No African country is Norway! A perspective on sovereign wealth funds and the energy transition

Many African countries such as Algeria, Angola, Ghana, Libya, and Nigeria have created Sovereign Wealth Funds (SWFs) in order to ensure financial sustainability, overcome infrastructure deficits and deal with pro-cyclical expenditure associated with petroleum revenues. Clearly, some of these countries believe that by mirroring the 'Norwegian model', they could deal with a potential 'curse' associated with oil discovery and production. Indeed, 9 out of 14 functional African SWFs derive their source of funding from hydrocarbons. Specifically, these funds are aimed at cushioning governments during oil price fall; serve as an endowment for future generation, or for the development of specific areas or sectors. Generally, rules on the governance, investments and expenditure of these funds are drafted and implemented to minimize the chances of abuse. Despite this, returns are often low whilst most of these countries borrow at high interest rates. In addition, there are fund governance challenges in selected countries. This study provides an assessment of the performance of SWFs of Algeria, Angola, Ghana and Nigeria. A discussion of how SWFs are managed, the funding gap for energy transition and how SWFs can help fill this gap are documented. The study recommends that a cost -benefit analysis of SWFs strategies should be conducted before SWFs investment decisions are made.

Automated summary

Many African countries have established Sovereign Wealth Funds (SWFs) to deal with fiscal issues related to oil revenues, aiming to avoid the potential "oil curse" by emulating the Norwegian model. These funds are funded by hydrocarbons and serve to support governments, provide funds for future generations, and develop specific sectors. Despite challenges such as low investment returns, high interest rate borrowing, and governance issues, a cost-benefit analysis of SWF strategies is recommended before investment decisions are made.