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Pension funds see low returns in limited cross-border investment

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Making finance work for Africa coordinator David Ashiagbor. PHOTO | DIANA NAMGILA | NMG

Pension schemes are finding it difficult to make cross-border investments due to political interference, a Pan-African forum was told in Nairobi last week.

Subsequently pension funds hold billions of shillings in unattractive government-linked ventures, thereby denying members higher returns as well as the opportunity to profitably contribute to development.

The forum heard that most pension fund trustees are subject to political sway thus making it difficult to innovate new products or investments. Cross-border investments are often considered unpatriotic.

The Making Finance Work for Africa (MFW4A) forum coordinator David Ashiagbor said there was need for a review of the policy framework to facilitate an alternative investment regime for pension funds.

“While the laws allow cross-border investments, none of the pension funds can risk taking the bold move to use pension funds in a neighbouring country since it is deemed unpatriotic. This has seen them hold large deposits of money in low-interest products away from high earning streams like infrastructure projects,” he said.

Most pension funds are allowed to invest at the bourse and government securities, but must consult the regulator when planning to invest in other sectors, which exposes trustees to scrutiny in spending member funds.

The forum heard that many pension schemes were counting losses after investing at the Nairobi bourse that has performed poorly in the past years.

There is also concern that African governments are borrowing abroad at costs unjustifiable to local economies and pension funds.

“We apply for costly loans from development partners which are prone to foreign currency challenges that make the loans very expensive. Local project loans from pension funds could ease the problem as it is in the same currency, hence cheap to manage in case of turmoil."

“We need our people to also enjoy the interest and contribute to their own development instead of the current setup where we send billions of shillings abroad in loan repayments. This has to end if Africa is to create formidable capital markets that grow local wealth,” said German Technical Co-operations Advisor Timo Bollerhey.

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