World Bank $1.2bn to supporting financial sector in Ethiopia

President Sahlework Zewde (photo credit Ethiopian News Agency)


The World Bank has announced that it will give a $600 million grant and a $600m loan towards supporting reforms in Ethiopia’s financial sector including improving the investment climate, according to this story from Reuters, citing a statement on the World Bank website (couldn’t find this).

The Bank is also providing technical support. It will promote public-private partnerships (PPPs) “to improve efficiency in key sectors” including telecom, power, and trade logistics and the support would also help the Government “reduce inefficiencies and operating costs and improve financial performance” in these sectors. It aims to help Ethiopia attract more foreign direct investment (FDI) and raise export revenues.

The World Bank says its increased assistance is a response to reform pledges made by the Government since Prime Minister Abiy Ahmed took office in April. Ethiopia has a huge population of 105m people and a fast-growing economy, but the State and state-owned enterprises tightly control the economy and are increasingly crowding out the private sector. Investors hope this could be changing, according to Reuters.

The 2 overarching challenges identified in 2016 by the World Bank’s systematic country diagnostic study are: “The need for a sustainable financing model for growth, and inadequate feedback mechanisms to facilitate citizen engagement and government accountability”. The Country Partnership Framework is closely linked to the Government’s Growth and Transformation Plan II (GTP II) (2015/16-2019/20).

On the sustainability of financing growth, from the World Bank Country Partnership Framework for the period FY18-FY22:

  • “..if Ethiopia were to catch up with the average Sub-Saharan Africa (SSA) country in terms of financial liberalization, the rate of per capita GDP growth would rise by 1.9 percentage points per year.”
  • “Private sector credit is only about 9% of GDP in Ethiopia compared to more than 20% in SSA. The experience of East Asian developmental states such as China, South Korea, and Vietnam shows that private firm growth is needed to lead the development process.”
  • “While domestic savings have increased as a share of GDP in Ethiopia, the country has experienced a decline in the credit to GDP ratio, suggesting that increased savings are not always entering the formal banking system and/or are going into the booming real estate market. The Government has actively sought to raise domestic savings through measures such as expansion of bank branches among others… a key determinant of domestic savings is the real deposit interest rate. Since this rate is currently negative, households have strong incentives to channel monetary savings into informal savings mechanisms. A negative real interest rate is also a major obstacle to the development of a secondary market for treasury bills, as institutional investors would not earn a sufficient return for voluntary purchase of such assets.”
  • “Analysis suggests that the absence of a functioning capital market may become a binding constraint for growth and development as the country progresses. Since there are substantial needs for long-term financing in local currency by both the public and private sectors, a well functioning capital market (particularly the bond market) is essential to the long-term development of the Ethiopian economy. The current market is characterized solely by short-term treasury instruments of up to 1 year, the tenor of which does not match the long-term character of the actual investments. In addition, the money market is not functioning with virtually no existing interbank lending. However, there is an active informal market for equities, particularly for bank and insurance stocks, which in turn indicates that there is demand for services of a typical capital market. Failure to establish such a market may mean that future projects could not be financed in an ever-more developed economy. The evolution of this viable capital market will take time, and a comprehensive but targeted approach is required given its current nascent state.”

World Bank lending to Ethiiopia (source: https://www.worldbank.org/en/country/ethiopia)

Exploring African bond markets at Livingstone

Africa’s bond market gurus will gather in Livingstone, Zambia, on 29 October, to discuss trends and developments in the local currency bond markets. The 3 day gathering is organized by the African Financial Markets Initiative AFMI, which highlights African Development Bank’s leading role to develop Africa’s domestic local currency bond markets, establish best practices and document lessons.
The first day of the AFMI 10th anniversary workshop is open to the public, and highlights “enhancing transparency in African bond markets”. It includes panels on initiatives in the African capital markets ad steps to increase transparency in bond markets, led by your author.

