Namibia Launches Commodity-Backed Fund

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Africa saw the launch of its latest sovereign wealth fund in the form of Nambia’s more conventional commodity-backed Welwitschia Fund.

The fund has an initial injection of N$262 million (US$16 million), but will be boosted by offshore oil resources discovered by TotalEnergies  and Shell. It will collect royalties from mineral resources as well as a share of tax revenues.

President Hage Geingob said at the launch the Welwitschia Fund would invest 2.5% of its portfolio locally to bridge the country’s infrastructure financing gap.

The fund is similar to those commodity-backed funds seen in Angola, Botswana, Libya and Nigeria, but distinct from the recently launched Ethiopia Investment Holdings which seeks to better manage and monetise existing state holdings.

In February, TotalEnergies announced that its Venus prospect offshore Namibia was productive and Reuters’ sources suggested there were reserves of more than 1 billion barrels of oil equivalent. Namibia’s other resources include diamonds, gold and uranium and the country is seeking to become a major green hydrogen producer by 2026. The country’s minerals potential is vast when compared to the size of its popilation – for example, Namibia produced 1.5 million carats of diamonds in 2021.

The SWF will join Africa’s 30 SWFs or sub-funds, most of which are relatively minuscule, with combined wealth of US$98 billion.

The establishment of the fund is one of the first goals of the Harambe Prosperity Plan II (HPPII), a medium-term economic development action plan spanning 2021-25. The fund will be seeded with asset sales and royalties collected from mineral extraction, such as diamond mining. The recommendation to launch an SWF was set out by the High-Level Panel on the Namibian Economy (HLPNE) with an initial framework scheduled in Q2 FY2021/22.

In accordance with HPPII, it will have a dual mandate. The stabilization part of the fund will be invested in fixed income assets with a focus on low risk and liquidity, while the intergenerational fund will comprise of 70% public equity with the rest comprised of fixed income and private market assets, including private equity, real estate and infrastructure. Approximately 2.5% of the intergenerational fund will be invested in infrastructure projects with socio-economic benefits for future generations, indicating a domestic strategic economic development angle to the intergenerational fund.

Most of the SWF’s portfolio will comprise foreign holdings with the likelihood that the government will appoint external asset managers, as is the case for Botswana’s Pula Fund and the stabilization fund of the Nigerian Sovereign Investment Authority (NSIA).

The government plans to privatize 22 SOEs with the proceeds going to the SWF. The biggest of these assets is Namibia’s largest telecommunications company with a 90% market share, MTC Namibia. In November 2021, MTC raised N$2.54 billion through an IPO, but fell short of the N$3.1 billion it had hoped to raise. The lower value cast doubt on the ability of the new fund to raise capital and liquidity for its various investment objectives.