Angola’s Sovereign Wealth Fund Bets $500 Million On Hotels In Africa

Angola's Sovereign Wealth Fund Bets $500 Million On Hotels In Africa
Angola today is in the midst of a building boom

AFRICANGLOBE – The Fundo Soberano de Angola (FSDEA) is a Sovereign Wealth Fund wholly owned by the Republic of Angola. The Fund, which was established in October 2012 according to international governance benchmarks, will gradually diversify its investment portfolio across a number of industries and asset classes in accordance with its investment policy and guidelines. By pursuing investments that generate long-term and socially enhancing financial returns, the FSDEA plans to play an important role in promoting Angola’s social and economic development and generating wealth for its people.

Earlier today, the Fundo Soberano de Angola (FSDEA) released its third quarter investment update for 2014, which covers the period the 1st of July to the 30th of September 2014. According to the FSDEA’s balance sheet, the net value of the Fund stood at USD $4.95 billion.

The FSDEA is investing USD $1.1 billion in a dedicated Infrastructure Fund that will focus on equity investments in energy, transport and large industrial developments domestically and across the African region. The FSDEA has also allocated USD $500 million equity capital to a Hotel Fund for Africa, which aims to fulfil the significant undersupply of international standard hotel management capacity in the continent. This vehicle will be in a position to take up debt up to 50 per cent, potentially doubling its total investment capability.

I had a conversation today with José Filomeno dos Santos, Chairman of the Board of Directors of FSDEA. Dos Santos joined the FSDEA in 2012 as a Member of the Board of Directors where he was instrumental in building the strategic and operational foundations of the FSDEA. He is the son of Angola’s President, José Eduardo dos Santos, and a brother to Africa’s richest woman, Isabel dos Santos. He spoke about the Fund’s quarterly results and its investment plans.

How important are commercial investments for the FSDEA?

Commercial infrastructure projects in Africa currently show unparalleled potential and resilience against the perceived risks associated to our continent. At the FSDEA, we believe that providing the necessary funding for the development of these assets shall enable the overriding goal of diversifying the Fund’s investment portfolio sustainably.

You have also allocated USD $500 million equity capital to a Hotel Fund for Africa. Tell us about the hospitality focus of the FSDEA?

According to an Ernst & Young report, the hotel industry in Africa saw a 54% year-on-year increase in the number of hotel developments in 2012. Today, Africa has around 90,000 international standard hotel rooms; half of which are in just three North African countries (Egypt, Morocco and Tunisia); therefore the potential opportunities for the hotel sector expansion are substantial.

It’s worth noticing that investments in hospitality can bear good investment returns as well as job and wealth creation opportunities for the host countries. In addition they create a local supply chain that may positively impact the economic growth of the continent.

The capitalization of these vehicles is in line with the FSDEA’s policy to invest in sectors that remain shielded from global market volatility and provide sustainable high yield returns on investments that may ultimately preserve capital of the Fund for the benefit of the Angolan citizens.

Beyond generating solid returns, the rationale behind creating these dedicated investment funds is that the infrastructure and hotel sectors hold substantial potential for job and wealth creation and stimulate local supply chains that positively impact the overall growth of the region’s economies.

You have also launched a research unit. What is the rationale for setting up such an institution?

The research unit shall set the foundations for developing an investment intelligence hub specialized on the Angolan economy. The establishment of this unit seeks to improve the quantity and quality of research data available on Angola and certain sectors of the continent, thereby addressing the challenges faced by academics, policymakers and analysts in interpreting the specificities of the African business landscape. By studying the real foundations of the Angolan economy, the FSDEA aims to secure insights to support its domestic investments, assess income and employment generation patterns and understand the true dynamic of an African economy from a local perspective.

There is a scarcity of quality data on Africa in the public domain. So, by securing reliable statistics and analysis of Angola’s current investment context, our analysts can deliver valuable insights that enable informed investment decisions. We firmly believe that providing access to more reliable data can be a catalyst for driving sustainable social progress.

What will the research unit aim to achieve?

The FSDEA’s research unit consists of eight investment analysts, who work in cooperation with the Angolan Government and specialized academics to generate regular intelligence on macro-economic issues, as well as sector and country specific analysis. This workgroup will enable the FSDEA, policy makers, government agencies, and international researchersto gain insights into the investment landscape of Angola – Africa’s third largest economy – and the overall region.

This new unit represents the start of a wider FSDEA effort to develop research based investments that are in line with its commitment to preserve capital, maximize long-term returns and develop commercial infrastructure projects that bear benefits for Angolan citizens.

What are your thoughts on how best to create a conducive regulatory environment for sovereign wealth fund investments in infrastructure in Africa?

The most important processes in building a sovereign wealth fund is the development of a sound governance framework that allows accountability and an effective supervision by the appropriate stakeholders.

Commercial infrastructure projects in Africa rely on the support of experts in a range of fields, from engineering to legal and finance, which are not readily available in the continent today. In order to contract such parties successfully, African institutions must be professionally managed and transparent. It’s important for any SWF to be properly audited, to have clear investment guidelines and to work well with international SWF organizations such as the IFSWF. So, adoption of international best practices, such as the Santiago Principles, is an important step to show commitment to the employment of the best practices of the industry.

 

By: Mfonobong Nsehe