As part of Angola’s diversification efforts, its sovereign wealth fund is working to boost non-oil sectors of the country's economy by investing at home and abroad in diverse assets. James King reports.

Pushing ahead with an economic diversification agenda in an environment of falling oil receipts has not been easy for the government of Angola. With a desperate need for funding and investment, the country’s non-oil private sector has been hit particularly hard. The Indicador de Clima Económico (ICE), a business confidence indicator published by the country’s National Statistical Institute, collapsed towards the end of 2015, falling by 20 points in the final quarter.

Yet Angola’s sovereign wealth fund, the Fundo Soberando de Angola (FSDEA), has been playing its part in stimulating the non-oil sectors of the economy. The fund’s $5bn of capital, which was fully paid in by the government in 2014, has been allocated across a diverse local and international asset class including private equity funds, fixed-income assets, variable income assets, financial derivates and cash.

Rebuilding aid

“The sovereign wealth fund is one of many institutions that the state has created to tackle issues around oil price volatility. The FSDEA’s investment policy dictates that we can only invest up to 5% of our portfolio in assets that are linked to the oil sector. In establishing a sovereign wealth fund, the government envisaged the important role it could play in spurring the non-oil sectors of the economy,” says José Filomeno dos Santos, chairman of the FSDEA.

Officially established in 2012, the fund is playing an important role not only in addressing Angola’s oil dependency but also in helping to rebuild the country after the conclusion of a 27-year civil war in 2002. “Every country faces different challenges. In Angola’s case it has been dealing with the after-effects of the civil war, among other issues,” says Mr dos Santos.

In its latest investment update for the year ending December 2015, the fund detailed its efforts to move towards direct investments in Angola and beyond. To this end, close to 60% of its entire portfolio is now committed to private equity allocations in infrastructure, agriculture, hospitality, healthcare, timber, mining and mezzanine financing.

“We have been investing in a lot of initiatives that are not only very interesting from a financing perspective but that have the capacity to change the social and investment landscape of the country over the coming years. In Angola, there are many infrastructure projects that are crucial to economic development that require greenfield investments,” says Mr dos Santos.

The FSDEA’s largest private equity investment is in infrastructure, accounting for $1bn of allocated capital. Close to 20% of this figure is invested in projects across Angola and Kenya. Similarly, about 23% of the fund’s $500m hospitality allocation is focused on Angola and Zambia. This mix of local and regional investment opportunities provides the fund with a diversified risk structure, while allowing it to tap into well-priced opportunities across sub-Saharan Africa as a result of cooling economic growth and the devaluation of some currencies.

“These vehicles are focusing on commercial business ventures in these sectors. They are selected solely on the basis of potential to generate solid returns. We take into account the fact that the continent is growing and has a large population so there is a need for goods and services to be generated locally,” says Mr dos Santos.

FDI crucial

Alongside the FSDEA, the role that foreign investment will play in answering Angola’s challenges will be crucial in the coming years. As the government attempts to incentivise the flow of foreign money into the country, Mr dos Santos is encouraged by the positive interest of international investors in both Angola and the wider region.

“It has been reassuring to hear that many international investors are interested in Angola and the [wider] region. The downturn across a number of key economies in sub-Saharan Africa means that a lot of jurisdictions are now more open to investment from abroad. We believe the FSDEA can work with co-investors to attract additional investment and capital to Angola and beyond,” he says.

For the FSDEA, the priority now is to transition its bookkeeping and financial statements practices to International Financial Reporting Standards by 2017. Once this is implemented, it is hoped that meeting these requirements will enhance opportunities for co-investment, while mirroring the Angolan financial sector’s broader march towards improved levels of transparency, reporting and governance. 


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