Archive for the 'Infrastructure' Category

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.

African Economic Outlook 2018 flagship report is released

“African economies have been resilient and gaining momentum. Real output growth is estimated to have increased 3.6% in 2017 and to accelerate to 4.1% in 2018 and 2019″ says Akinwumi A. Adesina, President of the African Development Bank Group. “Overall, the recovery of growth has been faster than envisaged, especially among non-resource–intensive economies.”

The latest edition of African Economic Outlook 2018 was released yesterday, and contains a lot of excellent analysis and short- to medium-term forecasts on the evolution of key macroeconomic indicators for all 54 regional member countries.

The staff economists of African Development Bank present their analyses of African economic development during the previous year and near term, and on the state of socioeconomic challenges and progress made in each country.

According to Adesina, global institutional investors and commercial banks manage more than $100 trillion in assets and for some of that they search for high returns, some of which could support African investments. Key challenges for Africa are managing the demographics, with a fast-growing young population, by creating more jobs and reducing poverty. Policy-makers can create structural transformation and economic diversification by deeper investment in agriculture and developing agricultural value chains to spur modern manufacturing and services.

Top priority is a shift to growth that absorbs labour; another to invest in human capital, particularly in entrepreneurial skills of youth, to facilitate transition to high-productivity modern businesses. Macroeconomic policy should be prudent and aim to ensure external competitiveness, blending exchange-rate flexibility, mobilizing domestic revenues including tax, and judiciously managing demand and rationalizing public spending.

Infrastructure need soars to $130-170bn a year

The year’s theme is infrastructure. The Bank says that new research shows that Africa’s infrastructure requirements are $130–$170 billion a year, much higher than the long-accepted figure of $93bn a year. According to Adesina: “African countries do not need to solve all their infrastructure problems before they can sustain inclusive growth. They should focus on how best to use their scarce infrastructure budgets to achieve the highest economic and social returns.

“Infrastructure projects are among the most profitable investments any society can make. When productive, they contribute to and sustain a country’s economic growth. They thus provide the financial resources to do everything else.

Changes to 2018 AEO

The report is great reference material for researchers, investors, civil-society organizations, development partners and many others. The African Development Bank has made some changes, to make this key document even more useful:
1. Earlier release date – mid-January each year – so that the Bank, as a leading African institution, will be among the first to provide headline numbers on Africa’s macroeconomic performance and outlook.
2. To boost advocacy and dialogue, the 2018 AEO is being shortened to 4 chapters and 54 country notes in about 175 pages, down from more than 300 pages in previous years.
3. Regional economic outlooks for Africa’s five subregions. These self-contained, independent reports focus on priority areas of concern for each subregion and provide analysis of the economic and social landscape. They also highlight issues of pressing current interest.

The chapters of the report cover 1: Macroeconomic performance and prospects; 2: Growth, jobs and poverty in Africa; 3: Africa’s infrastructure, great potential but little impact on inclusive growth; 4: Financing Africa’s infrastructure, new strategies, mechanisms and instruments. Boxes include China’s 3 lessons for Africa, the Africa50 Infrastructure Fund, PPP dos and donts. Tables include real and per capita GDP growth 2009-2019.

Download your copy in English, French or Portuguese here

How big are African pension funds?

Here are selected findings from a recent hunt through the Internet:

According to a recent report by PricewaterhouseCoopers, “Africa Asset Management 2020” (get your copy here) total assets under management in 12 selected Africa countries were $293 billion in 2008, more than doubling to $634bn by 2014. They are forecast at $1.1 trillion in 2020. (The 12 countries are: South Africa, Morocco, Mauritius, Namibia; Egypt, Kenya, Botswana, Ghana, Nigeria; Angola, Algeria, Tunisia).

Pensions are increasingly important as many countries set up and grow pension schemes. Mauritius and Ghana are examples of countries with 3-pillar pension systems and some countries are starting to revise their regulations to allow pension funds to invest more widely than just into domestic bonds, money market and equities

How big are the funds and are do they invest in infrastructure?

The giant African pension fund is South Africa’s Government Employees Pension Fund (GEPF), which had an investment portfolio of ZAR1.67trn ($124bn) at 31 March 2017 while accumulated funds and reserves grew at 10.2% a year for the last decade, according to the latest annual report.

