How pension funds can help relieve Kenya’s debt burden

Kenya’s heavy debt burden could be managed without hurting ongoing execution of the mega infrastructure projects if the government taps into the multi-billion shilling pension funds.

That was the verdict of the pension industry leaders meeting in Nairobi last week, under the auspices of an African Development Bank-backed think-tank, Making Finance Work for Africa (MFW4A).

African governments, they said, must rethink their sources of development funds and opt for those that best serve the interests of their countries in the long term.

“By keeping a consistent inflow of foreign funds for ‘development’ purposes, we are impoverishing Africa because those funds attract high interest rates, are prone to foreign currency swings and are pegged to stringent conditions,” said MFW4A co-coordinator David Ashiagbor.

Mr Ashiagbor said local investors were better positioned to understand risks and hence offer  affordable and favourable risk cover.

“Think about mobile money in Kenya and what it has done for Kenyans. Its multi-billion shilling annual profits and financial inclusion. Could we have had such a success if foreigners were behind its various uses? Only Kenyans understand what is best for them and their country,” he said.

Mr Ashiagbor said the Kenyan government, for instance, should device an infrastructure bond platform for channelling the Sh900 billion pension funds towards national development through the capital markets.

“A road project worth Sh3 billion to Sh10 billion can comfortably be funded by pension funds once they are guaranteed attractive returns. We need governments to hold meetings with financial experts as well as development finance institutions to create infrastructure bond products that encourage pension funds to invest locally,” he said.

MFW4A, which has been in existence for the past three years, collects and analyses data before sharing it with AfDB member states to inform investment choices.

It also focuses on projects that improve financial inclusion among the population as well as create sustainable products for extending credit to small and medium enterprises.

Retirement Benefits Authority (RBA) acting chief executive Nzomo Mutuku said Kenya had amended its laws to allow the launch of a pilot infrastructure bond that will see local pension funds finance the construction of the Nairobi-Nakuru-Mau Summit Highway.

Mr Mutuku said pension schemes had positively received the law that introduced alternative investment channels.

Mr Ashiagbor said that development finance institutions (DFIs) that normally bankroll infrastructure projects in Africa were keen to partner with local pension funds to finance mega projects, share the earnings and build confidence among the schemes that infrastructure bonds are worth investing in.

“This is our strategy for unlocking local funds since many pension funds and wealthy individuals fear losing money loaned to the government for development. We need joint ventures that manage toll stations that collect money from motorists using roads built by pension funds,” he said.

Mr Ashiagbor said cross-border projects on water, energy and road projects should also be considered since some pension schemes were too small to afford billion-dollar long-term investments on their own.

The MFW4A coordinator said an investment product launched in the capital markets could help excite interest among the wealthy and pension funds to invest internally and discourage foreign investments.

“No foreign funds have ever developed a country. But internal funds will ensure all profits remain here and are re-invested here. Having more local participants at the bourse will also create interest among foreign investors that the local economy is vibrant and attractive,” he said.

Mr Ashiagbor said that with African countries having many investment opportunities, pension funds would be better placed to offer financial solutions to many problems afflicting their respective countries while earning handsome returns from their investments.

“Our task is to found a sustainable avenue for channelling the funds and the gains via products that are market-driven and their expected gains publicly known. Foreign pension schemes are forwarding their funds to African projects at a hefty fee which could be enjoyed by local pension fund scheme,” he said.