BSE CEO urges African capital markets to optimise capacity
Staff Writer | Tuesday March 21, 2017 14:48
Thapelo Tsheole, executive committee member of the African Securities Exchanges Association (ASEA) made the call during the first Annual Pensions Funds and Alternative Investments Africa conference held in Mauritius this week.
He also appealed to African economies to explore regulatory reforms that promote diversification through alternative investments, adding that they should do so with an overarching purpose of promoting pensions’ stability, efficiencies and alignment of interests with the members.
According to Tsheole, who is also chief executive officer of the Botswana Stock Exchange (BSE), Africa has experienced tremendous growth in pension fund assets over the recent past with much of the growth being attributed to the shift from Defined Benefit plans to Defined Contribution plans and extended coverage to more working population, among other factors.
“For example, assets in East Africa have grown in excess of 20% on a consistent basis; sub-Saharan Africa has experienced growth rates of between eight percent and 18%; Ghana’s pension fund industry grew by 400% from 2008 to 2014; and Nigeria’s industry has seen growth rates between 20% and 30% annually,” he said.
He noted that despite the growth accumulated over the years, African pension funds have been less successful at deploying their capital.
By default, Tsheole said, the capital has predominantly found its nest in traditional assets such as bonds and equities, with little to no allocation to alternative investments such as private equity and infrastructure, which have the capacity to power economic growth.
“In this light, we need to find ways through which we can enable the growth in pension fund assets to filter constructively into the development of African economies,” he said.
He added that the mismatch between the abundance of capital and the limited deployment of capital needs to be narrowed significantly, noting that without a doubt, Africa’s capital markets provide a key opportunity for Africa to take charge of financing its own development, thus reducing dependence on foreign aid.
He further stated that the current backlog for infrastructure in Africa is estimated at $93 billion per annum.
Against this backdrop, Tsheole said, pension funds have enjoyed periods of phenomenal growth in African regions. He said this has therefore meant that the excess capacity in some countries has been exported outside the continent without creating significant value domestically.
“Many African countries are still projected to sustain strong levels of economic growth over the longer term, an indication that a huge demand for capital will prevail,” he said.
He, however, noted that the key trends with respect to demographics, urbanisation and private-sector growth have not been adversely changed by the economic slowdown in some of the major economies in Africa.
“This growth therefore urgently requires savings, long-term risk capital for private sector growth, and long-term capital for infrastructure investment,” he urged.
According to research from PricewaterhouseCoopers (PwC) in South Africa, global assets under management will rise by a compound annual growth rate of nearly six percent from a 2012 total of $69.9 trillion to over $100.0 trillion by 2020.
Tsheole said although Africa’s share of this pie is relatively small, traditional assets under management in 12 markets across Africa is expected to register a compound annual growth rate of nearly 9.6 percent, rising to $1.98 trillion by 2020, from a 2008 total of $293 billion.
As a matter of fact, he said, emerging markets are expected to experience faster growth rates of assets under management compared to developed markets, leading to 2020 and beyond.
“Better still, over a longer-term horizon, emerging market specialists estimate that assets will swell to $7.3 trillion by 2050.
By definition this trend implies that, over the years, there have been, and will potentially be new pools of assets to exploit by pension funds, insurance companies and sovereign wealth funds, among others,” Tsheole said.