The fund has 14 direct investments in 904MW of renewable energy including Bokpoort (50MW concentrating solar power CSP), wind and the 175MW photovoltaic (PV) Solar Capital Plant. GEPF has also backed 646 housing projects and unlisted investments include ZAR3.9bn ($290m) into the Pan African Infrastructure Development Fund run by Harith General Partners, ZAR2.4bn into South Africa’s airports and ZAR996m in telco MTN Nigeria, with a total of 1.2% of assets in infrastructure including roads and power in South Africa and across Africa.

Next-door Namibia has 2.5m people and David Nuyoma, CEO of the Government Institutions Pension Fund (GIPF) told a workshop in October 2017 its total assets were N$105bn ($7.9bn), 64% of the nation’s gross domestic product. Its unlisted portfolio includes residential, tourism and commercial developments, solar power and an infrastructure fund run by Old Mutual.

Botswana Public Officers Pension Fund has assets under management of BWP54.6bn ($2.6bn), including BWP11m invested with Harith.

Other markets are growing fast. In September 2017, Nigeria’s Pencom put pension fund assets at NGN7.16trn (down to $20.1bn after currency falls) of which NGN5.2bn was in infrastructure funds and NGN221.5bn in real estate including real-estate investment trusts (REITS). Earlier the industry had been growing by 30% a year from 2008-2015. There are 2015 regulations governing investment into infrastructure, and fund managers Asset and Resource Management Company and Harith General Partners, based in South Africa, have teamed up to create a $250m infrastructure fund for West Africa that meets the requirements.

 

Source: PricewaterhouseCoopers

In December 2016, Kenya’s Retirement Benefits Authority then CEO Edward Odundo said the industry would be KES1trn ($9.8bn) by the end of that month. The regulator is investigating structures for pensions and other funds to invest in road Government-led infrastructure such as Nairobi-Nakuru-Mau Summit superhighway (report in Nation newspaper)

Investments of social security schemes in Tanzania were TZS7.8trn ($3.6bn) in June 2015 and had grown 17% in the year, according to the Social Security Regulatory Authority (SSRA). The National Social Security Fund invested for 60% of the $140m Kigamboni toll bridge (Government has 40%).

Social Security and National Investment Trust (SSNIT) in Ghana, has assets GHS8.8bn ($2.0bn) and is invested in power projects, housing, health and other infrastructure in support of Government initiatives.

 

(Figures from author’s Internet research of annual reports of regulators and funds or recent news updates)

African pensions and infrastructure investment – recent research

Learning from Latin America
The challenge to create structures so that pension funds can invest in local infrastructure projects and help develop the capital markets has led to some innovative ideas across Latin America. There are lessons for African regulators of pensions and social security as well as for those promoting public-private partnerships for a full range of African infrastructure, including roads, bridges, telecoms, hospitals and house. Here are a couple of examples (from a 2017 World Bank paper by Fiona Stewart, Romain Despalins and Inna Remizova).

Mexico’s CKDs (Certificados de Capital de Desarrollo) securities are traded on the Mexican Stock Exchange (Mexican Bolsa/BMV) and were created in July 2009 with the mandatory pension funds (Siefores) as their key source of capital. CKDs are designed to boost infrastructure projects from ports to electricity and water, and real estate amounted to 30% of the total since 2009. Regulator CONSAR has deregulated investment restrictions for Siefores in stages to allow them to invest into private equity, real estate and infrastructure projects through CKDs.

Peruvian funds have created trust structures to allow pension funds to invest in infrastructure projects. The World Bank has helped Columbia develop infrastructure debt funds which pension funds can invest into.

 

Excellent recent research

Several excellent papers have been published this year. Here are some of them, with links to their sources.

  • Maurer, Klaus (April 2017). “Mobilization of of Long-term Savings for Infrastructure Financing in Africa”. Study prepared for Germany’s Study prepared for Federal Ministry for Economic Cooperation and Development (BMZ). Bonn. Deutsche Gesellschaft fur Internationale Zusammenarbeit (GIZ) GmbH, available here. Sources include 2 articles on this blog in Feb 2017 and in Mar 2015!
  • PricewaterhouseCoopers (2017). “Africa Asset Management 2020”. PwC. Download here.
  • RisCura (current). Bright Africa. Cape Town. RisCura. The report was published in 2015 but the website is interactive and updated, check out the excellent information and stats here.
  • Stewart, Fiona, Romain Despalins and Inna Remizova (July 2017). “Pension Funds, Capital Markets, and the Power of Diversification”. Policy Research Working Paper. Washington, DC. World Bank Group. Download via here.
  • Sy Amadou (Mar 2017). “Leveraging African Pension Funds for Financing Infrastructure Development”. Washington, DC. African Growth Initiative of The Brookings Institution with NEPAD and the United Nations Office of the Special Advisor on Africa (OSAA). Available from Brookings.

