Written by Helen Nyambura – Mwaura | From Reuters via BDlive

Rich African countries are busy setting up sovereign wealth funds, but critics say the funds may not serve the long-term interests of poor countries that still need to invest in basics such as schools and roads.

Three oil producers, Angola, Ghana and Nigeria, started funds in the last two years. Before them, only Botswana, Gabon and Equatorial Guinea had such schemes.

Other countries are following. Zambia and Liberia announced plans for funds last month. Tanzania, Kenya, Uganda, Mauritius, Mozambique and Zimbabwe have similar intentions.

The funds can serve useful purposes, analysts say. Commodity earnings can be split into one fund for infrastructure and another for savings that can be used as collateral for even bigger amounts.

“Africa needs higher savings,” said Razia Khan, the head of Africa research at Standard Chartered Bank. “If it is done properly, the sovereign wealth fund and the accumulation of long-term savings essentially means that countries are improving their creditworthiness and opening up access to bigger sources of financing on more favourable terms. It does not preclude investment in infrastructure.”

But critics say Africa could reap more from its resources by investing in education, energy, and transport to feed other industries, rather than parking the money in liquid but low-yield assets in safe havens, as sovereign funds tend to do.

Many successful wealth funds belong to countries with surpluses and rich citizens, which can afford them.

That is not the case with many sub-Saharan African governments struggling to feed or educate their people, said Kwame Owino, the chief executive at the Nairobi-based Institute of Economic Affairs.

“It would be a luxury to have. The political will may exist, but the economics of it suggest that a sovereign wealth fund is not a good idea for many sub-Saharan countries,” he said.

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