Using African Sovereign Wealth Funds to Deepen African Capital Markets

Sovereign wealth funds (SWFs) have become powerful financial vehicles for managing national wealth and strengthening economies against fiscal volatility. In total, the latest figures put African SWFs at around $200 billion as of 2025, while sub-Saharan Africa's SWFs manage about $153 billion worth of assets. The figures are definitely encouraging, but with the majority of these resources invested outside the continent, Africa's own financial ecosystems are heavily undercapitalized.

The regional capital markets in Africa are sleeping beasts, with the potential to transform Africa's financial future when awoken. If the SWFs redirect a modest fraction of their assets intra-continentally, the capital market could wake up, and the financial integration under the African Continental Free Trade Area (AFCFTA) would finally gain momentum and lead to sustainable financial growth within the continent. Let us talk about this.

The Global Context and African Reality

Even as SWFs have exploded globally over the years, they remain relatively young and modest in scale on the African continent. There are approximately 20 sovereign wealth funds present, but unlike their other continental counterparts, they are laden with more functions including financing the private sector and working on infrastructural projects. Many SWFs over the world were established due to an excess or to increase financial profitability, but SWFs in Africa especially in Sub-Saharan Africa have the added mission of impacting their mother countries economically, socially, and environmentally. Thus, at the heart of their strategies include partnerships with foundations, the building of financial institutions, the development of the private sector, and so on. However, they are in a unique position to drive development-focused investments on the continent.

The African Sovereign Investors Forum (ASIF) brings together SWFs from Angola, Djibouti, Egypt, Ethiopia, Gabon, Ghana, Morocco, Nigeria, Rwanda, and Senegal, along with leading UAE SWFs and Kuwait's Authority, to find ways to promote investment on the continent. The Nigerian Sovereign Investment Authority (NSIA) hosted the 2025 annual meeting for the ASIF, where several SWFs gathered and made commitments to improve cross-border collaborations within the continent targeting key sectors including infrastructure, agriculture, industrialization and climate.

With these ideas in tow, it is imperative that investors internalize two things true about the capital markets in Africa 

1. African Capital Markets Are Underutilized and Underdeveloped

Despite hosting nearly thirty stock exchanges, the capital markets in Africa are still underdeveloped. While the scene is complex enough to comprise exchanges, and financial systems that can raise long-term funds for public and private investment, it remains generally small, with low liquidity and few listed securities compared to other regions. Its bond markets suffer from low liquidity and have limited benchmarks for securities pricing.

The largest stock exchange on the continent is the JSE. Currently ranked 17th globally by size, the South African equity market represents around $1.15 trillion, with the Nigerian Exchange (NGX) trailing at $70 billion and Morocco's Casablanca Stock Exchange (BVC) at $69.8 billion. Combined, these markets in Africa amount to a tiny part of the global market value.

Other African markets are characterized by small equity markets with low liquidity and few listed securities, while bond markets suffer from limited benchmarks for pricing securities, low liquidity, rigid regulatory frameworks, and inefficient infrastructure.

Another problem is that the capital markets across the continent exist under distinct regulatory and currency regimes, and are still disconnected from one another. Cross-border investment flows become very difficult and, in effect, retards the unification of the continental market. A Nigerian investor wanting to buy South African shares navigates tumultuous layers of currency exchange rules and regulations that make investment less than worthwhile. Par consequence, trade within countries on the African continent remains disproportionately low, keeping the countries overly dependent on foreign capital inflows and exposing them to external volatility.

There is also the matter of mounting debt challenges, as these capital markets lack the liquidity to provide for commercial and developmental activities within the continent.

2. Market Depth Matters to Growth

Capital markets are central to sustainable growth within Africa. When developed, they will provide the essential financing to power both public and private sector activities and enable the funding of critical continental issues like climate change and biodiversity preservation.

Empirical studies consistently link the depth of capital markets to long-term economic growth. Economies with higher market capitalization relative to GDP exhibit stronger private sector investment, earn from higher productivity, and show greater economic diversification. The lack of depth in the African capital market constrains both public and private investment capacity.

A more liquid bond market would reduce reliance on Eurobond markets, where African debtors currently face yields several percentage points higher than global averages. If governments and financial institutions can issue local-currency debts more friendly to financial growth and development. But this can only happen if the market is deepened.