Another good resource is African Development Bank’s Making Finance Work For Africa (MFW4A).

Tanzania’s Kigamboni Bridge, an investment by NSSF (Credit Nairobi Wire)

Pension funds power Africa’s infrastructure

Here is my article on a critical area for Africa to develop, creating the right atmosphere for productive investments by Africa’s growing pension funds. It is published in African Banker magazine and you can access it on the africanbusinessmagazine.com website here:

The power of pension funds for African infrastructure
By Tom Minney
“Opening the elegant new six-lane toll bridge stretching cross Dar es Salaam’s Kigamboni Creek in April, Tanzania’s President John Magufuli called it “liberation” for citizens.
It represents a $135m investment by Tanzania’s National Social Security Fund, the state-run pension fund, and government. China Railway Construction Engineering Group built the 680-metre bridge with China Railway Major Bridge Group and say it is the longest cable-stayed bridge in East Africa.
It is also Tanzania’s first toll road – which residents say is worth paying for as it makes their lives easier. The development will lead to new residential housing and is hoped to boost tourism in the country.
The World Bank estimates Africa should spend $93bn – 5% of gross domestic product (GDP) – each year on infrastructure and the African Development Bank (AfDB) notes a $50bn financing gap to reach this. Local and international pension funds can help fill the gap.
The Bright Africa report by consultancy firm RisCura says that at the end of 2014 assets under management by pension funds across 16 major African markets amounted to $334bn. Some 90% of assets were concentrated in four countries: South Africa (with $258bn) Nigeria, Namibia and Botswana. Assets had grown more than 20% a year in East Africa and 25%–30% a year in Nigeria over the previous half decade.

Potential to drive growth
Pension funds mostly invest in local fixed-income bonds, with regulation a key driver of asset allocation. But as RisCura argues, pension funds are ideal to drive inclusive growth and social stability, including through investing in longer-term projects such as infrastructure: “Local institutional investors lend credibility and a measure of validation, and often serve as a catalyst for greater external interest. Local investors also allow global peers to leverage local knowledge and networks.
With longer investment horizons, pension funds can serve as anchor investors for infrastructure and social development projects,” says the report. South African pension funds lead the way, partly spurred by rules that allow them to invest 10% of assets through private equity.

Africa’s $111bn pension fund
The Government Employees’ Pension Fund (GEPF) with R1.6 trillion ($111bn) assets under management in March 2015 reported it had committed R62bn towards “unlisted and developmental assets” in the previous 12 months, including Touwsriver and Bokpoort solar power projects in South Africa; MainOne data and broadband telecommunications in West Africa; pan-African power generation through Aldwych Power; N3TC which operates and maintains 420km of South Africa’s N3 highway; and two hospitals.
Other investments listed include $21.6m into private airport concession TAV Tunisia through the Pan-African Infrastructure Development Fund (PAIDF) managed by Harith General Partners. GEPF invested $2.6bn into the first PAIDF fund by March 2015 and pledged up to R4.2bn for the second by 2020. Five other pension funds also invested in the $630m PAIDF I fund, which will last 15 years and invested into more than 70 African projects. PAIDF 2 recently announced first close after raising $435m, again with pension funds as key investors.
South Africa’s Eskom Pension and Provident Fund (EPPF) in 2014 invested $30m into infrastructure projects through private-equity house Abraaj, based in Dubai, as well as mobile-phone infrastructure through London’s Helios. EPPF chief executive Sbu Luthuli says “We have to diversify” and wants to put more than $100m into infrastructure projects – 1.2% of its total R120bn assets (as of June 2015). GEPF said that it had invested 1% of its assets into African equities outside South Africa at March 2015, compared to a target of 5% (R80bn).

