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Pension funds in Africa, a Pandora's box

Pension fonds

Kenya, Rwanda, South Africa… In several African countries, pension funds are developing. A risky financial sector?

In March 2021, the American think tank Rocky Mountain Institute, which specializes in energy efficiency, praised African pension funds for their investments in clean energy projects. What “trigger a positive feedback loop on economic growth”, then commented Nicolette Pombo-van Zyl for ESI Africa.

Last February, the largest pension fund in Kenya, KEPFIC, with its 4,4 billion dollars in assets, announced a future partnership in the infrastructure sector with Chinese firms. Companies "which have already demonstrated their ability to carry out large projects", assured the director of the pension regulator in Kenya, RBA.

Later, still last February, the director of Kigali International Finance Center (KIFC), Ntoudi Mouyelo, announced the opening of a fund for investment “in the obligatory debt of African SMEs”. A project in which the Rwanda Social Security Board (RSSB) will invest tens of millions, in partnership with Luxembourg and Swedish funds.

Then on May 3, Bloomeberg announced that Africa's largest pension fund, the South African GEPF, would invest 1,6 billion dollars in "unlisted companies".

A whole paradigm. Because the circulation of these funds goes through the South African stock exchange or the African Development Bank (AfDB). But like all capital investments, this money will undoubtedly be under the control of the fund managers. These are usually European development agencies, US pension funds and foreign banks.

What are the risks for pension funds?

With the exception of the inevitable possibility that the funds invested will be diverted to projects other than those promised to African pension funds, the risk of a heavy loss is very high. Especially for minority investors like African pension funds.

Journalist and researcher Alex Park, a specialist in African agriculture, deplores that “what is good for (Western) investors is not good for Africans”. He takes as an example the entry of Brazilian pension funds, during the presidency of Luiz Inácio Lula da Silva, on the financial market. A successful experience, in a sense, but which had above all enriched the assets of stockbrokers abroad, causing the shares of the agricultural development fund of the Brazilian state, IFAD, to fall.

Uganda had experienced the same boomerang return. In 2019, thousands of dairy farmers and producers – Pearl Dairy – had invested, with the American fund Rise Fund, in a credit sale operation on the financial market. But last March, the Ugandan media group Daily Monitor denounced that the parent company of Rise Fund, Texas Pacific Group (TPG), was collaborating with competitors of Pearl Diary. The goal was actually to lower the price of milk to the point that the sale would no longer be viable, that the farmers would become impoverished until they sold their shares in the operation.

It should also be noted that despite the restrictions in the African countries concerned, pension fund managers prefer to invest abroad than in the countries of origin, or in Africa more generally.

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