African pen­sion funds to blend in­no­va­tion with se­cu­rity

Financial Nigeria Magazine - - Contents - By Jide Ak­in­tunde

African pen­sion funds, in par­tic­u­lar Nige­ria's, are not merely look­ing for pos­i­tive real yields for savers; they are also seek­ing eco­nomic im­pacts through in­vest­ment in in­fra­struc­ture.

The 2016 World Pen­sion Sum­mit: Africa Spe­cial, which held on Septem­ber 27 – 28 in Abuja, drew the par­tic­i­pa­tion of gov­ern­ment of­fi­cials, in­dus­try reg­u­la­tors, op­er­a­tors, lo­cal and global in­vestors, rep­re­sen­ta­tives of labour as­so­ci­a­tions, ser­vice providers, the me­dia, and civil so­ci­ety. A gath­er­ing of such di­verse stake­hold­ers and ob­servers is not al­ways uni­fied by com­mon sen­ti­ments. But par­tic­i­pants at this Sum­mit shared a cel­e­bra­tory mood, be­cause of how far the African pen­sion and so­cial se­cu­rity in­dus­try have come. They agreed on the need for in­no­va­tion. And they em­pha­sized the pri­macy of meet­ing the fidu­ciary re­spon­si­bil­i­ties to pen­sion con­trib­u­tors and ben­e­fi­cia­ries.

Suc­cess­ful re­form in African pen­sion is not an ex­pe­ri­ence that is limited to Nige­ria. Knowl­edge of sim­i­larly suc­cess­ful pen­sion re­forms in sub-Sa­ha­ran African coun­tries, in­clud­ing Ghana, Mau­ri­tius and Uganda, and North Africa were shared by speak­ers who demon­strated acute un­der­stand­ing of the in­dus­try and re­lated is­sues of gov­er­nance, in­no­va­tion and in­vest­ment. And given the en­thu­si­asm to share ex­pe­ri­ence as demon­strated by par­tic­i­pants, one en­vis­ages that suc­cess will beget more suc­cess in African pen­sion. This, there­fore, gives cre­dence to the WPS as a plat­form of in­spi­ra­tion.

In­no­va­tion with Cau­tion

Africa's pen­sion in­dus­try can hardly meet the chal­lenge of the fu­ture with­out in­no­va­tion. For this rea­son, the theme of the Sum­mit – Pen­sion In­no­va­tions: The African Per­spec­tive – aptly de­scribes the next hur­dle in pen­sion and so­cial se­cu­rity cov­er­age and the need for pos­i­tive re­turns on pen­sion as­sets in Africa.

This need for in­no­va­tion is stag­ger­ing. In her in­sight­ful Wel­come Ad­dress, the Di­rec­tor Gen­eral of Nige­ria's Na­tional Pen­sion Com­mis­sion (PenCom), Chinelo Anohu-Amazu, said to­day, Africa has the de­mo­graphic ad­van­tage of a largely youth­ful pop­u­la­tion. How­ever, when this pop­u­la­tion be­gins to age in a few decades, the need to de­liver so­cial se­cu­rity and pen­sion ben­e­fits will be quite sub­stan­tial.

But in Nige­ria, the pop­u­la­tion that is cov­ered un­der the Con­trib­u­tory Pen­sion Scheme (CPS) is less than 5 per­cent. Ma­jor­ity of the tens of mil­lions of po­ten­tial new en­rolees in the CPS work in the in­for­mal sec­tor; and oth­ers are in the rural ar­eas. To fore­stall the ex­ac­er­ba­tion of old-age poverty, to­day's youth­ful work­ing pop­u­la­tion has to come un­der the cov­er­age of the pen­sion scheme. The ques­tion then be­comes how to make re­tire­ment sav­ings at­trac­tive to in­for­mally em­ployed Nige­ri­ans and Africans, and pro­vide low-cost so­lu­tions to rural dwellers who al­ready are strug­gling to meet ba­sic hu­man needs.

In his in­tro­duc­tory re­marks, the CEO of World Pen­sion Sum­mit, Chris Battaglia, high­lighted the chal­leng­ing land­scape of global re­tire­ment ben­e­fit. Although global re­tire­ment as­sets have reached $15 tril­lion, the de­mand on the as­sets is grow­ing. More peo­ple are achiev­ing longevity. Data sug­gests more peo­ple will live for ad­di­tional five years than in pre­vi­ous time. But it has been dif­fi­cult to raise re­tire­ment age.

Ja­pan is al­ready “a coun­try of cen­te­nar­i­ans,” hav­ing more peo­ple above 100 years of age than any other coun­try. But Ja­pan has been stuck in a re­ces­sion for years. Glob­ally, gov­ern­ment bonds – into which pen­sion funds are pre­dom­i­nantly in­vested – are gen­er­at­ing neg­a­tive real yields, as noted by P.K. Kuri­anchen, Act­ing CEO, Fi­nan­cial Ser­vices Com­mis­sion, Mau­ri­tius. In Nige­ria, in­fla­tion rate has gal­loped to 17.6 per­cent, leav­ing lit­tle mar­gin for pos­i­tive yield. The ero­sion of fi­nan­cial value of pen­sion sav­ings even takes a more fright­ful note con­sid­er­ing de­pre­ci­a­tion in the cur­ren­cies of emerg­ing and fron­tier economies.