New funds being created
Financial institutions and multilateral lenders are looking to speed up the process. For instance, the AfDB created the Africa50 fund with target capitalisation up to $10bn and says it has secured $500m. For the second round to $1bn it is targeting institutional investors, including African and global pension funds. Kenya’s government and parastatals such as Kengen are leading the way in selling local-currency bonds to finance infrastructure.
The network is growing. Harith works with Asset and Resource Management Company in Nigeria to invest in West African infrastructure and is setting up a $1bn COMESA Infrastructure Fund with PTA Bank for eastern and southern Africa.
In June Harith and its Aldwych arm announced links with Africa Finance Corporation (AFC) to create a $3.3bn power portfolio, supplying 30m people across 10 countries. Andrew Alli, president and chief executive of AFC, says: “By working together we can deliver tangible benefit for Africans, switching their lights on and stimulating positive economic growth on the continent.”

Politics and mistrust
But it’s not always that straight-forward. In February, Nigeria’s minister of power, works and housing, Babatunde Raji Fashola, called on the country’s pension funds, which manage some N5.8 trillion ($18.4bn), to invest more in infrastructure and other development projects. However, later in the year, newspapers reported that no infrastructure projects had been put forward that met the legal requirements of the 2015 regulations on investment of pension fund assets, including a minimum value of N5bn for individual projects and award through competitive bidding to a concessionaire with a good track record.
The Nigerian Labour Congress expressed members’ fears: “The thought of using our pension fund for investment in public-sector infrastructure development is highly frightening given the well-known penchant for mismanagement inherent in public-sector institutions in Nigeria … It is therefore immoral and careless to subject such fund which is the life-blood of workers to the itchy fingers of politicians, no matter how well intentioned.”
Despite the worries, confidence in governance is growing and attention is switching to building the supply of projects. As RisCura’s report notes: “In many countries, assets are growing much faster than products are being brought to market, limiting investment opportunities.”

Projects and stages
Projects typically go through several stages, starting with feasibility studies to create a “bankable” project; then building or developing the project; and finally operating it once it is established, for instance collecting the tolls on a highway and fixing holes. The last stage is usually the least risky and most suited for pension-fund investors.
The Africa50 fund follows other initiatives in funding early-stage projects in order to boost the supply and mobilise more financing for later stages. Kigamboni bridge took more than two decades. Africa’s fast-growing pension funds need a faster pipeline of investible and well-run projects.

Kigamboni Bridge, Dar es Salaam. Photo Daniel Hayduk, from Nairobi Wire

Conference: Pensions and Alternative Investments Africa 15-16 March

How fast-growing pensions can transform African economies

Africa’s pension and institutional savings industry is crossing the threshold into a major growth path. Channelled appropriately, they can transform Africa’s business and investment landscape and boost economies and savings.

Institutional savings – pension, insurance and other funds – are emerging as transformative forces for Africa’s economies. Industry leaders and others will discuss it at AME Trade’s Pension Funds & Alternative Investment Africa Conference (PIAFRICA), to be held in Mauritius from 15– 16 March.

The theme is “How can we leverage pension and investment funds for the development of Africa?” Pensions in 10 African countries were tallied at $379 billion in assets under management (including $322bn in South Africa). It is forecast that pension funds in the six largest sub-Saharan African markets will grow to $622bn in assets by 2020 and to $7.3 trillion by 2050.

The aim of the PIAFRICA conference is to debate whether the environment is being created for these funds to go into productive investments that will ensure their members get good returns and that contribute effectively to Africa’s growth. PIAFRICA will bring together the leaders of pension funds and institutional investors, policymakers, regulators, capital-markets, private equity and other stakeholders and is endorsed by the African Securities Exchanges Association (ASEA)

Discussions will focus on maximizing Africa’s pension fund and institutional investor opportunity, and will revolve around the following topics:
• Key trends, challenges and opportunities for Africa pension funds, Insurance, mutual and social security funds
• Africa’s growing funds and their potential to develop capital markets
• How to achieve long-term benefits through investing in infrastructure and other alternative assets, including real estate
• Private equity as an investment avenue for pensions
• For and against more latitude to invest across African borders?
• Best practices for sustainable growth and trust in funds
• Capacity building and support tools
• Technology, fund administration and member services
• Country profiles: African pension funds

Top speakers confirmed to date include:

