Infrastructure may not be cure-all for pension inflows
As the economy of Botswana braces for major capital inflows due to the repatriation of pension funds from their offshore investments, a prominent economist has cautioned that infrastructure may not offer adequate room for these assets to be invested in. Under changes to the Retirement Funds Act, local pension funds are now required to invest a minimum of 50% domestically, a figure that as at May meant that P16.8 billion would have to be repatriated.
According to the changes that were published recently, pension funds are required to reach the threshold of 50% between now and December 2027. Government has said it believes the amendments will increase investment in critical assets such as local infrastructure and foster the development of the capital market through innovation.
Fund managers handing the billions of pula, however, have said the local market has insufficient investment opportunities and the new changes will ultimately dent pensioners’ returns. In addition, the fund managers have said repatriating the funds will increase risks by reducing the portfolio diversification the assets enjoy when they are invested offshore. The Botswana Public Officers Pension Fund and the Debswana Pension Fund, the country’s two biggest pension funds, have both said they are eyeing local infrastructure investments with the repatriated assets. However, local economist, Keith Jefferis told Monitor Business that the local Infrastructure portfolio is not investor ready for the repatriation of these funds.
According to Jefferis, the local infrastructure sector will not yield the desired returns. “It’s good that the funds are coming back, but the main question is can we really invest in infrastructure? “When you look at property for example, it cannot accommodate all the repatriated funds because of government’s major control in that industry,” he said in an interview on the sidelines of the recent BIHL results briefing. Jefferis further warned that the pending capital that “everyone is happy about” will create excess liquidity because the property sector in Botswana is slow growing and stale. “Government controls major infrastructure developments in Botswana, and the industry is driven by government spending and investment.
“Thus we will have a lot of money chasing after assets that do not exist,” he added. In Botswana, infrastructure development is led by government, and the state also holds a monopoly on public works such as roads and buildings. The private sector has always decried the control government has in the infrastructure space, saying this represented untapped pockets of value for private public partnerships. Jefferis said the real assignment is for the Botswana Stock Exchange (BSE), to target more listings by companies that are aggressively looking at the infrastructure space.
“More than debt listing for project financing, the BSE should work hard to get more companies that are in the infrastructure space. “For now I don’t think the infrastructure space is ready for the funds,” he said. Kgori Capital investment analyst, Kitso Mokhurutshe told Monitor Business that asset managers investing in the real estate sector must create new products aimed at financing projects in the infrastructure space. “This is an assignment for asset managers in the property investment sector,” he said. “They must create appealing products for the property sector and ensure that the products are sufficient to capture cash inflows that will be coming into the economy.”