How­ever, this was not a con­fer­ence that was over­whelmed by present and fore­casted chal­lenges. In­deed, it was a Sum­mit that agreed on the need to ex­er­cise cau­tion in the em­brace of in­no­va­tion and other frame­works for ad­dress­ing the chal­lenges, against the back­drop of a cock­tail of in­no­va­tive so­lu­tion op­tions.

With­out equiv­o­ca­tion, for­mer Pres­i­dent of Nige­ria, Oluse­gun Obasanjo, who is re­garded as the “Fa­ther of Pen­sion Re­form

in Nige­ria,” said “in­no­va­tion must be with cau­tion,” adding that “we must en­sure se­cu­rity.” But by no means did he over­look the scope for in­no­va­tion in the in­vest­ment of pen­sion funds. He cited the ex­pe­ri­ence of Sin­ga­pore where pen­sion sav­ings are used to en­sure pro­vi­sion of hous­ing for all ci­ti­zens.

The Sin­ga­porean model high­lighted a re­def­i­ni­tion of pen­sion ben­e­fits en­dorsed at the Sum­mit. From just pro­vid­ing ben­e­fits dur­ing re­tire­ment and when the con­trib­u­tor is de­ceased, pen­sion as­sumes the broader need of pro­vid­ing so­cial se­cu­rity, well be­fore re­tire­ment. The Nige­rian Pen­sion Re­form Act 2014, al­lows con­trib­u­tors to ac­cess max­i­mum 25 per­cent of the bal­ance in their Re­tire­ment Sav­ings Ac­count for res­i­den­tial mort­gage dur­ing ac­tive work life.

Ad­dress­ing the need for in­clu­sion in African pen­sion sys­tems also re­ceived sig­nif­i­cant brain­storm­ing. Bring­ing the in­for­mal sec­tor work­ers and bot­tom of the pyra­mid op­er­a­tors to the pen­sion net is a chal­lenge that ap­pears suited for this age of mo­bile phone ex­plo­sion and dis­rup­tive tech­nolo­gies, in­clud­ing so­cial me­dia. On both sav­ings and in­vest­ment sides, smart pen­sion apps can be very use­ful. As sug­gested by Chris Battaglia, a frac­tion of air­time pur­chases (by BOP op­er­a­tors) can be con­verted to mi­cro pen­sion sav­ings. Mo­bile apps can also help pen­sion ad­min­is­tra­tors, as well as savers – where they di­rectly in­flu­ence how their sav­ings are in­vested – lock in in­vest­ment op­por­tu­ni­ties as they come up.

Pen­sion for In­fra­struc­ture In­vest­ment

How­ever, the need for im­prove­ment in real yield was a huge dis­cus­sion, which was done jus­tice to by well-qual­i­fied and ex­pe­ri­enced pan­el­lists. African pen­sion funds, in par­tic­u­lar Nige­ria's, are not merely look­ing for pos­i­tive real yields for savers; they are also seek­ing eco­nomic im­pacts through in­vest­ment in in­fra­struc­ture. In­deed, Wil­liam Streeter, a US spe­cial­ist in in­ter­na­tional in­fra­struc­ture fi­nance, who an­chored the ses­sion on “The Dy­nam­ics of Pen­sion In­vest­ment,” noted that pen­sion in­vests in long-term li­a­bil­i­ties (gov­ern­ment bonds) while in­fra­struc­ture is in­vest­ment in long-term eco­nomic as­sets.

While chal­lenges to in­fra­struc­ture in­vest­ment in Africa are mul­ti­far­i­ous and daunt­ing, they can be over­come. To scale the hur­dle of project devel­op­ment, Sev Vet­tivet­pil­lai, Global Head of The­matic Fund, The Abraaj Group, UAE, said Abraaj has had to put to­gether an in-house project devel­op­ment team. This helps in re­duc­ing the lengthy time project devel­op­ment of­ten takes in Africa – usu­ally 4 – 5 years. Mr. Vet­tivet­pil­lai said “project devel­op­ment is not in­sti­tu­tion­alised in Africa.” This is a hin­drance to in­fra­struc­ture in­vest­ment; and the lengthy time project devel­op­ment takes is quite risky, fur­ther im­ped­ing fi­nan­cial close. But Abraaj has been able to over­come this chal­lenge and has done a num­ber of in­fra­struc­ture projects on the con­ti­nent.

Find­ing the ways and means to de­liver in­fra­struc­ture in Africa is cru­cial, ac­cord­ing to Solomon Adeg­bie-Quaynor of the Client Lead­er­ship and Strate­gic In­vest­ments, Sub Sa­ha­ran Africa, IFC. He noted that it has been es­tab­lished em­pir­i­cally that in­fra­struc­ture deficit can re­duce GDP growth by 2 per­cent. He also high­lighted the scopes for clos­ing Africa's in­fra­struc­ture gap. For ex­am­ple, he said that while in­vest­ment in gov­ern­ment-spon­sored in­fra­struc­ture might have sev­eral draw­backs, in­vest­ment in B2B and B2C in­fra­struc­tures are hap­pen­ing, and IFC is quite ac­tive in these seg­ments.

