Nigeria: The Rise Of Africa's Institutional Investors: Making Indigenous Capital Work For Africa

Last Updated: 24 July 2018
Article by Kunle Soyibo

The strong economic performance witnessed across the continent of Africa since the early 2000s, generally called the "Africa Rising" narrative, has been phenomenal for Africa with transformational developments.


Africa's narrative has changed from a continent in need of foreign aid to that of an attractive investment destination for investors seeking high returns. Today, the continent can boast of indigenous companies that have become business champions in varied sectors particularly banking, telecommunications, manufacturing, oil & gas, agriculture, fashion and tech; these companies are expanding the frontiers of their businesses to other countries on the continent. A good number have attracted rounds of investments from local and international investors with some being listed internationally. Behind these companies are remarkable entrepreneurs who are determined against all odds to tackle problems, provide innovation and help create jobs for the young population.

The progress made on the continent is however not without its challenges which needs to be addressed if Africa's new narrative is to be sustainable. The challenges include the lack of adequate infrastructure which increases the cost of doing business, reliance on imported inputs with its attendance strain on the local currency, limited skilled manpower, political uncertainties, lack of robust business laws, access to capital and many others. However, it is amazing that a lot of African businesses have continued to thrive amidst these challenges which speaks to the fact that a lot more can be achieved on the continent if the challenges are addressed. One of the critical challenges on the continent is accessing capital for businesses. It is important to note that a lot of initiatives have been developed on the continent to address the difficulties of accessing capital, although a lot more still needs to be done to be able to harness the opportunities. One of the significant developments in relation to accessing capital on the continent is the increasing number of institutional investors, such as the pension funds and sovereign wealth funds on the continent that are beginning to serve as a steady source of capital as they provide medium to long term capital for business.The strong economic performance witnessed across the continent of Africa since the early 2000s, generally called the "Africa Rising" narrative, has been phenomenal for Africa with transformational developments. Africa's narrative has changed from a continent in need of foreign aid to that of an attractive investment destination for investors seeking high returns. Today, the continent can boast of indigenous companies that have become business champions in varied sectors particularly banking, telecommunications, manufacturing, oil & gas, agriculture, fashion and tech; these companies are expanding the frontiers of their businesses to other countries on the continent. A good number have attracted rounds of investments from local and international investors with some being listed internationally. Behind these companies are remarkable entrepreneurs who are determined against all odds to tackle problems, provide innovation and help create jobs for the young population.

These African institutional investors are in the early stages of their operations on the continent. They have a significant role to play in unlocking value in the African business environment as well as taking ownership of deployment of capital on the continent. Africa cannot continue to depend mainly on foreign capital for the growth of its businesses. More indigenous capital is required to drive and chart the course of development on the continent.

Institutional Investors and their Role in Development

Institutional investors are a significant segment of the financial sector of many developed countries. Unfortunately, very little is known globally about institutional investors including in developed countries. Institutional investors are specialised financial institutions which manage savings collectively on behalf of small investors, towards a specific objective in terms of acceptable risks, return maximisation and maturity of claims1. This means that institutional investors are able to mobilise huge funds from individual investors and institutions with a view to managing the funds usually over a long period of time by finding suitable investment opportunities that meet certain risk and return profile in order to achieve increased investment value and projected returns. The growth of institutional investors has been associated with the concept of "institutionalisation of saving" arising from the growth of pension funds, life insurance companies and mutual funds2. The concept of "institutionalisation of saving" refers to the increasing move of household savings to professional portfolio managers to manage savings on behalf of households as opposed to being saved in banks, buildings or co-operative societies (or the post office in past times).

The institutional investors are of different types; they include endowments, family offices, insurance companies, pension funds, sovereign wealth funds, mutual funds, hedge funds, private equity and venture capital funds and may be set up as statutory companies, limited liability companies (either listed or unlisted). Some of the sovereign wealth funds are set up as statutory corporations. The investments typically will be made through funds that may be set up as trusts, limited partnerships, investment companies (list or unlisted) and managed by a fund manager with an investment committee supervising the quality of the investments made.

