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Angola Sovereign Wealth Fund Starts Hotel, Infrastructure Pools

Construction In Luanda
A road sweeper pushes a cart along a pavement near construction cranes in central Luanda. The Fundo Soberano de Angola plans to allocate half of its initial $5 billion to alternative investments including hospitality, infrastructure, agriculture and mining in the first two years. Photographer: Simon Dawson/Bloomberg

The Fundo Soberano de Angola, the $5 billion sovereign wealth fund of Africa’s second-largest oil producer, is starting investments in hotels and commercial infrastructure in sub-Saharan Africa.

The fund, based in Luanda, may invest in 50 sub-Saharan African hotels over three years, including in its home country, Chairman Jose Filomeno dos Santos said in an interview in Hong Kong yesterday. In addition to the hotel fund, it is also setting up an infrastructure fund that will participate in projects including ports, airports and power plants, added the 36-year-old eldest son of the nation’s President Jose Eduardo dos Santos.

The two-year-old sovereign wealth fund is tapping into the shortage of business hotels and infrastructure in the continent rich in natural resources to boost returns from its global fixed-income and cash holdings. It plans to allocate half of its initial $5 billion to alternative investments including hospitality, infrastructure, agriculture and mining in the first two years, dos Santos said.

“We believe there’s a lot of investment interest in Africa,” said the U.K.-educated former banker. “It has a lot of mineral potential, almost a commodity hub. We believe this interest will remain there for the coming years.”

The hotel fund will focus on three- to five-star hotels in sub-Saharan African capitals and other commercial centers, targeting business travelers rather than tourists for their “stable” and “predictable” returns, he said.

International Standards

In addition to petroleum, demand for hotels is rising from the boom in mining of diamonds and other minerals, as well as the construction industry, he added.

“The number of international standard rooms is still very low and it has a big potential for growth,” he said. More than half of these rooms are concentrated in three countries outside sub-Saharan Africa, he added.

The fund will target existing hotels changing ownership or those still under development, he said.

Its infrastructure investments will seek financially viable projects that can yield 15 percent to 17 percent annualized returns over 15 years, he added.

Both funds will become operational over the next three months, with teams being hired to run the investments and some potential projects already identified, dos Santos said. He declined to specify how big the two funds will be.

Oil Reserves

The sovereign wealth fund was set up with capital from the state’s oil reserves account intended to maintain fiscal stability, said dos Santos. The government plans to continue to transfer annual surpluses from the reserves, with annual receipts of as much as $3.5 billion, to the sovereign wealth fund, he added.

Angola’s oil production is second only to Nigeria in Africa. Petroleum accounts for 80 percent of its tax revenue and 40 percent of gross domestic product. Companies such as Total SA, Exxon Mobil Corp., Chevron Corp. and BP Plc operate deep-water wells in the member of the Organization of Petroleum Exporting Countries.

The older dos Santos came to power in 1979 and presided over the country through most of a 27-year civil war that ended in 2002.

Angola was ranked 153th out of 177 countries in non-profit organization Transparency International’s 2013 corruption perceptions index.

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