  • Doug Lacey, Partner, Leapfrog Investments
  • Eric Fajemisin, Chief Executive, Stanbic IBTC Pension Managers
  • Mr PK Kuriachen, Chief Executive, Financial Services Commission
  • Ernest Thompson, Director General, Social Security & National Insurance Trust
  • Krishen Sukdev, CEO, Government Pensions Administration Agency
  • Richard Arlove, CEO, Abax Services

For more visit http://ametrade.org/piafrica/. For media accreditation and interviews contact Barbora Kuckova, Marketing Manager, AME Trade Ltd, Tel: +44 207 700 4949 Email: barbora@ametrade.org

The winners – Africa’s top banks and bankers of 2016

Cameroon is a big winner at this year’s African Banker Awards, the 10th edition. The winners were announced yesterday (25th May) in Lusaka. Morocco’s Attijariwafa Bank, active in 20 countries, wins the prestigious Bank of the Year Award and GT Bank CEO Segun Agbaje is recognized as Africa’s Banker of the Year for his leadership of the Nigerian banking giant, one of Africa’s most profitable banks.

African Banker Awards have become the pre-eminent ceremony recognising excellence in African banking. They are held on the fringes of the annual meetings of the African Development Bank. Your editor is proud to be among the judges and can comment on the excellence of the many submissions from great banks all over Africa.

For the first time, two Cameroonians feature among the laureates: Alamine Ousmane Mey wins Minister of Finance category or his contribution to socio-economic development in his country. Leading banker and economist Paul Fokam, President of the Afriland First Group, is awarded the Lifetime Achievement Award; he is a serial entrepreneur, a renowned economist and his bank is one of the more important institutions in Central Africa. Cameroon scored a hat trick as Lazard’s credit-enhanced currency swap won the award for “Deal of the Year – Debt”.

Other winners include South Africa’s Daniel Matjila, CEO of South Africa’s Public Investment Corporation, a fund with $139bn funds under management. He was awarded the African Banker Icon, recognising the significant investments by the fund into African corporations and the lead role he has played in driving investment from South Africa into the continent.

The African Central Bank Governor of the Year accolade was given to Kenya’s Patrick Njoroge. Kenya’s central bank, largely unknown a year ago, has managed to navigate a tough economic climate and Patrick has been credited with cleaning up the banking sector in his country.

Speaking at the exclusive Gala Dinner at the Intercontinental Hotel attended by over 400 financiers, business leaders, and influential personalities and policy makers, Omar Ben Yedder, Group Publisher of African Banker magazine, which hosts the awards in partnership with BusinessInAfricaEvents said: “It has definitely been a defining decade in banking in Africa. We have recognised true leaders tonight who are playing a critical role in the socio-economic development of the continent.

“Finance remains a key component of development, be it in terms of financing massive infrastructure projects that today are being wholly financed by consortia of African banks, or SME financing. It’s happening because of strong, bold and visionary leadership. I have been privileged to honour some truly exceptional individuals who have left an indelible mark on the industry over the years.

“We are very grateful to our High Patron, the AfDB, for their unwavering support in this initiative and our thanks also go to our sponsors: MasterCard, Ecobank, Nedbank, African Guarantee Fund, PTA Bank, CRDB Bank, Arton Capital and Qatar Airways for partnering with us and enabling us to reward outstanding achievements, commend best practices and celebrate excellence in African banking”.

This year’s judging panel was made up of Koosum Kalyan, Chairman of EdgoMerap Pty Ltd; Zemedeneh Negatu,Managing Partner of Ernst & Young Ethiopia; Tom Minney, Chief Executive of African Growth Partners; Alain le Noir, CEO of Finances Sans Frontières; Christopher Hartland-Peel, Principal at Hartland-Peel Africa Equity Research and Kanika Saigal, Deputy Editor of African Banker Magazine.