Institutional investors, in carrying out their role in relation to the funds under management, make contributions to development. The role of institutional investors in development has been made possible by the fact they are large investors and can take advantage of the economies of scale in the deployment of their resources. Some of their roles in development are discussed below: –

  • Provision of Financing

One of the main contributions of institutional investors to a market is the provision of large and reliable financial resources3. Their ability to mobilise huge amount of resources enhances their capacity to serve as a stable supply of capital for the economy. According to the European Central Bank, investment funds in the Euro area held stock of debt securities amounting to EUR 2,437 Billion and quoted stocks amounting to EUR 6,593 Billion as at end of September 20164. These funds are able to provide the market with liquidity as well as financing for expanding businesses.

  • Provision of Long-term funds:

The ability to provide financing over a long period of time has the positive effect of financial stability and can also foster economic growth and development5. This is particularly useful in financing costly and long-term development projects and allows users of funds adequate time to utilize the funds provided, to create value and wealth for the stakeholders.

  • Risk Appetite and Management

Institutional investors have been able to take bigger risks that provide commensurate returns. They also have the resources to adopt appropriate risk management framework to ensure effective management of the risks. Consequently, institutional investors are able to reduce risk to individual stakeholders as well as to the financial system. One of the major advantages of institutional investors is seen in the diversification of their investments, competent risk assessment, asset and liability management, reduced information asymmetry and cost efficiency6.

  • Improvement of Corporate Governance Practices7

Institutional investors have been able to influence shareholder participation, particularly in public companies, which has changed from a passive approach to active and thereafter to activism. The influence of institutional investors has given a voice to shareholders in the management of the companies resulting in shareholder engagement by managements of companies. This engagement has resulted into maintenance of appropriate standards of corporate responsibility, integrity and accountability to shareholders. The requirements for shareholders "say-on-pay" proposals for executives, support for director elections, succession planning, or corporate social responsibility issues are results of active shareholder engagements.

The Rise of Africa's Institutional Investors

Africa has not only attracted foreign institutional investors to the continent but has also began to establish institutional investors for the continent. This is a very positive development. These institutional investors have helped to deepen the capital market by providing liquidity, growing the bond market and have helped to strengthen the financial system. Their asset allocation is expanding to a variety of asset classes that range from stocks, corporate bonds, municipal bonds, money market instruments, open and closed-ended investment funds, real estate investment funds, infrastructure funds, private equity funds. Based on an Africa Development Bank report, assets under management by African institutional investors are expected to rise to $1.8 Trillion by 2020 from $670 Billion in 20128. Price Waterhouse Coopers estimates pension fund assets under management in 12 African markets to rise to about $1.1 Trillion by 2020 from $293 Billion in 20089. Assets managed by African sovereign wealth funds grew from $114.27 Billion in 2009 to $159 Billion in 201510.

Apart from pension funds and sovereign wealth funds, African institutional investors include (a) development finance institutions like Africa Finance Corporation, African Development Bank, ECOWAS Bank for Investment and Development; (b) family offices and proprietary investment companies like T.Y. Danjuma Family Office, Heirs Holdings, Man Capital; (c) insurance companies like Old Mutual, an insurance and asset management group based in South Africa. These institutional investors at times utilise private equity funds, infrastructure funds and other specialised funds as vehicles for channelling their investments; they co-invest with foreign institutional investors and may make direct investments.

Pension Funds

Pension reforms in Africa resulting in the adoption of defined contributory schemes, universal pension schemes and growth of pension fund assets on the continent has made it possible for pension funds to invest in a broad array of asset classes. About 90% of the assets are concentrated in Botswana, Namibia and Nigeria, South Africa11. Examples include Government Employees Pension Fund (GEPF) in South Africa, Government Institutions Pension Fund (GIPF) in Namibia, Botswana Public Officers Pension Fund (BPOPF) in Botswana and pension fund administrators in Nigeria.

The Nigeria Pension Reform Act 2014 (PRA) gives examples of the types of instruments that pension funds invest in Africa. Section 86 of the PRA provides that pension funds and assets can be invested into government securities, corporate securities, closed-end and hybrid investment funds, real estate development investments, specialised investment funds. The Regulation on Investment of Pension Fund Assets 2017 includes in the array of investment options (a) infrastructure projects through eligible bonds including railroads, toll roads, airports, ports, power, gas, pipelines; (b) infrastructure funds with multilateral development finance agencies or minimum investment manager rating of 'BBB'; (c) private equity funds with multilateral development finance agencies or minimum investment manager rating of 'BBB'; (d) real estate investment trust with minimum investment manager rating of 'BBB'; (e) Global Depository Receipts/Note and Eurobonds issued by Nigerian corporates or listed on a securities exchange that is a member of the World Federation of Exchanges.