Victoria Falls

There are also presentations on African Development Bank’s contributions to deepening local currency bond markets including: the data collection tool and platform, bringing together data from African central banks; the African Bond index ABABI, BADBC and BADBX compiled with Bloomberg.
A key highlight will be the progress of the African Domestic Bond Fund, recently listed in Mauritius.xx Other sessions cover regional integration, African credit risk measuring and a top Zambian panel highlighting the business opportunity in Zambia. Prof Leonce Ndikumana from Massachusetts University will speak on African illicit financial flows.
Top speakers also include Thapelo Tsheole (Chairman of the Committee of SADSC Securities Exchanges COSSE), Stefan Nalletamby (Director Financial Sector Development at AfDB), Cedric Mbeng Mezui (AfDB’s Chief Bond Markets Expert and AGFMI Coordinator), Joseph Rohm (MD Adventis and African Financial Sector Deepening Fund) and many others. Keynote speaker in the evening will be Christopher Marks (Managing Director and Head of Emerging Markets at Mitsubishi UFI Financial Group MUFG)
The conference is co-organized with Bank of Zambia and the session will include the Ministry of Finance, Lusaka Stock Exchange, BoZ, Investment Board and stakeholders.
The following days, 30-31 October, are closed sessions for central bankers.

African bond markets statistics

Here are a few overview statistics on African local currency bond markets taken from the African Financial Markets Initiative (AFMI) annual report 2017:

Total outstanding amount of African bonds and bills rose to $413bn in 2017 (up 13% on a year earlier), and bonds made up 70%. More than 80% of the total comes from 5 countries: South Africa, Egypt, Morocco, Nigeria and Kenya (descending order of market capitalization). However, many markets are small with only 8 above $10bn in market capitalization and 19 markets below $1bn.

A total of $245bn of treasury bonds and bills were issued in 2017, up 12% compared to 2016. Of this, a total of $196bn (80%) was in instruments with term to maturity of less than 1 year. On the bond markets, $19bn of instruments with terms of 1-5 years was issued, $12bn of bonds with term 5-10 years and $18bn of bonds longer than 10 years.

Top 10 bond markets (source AFMI annual report 2017)


The AfDB/AFMISM Bloomberg African Bond Index (ABABI) includes 75% of the most liquid local currency sovereign bonds in Africa and it covers South Africa, Egypt, Nigeria, Kenya, Botswana, Namibia, Zambia and Ghana. According to AFMI “This will enable governments to improve the terms at which they borrow in domestic financial markets, thus reducing their dependence on foreign currency denominated debt.” The bond index family also includes African Domestic Bond Index (ABMDI) plus 2 sub-indices BADBC, which is a capped index giving a maximum 25% exposure per country and reducing the influence of South African bonds, and BADBX, which excludes South Africa. BADBC index returned 20.26% in USD in 2017, driven by high-yielding local-currency markets and stable exchange rates. The index offers diversification for global fixed income investors.

AFMI has organized an African Financial Markets Database which is a single portal as a web platform (www.africanbondmarkets.org) covering monetary policy, public debt management, auction results and guide to buying debt, and an African bond data portal, as a channel to disseminate domestic bond market data, standardizing data collected from different institutions. By December 2017 it covered 43 countries. The portal collects data from official websites of Ministries of Finance, central banks, debt management offices and stock exchanges and is updated quarterly. A data query section and automated data collection are being built.

In September the African Domestic Bond Fund was listed on the Stock Exchange of Mauritius as the first exchange traded fund (ETF) giving a basket exposure to several African fixed income markets. For coverage see earlier article. It will boost development of markets by providing a source of funding for local borrowers while creating a new asset class of African fixed-income securities.

AFMI has also created an African Bond Markets Development Index, which charts the state of development of the bond markets. In 2017 some markets gained strength in terms of liquidity and maturity profile based on indicators such as macroeconomic variables, market structure and market liquidity. In the top 10, Botswana, Namibia, Mauritius, Kenya and Seychelles all improved their rankings, while Nigeria and Morocco both declined, Nigeria from #2 to #6.

