Increase pension fund money in African infrastructure development

22nd June 2021 By: Donna Slater - Creamer Media Contributing Editor and Photographer

From a private sector and sovereign perspective, Standard Bank global infrastructure sector head Aadil Cajee says a lot of focus is being placed on pension fund reforms in Africa.

He added that the mobilisation of pension money for African infrastructure development was important.

Speaking during a panel discussion hosted by Infrastructure Africa on financing Africa’s infrastructure development, he said that, often, investor participation was directly, or indirectly through pension plans, insurance policies and mutual funds.

However, Cajee noted that reform for these vehicles would assist in increasing institutional demand for investments and improve saving rates across many regions.

“Importantly, typically outside of development finance institutions and multi-laterals, commercial banks are not necessarily set up to take such long-term views on infrastructure assets and so the cash flow profile of infrastructure assets typically matches very well the long-term liability profile of pension funds,” he said.

Therefore, Cajee stated, it was important to mobilise an increasing volume of pension money into infrastructure investments in Africa, and more so to start thinking about how Africa mobilises local currency pension funds to start being able to participate more in infrastructure in Africa.

CAPITAL MARKETS

It was common that robust capital markets, including stock and bond markets, encouraged economic growth, which had been seen across the globe, he said.

In terms of Africa, Cajee pointed out that these capital markets were, however, skewed towards South Africa, Egypt, Morocco and Nigeria, with South Africa accounting for nearly 80% of the region’s stock exchange market capitalisation and more than 50% of government and corporate issued bonds.

Nonetheless, he stated, there was significant potential for African countries to expand their capital markets by implementing a couple of measures.

In terms of developing the infrastructure landscape in Africa, Cajee said it was important to remember that the infrastructure space was defined by long-term decision-making because the asset classes infrastructure related to were between 30 to 40 years of life.

Therefore, he said the measures that needed to be put in place needed to take account of a long asset life and that investors should not be swayed by this factor.