Norms Diffusion and Institutional Design of Sovereign Wealth Funds in Africa and the Middle East

Abstract

State-controlled financial institutions in the form of Sovereign Wealth Funds (SWFs) now control globally over US$7 trillion in assets – more than the assets under management by private equity and hedge funds combined. Most SWFs in sub-Saharan Africa (SSA) and in the Middle East and North Africa (MENA) region derive their wealth from natural resource exports. The Truman Index ranks SWFs in terms of how their structure conforms to best governance practices across 33 indicators. The SWFs in SSA show more variation in the adoption of governance norms compared to the MENA and all other regions of the world. What explains the variation observed in the norms adoption among SWFs in the Sub-Saharan Africa region from those in other geographies?

The dissertation investigates the explanation for the regional variability in norms for governance by examining the top three SWFs in SSA (Botswana, Angola and Nigeria) and three from MENA (Algeria, Qatar and the UAE) and assessing the role of ties to the West (EU and US). These ties include capital flows (economic linkage), political ties (diplomatic linkage) and SWF executive socialization (technocratic linkage) factors. The dissertation also evaluates alternative explanations, including: i) factors related to location of investment assets; ii) independence from Central Bank supervision; and iii) state capacity. The dissertation finds that the governance rankings for SWFs in developing countries are likely to be higher when the host countries demonstrate stronger state capacity, invest exclusively in foreign securities and have stronger political ties with the West.

The dissertation uses a mixed-methods approach, consisting of qualitative case studies and a time series panel regression on nearly 200 observations of SWFs from the Truman Index of 2007-2012. The dissertation is important for several reasons: i) it illuminates the mechanisms by which international norms diffuse in SSA and the role of foreign influences therein; ii) it suggests how structural and agency factors influence the adoption of governance norms among these SWFs; and iii) finally, it conceptualizes how domestic and international factors can shape the link between governance and economic development through SWFs in SSA.