Top 10 in African bond market development index 2017 (source AFMI)

Key questions to boost credibility of impact investing in Africa

Article kindly contributed by Kelsey Tanner, Senior Private Equity Analyst, RisCura

  • Africa gets 12% of total impact investing into emerging markets
  • Africa has under-served sectors which can be great place for impact funds to deploy capital
  • Beware “impact washing” and “mission drift”
  • More adoption of global standards such as GIIRS and IRIS for funds

Despite being only a decade old as an industry, impact investing globally has shown impressive growth and obtained mainstream acceptance. However, there are some credibility concerns, particularly in Africa, that can be addressed with clear industry guidelines. This could help to accelerate the allocation of investors’ capital into impact investments.

Essentially, impact investing is where investments are made with the intention of generating a social or environmental benefit alongside financial returns. Individual and institutional investors pursue impact investing primarily in private capital markets, including closed-end private equity or private debt funds.

Impact investing differs from socially responsible investing, which is the process of selecting or eliminating investments based on screening criteria. For example, an investor may want to avoid companies that have products that may be addictive or dangerous, such as tobacco or firearms. With impact investing, funds actively seek to invest in companies or projects with the potential to have a positive impact on social and/or environmental outcomes. Key impact areas in Africa have typically included education, housing, energy and financial services.

Image credit www.socialimpacthub.org

According to a survey published by the Global Impact Investors Network (GIIN), over half of total impact investing assets under management is allocated to emerging markets, with 12% of that going to sub-Saharan Africa. This region was also cited as one of the top three geographies for capital deployments in 2017. While this is significant, Africa has a multitude of under-served sectors where a social or environmental impact can be made, which can potentially make it a favoured place for impact investing funds to deploy their capital.

However, investors are hesitant to commit capital without sufficient information on impact investment funds, and the impact they are making. This is inherently difficult in Africa where the impact investing market is small compared to global capital markets. With only a few pioneering fund managers, and the system still making forward strides, there is a lack of data at both the fund and investment level.

Some investor concerns include the risk of “impact washing” and “mission drift”. “Impact washing” is where companies or funds market a social/environmental impact that doesn’t exist or is highly exaggerated. “Mission drift” is when an organization or company moves away from its social or environmental mission and starts focussing more on their financial returns.

Proposed solutions and industry guidelines, such as independent assessments or third-party verification of investments, are necessary to allow investors to make informed decisions, particularly where there may be a trade-off between impact and financial returns. Increased transparency and accountability can address investors’ concerns and establish the credibility of funds’ impacting investing actions.

A step in the right direction is to increase the adoption of independently assessed rating systems, such as the Global Impact Investing Rating System (GIIRS), a product of GIIN. GIIRS provides a standard framework for funds to measure their portfolio’s impact.

Funds can also incorporate IRIS (Impact Reporting & Investment Standards) in their measurement process. IRIS presents metrics for social and environmental benefits of products and services and allows investors to quantify an investment’s impact in a particular sector. Metrics for an impact investment in the education sector could include, for example, the number of schools opened. Using IRIS reduces the need to find or create performance metrics and facilitates easier comparison across funds or investee companies.

Kelsey Tanner

While standardization allows for comparability, there are still difficulties as impact areas vary significantly between investors. Furthermore, since this is currently a voluntary exercise, and standardized systems may prove onerous, funds may prefer to use frameworks or metrics that are not aligned to external methodologies. This approach will likely still be still useful for investors, as ultimately investors want transparency on impact strategy and results.

The adoption of objective, comparable measurement standards is one of the enablers of sound financial markets. By leading adoption of these standards, and addressing concerns around transparency and credibility, impact investing into the African continent can be significantly accelerated.

Politics getting better, Ethiopia ready for business says Arkebe Oqubay at UK-Ethiopia forum

A packed room of investors and others assembled in London on 16 October to hear about business opportunities and the investment climate in Ethiopia. The occasion was the UK-Ethiopia Trade & Investment Forum 2018. The planned delegation had some changes, due to 16 October dramatic cabinet announcement where 50% of posts went to women, including top jobs such as Defence and Peace (Home Affairs). The conference was organized by Developing Markets Associates with WAFA Promotions.

