Macroscope has discussed the growth of sovereign wealth funds many times (see here or here). Just to recap, the global state-owned SWF industry is set to more than double in the next 10 years from the current $3 trillion, according to estimates from Deutsche Bank.

John Green, global head of business development at Anglo-African bank Investec, argues that Africa will play a key role in the expansion of SWFs in years to come.

“Africa is very rich in commodities. Africa in aggregate has gone from a significant fiscal deficit, largely funded by aid, to a continent that has a fiscal surplus. That’s what has precipitated a lot of thinking around this issue,” he says.

Green says he agrees with the view that in the next 5 years there will be enough surplus around in many African countries to begin to build future generation funds properly.

Libya is a leader here with the continent’s biggest sovereign wealth fund, which manages $65 billion in assets. Nigeria is working on legislation to create a SWF aimed at softening any impact from falling oil prices.

Read the full Reuters interview here.

The good news for Africa when the global financial meltdown began was that its financial markets were generally so far behind the rest of the world that groups such as the World Economic Forum reckoned that there was little or no danger. A new paper, posted on the economic research website VoxEU, suggests that that might be a bit too optimistic.

Tilburg University economist and former World Bank official Thorsten Beck – along with the World Bank’s Michael Fuchs and Marilou Uy —  write that despite shallow financial markets, sub-Saharan Africa is unlikely to escape the repercussions of the financial crisis.

Indeed, they argue that the crisis is threatening what little progress has been made to reverse what they call the alarming superficiality of African finance.

African financial systems are small, both in absolute and relative terms . In addition, Africa’s financial systems are characterised by very limited outreach, with less than one in five households having access to any formal banking service. Banking is inefficient and expensive in Africa, as reflected by high interest spreads and margins and high overhead costs. Banking is also very expensive for deposit customers, as reflected by very high minimum balance requirements and annual fees in many African countries. High documentation requirements to open an account – that is, the need to present several documents of identification – also represent significant barriers given that large parts of the population live and work in the informal sector. Similarly, physical access is limited, as the low bank branch and ATM penetration numbers for Africa illustrate.

Perhaps the most worrying aspect of the report for the region, however, is that the authors reckon Africa is more or less on its own when it comes to fixing this.

For better or worse, the future of Africa’s financial systems is closely linked to the development of global finance, as are its real economies. However, it is up to Africa’s financial sector stakeholders – bankers, donors, and policymakers – to guide financial sector reforms in a way that maximises Africa’s opportunities, learning both from their own experience over the past 50 years and the experience in other emerging and developed economies.

The big question is whether such stakeholders will do so.

There is little doubt that the BRICs — Brazil, Russia, India and China — have become big players in Africa. According to Standard Bank of South Africa, BRIC trade with the continent has snowballed from just $16 billion in 2000 to $157 billion last year. That is a 33 percent compounded annual growth rate.

What is behind this? At one level, the BRICs, as they grow, are clearly recognising commercial and strategic opportunities in Africa. But Standard Bank reckons other, more individual, drivers are also at play.

In a new report, the bank looks at what each of the individual BRIC countries is trying to do. To whit:

– Brazil’s immediate intererest in Africa is securing access to natural resources, particularly oil. But is also motivated by a desire to create a new “Southern Axis” with itself at the forefront.

– Russia is also interested in Africa’s natural resources. But it faces a problem because of the sullied reputation of the Soviet Union during the Cold War. So Moscow has also embarked on a rebranding programme within the continent by ramping up its aid programmes.

– India is attracted to Africa in part because of long historic ties. Commercial engagement, however, is also motivated by a need to guarantee the natural resources it needs for its own growth. Furthermore Africa is seen politically as a key ally in the pursuit of a competitive advantage over its Asian competitor China.

– For China, Africa provides a long-term partner in its ongoing bid to gain global economic ascendancy, providing it with the resources, markets, geopolitical support, and, eventually, food and social security in the form of a growing and engaging diaspora.

A full copy of Standard Bank’s report, which was written by Simon Freemantle and Jeremy Stevens, can be found here.

(Photo: Jeremy Gaunt)

Good news and bad news for Africa from the latest take on global risks from the World Economic Forum. Not much danger for most of the continent, it says, from an asset bubble burst. That's the good. The bad, of course, is that this is because there are not many financial assets to bubble. In fact, it deems the overall exposure even to economic risks is small because African economies are not particularly tied in to global markets.

Actually, the report shows that there are two Africas. Mapped by their susceptibility for economic and asset bubble trouble, most African countries are bunched together in a low risk range. But another, smaller cluster, including Nigeria and South Africa, finds itself in much more peril and shares space on the WEF risk map with Western and Eastern Europe.

Good news, in a contradictory sort of way.