Africa’s Pension Fund Assets

Pension funds globally have become significant investors, both as fiduciaries in global capital markets and in their capacity as investors in local and international development projects. At the end of 2014, global pension fund assets [1] were estimated at USD 36,119bn, representing a 6.1% rise from the 2013 year-end value. On average, these assets account for 84.4% of these countries’ GDP.

The US continues to be the largest market at USD 11,690bn with Japan and the UK at USD 2,954bn and USD 1,755bn respectively. Together they account for more than 78.3% of total pension assets.

Africa is characterised by a diversity of cultures, with different social and economic factors driving capital market development, performance of asset classes, as well as currency movements.  An aggregate estimate of pension assets for the continent is therefore on a best endeavours basis and can be time sensitive due to factors such as currency volatility. Our review uses 16 countries in Africa, representing circa 65% of Africa’s 2014 GDP[2] as measured by the IMF, and also those with significant economic influence in each region. An aggregate number hides variation between countries, while currency volatility increases the fluctuation of USD equivalent amounts. Pension fund assets in Africa are currently estimated at USD 334bn representing only 20.7% of these countries’ GDP.

[1]  Towers Watson Global Pension Study, 2015. Estimated using the sixteen major pension markets.
[2] GDP, Current Prices, IMF 2014, USDbn

Africas Pension Fund Assets

Similar to the global picture, the same big-country bias is present in Africa with 90% of the assets concentrated in Nigeria, South Africa, Namibia and Botswana. Within these countries, a number of large funds also tend to dominate.  Examples include Government Employees Pension Fund (GEPF) in South Africa, Government Institutions Pension Fund (GIPF) in Namibia, Botswana Public Officers Pension Fund (BPOPF) in Botswana and a number of larger vehicles in Nigeria.

Pension fund assets globally are on the increase as countries move from unfunded to funded (or partially funded) status, and as many outsource pension fund management to private firms and move from DB to DC schemes. According to estimates by the OECD, private pension fund assets globally grew at an average annual growth rate of 8.2% over the period 2009 to 2013, overshadowing insurers and investment companies. In Africa, pension fund assets continue to grow for similar reasons, alongside an increase in coverage, as social security is extended to a larger portion of the population, formal and informal. The pension fund industry in Nigeria for example has grown from Naira 815bn in 2007 to Naira 5.492 trillion in 2014, which still only represents an average 7% coverage of the working age population (PenCom). The introduction of a basic a safety net or retirement income as well as further introduction of private pension funds is likely to improve coverage and increase asset growth within the pension industry on the continent.

Note: Zambia figures exclude NAPSA

Africa has experienced tremendous growth in pension assets over the last five years. In much of sub-Saharan Africa where pension systems are older and more established, growth rates have been lower, ranging between 8% and 18% over the previous five years. Assets in East Africa have grown in excess of 20% on a consistent basis only overshadowed by Nigeria, which has seen growth between 25% and 30%. These trends are set to continue as this young continent moves towards increased coverage, and more inclusive and comprehensive systems.

As African trade agreements are forged and trade blocs established, migration and labour mobility is set to increase, which raises the issue of pension portability. In recognition of this trend, many of the regions now have harmonisation goals, which will allow coordinated legislation and portability of pension benefits. An example of portability can be found in a memorandum of understanding that binds Burundi, DRC and Rwanda that allows portability of pension benefits between the countries. Portability is likely to gain importance as Africa continues to become increasingly connected by infrastructure, regional trading agreements; and as pension coverage reaches more of the working population.

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