Leader of the delegation was Arkebe Oqubay, Economic Advisor to the Prime Minister, who gave a detailed overview of events of the last 6 months and the big ambitions driving Ethiopia:
“Vision 2025 is to make Ethiopia the leading manufacturing hub for Africa, to sustain GDP growth of 11% for next 25 years, and 35% of exports for every year for coming years. This has created enormous opportunity for investors, including many opportunities for UK firms.
“We have been focused on human resources” he said. There are 50 public universities with 600,000 students, annually there are 100,000 graduates mostly form science, technology, engineering and mathematics.
“We need to build manufacturing capacity, every year our population increases by 2.3m, we need to create minimum of 1m jobs for the youth, including at least 100,000 jobs for university graduates. We need to generate more forex earnings and need to focus on exports, that is why we focus on manufacturing.

Dr Arkebe Oqubay outlining Government’s investment priorities (photo: AfricanCapitalMarketsNews)

“For the last 15 years we have been able to grow at 11% a year and for 2018 we will witness same rate of economic growth. For rapid economic growth to be sustained, it needs to be equitable. Ethiopia has increased average life expectancy, which is linked to poverty reduction. In 1990 the average Ethiopian lived for 44 years, and the African average was 50 years, but in 2016, the last year for which there are figures, the Ethiopian average life expectancy was 66 years and the Africa average was 60 years.”

Harriet Harman MP, Minister of State for Africa, UK Foreign & Commonwealth Office “Total trade in goods and services between UK and Ethiopia last year grew by 80%”

“In 2017 Ethiopia was recognized to show the highest growth rate of foreign direct investment (FDI) inflow with $4.2bn, of which 89% went into manufacturing, in line with the Government’s focus on industrialization. Ethiopia has been allocating more than 50% of federal budget to roads, railway lines, the largest air-cargo hub in the continent, and our largest focus on clean and renewable energy.” The FDI is expanding the industrial parks, which are being developed on principles of sustainability.

Politics first
Arkebe focused on political progress made since Abiy became Prime Minister in April:
1) Political reforms – ensuring all political parties come to the table, ensuring there is loyal opposition within the system to encourage and strengthen. This has been a rewarding process, all the opposition groups trying to work with the Government, political leaders who advocated violence have come back to peace and all have come to Addis and joined the dialogue.
2) Political and public dialogue, Abiy has listened to complaints and voices in all the regions.
3) Peace in the region is one of the major breakthroughs. Abiy approached President Issayas, the 2 countries are establishing diplomatic missions, people are moving in both directions, they are sharing infrastructure, ports and building communications. This was achieved without any intermediary. The aim is to make the Red Sea one of the most dynamic regions, all the countries, Ethiopia, Egypt, Sudan, Djibouti, Somalia, Yemen, Oman, UAE. Geopolitical peace will cut the cost of business and make it attractive to investments.
4) The internal process in the ruling EPRDF party. The Congress which happened in the last 2 weeks,fully backed the PM who was elected chair of the party with unanimous vote.

He also highlighted 3 challenges
1) “We have to create jobs for the youth, it’s a major factor of political turmoil, the only solution is to focus on job creation and new industries”.
2) “Our society is diverse, we are Christian but we are one of oldest Muslim countries, we have 80 diverse nationalities and our languages are completely different, like Japanese to English. We have to manage this diversity, and we set up the system of federalism, based on ethnic diversity. We are trying to make this more perfect from time to time.”
3) “The challenge is to make the political system pluralist and to build democracy. Democracy is fragile, look at Europe with 2 world wars and rise of fascism. Our 1995 Constitution allows all rights to be exercised. This is work in progress, we believe we are making good progress.”