Wole Adeo­sun, Founder and CEO, Ku­ramo Cap­i­tal Man­age­ment, USA, and mem­ber of US Pres­i­den­tial Ad­vi­sory Coun­cil on Do­ing Busi­ness in Africa, val­i­dated in­vest­ment in in­fra­struc­ture. As real yield for pen­sion fund in­vest­ment in bonds re­mains ei­ther low or neg­a­tive around the world, he said al­ter­na­tive as­set classes pro­vide the op­por­tu­nity for bet­ter risk-ad­justed re­turns. While it re­mains very dif­fi­cult to find Africa-fo­cused pri­vate eq­uity funds that com­bine ex­per­tise and track-record, a few of them ex­ist and should be found. The LPs can also form project teams.

The pan­el­lists agreed that in­vest­ment pools can help over­come the chal­lenge of small­ness of project size, which be­comes even big­ger now in dol­lar terms, ow­ing to the de­pre­ci­a­tion in the ex­change rate in African economies in the wake of the macro-eco­nomic chal­lenges caused by fallen com­mod­ity prices.

Given the re­gional agenda of the Sum­mit, the dis­cus­sion was not only about ad­dress­ing so­lu­tions that can be adopted by spe­cific, in­di­vid­ual coun­tries. Re­gional so­lu­tions were dis­cussed, in­clud­ing col­lab­o­ra­tion among African pen­sion fund reg­u­la­tors, which ob­vi­ously is un­der­way, given their im­pres­sive level of par­tic­i­pa­tion at the Sum­mit. The idea of pool­ing sub­re­gional pen­sion funds to in­vest in in­fra­struc­tures that will serve coun­tries in the pool, mooted by a mem­ber of the au­di­ence, was en­dorsed by the panel of ex­perts, sym­bol­is­ing the fer­tile ex­change of ideas be­tween the high-level pan­el­lists and an au­di­ence of se­nior ex­ec­u­tives.

Africa Pen­sion Awards

The ex­pert-level dis­cus­sions of the two-day Sum­mit were bro­ken by the pro­gramme of Africa Pen­sion Awards that capped the Sum­mit's agenda for day one. Quite def­i­nitely, African pen­sion reg­u­la­tors and op­er­a­tors have done so much to de­serve en­cour­age­ment of awards in press­ing for­ward for more achieve­ments.

With Nige­ria be­ing the ju­ris­dic­tion in Africa where re­form has been most mo­men­tous in the last decade, the coun­try made a strong show­ing on the list of award re­cip­i­ents. PenCom won two best awards in the cat­e­gories of: So­cio-eco­nomic Im­pact of the Pen­sion or So­cial Se­cu­rity Sys­tem; and In­no­va­tion in Cor­po­rate Gov­er­nance (for reg­u­la­tors). Pre­mium Pen­sion Limited, a lead­ing Nige­rian Pen­sion Fund Ad­min­is­tra­tor, also won two awards as best in the cat­e­gories of: De­ploy­ment of In­no­va­tive Prac­tices to Fa­cil­i­tate Wide Cov­er­age and in­clu­sion; and In­no­va­tion in Cor­po­rate Gov­er­nance (for op­er­a­tors). How­ever, award win­ners were spread across African coun­tries, in­clud­ing Ghana, Cote d'Ivoire, Uganda, Kenya, Togo and Mau­ri­tius.


The World Pen­sion Sum­mit: Africa Spe­cial 2016, was graced by sev­eral dig­ni­taries, in­clud­ing se­nior gov­ern­ment of­fi­cials and diplo­mats from over ten coun­tries; African en­tre­pre­neur, Tony Elumelu; Gover­nor of Kaduna State, Nasir El-Ru­fai; and for­mer Gover­nor of Cross River State, Don­ald Duke.

In the years and decades to come, one hopes the resur­gent en­thu­si­asm and good­will to­wards pen­sion and so­cial se­cu­rity in Africa will con­tinue to grow and have wider cov­er­age, pos­i­tive risk-ad­justed re­turns for con­trib­u­tors and ben­e­fi­cia­ries, and im­prove­ment in in­fra­struc­ture devel­op­ment through in­vest­ment of the pen­sion funds. As Ugan­dan Min­is­ter of Pub­lic Ser­vice, Wil­son Mu­ruli Mukasa, noted: “Africa pen­sion is cru­cial for the fu­ture, and the re­form process is winded.” This un­der­scores the need for stake­hold­ers to con­tinue to sup­port the evo­lu­tion of the African pen­sion and so­cial se­cu­rity in­dus­try.

A group photograph of or­gan­is­ers and dig­ni­taries at the World Pen­sion Sum­mit: Africa Spe­cial 2016

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