World Bank Leads Big Funds Into Africa

Robert Zoellick — World Bank President

The private-sector lending arm of the World Bank is leading large government-owned wealth and state pension groups into frontier markets in Africa and elsewhere where few big investors have sought to venture.

The hope is that by investing money on behalf of these deep-pocketed funds in regions they would normally shun as too volatile, they will learn to appreciate the long-term profit potential.

Over the past few months, the International Finance Corp's Asset Management Company has made investments using capital from the Korea Investment Corporation, Azerbaijan's state oil fund, Dutch pension fund manager PGGM, and an unnamed fund investor in Saudi Arabia.

The first investments by AMC's Africa, Latin America and Caribbean 'ALAC' fund have gone into HeidelbergCement, the world's fourth largest cement maker, which has expansion plans in west and central Africa, and Ecobank Transnational, a leading pan-African bank group seeking to boost lending.

While the investors do not have a say in where the money is invested, the initial choices appear to be conservative, focusing on segments likely to be in hot demand.

'The investments we have made so far show there is a strong pipeline out there,' Gavin Wilson, AMC chief executive, said in a recent interview.

World Bank President Robert Zoellick first pitched the idea of using money from powerful sovereign wealth funds of Asia and the Middle East in 2008, challenging them to invest one per cent of their assets in Africa.

The funds have amassed nearly US$3 trillion in assets, and a one per cent investment of their assets could add up to US$30 billion a year in private investment for Africa.

Frontier markets, which are one of the fastest-growing investment areas, offer high growth potential, an untapped consumer class and promising companies hamstrung by scarce capital.

While most investors' attention has been on major emerging markets such as China, India, Brazil and Russia, the fund is hoping to showcase opportunities in other promising but untapped markets that have impressive economic growth.

'We are seen as a safe pair of hands by those who have previously not done much investing in emerging markets,' said Wilson.

'They recognise we're not going to take foolish risks, or try to invest the funds too quickly and move on to the next thing.'

AMC's other fund, the US$3 billion Capitalisation Fund, emerged from the global financial crisis to help key banks in developing countries deal with liquidity constraints that arose from the global credit crunch.

Ben Leo, a research fellow at the Center for Global Development in Washington, said it was appropriate for IFC to be at the forefront of taking on risk in frontier markets, not only as a direct financier of private companies but also by facilitating investment flows from other groups.

'If IFC is able to build the comfort level of sovereign wealth funds and their familiarity with some of the Africa frontier markets through this vehicle this is a good thing in the long run,' said Leo, a former White House and U.S. Treasury official who worked on Africa affairs.

Reuters/GB