Ready for business
The statement at the first industrial park opening after the successful EPRDF Congress: “We have been in political process and reforming, we are now back to business”.
One change is to open the logistics sector 49% to foreign investors, Ethiopian Airlines is linking with DHL Global Forwarding and there are huge opportunities as Ethiopia aims to become Africa’s logistics hub. Other sectors opening to foreigners include telecommunications.
Electricity costs 3 UScents per KwH, one of the cheapest prices in the world. Other attractions for manufacturers include duty free access to the EU and opportunities under the African Growth and Opportunity Act (AGOA) renewed for 10 years.
Advice for #FDI investors from Dr #Arkebe Oqubay “#Ethiopianization has been a good word, that was the motto in #EthiopianAirlines when managed by TWA in 1950s and 1960s”.

Buy Arkebe’s highly reviewed book on Amazon with this link (affiliate), published by Oxford University Press, and get details of his next book on China-Africa and Economic Transformation, due in 2019 also from OUP.

UK investors’ experience
UK firms talked of their investments

Saad Aouad, Founder and Chief Investment Officer, 54 Capital: Said they made their first investment in Ethiopia in 2014. They have invested $120m including: Addis Pharmaceutical Factory employs 1,000 at its factory in Adigrat, producing 80 pharmaceutical products to the $600m-$700m domestic market and set to expand, creating another 500 jobs; Aquasafe is a leading water bottling company, based in Debre Birhan; Bluebird platform takes stakes in food companies, personal care and Tena edible oil. With 168 investors on their books, 80% of them from UK, they have potential to make much more investment.

Reg Hankey, CEO, Pittards: Employs 1,600 with a “highly motivated, highly skilled workforce improving productivity every day”. Gloves made with Pittards leather, including at the Ethiopia factories, are sold to top professionals worldwide including 9 out of 10 top golfers and baseball players. The target is still to get to 5,000 employees, despite a road that is “not smooth”.

L_R: Darren Boyd (Tulu Moye Geothermal), Harry Anagnostaras-Adams (KEFI Minerals), Arkebe Okubay, Simon Tonge (DMA) (photo: AfricanCapitalMarketsNews)

Harry Anagnostaras-Adams, Managing Director, KEFI Minerals: There is $1bn of gold exports sitting in the ground at the Tulu Kapi gold project in Western Ethiopia. His company has already invested $60m in infrastructure and community projects and has top partners to bring in to make it work. “I desperately love my wife but she drives me crazy, that is Ethiopia. It’s a very alluring long-term game”.
Darrell Boyd, CEO of Tulu Moye Geothermal: Says geothermal 24 hour base load power is ideal for industrialization. They are planning £1.5bn investment to generate 520 MW geothermal over 4 phases in the coming 8 years. Now focused on phase 1 for 50MW with £200m investment in debt and equity. They are busy at site to get ready for geothermal drilling for 2nd quarter next year. “Ethiopia has done a lot of work over last few years to change its regulatory framework”.

Source UK Office for National Statistics

12 questions Silicon Valley investors ask – focus for African policymakers

African #tech superstar Alysia Silberg General Partner, Street Global Venture Capital, says she replies when asked what African policymakers can do to encourage investment into the tech sector in Africa, one focus is to look at the 12 investment questions of Silicon Valley:

1. Whether the government is stable?
2. Company incorporation structures and the limitation of liability?
3. The availability of reputable experts able to advise companies on their IP Protection and other assets?
4. Availability of legal recourse and the cost?
5. Whether or not there is a risk of asset seizure by government or any other organization?
6. The prevalence of fraud and corruption and whether it is a material risk?

L-R: Dawit Hailu (Wudassie Daignostic), Alysia Silberg (Street Global VC), Agnes Gitau (GBS Africa). Photo: AfricanCapitalMarketsNews

7. Reliability of infrastructure including financial and banking payments platforms and ease of international funds transfer?
8. Availability and productivity of a highly skilled workforce able to meet the needs of scaling business with a strong focus on Science, Technology, Engineering and Maths?
9. Whether or not “hotbed” exist for different niches and industries?
10. A progressive environment for diversity and women’s empowerment?
11. Whether any startups have succeeded at scale and its resultant effect on the surrounding ecosystem?
12. Availability of and ease of access to local capital for entrepreneurs, Not just for the first rounds of investment, but through a startup’s growth from startup to scaleup?

