Africans In China

Sovereign wealth funds and the IMF are drafting a voluntary code of conduct on governance, accountability and investment policies in a bid to serve the funds and the  host countries.

Cathy Mputhia

October 22, 2008: Many foreign investors are now turning to Africa for secure returns following huge losses in Western markets. The recent financial crisis in leading global markets has left many investors seeking for secure returns. According to analysts, the African economy is growing.

Recently, Kenya and a few other selected African countries were classified as emerging economies by the IMF. Changes in national laws have opened up the continent for foreign investment.

In Kenya, there are proposals to amend the existing Companies and Partnership Laws in line with global standards. Such amendments will ease the formation of new business structures, for example, private equity funds in addition to offering a conducive environment for the issuance of structural finance products.

These new changes may see a number of sovereign wealth funds investing in Africa. This is due to the changing global financial environment and the shift by investors from high-risk return investments to relatively low-risk investments.

The regulatory reforms by some countries are an additional attraction for sovereign wealth funds (SWFs). Analysts and some lawyers are optimistic the changing environment may cause a gradual shift by SWFs into Africa. There has been a lot of debate as to whether SWF investments will favour the common man in a continent strife with poverty. However, with a direct improvement in the economy, a ripple effect will be felt in the economy according to analysts.

SWFs are not the only funds seeking to seize the opportunity of investing in Africa. Dubai World, this year started a $100 million investment plan in Ethiopia including mining and real estate projects.

A regional office has been opened in South Africa. Chinese state banks have also moved to Africa. A joint fund with African banks and worth $6 billion has been developed to invest in various African economies.

However, SWFs are still viewed with suspicion in most countries due to the fact their activities are shrouded with secrecy and the fact that they are an investment by sovereign states. The issues of state sovereignty, public international law and conflict of laws arise, further complicating their operations.

The EU has proposed some guidelines for SWFs, which guidelines have been opposed by the SWFs in question. In the US, SWFs attracted protectionist reaction.

It is notable that the most active SWFs are from the Middle East and China. In 2006, the US Congress blocked a bid by a Middle Eastern SWF to take over a major and strategic shipping company as the deal would have seen the SWF taking control of six US ports.

This was deemed too risky especially since it was seen as making the US too vulnerable to terrorist attacks from the Middle East.

The SWFs and the IMF are in the process of drafting a voluntary code of conduct relating to governance, accountability and investment policies of SWFs in a bid to serve both the SWFs and the host countries.

Analysts and lawyers have been debating over the issue for a while with most taking an optimistic outlook. However, all were in agreement that African states should take advantage of the changing global environment to provide conducive regulatory framework to support the shift by investors.

They were also in agreement that Africa forms an attractive investment market. The only major issues perhaps overlooked, would be the high political risk of investments and political interference.

(bdafrica)

This entry was posted on Thursday, October 23rd, 2008 at 5:19 am and is filed under Africa-China. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.