also in less high profile destinations, including Rwanda.
Also, we’ve seen investment in sectors such as transport logistics in SSA, including in Djibouti and Senegal, where Dubai World has major investments in port infrastructure. In these cases, SSA countries have welcomed (in Senegal’s case actively pursued) the very SWF that was blocked from investing in US ports because of US political concerns about Dubai’s agenda.
Ashby Monk: Thanks, Jason, for taking the time chat with us today.