She was speaking at the UK-Ethiopia Trade & Investment Forum 2018 in London on 16 October 2018.

Rising debt tide threatens credit ratings across Africa

Credit quality across Africa has been declining, according to analysts speaking at a credit ratings event in London. Global rating agency Moody’s says the last 12 months saw 7 downgrades out of its 21 African sovereign ratings. Seven credit ratings are on negative outlook and only Morocco and Egypt are on positive outlook.
Several countries including South Africa stayed with high Baa3 ratings. South Africa has a Moody’s sovereign release date (updated on rating) on 12 October. Other rating agencies S&P and Fitch downgraded its local currency bonds to “junk” status, meaning below investment-grade, according to this story from Bloomberg. Namibia has Ba1 status, with a negative watch following an August review.
Zambia’s long-term issuer rating has been downgraded to Caa1 stable in July, below Democratic Republic of Congo (DRC) which was rated B3 negative in June. Mozambique is rated Caa3 negative. Other countries which have seen rating downgrades are Angola and Kenya, while Tanzania and Cameroon are on negative outlook.
The bad news comes despite good growth in some parts of Africa. Key concerns are the ways governments manage fiscal policy, with elevated budget deficits and rising debt levels, after many governments issued large amounts of foreign currency bonds. Some countries which have borrowed heavily to invest into developing infrastructure face governance questions on whether prices are inflated – Zambia is particularly affected. Debt problems are worse because of local currency declines.
Investors into Africa at a Moody’s event in London on 26 September are also worried about global financial conditions and shocks, but are more confident on domestic politics.
Lucie Villa, Moody’s Vice President-Senior Credit Officer, commented that South Africa’s economy is likely to accelerate in 2019 but to remain timid, while recognizing the challenges faced by National Treasury meeting different fiscal and social objectives. Most foreign investors into South Africa use the ZAR currency.
Daniela Re Fraschini, Assistant Vice President in the Sovereign Risk Group, says East Africa remains the fastest-growing region, with Kenya, Uganda, Rwanda and Tanzania all forecast to grow well. Kenya and Tanzania are more resilient because their economies are more diversified. Rwanda has been consistently more competitive.
Rising oil prices could bring good news for Nigeria, Gabon, Congo and Angola.
Moody’s has increased its credit ratings from 31 to 51 African banks and Akin Makejodunmi, Vice President and Senior Credit Officer at Moody’s, says Islamic finance could double its share of the sector, from 5% to 10%, given that 40% of the population are Muslims.

For more on Moody’s credit ratings on African governments and many corporate issuers, see www.moodys.com

SEC Nigeria leads FSD Africa programme to boost capital markets regulators

Left to right: Reginald Karawusa (Director, Legal and Enforcement, SEC), Laure Beufils (Deputy High Commissioner), Mary Uduk (ag Director General, SEC), Evans Osano (Director Financial Markets, FSD Africa), Richard Sandall (Senior Advisor, DFID Nigeria).

