World Bank Calls on Sovereign Funds to Invest in Africa

from the New York Times

By STEVEN R. WEISMAN

WASHINGTON — The president of the World Bank, Robert B. Zoellick, called Wednesday for the major government-owned sovereign wealth funds of Asia and the Middle East to join with the bank in investing in Africa.

In a speech aimed at the world’s finance ministers and central bankers, who will be meeting in Washington this month, Mr. Zoellick said the West’s mistrust of sovereign wealth funds could be assuaged if the funds set aside 1 percent of their assets to help private enterprise spread on the world’s poorest continent.

Sovereign wealth funds, including those controlled by the governments of China, the United Arab Emirates and Singapore, among others, are believed to have amassed nearly $3 trillion in assets, making them a larger player on the world’s investment scene than hedge funds. Their wealth is expected to grow exponentially in the next five years.

A 1 percent diversion of their assets could add up to $30 billion a year in private investment for Africa.

“This 1 percent could be the start of something much bigger, across more types of funds and countries,” Mr. Zoellick said, adding that such investments would show that the fast-growing government funds were not a cause for concern but rather a potential partner for solving the world’s problems.

Tens of billions of dollars have been invested by Asian and Middle Eastern funds in an array of American banks and investment banks. Many in Congress say they are wary of government-controlled foreign investments in private American businesses as a threat to the nation’s economic security and independence.

Led by Treasury Secretary Henry M. Paulson Jr., the Bush administration has called for the International Monetary Fund, the World Bank and other international agencies to help the funds adopt a code of practices disavowing political motives in their investments and adopting greater disclosure of their activities and portfolios.

Mr. Zoellick, who took office last year after the ouster of Paul D. Wolfowitz in the wake of an ethics scandal, has not generally been a part of the chorus of financial experts calling for adoption of changes by sovereign wealth funds. He gave his speech at the Center for Global Development, a policy institute in Washington.

Mr. Zoellick said in an interview that there was little to fear from sovereign wealth funds because they had already been engaging in sound practices, but that expanding those investments to Africa would help build popular support in the United States and Europe.

“At a time when people are fearful of sovereign wealth funds, I’m saying let’s look at this as an opportunity,” he said in the interview. “If we can create investment platforms for equity investments in Africa, everybody benefits.”

Mr. Zoellick said that although much of Africa was in poverty and a global food shortage may make matters worse, Africa was also an investment opportunity much as China, India, Brazil and other once-impoverished nations were two decades ago.

From 1995 to 2005, he said, the economies of 17 countries in sub-Saharan Africa that were not reliant on oil exports grew 5.5 percent. These represented more than a third of the area’s population, he added, and could well become future places for investment in infrastructure and other projects helping them export and expand their private sectors.

Mr. Zoellick proposed that the sovereign wealth funds join with the World Bank’s vehicle for private-sector investment, the International Finance Corporation.

“Yes, the sovereign funds need transparency and should be guided by best practices to avoid politicization,” he said. “But I believe we should celebrate a possibility that government-sponsored funds will invest in equity in development.”