Africa: Could the Continent Survive To the New Form of Capitalism

“The US policy of buying up treasury bills and increasing the supply of dollars is causing the other currencies to appreciate against the dollar. This is especially harmful to emerging markets that rely on their exports for economic growth and stability. An appreciating local currency makes exports more expensive for the rest of the world and the local industry suffers a drop in demand as a result… with the rapid increases in international reserve holdings and in revenues from the export of non-renewable resources over the past decade, total holdings of international assets by SWFs have grown to at least $3.5 trillion, and international reserves, which can be used for similar purposes, have risen to nearly $7 trillion…”.

The creation of Sovereign Wealth Funds (SWF) has jumped since last year and been adopted by other countries, so that today, all major countries have such a financial institution. These domestic investors, responsible to grow revenue from commodity exports or the State foreign exchange reserves, have become commonplace. They are then gone from being opportunistic investors to that of last resort predators, particularly for financial and banking sectors. Much better accepted as capital banking providers in times of budgetary and financial scarcity, but today, they are seeking for investment opportunities arising from the crisis. Since the mid-2000s, the creation of sovereign wealth funds has accelerated. All geographic regions and all countries are affected by this craze, even the most modest. Mauritius has announced to launch its 500 million dollars fund, aiming to limit the volatility of the Mauritian rupee against the dollar. In the Middle East, Israel might launch its fund, while Lebanon has already one by last summer. Africa will, in turn, try to catch up economically by establishing its own large domestic investors, and the latest example being Zimbabwe.  This projected SWF, not yet finalised, will be fed by the country’s diamond revenues, under the advice of the World Bank. The Mozambique could also follow this example, while South Africa is intending, in turn, the creation of an African Development Fund, funded by foreign exchange reserves and will be designed in particular to invest in infrastructure projects – a fairly common type of investment within SWFs. Meanwhile, Egypt is also refining the final details of its fund, which will be responsible for overseeing 150 large enterprises in the country and conduct the privatization of some of them. Some countries could even launch their second fund, to create more opportunities to grow the country’s mineral wealth. However and despite the plebiscite reserved to this new wave, it should be of high importance to implement good structures of governance and organisation to keep  these funds sheltered from any political interference in their management and, notably, from the temptation of diverting these SWFs in an opportunistic way. In certain cases, it is not guaranteed. The sovereign fund has been used then, by some governments, more as geopolitical or strategical tools; thus the profit motive is no longer the sole objective.