Sovereign Wealth Funds

Having become important to safeguard the wealth realised from commodity exports in Africa for both the current and future generations, many African countries have established sovereign wealth funds. Today, there are 20 sovereign wealth funds on the continent, half of which were established after 2010 including Ghana, Angola, Nigeria, Senegal, Rwanda, Tanzania, South Sudan, Kenya, Zimbabwe12.

Sovereign Wealth Funds in Africa



Name of SWF


of Establishment

Asset Under Management

(US$ Billion)

Source of Funding



Fonds des Regulation des Recettes






Libya Investment Authority






Pula Fund






Fundo Soberano de Angola






Gabon Sovereign Wealth Fund





Congo Republic

Fonds de Stabilisation des Recettes Budgetaries






Nigeria Sovereign Investment Authority






Morocco Sovereign Wealth Fund (Ithmar Capital)






Senegal Fonsis






Ghana Petroleum Fund






National Funds for Hydrocarbon Reserves



Oil and Gas


Equatorial Guinea

Future Funds for Generations






Fonds de Stabilisation des Recettes Budgetaries





Sao Tome and Principe

National Oil Account






Oil Reserve Stabilisation Fund






Agaciro Development Fund






National Gas Reserve





Kenya Sovereign Wealth Fund





South Sudan

Oil Reserve Stabilisation and Future Gener. Fund





Zimbabwe Sovereign Wealth Fund



Source: SWFI (2015), ESCADE Geo (2015), Investment Frontier (2015), Sovereign Wealth Funds Websites14

The Nigerian sovereign wealth fund provides some understanding into the mandate of sovereign wealth funds in Africa. The Nigerian Sovereign Investment Authority Act 2011 (the "Act") provides in its long title that the Nigerian Sovereign Investment Authority (the "Authority") is established to receive and manage in a diversified portfolio of medium and long-term revenue from government to prepare for the eventual depletion of Nigeria's hydrocarbon resources for the development of critical infrastructure in Nigeria that attract and support foreign investment, economic diversification, growth and creation in Nigeria.

Section 3 of the Act provides that the objectives of the Authority shall be to (a) build a savings base for the Nigerian people; (b) enhance the development of Nigerian infrastructure; (c) provide stabilization support in times of economic stress. Section 4 (1) of the Act provides for the establishment of the following three separate "ring-fenced' Funds: (a) "the Future Generations Fund", a diversified investment portfolio for the benefit of future generations of Nigerian citizens; (b) "the Nigeria Infrastructure Fund", dedicated to servicing an investment portfolio whose purpose is to assist "the development of critical infrastructure in Nigeria that will attract and support foreign investment, economic diversification and growth"; and (c) "the Stabilization Fund", a portfolio of investments geared at providing supplemental stabilization funding for the Federation of Nigeria in times of need, essentially when other funds set aside for fiscal stabilization purposes are insufficient for that purpose.

In Section 4 (2), the Act sanctions the Santiago Principles which promotes transparency, good governance, accountability and prudent investment practices and requires the Authority to implement best practices in management of the funds as well as co-invest with strategic, sovereign and internationally recognised investment funds. Section 4 (2) (d) and (e) of the Act provides that,

(d)    Implement best practices with respect to management independence and accountability, corporate governance, transparency and reporting on performance as provided in this Act. including with due regard as appropriate for the Santiago Principles or other similar principles or conventions as may be adopted by the Governing Council as representing international best practice;

(e)     attract co-investment from other investors, including strategic investors, sovereign and internationally recognised investment funds and private companies, to enhance the Authority's capital and maximize risk adjusted returns"

Making Indigenous Capital Work for Africa: Looking Inward

It is amazing to see that collectively, African institutional investors have a large amount of capital available and also have the potential to grow these funds. Africa has always looked outward for aid and capital; however, it is high time for the continent and its leaders to look more inward to grow and deploy the resources and skills that will make capital available for sustainable development on the continent.

