Second, we find empirically using a database of 26 SWF investments in Africa over the period 1985-2013 that: i) about half of SWF investments in Africa are commodity-fueled funds, which raises some concerns given the end of the commodity super-cycle; ii) Real Estate and Hotels are the most popular sector for SWFs in Africa, totaling 42 percent of investment, while only 10 percent of their investments are in infrastructure<sup>1</sup> ; iii) SWFs that invest in Africa mainly originate from Asia, and Africa is the region that received the smallest share of SWF investments.

Third, in terms of econometric specification, we regress the logarithm of the investment share on return rate, risk and networking parameters using cross-country data over the period 19852013. Our empirical results show that rate of return has a positive and significant effect on SWF investments, while volatility exerts a negative but not significant effect. Most importanly, we also find that SWFs with a political bias are more likely to invest in Africa. Our results remain robust to the introduction of the following control variables: the Linaburg-Maduell transparency index, school, inflation, macroeconomic variables (government consumption and budget balance), trade, religion, corruption, property rights, and the use of legal origin as controls.

The rest of the paper is organized as follows. Section 1 investigates some facts of SWF investments in Africa. Section 2 presents the econometric investigation of the determinants of SWF investments. Finally, section 3 provides policy implications and concludes.

# **1 Stylized facts**

## **1.1 What do we know about SWFs in Africa?**

Using data from the Sovereign Wealth Institute (SWI) transaction database, we document information on SWFs in Africa according to several variables. Table 1 shows African SWFs, their capitalization, type, and origin.

In terms of numbers, the world market share of sovereign wealth funds reached a record amount of $6,831 trillion in September 2014 (see Sovereign Wealth Fund Institute), with $4,098.6 trillion being oil and gas related, and $2,732.4 trillion for other industries and commodities. The mean of African SWFs in terms of capitalization is $16.2 billion, with a minimum of $0.003 billion, and a maximum of $6.9 billion. The percentage of African SWFs in total capitalization represents 0.24 percent, and 0.4 percent if we take only the capitalization of SWFs related to oil and gas. This suggests that African SWFs are less capitalized than other emerging SWF countries. For example, SWFs from Asia are 40 percent capitalized, while 35 percent is capitalized in the Middle East. In column (3), we indicate the type of SWFs. The majority of African SWFs are stabilization and development funds. In terms of origin, column (4) shows that African SWFs are mostly related to oil windfalls. Following the literature, we also investigate the transparency of African SWFs, using the Linaburg-Maduell transparency index. This index, developed by Carl Linaburg and Michael Maduell, is based on 10 principles that depict SWF transparency to the public. The minimum rating takes a value of 1, while the maximum takes a value of 10. Overall, we find that African SWFs are not transparent. According to SWI,

> 1This is in sharp contrast with Asia where the significant majority of SWF investments are in infrastructure. Other sectors of interest in Africa include extractive industries (16 percent) and manufacturing (16 percent).

3