Pensions boom sweeps Africa

Kofi Fynn, Petra’s managing director, said, “Pension reform was introduced to ensure that the previously unserved would also have a chance to invest for their future, and that is exactly the service we have been called to provide. We see the pensions industry growing fast in Africa and are very excited about the growth of the micro-pension sector.”

In 2008, Ghana introduced a new pensions act, which was then brought into force in 2011. It paved the way for a newly functioning pensions industry, which allowed workers in the informal sector to have their own pensions funds they could pay into.

In 2008, Ghana’s pension system was transformed to a Swiss-style three-pillar system: a basic state pension, an occupational scheme that is obligatory and a private insurance option on top. Ghana has also just forged an agreement with Switzerland to emulate the Swiss pensions structure. Through the deal, the Swiss State Secretariat for Economic Affairs will help the West African nation to improve its National Pensions Regulatory Authority’s functions. The project is anticipated to take three years and will be helped along by Swiss firm HSP Consulting.

“Pension reforms are happening all over the world and Ghana is no exception,” says Daniel Aidoo Mensah, a project consultant on the Pension Reform Implementation Committee. “It is envisaged that the new three-tier pension scheme will enhance pension benefits and increase the retirement income security of workers both in the formal and informal sectors. The new scheme will also ensure improved living standards of the elderly; financial autonomy and independence of retirees; increased national savings and availability of long-term funds for economic development; and the promotion of growth and development of the capital, mortgage and insurance markets.”

Looking at the situation more widely, the pensions industry in Africa is showing strong growth, although solid figures for the industry are lacking. Renaissance Capital claims that the assets of Africa’s six largest pensions funds managers could increase to $622bn by 2020 and then explode to a mind-boggling $7.3 trillion by 2050. Available data suggests that funds under the management of these leading pensions companies were $260bn in 2010.

African pension funds themselves are becoming more ambitious in their activities and investments across the region. South Africa’s Public Investment Corp (PIC) recently poured $250m into Ecobank Transnational Inc in the form of shares. More widely, PIC has said that it plans to invest billions of dollars across the continent, spurred on by healthy returns ­– which came to over 18% in 2011.

Namibia’s Government Institutions Pension Fund, which manages pensions worth $6bn, has commitments in South Africa worth 27% and has invested 8% in the rest of Africa. Nonetheless, some analysts criticise Africa’s pension funds for being risk averse and failing to tap opportunities to invest in private equity enough. Despite its flourishing pensions industry and the volume of the assets it controls, Nigeria only invests 0.22% of its pension assets in private equity, according to the country’s National Pension Commission.

Similarly, no Kenyan pension fund has invested in private equity for two decades. Most of Kenya’s pensions assets are in government debt or domestic equities. There are, however, glimmers of change. Kenya Power and Lighting Company has just been given the go-ahead to make a $4m investment in an up-and-coming private equity fund, Ascent Capital. Ascent Capital will support projects in Kenya, Ethiopia and Uganda

A report compiled by Washington-based Emerging Markets Private Equities Association, concluded that the 10 African nations it surveyed (including South Africa and Nigeria) have combined assets of $379bn. Even though $35bn is slated for private equity, only $5.7bn is actually used for this purpose at present. This is despite the fact that sub-Saharan Africa became the most attractive emerging market for global institutional investors last year – and private equity investment on the whole is on the rise in Africa. It reached $1.8bn in 2013, up from $1.5bn the year before.

Africa’s pensions systems still need serious development. Only 5% of the  population has a pension and a pension is often the preserve of civil servants or the small minority working in the formal sector.