Africa is experiencing the strongest growth in new sovereign wealth funds in the world mainly due to the continent’s nations amassing commodity revenues and foreign-exchange reserves.., JPMorgan Asset Management's Patrick Thomson, the global head of sovereigns said that during the past two years, 15 state funds have been set up or are being considered in Africa. He also stated, ‘the region will see more starting in the coming years.’
This makes it the fastest region in the world for the growth of sovereign wealth funds. With the rise of commodity prices, African countries are starting to put their surpluses into government-owned funds designed to manage a country’s wealth for future generations.
The largest African country with an established wealth fund is Algeria with over USD 77 billion in assets under management. Several of our focus countries have taken an interest in setting up their own such funds. For example, Tanzania and Uganda have recently experienced an upsurge of oil and gas exploration and so are considering launching wealth funds to help manage resources.
There are other reasons behind this trend:
- the ability of sovereign wealth funds to act as a buffer in the event of any potential fiscal shocks.
- reduced reliance on single commodities for fiscal revenues by diversifying a country’s income stream.
- they contribute to higher credit rating, which in turn allows the country and its businesses to reduce their costs of borrowing in international markets.