African Sovereign Wealth Funds to lose at least $19b due to Covid- 19

Covid-19 and its enormous economic repercussions on Africa is putting serious strain on the continent’s Sovereign Wealth Funds (SWF) – which collectively hold some $87 billion in assets under management.

Experts at advisory firm Konfidants – which publishes the African Sovereign Wealth Funds Index – are projecting that COVID-19 could result in African SWFs suffering combined losses of $19 billion in a best-case scenario and about $27 billion in the worst-case scenario.

Soaring COVID-19-related public expenditure and plunging global oil prices is severely crushing the fiscal health of the oil-exporting countries that hold 74% of African Sovereign Wealth Funds’ assets.

This assessment is part of a bigger Konfidants global report spanning over 80 Sovereign Wealth Funds that projects Covid-19 to shrink global SWFs assets by at least $2 trillion in potential combined losses.

Sovereign Wealth Funds are suffering what Konfidants has termed “a triple-drain” on their assets: As SWFs are (a) liquidating assets to shore up government budgets to fight Covid-19, the funds are also simultaneously (b) losing money on investments (as corporate profits and stock markets tank) and (c) losing much of the annual funding allocations they receive in normal times (as a result of the collapse in prices of the commodities that feed many SWFs, and the fiscal crunch starving non-commodity SWFs).

Ghana has already withdrawn $219 million (48% of the Ghana Stabilization Fund) and Nigeria has withdrawn $150 million (43% of Nigeria’s Stabilization Fund), to shore up government budget. And Ghana’s proposal to drawdown the Ghana Heritage Fund is being debated.

Although there are minimal disclosures, aside Ghana and Nigeria, on how other SWFs on the continent are spending to support government budgets, it is almost certain that substantial adverse effects will be revealed over the course of time – because of the “triple-drain” dynamics on their assets.

“We can already tell a lot from how many countries are seeking IMF support. Already, 8 out of the 14 African countries with active SWFs are seeking IMF help – an indication of the extent of their fiscal distress.” Says Michael Kottoh, Managing Partner of Konfidants.

Even when oil prices were relatively higher before the crisis, Angola, Equatorial Guinea, and Gabon had already pursued IMF assistance.

Since the crisis struck, Nigeria, Senegal, Rwanda, Gabon, and Ghana have also sought IMF help. Outside of Africa, some of the world’s wealthiest SWFs are feeling the bite.