THE 2016 AFRICAN BANKER AWARD WINNERS

  • Bank of the Year: Attijariwafa Bank (Morocco)
  • Banker of the Year: Segun Agbaje – GTBank (Nigeria)
  • Minister of Finance of the Year: Alamine Ousmane Mey (Cameroon)
  • Central Bank Governor of the Year: Patrick Njoroge (Kenya)
  • African Banker Icon: Daniel Matjila, CEO PIC (South Africa)
  • Lifetime Achievement Award: Paul Fokam, Founder Afriland First Bank (Cameroon)
  • Investment Bank of the Year: Rand Merchant Bank (South Africa)
  • Award for Financial Inclusion: Ecobank (Togo)
  • Best Retail Bank: BCI (Mozambique)
  • Socially Responsible Bank of the Year: Commercial International Bank (Egypt)
  • Innovation in Banking: Guaranty Trust Bank (Nigeria)
  • Deal of the Year – Equity: Naspers $2.5bn Accelerated Equity Offering (Citi)
  • Deal of the Year – Debt: Cameroon’s Currency Swap (Lazard)
  • Infrastructure Deal of the Year: Azura – Edo IPP (Fieldstone; Rand Merchant Bank; Standard Bank; IFC)
  • Best Regional Bank in North Africa: Commercial International Bank (Egypt)
  • Best Regional Bank in West Africa: Banque Atlantique (Côte d’Ivoire)
  • Best Regional Bank in Central Africa: BGFI (Gabon)
  • Best Regional Bank in East Africa: CRDB Bank (Tanzania)
  • Best Regional Bank in Southern Africa: MCB (Mauritius)

For more on the African Banker Awards, please visit: http://ic-events.net/.

AfDB $400,000 seed equity to central depositories link Africlear Global

The central depositories of Kenya and Nigeria, two of the most dynamic in Africa, have formed a joint venture with Altree Financial Group. The African Development provided $400,000 in seed equity capital to the new Africlear Global venture, which aims to boost the efficiency of African capital markets by supporting modernizing the infrastructure of the central securities depositories.

The partners are Kenya’s Central Depository and Settlement Corporation (CDSC), Nigeria’s Central Securities Clearing System (CSCS) and Altree. However, several more African central depositories are interested in joining.

Africlear will help the depositories to pool their resources and boost buying power on equipment. They will work together to identify, acquire and maintain critical systems and technology, for instance for corporate actions, recording shareholder votes and other investor support services. The depositories will also share information and expertise.

The African Development Bank (AfDB) invested $400,000 in seed capital through the Fund for Africa Private Sector Assistance in an agreement signed 5 March in Abidjan. This may inspire more investors to join in building the company.

Africlear will use the money to improve the infrastructure used for post-trading processes such as settlements after a sale is done. According to AfDB press release: “The goal of the investment is to enhance the efficiency of capital markets by supporting the modernisation of central securities depository infrastructure in African securities markets.” Solomon Asamoah, AfDB Vice-President, Infrastructure, Private Sector and Regional Integration, and Anthony Fischli, Director, Africlear Global, signed the Shareholder and Subscription agreements on behalf of the Bank and Africlear Global, respectively.

Rose Mambo, CEO of CDSC, is the chairperson of Africlear. She was reported in Standard news in Kenya saying: “Africlear members will be able to realise significant cost savings via collective bargaining with industry participants and technology vendors. Africlear will also allow its members to offer more services ranging from corporate actions processing and collateral management to clearing and settlement.”

Kyari Bukar of CSCS said Africlear will accelerate process standardization and promote system integration across the borders. “By employing industry best practices, Africlear will facilitate improved levels of transparency and corporate governance within the African capital markets. This will enable local market practitioners to effectively compete for domestic and international capital.”

The board of Africlear held its first meeting in Nairobi on 24 April 2015. The members also include Altree Financial Group chairman Anthony Fischli and a representative from the AfDB to be named. Fischli said: “Africlear supports an open marketplace where scale and connectivity serve as the company’s competitive strengths” Benefits for investors should include improved access to securities services, collaboration between countries and cost-effective pricing of infrastructure.

Fischli told AfricanCapitalMarketsNews on 11 May that Africlear could also help the different countries’ and exchanges’ central depositories in future if they want to establish links. Fischli said in a press release “The AfDB investment in Africlear Global supports the improvement of securities market infrastructure through promotion of industry-leading technologies designed to enhance the underlying efficiency and overall functioning of the African capital markets.”

Kenya’s Business Daily reports that CDSC expects to gain revenue from its investment in Africlear by being able to charge for corporate actions such as reconciling investors on share splits, dividend declaration and payments. Revenues are particularly expected from international investors who mostly make the bulk of the traders on the Nairobi Securities Exchange.

Central Depository and Settlement Corporation (CDSC) Kenya is approved by the Capital Markets Authority of Kenya as provider of clearing and settlement services to the Kenyan capital markets. Central Securities Clearing System (CSCS) Nigeria is licensed by the Securities and Exchange Commission of Nigeria and serves as the clearing and settlement house for the Nigerian capital markets and The Nigerian Stock Exchange. Altree Financial Group is an integrated financial-services company licensed to conduct Investment Business by the Bermuda Monetary Authority.

