- Africa’s asset management industry is rising to $600 billion, but investments remain conservative as the majority of pension funds are tied to government bonds.
- Other crucial factors that enable economic growth, such as SMEs and infrastructure, hardly attract financing from pension funds.
- A new study finds that closing the gap between the size and impact of long-term savings is critical to Africa’s ability to mobilize domestic capital.
Africa’s pensions sector has amassed over $600 billion in assets under management, but much of this capital is tied up in low-risk government bonds, leaving high-impact sectors such as SMEs and infrastructure chronically underfunded.
This trend towards conservative allocation is raising growing concerns that one of the continent’s largest sources of long-term capital is failing to fuel the growth engines it was designed to support.
New research shows that substantial long-term capital, ranging from $17 billion in Nigeria to $390 billion in South Africa to $20 billion in Kenya, remains concentrated in government bonds rather than productive sectors such as infrastructure, housing and SMEs.
According to a new Landscape Report on Africa’s Institutional Capital Markets, closing the gap between the size and impact of long-term savings is critical to financing Agenda 2063, the African Union’s 50-year blueprint to transform Africa into a global superpower, complete with the ability to mobilize and deploy its own domestic capital.
Bias in the allocation of pension funds persists across Africa
The report, released on Tuesday at the first Pan-African Fund Manager’s Alliance (PAFMA) conference in Nairobi, examines why biases in pension fund allocation persist and what policymakers can do to change the situation.
Commissioned by FSD Africa, in partnership with the African Pension Supervisors Association (APSA) and the Pan-African Fund Managers’ Alliance (PAFMA), the report highlights that in many markets, less than 10 percent of pension assets are allocated to productive sectors such as infrastructure, housing, private lending or small and medium enterprises.
To transform markets, the report calls for greater coordination, market infrastructure and scalable investment pathways that enable long-term capital to be deployed productively.
The report, which draws on data from pension funds and asset managers in multiple African markets, provides a rare snapshot of how long-term domestic savings are currently being allocated. Furthermore, it provides actionable insights and recommendations to help unlock the full potential of African pension funds and asset management systems.
It was launched in combination with a new interactive database, the APAM Data Huba repository of new knowledge with up-to-date information on Africa’s pension systems and asset management sector, together with analytical tools, providing a valuable resource for policy makers, regulators, industry practitioners and researchers.
Pension funds in Africa: a snapshot of the latest trends…
- Institutional savings are greater than often assumed, with assets under management in collective investment schemes (CIS) ranging from $3 billion in Nigeria to $200 billion in South Africa.
- Asset allocation remains very conservative, with government bonds accounting for around 60 to 70 percent of pension fund portfolios in many countries, such as 90 percent in Ghana, 60 percent in Nigeria and 50 percent in Kenya.
- Pension funds now form the backbone of domestic government bond markets, supporting short-term stability but increasing long-term exposure to fiscal and inflation risks.
- Shallow capital markets and limited investable pipelines continue to limit diversification, even where institutional interest exists.
“This new report shows how unevenly the pension and asset management markets have developed across the continent, but it also indicates how significantly African institutional savings has grown overall as a pool of largely untapped long-term capital. Mobilizing domestic institutional capital pools for Africa’s development priorities will require a coordinated ‘business unusual’ approach. We need new asset classes, new partnerships and new enablers,” said Evans Osano, Chief Financial Markets Officer at FSD Africa.
Tapologo Motshubi, Chairman of PAFMA, added: “Progress will depend on sustained collaboration between fund managers, regulators, project sponsors and policy makers. PAFMA’s role is to provide a platform for that collaboration, helping to align market practice, regulatory thinking and investment opportunities so that domestic institutional capital can play a greater role in Africa’s long-term development.”
PAFMA etcN bridging the climate finance gap in Africa
Established in 2023 by five founding members, PAFMA is a pioneering trade association that brings together pension fund managers from across the African continent. Some of the member associations are: Pension Fund Operators Association of Nigeria (PENOP), the Fund Managers Association (FMA) in Kenya, the Botswana Investment Professionals Society (BIPS), the Ghana Securities Industry Association (GSIA) and the Investment Management Association of Uganda (IMAU).
Currently, PAFMA is committed to bridging the climate finance gap through private sector initiatives, with a strategic focus on alternative investments and green finance.
Since its introduction by FSD Africa At the 2023 African Climate Summit, as part of its mission to build deeper, more coordinated capital markets, PAFMA membership grew to 11 members representing 23 countries with a market size of more than $200 billion in assets under management.
The PAFMA conference brought together leading industry leaders, regulators and policymakers to discuss the report’s findings and explore practical steps to strengthen capital markets infrastructure, expand investment pipelines and improve regional coordination.
Also read: Why pension funds matter in Africa
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