Africa’s growing number of pension funds could potentially be a new source of funding to address the continent’s infrastructure deficit, which has been estimated by Ernst & Young to be US$90 billion annually.
Numerous examples of African pension funds investing in infrastructure projects have emerged in recent years. The South African Government Employees’ Pension Fund, as one example, has made investments in solar power and telecommunications projects. Just last April, Tanzania’s state-run pension fund invested USD 135 million to construct a six-lane toll bridge across Kigamboni Creek in Dar es Salaam.
The World Bank estimates Africa should spend $93bn – 5% of gross domestic product (GDP) – each year on infrastructure and the African Development Bank (AfDB) notes a $50bn financing gap to reach this. Local and international pension funds can help fill the gap.
Africa Pension funds will become increasingly important investors in public and private markets, both at home and across borders on the continent.
AFRICA PENSION SCHEMES & FUNDS CONFERENCE
Pension funds mostly invest in local fixed-income bonds, with regulation a key driver of asset allocation. But as RisCura argues, pension funds are ideal to drive inclusive growth and social stability, including through investing in longer-term projects such as infrastructure:
Local institutional investors lend credibility and a measure of validation, and often serve as a catalyst for greater external interest. Local investors also allow global peers to leverage local knowledge and networks.
What are the African factors driving the growth of pension funds?
• Many countries have set up new regulators and even more are introducing regulations, including forcing more employers to provide pensions. With the new regulatory frameworks come structural changes such as the need for professional third party asset managers
• Changing demographics: The age group over 60 years is the most rapidly increasing, according to some research
• It’s a virtuous circle, many Africans want savings opportunities. If pension funds produce results, and are well run and good at communicating, people will respond.
“What we are beginning to see is the emergence of an ecosystem,” says Hubert Danso, CEO ofAfrica Investor Group, an investment advisory outfit based in Johanesburg.