The AfDB’s FAPA fund is a multi-donor thematic trust fund that provides grant funding for capacity building, seed capital and advisory services to support implementation of the Bank’s Private Sector Development Strategy. AfDB and the Governments of Japan and Austria have contributed to the fund, which to date has provided over $60m to 56 projects in 38 countries across Africa. The portfolio includes regional and national projects aimed at improving the business environment, strengthening financial systems, building private-sector infrastructure, promotion of trade and development of micro, small and medium enterprises

COMMENT – African nations seem keen on having national exchanges and central depositories under domestic regulation. However, they are working hard on harmonizing regulations, including to global standards, particularly within regional associations of regulators.

Africa is also looking for ways to increase links between the exchanges, eventually pushing to the point where a broker in one country can route orders to other exchanges, meaning that investors all over Africa have access to different exchanges, boosting liquidity and achieving more cross-border communications, trading, cross listings and remote memberships.

Africlear can be a key part of this. Getting post-trade “plumbing” for payments, clearing and settlement is key to ensuring African exchanges. Africlear is set to be an important step forward.

How do stock exchanges stay relevant to their societies? SMEs and exchanges

“How do we become relevant to society again?” This is the challenge posed to world’s securities exchanges this morning by Ashish Chauhan, CEO of BSE India securities exchange. He told the World Exchanges Congress in London this morning (Tue) that stock exchanges that concentrate only on trading for the sake of trading are in a zero-sum game.
They should look to add value in areas where there will be gains. He sees the gains will be huge for proactive securities exchanges: “In next 20 years we will create more wealth than in last 10,000 years – will the exchange industry participate in that”.
Chauhan points out that India has 1 in 6 of world’s population but only 2% of its land mass, there are more people than Europe and USA combined and 50% of population are under 25 years old. The challenge is to create jobs and to provide the skills for employment. Exchanges should ask if that will be done by private equity and other channels, or will the exchanges be able to play a major part?
BSE India’s response is to set up BSE SME Platform. Its website “offers an entrepreneur and investor friendly environment, which enables the listing of SMEs from the unorganized sector scattered throughout India, into a regulated and organized sector.”
Chauhan says that going forward technology will change the world and India with its young population skilled in technology will be driving that change. How does each exchange solve the problems of the society it is operating in?

Europe’s integrated capital solutions to big issues

Earlier Cees Vermaas, in his first engagement as CEO of CME Europe, spoke of his vision of Europe in 2030. A centralized market and Europe-wide clearing and settlement will allow relentless pursuit of efficiency and falling costs. London will remain the financial centre, but smart networks will allow other specialist centres to grow all over Europe. This will include more exchange centres to provide funding for SMEs and for infrastructure. Exchange-linked investment into all forms of energy and will support transitions into new and efficient forms of green energy. European bond markets are only 30% of USA volumes at present but in coming years that will change fast with less fragmented bankruptcy regulatory frameworks

What are Africa’s pension funds investing into?

Do you agree or disagree with this view? Comments are welcome below

Pension funds in 10 African countries already have $379 billion in assets under management – 85% or $322bn of it based in South Africa – and they continue to grow very fast. That means careful thinking about how to nurture Africa’s savings pool while the need to deploy these resources most productively puts the spotlight on the search for quality investment assets.

For example, Ghana’s pension fund industry reached $2.6bn by Dec 2013 after growing 400% from 2008 to 2014. Nigeria’s industry has tripled in the last 5 years to some $25bn in assets by De 2013, and assets under management are growing at 30% a year. There are 6 million contributors, but many more Nigerians still to sign up pensions.

Pensions have a special place in the capital market as they take a longer-term view and can be patient in the hope of greater returns. Some pension funds, in Africa and elsewhere, argue that pensioners are not just looking at the value of their retirement income but also the quality of their lives, opening the way to carefully chosen investments in infrastructure, healthcare and other benefits which pensioners and their families might enjoy.

What are the African factors driving the growth of pension funds?
• Many countries have set up new regulators and even more are introducing regulations, including forcing more employers to provide pensions. With the new regulatory frameworks come structural changes such as the need for professional third party asset managers
• Changing demographics: The age group over 60 years is the most rapidly increasing, according to some research
• It’s a virtuous circle, many Africans want savings opportunities. If pension funds produce results, and are well run and good at communicating, people will respond.

