* African workers traditionally took family as a pension
* Growing savings seen as fund pool for infrastructure
* 20 pct of Africans have formal pension savings-official
* Uganda latest country to set up pension scheme
By Chijioke Ohuocha
LAGOS, July 24 Like many African workers Olalere
Ojedokun's only pension plan was sending his kids to school so
they could take care of him in old age, but that changed when
Nigeria introduced a contributory pension scheme that it hopes
will cover everyone.
"I won't have to look to my children for a pension,"
Ojedokun, 45, a father of four who works in marketing, said.
"Having something to fall back on at retirement is
motivation to be part of the pension scheme," Ojedokun, who
started contributing to his pension five years ago, added.
African economies seeking to diversify away from foreign aid
or borrowing to fund urgent infrastructure needs are
increasingly turning to their burgeoning pool of domestic
The continent needs billions of dollars in financing to be
able to build roads, bridges, airports and power in order to
accelerate economic growth, currently hovering around 5.5
percent annually, and create jobs.
Long-term funds are scarce so pensions, long-term plays by
nature, are seen by governments as potentially a major source of
financing, although a lack of pensions' cover is for now a
"The contribution of African pension funds to the growth of
African economies is still rather low. It's a low percent of GDP
in many countries but it's improving," Nigerian Finance
Minister, Ngozi Okonjo-Iweala, said at an Africa Pensions summit
in Nigeria's capital Abuja this month.
The 2008 financial crisis, and market volatility in the past
year on signs the U.S. Federal Reserve would start cutting back
on the cheap dollars that have flooded emerging markets, served
as a reminder to African governments: the continent badly needs
more domestic savings if it wants to stop being beholden to the
whims of faraway financial centres.
"There's general growth in savings ... around Africa and I
think that the drive for infrastructure is making governments
realise that we need to grow our own local savings," Edward
Odundo, chief executive of Kenya's pension regulator, Retirement
Benefits Authority, said on the sidelines of the Africa Pensions
Savings are coming from a low base, compared with more
mature economies, but growth rates are fast, especially as
economic growth deepens and the continent's bulging youth
population starts to enter the workforce.
Nigeria has pension assets of around 4.3 trillion naira ($25
billion) which make up only 5 percent of its recently rebased
GDP and cover less than 15 percent of the workforce. Though the
figure has grown from 1.6 percent of GDP in 2006.
Pension contributions make up around 20 percent of Africa's
GDP, Odundo said, with Kenya itself seeing the same ratio.
Contrast with the West, where in 2012, pension assets were
155 percent of GDP in the Netherlands, 104 percent for Britain
and 74.5 percent for the United States, Nigeria's Okonjo-Iweala
told the summit.
"Coverage (in Africa) ... is still very low because most of
the people are in the informal sector," Odundo, who also doubles
as president of the International Organisation of Pension
Supervisors (IOPS), an independent body involved in the
supervision of private pensions, said.
Several African countries, including Nigeria, Kenya and
Uganda have seen companies set up contributory schemes, moving
away from government schemes, as part of reforms meant to boost
savings in a bid to mobilise long-term funds for the economy.
Nigeria, Africa's biggest economy, reviewed its pension law
this month to expand coverage to include companies that employ
more than three people, to boost the savings' rate and deepen
long-term investment. Those companies would include small
proprietorships, many of which do not even pay tax.
"We need to capture a significant proportion of our
workforce, especially those in the informal sector. We need to
encourage countries to switch to contributory schemes,"
Uganda announced plans last month to end a state pension
monopoly and make civil servants contribute to private
Foreign direct investment into Africa peaked in 2008 at $72
billion, according to a United Nations report, and then dropped
to $59 billion the following year, when the financial crisis set
in. It has started to pick up again but fickle portfolio
investors buying equity, debt and commodities remain a much
larger contributor to investment figures.
Hot money that can be whipped out in a flash is not the sort
of thing African states can rely on for long-term infrastructure
"Pension savings are more reliable than foreign borrowing,
more (reliable) than bank lending, and have the added benefit of
providing security for workers when they reach retirement,"
Charles Robertson, chief economist at Renaissance Capital, said.
Nigeria rebased its gross domestic product to $510 billion
in April to overtake South Africa as the continent's biggest
economy. But that rebasing exposed the reality that more than
half of its economy was in the informal sector, which does not
generate tax revenues - and most of its participants save very
Odundo said growth in pension savings was coming from only
20 percent of Africa's workforce as the rest was employed in
informal sector jobs. He added that Kenya was considering
automatic enrolment for adults aged 18 years onwards.
Kenya's biggest pension fund, National Social Security Fund,
expects annual contributions from members to surge by more than
10 times to 118 billion shillings ($1.35 billion) in five years,
and plans to invest in new asset classes like private equity.
Fiona Stewart, a pension specialist at the World Bank, said
long-term savings were rising in Africa, a continent still
regarded as too dependent on foreign aid to fix drains or pave
Nigeria has started to allow pension funds to invest in more
asset classes but less than 2 percent of funds are invested in
infrastructure. By the first quarter of 2014, 68 percent were
invested in government bonds and 13 percent in equities.
There is a now an allowance for pension funds to invest up
to 15 percent of their assets in infrastructure bonds, said
Chinelo Anohu-Amazu, director general, Pension Commission of
"However, owing to a dearth of these instruments, pension
funds have not been able to make significant investments."
That could be changing.
Nigeria's ARM Infrastructure is close to raising $250
million in the country's first infrastructure fund, to invest in
transport, energy and utility sectors across West Africa, with
much of the money coming from pension funds.
Pension managers will also have to develop expertise for
deploying funds into longer-term investments that meet Africa's
infrastructure challenge. But first they need more savers.
(Additional reporting by Duncan Miriri in Kenya; Editing by Tim
Cocks and Susan Fenton)