African pension funds can play ‘critical role’ in region’s development, says report

Out-Law News | 04 Aug 2014 | 8:57 am | 1 min. read

African pension funds “can play a critical role” in the region’s private equity industry, mobilising an estimated $29 billion and driving economic and infrastructure development, according to a new report.

The joint report by the Commonwealth, the Making Finance Work for Africa Partnership Secretariat and the Emerging Markets Private Equity Association said that while regulatory guidelines in each country vary, recent reforms in some of Africa’s key markets “are beginning to make it possible for local institutional investors to participate in the asset class”.

The report said: “Recent reforms in many African countries have created private pension systems, which are rapidly accumulating assets under management. The Nigerian pension industry, for example, grew from $7bn in December 2008 to $25bn in December 2013. Similarly, Ghana’s pension industry is expected to expand by up to 400% in the four years from 2014 to 2018.”

Pension assets now equate to some 80% of gross domestic product in Namibia and 40% in Botswana, the report said. “In this context, there is increased global interest in the African pensions industry and its role as a catalyst for African development.”

The report said: “As Kenya continues to develop, it will require significant infrastructure investment over the next few decades. The area of public private partnership investment as an investable asset class should grow, and alongside it, longer-term asset classes with different payout profiles like private equity will become more accepted.”

According to the report, private equity “provides an attractive solution for African companies in search of growth capital”. The report said this is supported by data from the Emerging Markets Private Equity Association, which show private equity investment in Africa (including North Africa) rising from $1.5bn in 2012 to $1.8bn in 2013.

A founding commissioner of Nigeria’s Technical National Pension Commission, Eyamba Nzekwu, said in the report that she sees “increased interest in private equity and other alternative asset classes including infrastructure”.

Nzekwu said: “There is an urgent need to review the existing pension systems in Africa and to evaluate their sustainability and suitability to our needs”.

Nzekwu said: “I think African countries should look at the reforms taking place in Nigeria as well as those in Eastern Europe and Latin America, and evaluate how they can be tweaked and applied to meet their local needs. Pensions need to be given priority as they have an impact on the political, financial and social fabric of any country. Wherever they need help from Nigeria, we would be more than happy to oblige. We have received enquiries from Tanzania and Ghana, and are happy to share our experience with others.”