Funding organization FSD Africa is launching a 3-year programme to improve skills of Africa’s capital market regulators. The Securities and Exchange Commission SEC Nigeria is the first capital-market regulator after signing an agreement worth £450,000 ($585,200) on 28 September.
The programme will also be rolled out in Ghana, Kenya, Mozambique, Rwanda, Tanzania, Uganda, Zambia and Zimbabwe. FSD Africa is a non-profit funded by UK Aid, which is Department for International Development (DFID) and the British Government.
FSD Africa will provide funding over 3 years to build the capacity of regulators, providing technical assistance, encouraging closer collaboration among regulators and conducting research to support the development of new policies and regulations.
Evans Osano, Director Financial Markets at FSD Africa, says (emailed press release): “This partnership will unlock capital by improving investor and issuer confidence, reducing transaction costs and reducing the complexity and approval times for capital issuance. The programme will also support greater collaboration and knowledge sharing with other African capital market regulators.”
FSDA Director Mark Napier says: “Well-functioning capital markets can play a vital role in support of inclusive economic growth by channelling long term finance into infrastructure and other large-scale projects that create jobs and improve access to markets. Strengthening regulatory capacity in capital markets is an essential pre-condition for building investor confidence.”
Mary Uduk, Acting Director General of SEC Nigeria, says the collaboration will facilitate access to capital for private and public issuers and enhance the competitiveness of the Nigerian capital market as a global investment destination. SEC Nigeria is contributing £22,000.
According to a report in the local news Independent the project will promote regulation of financial technology; fund an audit of institutional capacity and implementing the recommendations; and back collaboration and knowledge sharing between regulators.
Laure Beaufils, Deputy High Commissioner, British Deputy High Commission Lagos, commenting on the programme, added that capital markets have an essential role to play to help unlock capital that can be invested in the real economy and that can contribute to job creation and inclusive growth.

Do Africa’s $372bn pension fund assets facilitate inclusive growth and social stability?

One of the key challenges pension funds face: identifying enough appropriate, local investment opportunities to invest ever-increasing contributions
• Deregulation of prescription will unlock capital to flow where it is required in Africa

RisCura’s annual Bright Africa 2018 report is a highly recommended read on Africa’s capital markets. Check out the interactive website and download the short report at brightafrica.riscura.com.

Africa’s pension fund assets are now thought to be $372bn, according to leading pension fund consultancy RisCura. Some 90% of these assets are concentrated in Nigeria, South Africa which has $307bn in AUM, or 82%, Namibia and Botswana. Further, a few large funds dominate, including: Government Employees Pension Fund (GEPF) in South Africa, Government Institutions Pension Fund (GIPF) in Namibia, Botswana Public Officers Pension Fund (BPOPF), and a few large funds in Nigeria.

(NOTE, in a comparable story in 2015 we noted that total pension fund assets in 10 African countries were $379 billion in assets under management (AUM),85% or $322bn of this was based in South Africa. The change since 2015 may partly be due to currency decline at the time of compiling the statistics)

According to the Organization for Economic Cooperation and Development (OECD), total pension fund assets in OECD member countries in 2016 totalled $38 trillion, of which $25trn is held in the US, followed by Canada ($2.4trn) and UK ($2.3trn), the three countries making up 78% of the total pension assets.

In OECD countries, pension funds made up 50% of the economy, measured in gross domestic product (GDP) in 2016, up from 37% in 2006, while in other countries measured (“non-OECD countries”), they rose to 20% of GDP from 12%.

The table below shows pension fund assets in selected different African markets, according to data collected by RisCura. Assets under management (AUM) total $306.7bn in South Africa (pension AUM are 104% of GDP), $16.8bn in Nigeria (lots of space to grow as pensions are 4% of GDP), $10.7bn in Kenya (16% of GDP), $10.5bn in Namibia (99% of GDP), and $7.2bn in Botswana (48% of GDP). There is huge potential for growth in Egypt where pension AUM are estimated at 1% of GDP, Tanzania (10%) and Uganda (7%), Ghana (7%) and even Zambia (3%).

African Pensions statistics collated by RisCura

In OECD and non-OECD countries, pension fund assets are predominantly invested into bonds and equities, with 45% of assets allocated to equities. As capital markets have grown and regulators have advanced, the proportion of African pension funds invested into equities has increased, but in Nigeria and East Africa local currency bonds predominate. Local regulation is a key driver of asset allocation and often does not match the opportunities: “In many countries assets are growing much faster than products are being brought to market, limiting investment opportunities if regulation does not allow for pension fund to invest outside of their own countries” says RisCura.

“African pension funds have a pivotal role to play in facilitating inclusive growth and social stability. Larger pools of capital allow for investment in economic and capital market development,” argues the Bright Africa report. It says there is an urgent need to build resources: “Local institutional investors add credibility and often serve as a catalyst for greater external interest. Local investors also allow global peers to leverage local knowledge and networks.”

