Sources of capital on the continent

Pension funds

In line with global trends, most retirement income in Africa is funded by its governments, but pension coverage on the continent remains low compared to the rest of the world.

Asset allocation


Pension fund asset allocation 2017-2018 Download the graph PDF (26KB)


In most OECD and many non-OECD countries, bonds and equities remain the two predominant asset classes for pension funds. While globally, there is a larger allocation to equities (40%, according to Willis Towers Watson study), the picture in Africa is different. Asset allocation in sub-Saharan Africa has continued to favour equities, which have shown a steady increase enabled by the development of capital markets and regulatory change. In Nigeria and East Africa, however, asset allocation is dominated by fixed-income allocations, mainly comprising of local bonds. When viewed alongside the high asset-growth in these regions, this can be attributed to regulation as well as a lack of alternative local investment opportunities.

Local regulation remains one of the main drivers of asset allocation. While much of African regulation is supportive of local investment, there are often significant differences between the regulatory allowances for pension funds, the size of local capital markets and actual portfolio allocations. The basis of asset allocation is reflective of several factors, including familiarity with alternative asset classes, such as private equity, development of local capital markets, and availability of investment opportunities. In many countries, assets are growing much faster than products are being brought to market, limiting investment opportunities if regulation does not allow for pension funds to invest outside of their own countries.

Several countries, including South Africa, Botswana, Nigeria, and Namibia have led the way for alternative asset classes such as private equity.

Several countries, including South Africa, Botswana, Nigeria, and Namibia have led the way for alternative asset classes such as private equity. South African pension funds, for example, are active in African private equity investment, both locally and across the continent, enabled by regulatory change. Since 2011, Regulation 28, which is the governing law for pension funds in South Africa allows up to 10% of pension assets to be invested in private equity, an increase from the previous 2.5% allowance for all ’other’ asset classes. However, it is argued that this allowable allocation is not fully utilised due to several barriers such as the illiquid nature and complexity of private equity investments.

In Nigeria, the regulator, National Pension Commission (PENCOM), also prescribes restrictions such as a minimum of 75% of the private equity fund to be invested in Nigeria, registration of the fund with the Nigerian SEC, and a minimum investment of 3% in the fund by the General Partners.

Regulation can also enable regional and international diversification. Namibia, for example, allows up to 35% of assets outside the Common Monetary Area (Lesotho, South Africa, Namibia, and Swaziland) however, with a limit of 30% outside Africa, while Botswana allows up to 70% investment abroad. This diversification allows pension funds the freedom to find suitable investment opportunities without being constrained by the current limitations of local market development. Whereas, in East African countries such as Uganda and Tanzania, offshore investment is not allowed, although in Tanzania, it is unclear whether the restriction applies on a country or regional level.