For a small country with no rich mineral resources, the idea of a sovereign wealth fund in Djibouti might have seemed adjacent to Lionel Zinsou, the founder and managing partner of South Bridge, an advisory consultant in Pan Africa. To prove his point, he was involved in the construction of the Sovereign Wealth Fund (Fonds Souverain de djibouti, FSD).
He argues that on a continent where patient capital is difficult to obtain, sovereign wealth funds can be an important tool for long-term, sustainable financing. Sovereign wealth funds are usually based on natural resources, but their absence is not necessarily an obstruction factor. Singapore is one classic example.
“Even if you don't have natural resource-based revenues like oil or gas, it doesn't mean you can't have a sovereign wealth fund. We're not Saudi Arabia, with oil wealth, and not Botswana, diamonds. But we've identified potential savings capabilities.
In Djibouti's case, its strategic position, stability and consistent revenue are one of the assets that FSD is based on, says Zinsou. “It is the most stable country in a 2,000-3,000 km radius. Djibouti is one of the most liquid financial centres in Africa. It has a strong banking system that acts as a regional financial shelter.
Therefore, regular allocations to the fund allow the state to make necessary capital investments.
Zinsou also said he was encouraged by the clarity of the vision that Djibouti authorities have. “Djibouti also has a clear Vision 2035 strategy, making it an ideal candidate for the sovereign wealth fund,” he points out. So the advice from Southbridge was to transfer some state assets to newly created funds and ensure that they were managed for optimal results. “This is a model used in European countries where public companies lack natural resources, but have public companies that generate stable dividends,” he explains.
Designing frameworks, regulators and governance mechanisms took a year, he says. “The idea now is to ensure that it operates at the highest level of professionalism while entrusting some public assets to this fund.”
Zinsou also believes that if properly managed, public companies in Africa can actually make money and boost the wider economy. Although it was often not, he believes that positive examples of Benin and Senegal provide hope and model, among several others.
“They have converted key sectors such as electricity and communications into beneficial companies. Sovereign wealth funds can provide patient capital for infrastructure and industrialization if managed properly. They will support strategic investments in key sectors such as telecommunications, energy and logistics.
With state support, sovereign wealth funds can attract private investors and specific projects when they first move. The idea is that a partner with a stable source of funding will give confidence in otherwise dangerous ventures.
In the case of FSD, Zinsou notes that “the state has already committed to providing public assets to the fund.” For example, the fund oversees the management of telecoms and utility companies. This will also receive funding from the Social Security Fund at Sublprus Savings. Sovereign wealth fund.
According to Zinsou, as interesting as it is, the fact that the Djibouti economy is itself in the midst of evolution. “The landscape is evolving. Its industrial zone is expanding. There are renewable energy projects (solar, green hydrogen). Public-private partnerships will help fund these projects.
PPP has a role
Public-Private Partnerships (PPPs) are not very popular in Africa, but Zinsou says that something out of hand shouldn't be rejected. “PPP is ideal for sectors that generate high and predictable cash flows. Communications is a great example. Many telecom investments in Africa are public-private partnerships. Energy projects such as solar and biomass power plants use innovative financing models in areas such as Ivory Coast.”
Zinsou points out that while risks are often exaggerated and still often hinder investors, discussing the perception of one of the risks, risks vary from sector to sector. “Certain sectors are more resilient to political instability. For example, political risks do not necessarily reduce telephone and data usage, and electricity demand from homes and businesses will remain.”
Ultimately, “The success of the PPP depends on trust. Trust in the signing parties, especially the government, will honor the agreement over time. However, even in a stable economy, this trust is by no means absolute.
The Prime Minister of Benin worked to ensure rapid resolution of the disputes to create an effective environment for the PPP with legislative guarantees and strong judiciary. As a result, “we've grown significantly for private investment,” as a result of further improvements by his successor.
“What struck me in the government of Benin was that there was always savings somewhere,” recalls Zinsou.
Green buds of success
For Zinsou, these success stories around the continent are a fitting counterargument to the general narrative and evidence that the continent has what it takes to reform their clunky bureaucrats to make them more business-friendly. “Some countries have proven to be able to travel faster. Rwanda is known for efficient execution in all development sectors. Cote d'Ivoire has undergone significant economic transformation since 2011, maintaining a high and stable growth rate. Even Benin is recognized as a country that accelerated reforms and project execution.”
African countries must adopt reform as a means of necessary progress, Zinsou argues. “The systems inherited during independence are not designed for long-term economic growth. Even the most efficient countries need reforms to accelerate development.”
But across the continent, Zinsou is seeing the buds of green progress.
He cites Egypt, which doubled the Suez Canal within two years, and proves that large infrastructure projects can be implemented quickly. Cairo is undergoing large-scale urban transformations.”
Zinsou says these developments are among many. Because the international community focuses on the parts that are not functioning and ignores many things.
“We need to distinguish between slow moving and fast growing sectors, some sectors are fragmented between multiple countries, making economies of scale difficult to achieve, and projects fall into bureaucracy and bureaucracy.
“But in some areas, capital flows rapidly, innovation is happening at full speed, and infrastructure projects are transforming cities within a few months.
“However, this progress is not reflected in the dominant international narrative of Africa. The reality is that Africa is undergoing major transformation, even if many global investors and analysts don't notice it,” he concludes. And he says Djibouti is one of those countries. He says he ignores it because of your danger.