The growth is only beginning. So far only 5%-10% of the population in sub-Saharan Africa are thought to be covered by pension funds and 80% in North Africa. Pension funds are still tiny in comparison to gross domestic product (GDP), which in turn is growing fast in many African countries – for example pension funds are about 5% of GDP in Nigeria, compared to 170% of GDP in Netherlands, 131% in UK and 113% in America.

Southern Africa is generally better served: Namibia has some $10bn in pension assets representing 80% of GDP and Botswana $6bn or 42% of GDP. The biggest pension schemes are usually government and social-security funds as well as local government and parastatal funds (such as Eskom in South Africa), as well as those of big corporations and multinationals.

Economist Charles Robertson of Renaissance Capital says conservatively that pension funds in the 6 largest sub-Saharan African markets will grow to $622bn in assets by 2020 and to $7.3 trillion by 2050.

What to invest in?

The challenge is how to invest the capital productively. Are Africa’s entrepreneurs, corporate finance and investment banking houses and capital markets rising to the challenge of bringing a a strong pipeline of investment-ready projects to keep up demand for capital?

Capital markets need to offer liquidity and transparency both to channel the foreign capital looking for African growth opportunities for their portfolios and now for domestic funds too. Liquidity can be a key problem, even in Africa’s world-beating Johannesburg Stock Exchange, where the Government Employees Pension Fund (GEPF) is thought to account for 13% of market capitalization and to be the country’s biggest investor in commercial property.

Big funds in small other Southern African capital market swamps can be like hungry hippos, snapping up promising new investments as they surface. Even if they feel satisfied from a good run of success on some of these investments, they can hardly disgorge them back into the liquidity pool for other traders because of the gnawing fear they would not find other local investments to fill their bulging portfolios.

Others share the worry. Eyamba Nzekwu of Nigeria’s Pencom was reported as saying: “Savings are growing much faster than products are being brought to the market to absorb these funds”. Pension fund growth is thought to have contributed to a 79% surge in Ghana stock market in 2013 as funds chased too few investments.

Regulators should encourage the fund-managers to upgrade skills fast to be more proactive in picking and trading stocks and African fixed income. They should also widen the space in the interests of helping the markets and the funds to grow through liquidity. This means, for instance instance, urgently relooking restrictions on cross-border investments, including into other African markets.

Private equity and infrastructure

The pension funds provide a huge opportunity for alternative assets, especially private equity. According to research by the African Development Bank’s Making Finance Work for Africa and the Commonwealth Secretariat, African pension funds are estimated to have invested some $3.8bn-$5.7bn in private equity and to have scope to invest another $29bn (see table below). Many countries are passing new regulations to allow investment into private equity and other unlisted investments. Funds have been experimenting – sometimes disastrously – with small and medium enterprise and other developmental investments.

table50313_pensions

International private equity fund managers such as Helios and LeapFrog have also seen the future, making investment in pension fund providers – Helios took equity in Nigeria’s ARM Pension Fund Managers and LeapFrog into Ghana’s Petra Trust.

Africa has huge need for infrastructure finance and pension funds could be the ideal pool of patient capital but more work needs to be done to increase the supply of investable projects and to increase capacity of pension funds to invest in projects directly or through infrastructure fund managers.

Savings are good for growth, provided there are productive assets for them to go into. Africa’s savings are rising, often driven by regulation, and international interest has been strong for years. Can Africa’s entrepreneurs, their advisors, private equity funds and the capital markets institutions rise to the challenge of building a big enough pipeline of great investment opportunities suited to the needs of these investors?

For more reading:
This article is heavily based on work by: Ashiagbor, David, Nadiya Satyamurthy, Mike Casey and Joevas Asare (2014). “Pension Funds and Private Equity: Unlocking Africa’s Potential”. Making Finance Work for Africa, Emerging Markets Private Equity Association. London. Commonwealth Secretariat. Available through MFW4A.
Another book is by Robertson, Charles (2012). “The Fastest Billion: The Story Behind Africa’s Economic Revolution”. Renaissance Capital. Read more here or buy it on Amazon (link brings revenue to this site).
Other articles are at The Economist on Nigeria’s pensions, African Business and Wall Street Journal.