After decades of neglect, Africa’s pension industry is now showing signs of very robust growth. As the continent continues to grow, more people are prepared to invest in their retirement and governments are also supportive of the industry and its ability to mobilise vast sums of money for development. Sherelle Jacobs reports on the rise of the pensions industry in Africa.
In May, Helios Investment Partners hit the headlines when the firm took a minority stake in ARM Pensions Managers, a $2.2bn subsidiary of Asset and Resource Management (ARM) – Nigeria’s biggest pension fund manager operating within the private sector. Helios is a $2bn investment manager based in London.
But Helios is just one of several fund managers around the world taking a very close and interested look at Nigeria’s pension industry which has grown from virtually nothing 10 years back into a booming financial services segment worth billions of dollars.
The ‘big bang’ in terms of pensions in Nigeria goes back to 2004 when the Nigeria government launched a package of key reforms to deal with the country’s N2.3 trillion ($14bn) pensions deficit. The reforms brought in new, obligatory contributory pensions – both employers and employees are required to contribute a minimum of 7.5% to the national fund. A standard set of regulations for pension payments and administration has also been established.
As a result Nigeria’s pensions sector has exploded. Chinelo Anohu-Amazu, director-general of Nigeria’s National Pension Commission (PenCom), says that the industry has been growing at 25% over the past eight years. “We expect to, at minimum, maintain that rate based on the most conservative outlook,” she says.
The industry, as at June this year, had N4.3 trillion ($26bn) under management. “Nigerian pension funds will increasingly partner with the private sector to invest in infrastructure development following a new pension reform bill that was signed into law in July,” adds Anohu-Amazu.
The earlier investment regulations outlined in the 2004 Pension Reform Act, had allowed up to 35% investment in corporate bonds inclusive of a 15% limit for infrastructure bonds. “However, due to the dearth of these instruments in the market,” says Anohu-Amazu, pension funds had not been able to make significant investments.”
However, the new pension law “will enable the creations of additional permissible instruments” to allow for the investment in the “real sector, including infrastructure and real estate”, she says. This is why there is so much new excitement over Nigeria’s pension industry. For example, between 2008 and 2012, ARM Pensions revenues rose 45%. Last year, funds under management increased by 37%, revenue grew 43% and profit before tax increased by 86%.
Commenting on the Helios deal, ARM managing director Sadiq Mohammed said, “Helios brings deep experience in African financial services, aproven track record of partnering with growth companies like ours, as well as a global perspective.” Tope Lawani of Helios Investment Partners, said: “Helios has a long-standing relationship with ARM and we look forward to working with the management team to grow the business in what is a massively under-penetrated market.”
Helios is by no means the first international investment fund to show interest in Africa’s pensions sector. Earlier in the year, LeapFrog, a private equity firm, which is itself backed by pension funds from Western countries, made a $3m buy-in into Petra Trust, one of the biggest private pension fund trustees in Ghana. LeapFrog is an emerging markets investor focusing on insurance, pensions and savings.
Ghana’s pensions industry is predicted to grow a staggering 400% to 2018. This is due to an ongoing wave of liberalisation in the pensions market as well as rising incomes as a whole. Petra is one of the three big private pensions funds in the West African nation. It is targeting both informal and semi-formal workers, who account for 90% of the workforce and low-income individuals.
LeapFrog’s actuaries and operational specialists work with Petra to develop its product range and distribution capability, and grow robust IT platforms to meet the demands of growth, according to the company. “LeapFrog’s support will ensure that Petra’s first-mover advantage is retained, the quality of products and services is maximised, costs stay low over the long term, and service delivery is stable and consistent.”