RisCura urges other countries to follow the lead of South Africa, Nigeria, Namibia and Botswana (we can also add Kenya to this list) in allowing pension funds to invest into private equity – in Nigeria the National Pension Commission (PENCOM) allows for 5% of assets into private equity as an asset class, which would amount to $842m on 2016 figures, but 75% must be invested in Nigeria and general partners have to be able to invest at least 3% in the fund, limiting the options and size of investment.

The report also highlights a huge role for supporting Africa’s urgently needed infrastructure development (Africa Infrastructure Country Diagnostic estimates $93bn per year of investment needed). However, it is important that frameworks created are compatible with the mandates and risk and liquidity factors, as well as “mindful of prudential oversight and limits necessary for pension and savings investment” says RisCura.

For these stats and more on the changing dynamics of retirement in Africa, download the excellent Bright Africa report and visit the interactive website. More than half, 52%, of African males over 65 years and 33% of females were “active in the labour market” in 2015, compared to 10% older men and 6% older women in Europe. Pensions in Africa are also seeking to adapt to the fact that many Africans earn and save informally, including Micro Pension Scheme in Nigeria where the informal sector is thought to be 70% of the workforce with 38m potential contributors and the Mbao Pension Plan of Kenya, using M-Pesa or Airtel Money mobile transfer services.

First African fixed income ETF listed in Mauritius, tracking bond index

The African Development Bank (AfDB) and Mauritius Commercial Bank Group (MCB) have launched the African Domestic Bond Fund (ADBF). The pioneer exchange-traded fund (ETF) is accessible to investors through its listing on 18 September on the Stock Exchange of Mauritius.

Sunil Benhimadhu, Chief Executive of the Stock Exchange of Mauritius submitted the Certificate of Listing of the African Domestic Bond Fund to Mr Stefan Nalletamby, Director AfDB FInancial Sector Development Department and Mr Rony Lam, CEO of MCB Capital Markets.


The ADBF fund will track the performance of the AfDB/AFMI Bloomberg African Bond Index 25%Capped, an index that comprises African local currency sovereign bonds of 8 African markets: Botswana, Egypt, Kenya, Namibia, Nigeria, South Africa, Ghana and Zambia. It is intended that sovereign bonds of other countries will be included in the index in future.

It is the first multi-jurisdictional fixed income exchange-traded fund (ETF) in Africa. The Bank has committed $25 million and is acting as an anchor investor of ADBF. It was listed on Stock Exchange of Mauritius came on 18 September 2018.

Fund Manager is MCB Investment Management (MCBIM), a subsidiary of MCB Capital Markets. MCBIM is a pioneer of the pan-African fixed-income asset class, it launched the MCB Africa Bond Fund, an actively managed mutual fund focused on African fixed income, in 2014. The African Development Bank says the fund has consistently outperformed its benchmark.

The AfDB’s African Financial Markets Initiative (AFMI) aims to strengthen African economies by reducing their dependency on debt denominated in foreign currency (FX), increasing the range of available financing options, and acting as a catalyst for regional market integration.

According to the press release: Pierre-Guy Noel, chief executive officer of MCB Group, said: “We are delighted to partner with the African Development Bank in launching this pioneering fund. This attests to the Bank and MCB’s commitment to help develop the local currency fixed income markets on the continent and to the quality of our investment management capabilities. The fund listing on the Stock Exchange of Mauritius brings to investors the opportunity to access African government bonds conveniently.”

Cédric Achille Mbeng Mezui, Chief African Bond Markets & Coordinator of African Financial Markets Initiative (AFMI), said: “A key milestone has been achieved today with the listing of the first multijurisdictional Sovereign Bond ETF, namely the African Domestic Bond Fund (ADBF) on the Stock Exchange of Mauritius. Next steps: The dual listing on the Nigeria Stock Exchange and increased investment in this Fund.”