In most OECD and many non-OECD countries, bonds and equities remain the two predominant asset classes for pension funds. For the selected pension funds within this report, South African, Botswanan, and Namibian asset allocations continue to reflect greater allocations to equities, more so than OECD countries. For the rest of the African countries, the picture continues to illustrate a skew to fixed income. Higher yield local currency government bonds remain comparatively more attractive than public equities for Nigeria, Zambia, and East African asset allocators. Regulation continues to be the single most important determinant of asset allocation decisions in African countries. Amendments to regulations to enable greater allocation to alternative assets remains a discussion point with many pensions regulatory and supervisory authorities.
However, the development of the market may not be as rapid as changes in regulation. By way of example, in Kenya, the upper limit for exposure to private equity of 10%, was established in 2016. As of June 2020, the total allocation to private equity according to the published statistics from the Retirement Benefits Authority (RBA), remains at less than 1%. This speaks to the fact that asset allocation reflects 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.
Regulation is not staying stagnant. African regulators are alert to the transformative potential that technology presents for the continent. The current COVID-19 pandemic brought to light the need for African regulators to respond quickly to the rapidly evolving financial technology, or fintech, landscape. To that end, more African regulators appreciate the need to enable novel and emerging financial products and services to be created that may not meet all (current) regulatory requirements. Regulators in Africa are progressively adopting internationally recognised fintech regulatory sandbox regimes as a solution.
There are now regulatory sandboxes that have either launched or are in the design phase in South Africa, Kenya, Sierra Leone, Mauritius, Mozambique, Uganda, and Nigeria.
A sandbox allows financial institutions to test their products, services, or solutions in the market under a more relaxed regulatory environment but within a well-defined space and duration agreed with their regulators. In some jurisdictions, although sandboxes have not been established, regulators have nonetheless sought to put in place a supportive regulatory environment.
Where pensions systems exist across most of Africa, they do so against a backdrop of elevated levels of informality in labour markets. The result is that the pension contributions outside of the public sector are intermittent and relatively low.
According to the Organisation for Economic Co-operation and Development (OECD), assets in pension funds continued to grow throughout 2020, growing by 11% from the end of 2019 to a reported USD56 trillion as of the end of 2020.
Pension savings on the continent are growing, but this growth can be accelerated through paradigm shifts around pension policy, regulation, incentives and mediums to enable greater participation rates.