Leveraging African Pension Funds for Financing Infrastructure Development

The key issues surrounding pension funds -is explored in this report, which serves as a source of financing for African infrastructure. The report begins by providing an overview of the gaps in African infrastructure, as well as the financial resources available to support infrastructure development. In the sections that follow, it illustrates pension funds’ untapped potential in the continent, highlighting international experiences with pension funds and the lessons learned from these cases. Then it concludes with policy recommendations for reforming pension schemes and fully capitalizing on the continent’s favorable demographic trends. The particular role of pension funds in financing Africa’s infrastructure is discussed in this report. A key message of this report is that there is urgency to act now if the significant potential of African pensions to finance infrastructure development is to be leveraged. While sub-Saharan African countries are in a “demographic sweet spot” as dependency ratios are low, the labor force is rising rapidly, and the impact of aging has not yet hit their pension systems, policymakers need to address existing obstacles to pension funds investment in infrastructure. In North Africa, unsustainable pension schemes together with unfavorable demographic and labor trends also point to the need of reforming pension systems. Apart from countries in southern Africa such as Botswana, Namibia, and South Africa, and a few others such as Kenya and Nigeria, pension assets as a share of GDP are low as pension funds are relatively small and dominated by often poorly performing pay-as-you-go (PAYG) schemes for public sector employees. Even when pension re-form has been implemented, as in Nigeria, and assets are available for investment, governance and regulatory obstacles as well as a dearth of adequate financial instruments limit pension funds’ allocation to infrastructure. This report suggests a number of policy recommendations to address the obstacles to pension funds investment in infrastructure.