Cross-Border Investment as a Catalyst for Market Deepening

Cross-border investment within Africa means that African countries invest in each other's development. Capital is deployed from one African country into assets, enterprises, or markets in another country. The economic case for cross-border investment is grounded in three interrelated benefits:

1. Diversification: A Ghanaian SWF investing in Angolan logistics or a Kenyan fintech diversifies not only its portfolio but also contributes to intra-African value chains, and reduces its exposure to domestic shocks.

2. Market Deepening: The participation of SWFs in the capital markets encourages other financial institutions, pension funds and private equity firms within the continent to partake, resulting in increased liquidity and market depth.

3. Regional Resilience: As capital circulates within Africa rather than exiting the continent, the damage from external shocks are softened as the connected capital markets within Africa create mutual support structures. During the 2020–2022 global downturn, African markets with stronger regional investor participation experienced less volatility and faster recovery.

The cross-border investment within Africa remains limited as much of the capital inflows to African markets originate outside the continent. In fact, intra-African trade and investment is reported at between 12-18%, and is less than 3% of global trade. The reason for this low amount of trade lies in less than adequate means of transport as the borders within African countries are difficult, lack of development of manufacturing and the logistical difficulty involved in the flow of trade.

However, investors should know that several policies are underway to minimize these obstacles, such as,

The African Continental Free Trade Area (AFCFTA)

The African Continental Free Trade Area (AFCFTA) has provided a policy framework for continental integration. The goal of the AFCFTA is to form a unified continental market where commercial activities can move freely and a Continental Customs Union is established. When operational, the AFCFTA would become the largest free-trade area.

As of August 2024, there are 54 signatories, of which 48 have deposited their instruments of ratification.

In April 2024, the African Union announced that the AFCFTA entered into the operational phase of the agreement. The agreement commits members to eliminating tariffs on most goods and services over periods of 5, 10, or 13 years, with the overall aims of increasing socioeconomic development, reducing poverty, and making Africa more competitive in the global economy.

The Pan-African Payment and Settlement System (PAPSS)

The Pan-African Payment and Settlement System (PAPSS) enables the efficient flow of money securely across African borders, by working with central banks across Africa to provide payment and settlement services to ‘Participant’ financial institutions in their local currency.

PAPSS is critical to the workings of the AFCFTA and could save the continent $5 billion in annual transaction costs.  Current membership encompasses 15 central banks from Nigeria, Ghana, Liberia, Guinea, Gambia, Sierra Leone, Djibouti, Zimbabwe, Zambia, Kenya, Rwanda, Malawi, Tunisia, and Comoros, alongside over 50 commercial banks. PAPSS is steadily growing, with 15 central banks now signed on and 12 live commercial banks. A PAPSSCARD was launched in Abuja on June 27, 2025.

The African Exchanges Linkage Project (AELP)

This joint initiative by the African Development Bank (AfDB) and the African Securities Exchange Association (AELP) aims to unify key stock exchange markets within the region to reduce the difficulty in the cross-border stock investments between investors. Inspired by the ideas that founded the AFCTA, it is hoped that the AELP Link Trading Platform can link 2,000 companies and a $1.3 trillion  combined market capitalization across the continent.

How Cross-Border Investment Can Help African Capital Markets

The deepening of African capital markets through cross-border investment can be understood through several reinforcing mechanisms:

1. Liquidity Creation: As SWFs invest in another country's bonds or equities, patient, long-term capital that expands market activity and improves liquidity joins the fiscal weight of that country's economy. This greater liquidity reduces volatility and attracts additional investors and issuers.

2. Benchmark Pricing: As large institutions participate in local bonds and equities, they help stimulate financial innovation as reference rates, yield curves and several other benchmarks are established.

3. Market Confidence and Signaling: The involvement of reputable African institutions signal confidence in the host market and attracts more investors, both domestic and foreign, and improves participation.

4. Infrastructure Financing and Asset Creation: When SWFs co-invest in regional projects such as power grids, logistics corridors, or telecommunications networks,  tangible assets that can later be securitized or listed are also formed, leading to more available investment instruments on the local market.

5. Regulatory Harmonization: Cross-border investments by default improve accounting standards, disclosure requirements, and taxation frameworks which increase the harmonization of the financial scene over time.

