SWF: A Sign of Stability

Ashby Monk

After my (long) post yesterday on the International Finance Corporation and the Sovereign Funds Initiative, I was interested to see today that the IFC has announced plans to invest upwards of $2 billion in sub-Saharan Africa this fiscal year. However, what I found most interesting was Lars Thunell’s — who is the CEO of the IFC — opinion that political risk is becoming less of an issue for investors in Africa, noting that countries such as Angola and Rwanda could see 7 percent growth this year:

“If you look at the number of conflicts, it’s come down dramatically in the past 10-15 years, which is one of the reasons for the stability. We also have a new generation of leaders coming in, some of them are very very good…But you still have natural resources, you have corruption, nationalisation. There will still be political risk, you can’t shy away from that.”

It’s interesting that he singled out Angola as a country that the IFC is now interested in investing in. As the Economist recently noted, “After four decades of strife, Angola was a basket case.” But, Thunell is right, things have changed dramatically for the better. With almost a decade of peace, Angola’s economy has exploded thanks to its generous resource endowment. In fact, the country is now China’s biggest supplier of oil, ahead of  Saudi Arabia and Iran. Nonetheless, corruption is still rampant and this new wealth hasn’t flowed through to average citizens. So, some structural reforms are still required.

However, Angola has started to make some of these necessary reforms, in particular to better manage their resource wealth and avoid the types of corruption that eventually leads to capital outflows. As noted in previous posts, this has included the creation of a new SWF. Inspired by Norway’s SWF, Angola has set out to instill “good governance” in the management of its resource endowment. According to a recent IMF article, Angola’s SWF  represents an important structural reform to set up an…

“…institutional framework that de-links the fiscal stance from volatile short-term oil revenues and to avoid future boom-bust cycles.”

Given how vulnerable the Angolan economy was to resource price volatility–the economy was one of the world’s fastest growing in 2006 and 2007 before collapsing with the fall of oil prices in 2008–the SWF will be an important tool in smoothing out this volatility to facilitate long-term planning. This stability will in turn attract outside capital into the country.

Apparently, having a SWF is a signal that your country is stable enough to invest in.

2 Responses to “SWF: A Sign of Stability”


  1. 1 Brian February 9, 2010 at 4:47 am

    What I thought was funny is that the article right after that in The Economist spoke of how hard it was to do business in Angola. An astonishing fact to me was that over half of Angola absorbs over half of the FDI in southern Africa! Good blog! It’s funny to me, because SWFs turn political risk on its head. It can be construed as importing political risk by the companies being invested in, at least according to some critics.


  1. 1 Economics news headlines | Money Supply | FT.com Trackback on February 5, 2010 at 1:24 pm

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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