Africa’s pension fund assets

Africa’s pension fund assets

The COVID-19 pandemic’s impact on the global economy and the financial system has many significant implications for pension funds.

The COVID-19 pandemic’s impact on the global economy and the financial system has many significant implications for pension funds, particularly after the resurgent gains experienced by global pension funds during 2019. According to the OECD, assets in pension funds rebounded in 2019, following a decline in 2018, growing by 13.9% in the OECD area and by 11.3% in other reporting jurisdictions. Pension fund assets (for OECD countries) rose to US$32.3trn in 2019, however, the impact of the COVID-19 pandemic on global capital markets reversed some of these gains. Amongst OECD countries, the US remains the largest market, with assets in pension funds and all retirement vehicles at the end of 2019 at US$18.8trn. The United Kingdom was the second largest pensions market, at US$3.6trn.

A common way to determine the significance of pension assets to a country’s economy is the pension assets to GDP measure. Our review uses a sample of ten countries in Africa, representing approximately 81% of Africa’s2019 GDP as measured by the IMF, and comprises those countries with significant economic influence in each region.

Region Country Currency Currency Code Year AUM (USD) million GDP (WB 2019) million AUM as % GDP
Nigeria Nigeria Nigeria Naira NGN 2019 26,535 448,120 6%
South Africa South Africa South Africa Rand ZAR 2019 231,000 351,432 66%
Egypt Egypt Egyptian Pound EGP 2018 4,921 303,175 2%
East Africa Kenya Kenyan Shilling KES 2019 11,965 95,503 13%
Tanzania Tanzanian Shilling TZS 2015 5,208 63,177 8%
Southern Africa (excl.) RSA Mauritius Mauritian Rupee MUR 2019 3,194 14,108 23%
Namibia Namibian Dollar NAD 2019 13,540 12,367 109%
Botswana Botswana Pula BWP 2018 6,792 18,341 37%
Zambia Zambian Kwacha ZMK 2018 432 23,065 2%
West Africa Ghana Ghanaian Cedi GHS 2017 3,844 66,984 6%
          307,430 1,396,343  

Source: Regulatory annual reports, RisCura

Simply looking at pension assets to GDP can at times belie the significant progress being made in African countries to develop and formalise saving. As Africa’s largest economy, Nigeria’s pension assets to GDP appears paltry, at 6%, particularly when compared to countries like South Africa or Namibia, which report 66% and 87% respectively. Nigeria is however starting to see early gains from the progressive pension fund reforms that began in 2004. For example, in 2004, PenCom records reflect no contributions from the private sector to pensions. Significantly, 2014 marked the year private sector contributions surpassed public sector contributions, and now remain in parity or slightly outstripping public sector contributions. Using the current exchange rate (circa NGN381: US$1) the public sector’sannual pension fund contributions in 2004 were circa US$41m; for 2019 total annual pension fund contributions from private and public sectors amounted to circa US$1,8 bn, with the private sector contributing 53% and public sector 47%. The average year-on-year growth of pension contributions in Nigeria (2014 – 2019) has been 5% per annum.

Although South Africa’s 66% ratio of pension assets to GDP surpasses the average of 60% (per OECD Global Pension Fund Statistics, June 2020) most African countries’ pension assets to GDP remain well below the 60% average.

Namibia consistently achieves the highest ratio in our Africa sample, now at approximately 87% from 80% in our previous edition of Bright Africa.

According to the 2019 annual report of the GIPF, Namibia’s largest pension fund, the fund’s long-term growth can be attributed to good investment returns due to a diversified investment strategy and a strong asset allocation process. Local asset requirements compel Namibian pension funds to hold 45% of contractual savings locally. As there are very few opportunities to invest in the Namibian Stock Exchange (NSE), this regulation enables Namibian pension funds to seek viable long-term opportunities, while avoiding and limiting potentially bad investments in the process.

The composition of African long-term assets mimics the global picture, where a few countries claim the largest proportion of long-term savings. In Africa, 95% of the assets are concentrated in South Africa, Nigeria, Kenya, Namibia, and Botswana. Within these countries, several large funds also tend to dominate. Examples include the GEPF in South Africa, the GIPF in Namibia, the Botswana Public Officers Pension Fund (BPOPF) in Botswana and the National Social Security Fund (NSSF) in Kenya. While in Nigeria assets are allocated across several Pension Fund Administrators (PFAs), there is a large concentration of pension assets with a few PFAs, with the top five PFAs accounting for 65% of pension fund assets.

In global terms, African pension assets are comparatively small, but growing.

With aligned and proactive regulatory reform along with the ability to leverage digital and mobile technology to increase coverage, savings in Africa are set for compelling growth.