Below are some thoughts on what can be done to make capital available for sustainable development: –

  • Growing the Capacity of African Institutional Investors

Growing capacity will involve growing the funds available for deployment, skills and experience of personnel involved in management of the funds; and research into the ways in which performance of the funds can be optimised to provide the significant returns as well as efficient risk management for the investment portfolio. African sovereign wealth funds are small in comparison to funds in emerging and developed markets, in fact, private equity funds in developed countries have bigger funds to deploy than African sovereign wealth funds. It is therefore important for African governments to make sacrifices and save more from foreign exchange earned from commodity exports.

  • Infrastructure Development

Infrastructure development is crucial to reducing the costs of doing business on the continent. There should be a focus over the next decade on building infrastructure that can sustain the population boom that has been projected to occur on the continent. If the cost of doing business is reduced, businesses will thrive, and the continent will be able to attract more investment to provide jobs for its growing population. Just like the African Development Bank has made infrastructure development its focus, Africa governments and the private sector should collaborate and do the same.

  • Developing Partnerships

Partnerships and collaboration amongst African institutional investors will be necessary to make some of the required capital available. Collaboration with foreign institutional investors is also important for co-investment opportunities and capacity building for African fund managers as there will be a lot to learn from experienced institutional investors in developed countries particularly in relation to portfolio management and risk management. However, in collaborating with foreign institutional investors, African institutional investors should be at the driving seat of seeking investment opportunities on the continent.

  • Improvement of the Business Environment

A favourable business environment is important to attract investment, even the African institutional investors will not invest funds in the absence of a favourable business environment. African governments have sole responsibility for this and should create favourable regulatory environment for business, pass investor-friendly business laws, eliminate corruption in government agencies and ensure security of business property and assets.

  • Good Governance

African leaders need to continue to promote good governance across the continent. It was noted at the Brookings Africa Growth Initiative Roundtable Series of 7th October, 201615 that "[c]orporations have a wide range of options when picking an investment destination, [i]n order to make their investment environment attractive, African nations must boost investors' confidence, largely by enacting stable policies and consistently recognizing the rule of law".


The government of the African nations that have established sovereign wealth funds should be commended for taking this step. The funds will ultimately have a cushion effect on the financial system of the countries. It is a good development in view of the fact that sovereign wealth funds arose to prominence during the financial crises and acted to recapitalise a number of the world's largest financial institutions including Morgan Stanley and Merrill Lynch16. Price Waterhouse Coopers has identified the impact of sovereign wealth funds to include (a) lowering of government borrowing costs as investors will be willing to lend money on better terms to a country with a sovereign fund; (b) limit of foreign exchange rate appreciation in situations where inflow of foreign exchange can lead to "Dutch Disease" where appreciation of domestic currency can damage the competitiveness of export reliant sectors like manufacturing17.

Hence, it is appropriate to say that African nations should look more within the continent to harness, create and develop value. We need to develop our people, industries, businesses, financial and political institutions. In this article, the call is to support and develop the growing number of institutional investors that will be able to provide the much-needed capital for growth and development on the continent.


1 E. Philip Davis and Benn Steil, Institutional Investors (2001) The MIT Press

2 Ibid

3 Kuhan Harichandra and S.M. Thangavelu, Institutional Investors, Financial Sector Development and Economic Growth in OECD Countries (2004) NUS, Department of Economics Working Paper No. 45

4 EFAMA, Annual Asset Management Report (2017) 9th Edition

5 Jaksa Kristo, Alen Stojanovic, Anita Pavkovic, Impact of Institutional Investors on Financial Market Stability: Lessons from Financial Crises (2014) Dubrovnik International Economic Meeting, 2(1/2) 102-117

6 Ibid

7 V. Magnier, Comparative Corporate Governance: Legal Perspectives (2017) Edward Elgar Publishing

8 Africa Development Bank Group, African Economic Outlook (2018) page 104

9 Pricewaterhouse Coopers, Africa Asset Management 2020 Report (2015) page 7

10 Quantum Global Research Lab, Sovereign Wealth Funds as Driver of African Development (2014/17) page 6

11 Riscura, Africa Pension Fund Assets (

12 Quantum Global Research Lab, Sovereign Wealth Funds as Driver of African Development (2014/17) page 6-7

13 As at 2017, government contribution to the fund stood at $1.5 Billion

14 Quantum Global Research Lab, Sovereign Wealth Funds as Driver of African Development (2014/17) page 7

15 Brookings Institution,

16 Pricewaterhouse Coopers, Impact of Sovereign Wealth Funds on Economic Success (2011) page 2

17 Ibid

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions