WB wants wealth funds to put $30b into Africa
April 14, 2008
The World Bank is asking the world’s richest governments to divert one per cent of the money they have set aside for equity investments to equities in Africa.
World Bank president Robert B. Zoellick announced the proposal at an independent think tank in Washington DC, ahead of the meeting this month of the Bank and International Monetary Fund that will also feature finance ministers and central bankers from around the world.
In a speech dwelling on Africa, Mr Zoellick pledged an increased agricultural lending to sub-Saharan Africa to $800 million next year and proposed to urgently conclude a global trade deal and enhance transparency in the extractive industry.
It is understood that sovereign wealth funds, state-owned funds created from governments’ budgetary surpluses, have accumulated about $3 trillion in assets altogether, including those controlled by Abu Dhabi, Norway, Singapore, Saudi Arabia, Kuwait, China, Australia and Qatar.
One per cent of these assets would mean about $30 billion of private investment to Africa, which has projects in infrastructure development that are already studied and found feasible but with capital constraints.
These sovereign wealth funds have invested billions of dollars in European and American investment banks like Citigroup, Morgan Stanley and UBS.
Mr Zoellick’s proposal comes at a time when these funds have become a concern in Europe and America following the world’s worst credit crunch that left them with huge losses incurred while trying to bail out banks in the West.
He is, however, optimistic, saying: “Where some see sovereign funds as a source of concern, we see opportunity. This one per cent could be the start of something much bigger, across more types of funds and countries, because the investment of wealth into equity for development offers opportunity, not something to fear,” said Mr Zoellick.
The World Bank Group has pledged to connect long-term global liquidity with investment opportunities in Africa. The International Finance Corporation, the Bank’s private sector arm, is designing an open platform for funds to enable joint ventures with governments and their funds.
IFC has invested $8 billion in sub-Saharan Africa since its inception, of which $160 million went into equity last year alone. It is now setting up a two new $100 million funds for infrastructure and micro equity.
Mr Zoellick also pledged that the bank would offer political risk insurance through its Multilateral Investment Guarantee Agency, an organisation that has done much to instil confidence among investors wishing to put their money into African countries emerging from conflict.
Indeed capital inflows into Africa have remained strong despite the global credit crunch. Private funds like the Middle East and Africa Investment Company, a private equity firm consisting of 16 institutions and business groups from Saudi arabia, Kuwaiti, Bahrain and the United Arab Emirates, is already investing hundreds of millions of dollars in Africa, particular Uganda’s telecommunication sector.
Julian Mclntyre, president of Gateway Communication, parent company of GTV, told The EastAfrican that money was coming into Africa normally, because lenders had realised that there were opportunities for good returns on the continent.
GTV secured loan of $60 million for expansion in Africa on December 28, at the peak of the global credit crunch.
“We closed the loan deal at a time when European companies were finding it difficult to borrow money. It’s fantastic that a company working in Africa would get money from European lenders, which reflects the optimism that has accumulated about Africa over the past few years. Investors are seeing emerging markets and particularly Africa as fundamental, as compared with the more developed world, which is more prone to changes in perception of credit risk,” said Mr Mclntyre.
The Bank also called for transparency in the extraction industry, so that high prices for energy and mineral resources on the world market today, although posing a cost to some, offer opportunities to others in the developing world.
Mr Zoellick sought to add more practices to the Extractive Industries Transparency Initiative (EITI), which was launched by former British premier Tony Blair is under the New Partnership for Africa’s Development in 2002.
The EITI encourages resource-rich countries to publish and verify company payments and revenues from the oil, gas and mining sectors. An EITI++ wishes to include awarding of contracts, economic management and investment strategies on the publication and verification list. Some 17 of the 24 countries implementing the EITI are in sub-Saharan Africa.
“In concert with the African Development Bank, the African Union, the Economic Community of West African States and the West African Monetary Union, we are working to launch an EITI++ in Guinea. The successful development of Guinea’s resources can strengthen sustainable development in the entire region,” said Mr Zoellick.
He added that there is a need to focus on climate change and economic growth as well.
He said: “We need a new deal for global food policy to focus on not only hunger and malnutrition, access to food and its supply, but also the interconnection with energy, yields, climate change, investment, marginalisation of women and others, and economic resiliency and growth.”
He called upon the US, EU, Japan and other countries to release $500 million urgently needed by the World Food Programme for additional food supplies. Already, the WFP’s country office has announced that it does not have enough food for hunger-stricken Karamoja region in northeastern Uganda.
By DAVID MALINGHA DOYA
The EastAfrican