By Steven Mufson
Washington Post Staff Writer
Thursday, April 3, 2008

Sovereign wealth funds should invest 1 percent of their funds in Africa, World Bank President Robert B. Zoellick proposed yesterday, a policy that could channel $30 billion to poor nations on the continent.

"Where some see sovereign funds as a source of concern, we see opportunity," said Zoellick, who called his idea "the 1 percent solution" in a speech organized by the Center for Global Development. He said that "sovereign wealth funds can join us, even invest with us, not as another source of development assistance, but rather as long-term investors."

His proposal comes in the wake of soaring oil prices, which have squeezed African nations that import petroleum. Zoellick said that making equity investments would be a better way of recycling "petrodollars" than making loans similar to those that led to the Latin American debt crisis of the 1970s and early 1980s.

"A lesson of the recycling of petrodollars in the 1970s is that equity investments are more sustainable than debt," he said.

After the first oil price shock in 1973, oil producing nations were awash in earnings, which they deposited in Western banks. Banks then made loans to oil-consuming countries, many of them in Latin America, where countries needed loans in part of finance trade deficits resulting from high oil prices. Latin American foreign debt quadrupled from 1975 to 1983, and oil prices and interest rates jumped again after the second oil shock in 1979.

However, it remains unclear whether today's sovereign debt funds are interested in investing in Africa's troubled economies. Most of the sovereign debt funds -- concentrated in China, the United Emirates, Saudi Arabia and Kuwait -- are managed in a conservative fashion.

Zoellick said that the World Bank could help invest funds and advise sub-Saharan nations on setting up legal and regulatory frameworks that would make investors comfortable. He noted that the bank's private financing arm, the International Finance Corp., invested $160 million in sub-Saharan Africa last year and is setting up two new $100 million investment funds.

Zoellick also called for a "New Deal for Global Food Policy" that would aim to boost agricultural productivity in poor nations, improve access to food through schools or workplaces and help small farmers. He said the World Bank would nearly double the money it lends for agriculture in Africa from $450 million to $800 million.

More immediately, he said, the U.N. World Food Program needs "at least $500 million of additional food supplies to meet emergency calls." If the United States, European Union, Japan and industrialized nations fail to fill the gap, he said, "many more people will suffer and starve."