African Super-Fund suggested by World Bank

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Sovereign wealth funds could provide capital for an African super-fund to channel investment to the continent’s emerging markets, under a plan being considered by the World Bank’s private-sector lending arm.

By Chris Bryant in Washington

Lars Thunell, chief executive of the International Finance Corporation, told the Financial Times that a “fund of funds” was one way his organisation could achieve the World Bank’s aim of encouraging state-owned wealth pools to invest in African businesses.

“We’re not talking about aid. We’re talking about trying to create a new asset class,” Mr Thunell said. “Some of these frontier investments can be very profitable.”

Robert Zoellick, World Bank president, last week urged sovereign wealth funds to invest 1 per cent of their approximately $3,000bn (£1,520bn, €1,900bn) in assets in equity in Africa.

The announcement came in spite of aid agency concerns that a surfeit of state-owned capital could lead to dangerous economic imbalances on the continent and distract from rich countries’ slipping commitments to increase aid to Africa.

The issue of sovereign wealth funds is particularly sensitive given widespread criticism that some lack transparency, and amid China’s already substantial investments in sought-after commodity resources in Africa.

Although African economies are expected to continue growing by about 6.5 per cent this year, the International Monetary Fund warned this weekend of a risk that foreign direct investment could weaken amid a global economic slowdown, threatening efforts to overcome poverty.

Private capital flows in 2006 overtook official aid as the main source of external finance for sub-Saharan African countries, quadrupling to $48bn between 2000 and 2006, compared with $40bn in official aid flows.
Private equity and debt flows have grown rapidly and were estimated at about $53bn in 2007.

However, they remain comparatively small and the bulk is currently channelled to South Africa and Nigeria.

Rather than investing in commodities and natural resources, Mr Thunell said any super-fund deals would be more likely to focus on much-needed projects such as agricultural processing.

He said sovereign wealth funds welcomed an opportunity to invest at arms’ length, an attractive prospect for some funds who feared provoking a hostile public reaction.

●Alistair Darling, the UK chancellor, will arrive in Beijing on Monday as he aims to entice the Chinese Investment Corporation, the country’s sovereign wealth fund, to open an office in London.

Britain’s interest in securing investment from CIC is the latest example of advanced countries seeking investments from such government-supported funds.

Advanced economies agreed last week not to impose special hurdles for investment from sovereign wealth funds.

The Financial Times

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