Challenges and Preconditions for Success

Regulatory Fragmentation: Each African country maintains its own securities laws and these inconsistencies often complicate cross-border transactions and discourage large-scale participation. The market will need a much stronger integration to manage this.

Currency Volatility: The frequent and unpredictable exchange rate movements expose investors and can erode investor returns. However, PAPSS is specifically designed to address this challenge by enabling settlement in local currencies.

Governance and Transparency: SWFs in Africa mostly operate in environments perceived to be corrupt and whose authorities maintain low trust. To develop strong and impactful partnerships, institutions need to be strengthened and more good governance principles should be adopted.

Limited Absorptive Capacity: Smaller African markets may lack sufficient investment-ready projects or instruments to absorb large SWF inflows without distorting prices. Developing pipelines of bankable projects is essential.

The Credit Rating Challenge: Currently there is a gap between the perceived risk and the real risk that hinders long-term investment.

Policy Pathways for Integration

For cross-border investment by SWFs to fulfill its transformative potential, Africa must adopt a multi-tiered strategy involving national, regional, and continental actors:

1. Establish a Pan-African SWF Investment Framework

The African Union, along with the African Development Bank and the ASIF, should develop unified guidelines for SWF governance, transparency, and cross-border investment. This framework could mirror the Santiago Principles but must be bespoke to African realities, and should address specific challenges such as currency risk, regulatory harmonization, and project bankability standards.

2. Create Regional Co-Investment Funds

Like the NSIA-Morocco Ithmar Capital joint venture between the countries of Nigeria, SWFs from West, East, and Southern Africa can cluster and form dedicated regional funds to focus on infrastructure, renewable energy, and technology. A move like this could mitigate individual risk while at the same time, amplify the impact.

3. Strengthen Market Infrastructure

Smoother settlement structures are incredibly important. Platforms like the AELP and PAPSS provide the essentials that build trust among regional investors, with lower transaction fees and standardized settlement structures.  Dependency on foreign capital is greatly reduced, as well as risks associated with fluctuations in the exchange rate.

4. Issue Pan-African Bonds

African SWFs could serve as anchor investors backing instruments such as an AFCFTA Infrastructure Bond or an African Green Bond listed on multiple exchanges. Liquidity is improved as governments enjoy diversified funding pools.

5. Promote Institutional Capacity Building

Developing investment expertise through an African Sovereign Investment Academy or partnerships with international institutions would enhance governance standards and technical capacity.

Future Outlook

With a continental capital ecosystem where liquidity overflows borders, harmonized standards oversee investor operations, and African wealth finances African growth, cross-border investment could become the cornerstone of Africa's financial integration.  

Such a system would reduce dependence on external finance, ameliorate fiscal resilience, and foster innovation across industries. SWFs become more than passive saving vehicles as they architect Africa's economic future.

The AFCFTA is an important framework for this as it has distilled the blueprint for an Africa without debilitating financial borders.

A Call for Collective Action

Africa is on track to become the world's fastest-growing region, outpacing Asia,  fueled by its young population, rich natural resources, and blossoming markets.

Africa's young population needs employment, infrastructure, and economic opportunities. Thus, channeling African capital creates a virtuous cycle where investment generates returns that fund further investment simultaneously creating jobs, laying infrastructure, and developing human capital.

African SWFs can continue the traditional path of investing primarily in developed markets abroad, earning modest returns while Africa's development needs remain unmet. Or they can evolve to become cornerstone investors in Africa's regional markets, providing the much-needed financial boost and unlocking the potential in the integration of Africa's financial future.

The infrastructure that facilitates this is underway. The AFCFTA is unifying the market. PAPSS is harmonizing payment, and the AELP is revolutionizing stocks and equities on a continental scale. The dream requires more political will, courage from the institutional bodies and understanding the sovereign wealth within Africa can bridge our resource abundance and our financial sovereignty. unified market. ASIF is facilitating collaboration. What remains is political will, institutional courage, and a collective recognition that Africa's sovereign wealth can become the bridge between resource abundance and financial sovereignty.

When African capital invests in Africa, a new chapter of economic prosperity and economic independence starts.  We can achieve sustainable development in Africa in the 21st century if we work together.