How well are Africa’s sovereign wealth funds managed?

In late March, news broke that Jose Filomeno dos Santos, son of the former Angolan president, Jose Eduardo dos Santos, and former chairman of Fundo Soberano de Angola (FSDEA), the $5bn Angolan sovereign wealth fund (SWF), had been charged by his country’s prosecutors for fraud over the transfer of $500m from the central bank’s account with Standard Chartered in the UK.

Former Banco Nacional de Angola governor Valter Filipe da Silva was also charged. A month later, the new government of President João Lourenço fired Quantum Global Investment Management as FSDEA’s fund manager.

The revelations about FSDEA’s governance troubles during the dos Santos era are not entirely surprising: Quantum was the sole investment manager.

When queried about potential governance issues while still chairman of FSDEA, José Filomeno usually cited the Santiago Principles, a set of good governance rules and principles drawn up by the International Forum of Sovereign Wealth Funds (IFSWF) that the FSDEA had signed up for. And to its credit, FSDEA scored 8 out of 10 on the Sovereign Wealth Fund Institute’s Linaburg-Maduell Transparency Index in February 2015.

This begs the question of how in spite of such supposedly stellar governance values, the FSDEA became enmeshed in its current controversy. The chief executive of a development finance institution (DFI) who spoke to African Business on condition of anonymity put the FSDEA dilemma rather well: “It is not about what you sign up to but what you actually do.”

He has a point. Even so, many SWFs are indeed accountable to their parliaments and do adhere to strict rules. The Angolan case is an exception, not the norm. And there is probably more politics at play than a genuine concern about governance, because had power not changed hands in Luanda, the less-than-flattering revelations about FSDEA and its former chairman may have simply been resolved quietly. So, the investigations are probably more motivated by President Lourenço’s seeming determination to purge the patronage structures of his predecessor, whose long rule means his supporters and loyalists still permeate Angolan officialdom.

The Libyan Investment Authority, founded in June 2016 under the country’s former longtime leader Muammar Gaddafi, has also suffered from poor management and political interference. In 2016 it filed a lawsuit in London against Goldman Sachs over the $1.2bn it had lost from risky derivatives trades made by the bank on its behalf, and on which the bank had made $200m in profits. The LIA argued that it had been a fledgling fund at the time and had been subject to undue influence by the bank, but the judge found in favour of Goldman Sachs, ruling that its profits were reasonable and that the LIA had entered into the trades for its own reasons.

The LIA has also been subject to political problems. For a time, there were two claimants to the chairmanship. AbdulMagid Breish was appointed head of the LIA in June 2013, but in October 2014, after the split between governments based in Tripoli and Tobruk, the latter body appointed Hassan Bouhadi as head of the fund. Although Bouhadi resigned in August 2016, the saga speaks to the governance quagmire in the SWFs of countries where the rule of law is weak.

‘Not yet owned by one family’

There are six African members of the IFSWF: Agaciro Development Fund (Rwanda), FSDEA (Angola), Ithmar Capital (Morocco), LIA (Libya), Nigeria Sovereign Investment Authority (Nigeria) and the Pula Fund (Botswana). Should there be concern about them having similar governance issues? The above-mentioned African DFI chief executive posits the Nigerian case thus: “It is less likely to happen in Nigeria as we are not yet “owned” by one family like Angola was.”

Uche Orji, CEO of Nigeria Sovereign Investment Authority (NSIA) explains why such troubles are not likely to happen at the institution he runs: “The NSIA board is an independent and professional board with proper oversight of the activities of NSIA through five committees which meet regularly.

We publish our annual audited accounts as well as quarterly audited accounts. Our investment guidelines limit the exposure we can have to any one portfolio manager… who has to meet a minimum qualification criteria to manage our funds… Just for our private equity allocation alone we have more than 15 different portfolio managers”.

Orji claims that misappropriation of funds could not occur at the NSIA. “Will there be occasions when investments could have challenges? That is for sure, but we have sophisticated risk management tools, provided by UBS [a Swiss investment bank], a strong board and processes that guide management’s action,” he says. 

“For example, I deliberately asked the board to keep management spending limits very low for over five years at no more than N20m [$56,000] and anything above that requires board approval. We undergo audits more than six times a year… four by PwC, one by [Nigeria’s] auditor-general and one by [Nigeria’s] accountant-general. [And] the internal auditor reports to the board directly.”

Regardless, concerns remain about potential interference in the affairs of the NSIA (as with other African SWFs). Is the Nigerian government able to interfere in the NSIA like past ones did with the central bank, and to allocate more funds than are allowed in its investment policy statement, for example to infrastructure? Orji insists the NSIA’s independence has been respected thus far. He also cites how the fund’s governing law is a source of restraint to all stakeholders.

Orji buttresses his points further: “We reject 99% of project requests that we get. There are some we have asked for and we did not get. If we don’t think we’ll get our money back, we won’t do it. Every dealing with government is governed by contract.”

What if the government cannot fulfil its obligations or chooses not to? The NSIA chief says every contract entered into specifies how the fund would get its money back, including arbitration and litigation. Besides, risk management strategies are also employed to reduce the probability of potential losses or holdups.

Could the NSIA perhaps be the role model for other African SWFs? Time will tell. In fact, many African SWFs are exemplary. For example, Botswana’s Pula Fund has not suffered any scandals and has been around for much longer than the ones that have recently been fraught with problems. In any case, there is a need for greater scrutiny of these institutions to keep them honest.

But the bad press from what were largely internal failures, whether at the FSDEA, LIA or elsewhere, may have longer-term consequences for investor confidence. Global investors will almost certainly re-evaluate how they choose to invest on the African continent. However, there is probably not much damage done, especially if these incidents spur stronger governance standards and practices.

Rafiq Raji