Webinar Report - African Pension Funds and Housing: Challenges and Opportunities
This first edition of a series of three webinars on the relationship between pension funds and housing finance was held on February 22, 2018. Participants discussed challenges and opportunities for pension funds in financing the housing industry.
This series of webinars aims to provide a platform for pension funds on the continent to identify the needs and constraints facing the housing sector, in order to better allocate their financial assets under management. This is a joint initiative of MFW4A and CAHF, the result of a partnership whose main goal is to foster a deepening of knowledge of housing finance markets in Africa, through joint working groups, case studies, knowledge briefs and webinar series.
The session was moderated by David Ashiagbor, Coordinator of the MFW4A Partnership, who provided the bulk of the presentation, and was co-facilitated by three keynote speakers:
- Dr. Alfred Shem Ouma, Chief Manager, Research and Strategy, Retirement Benefits Authority, Kenya
- Mrs Akosua Nelson-Cofie, Portfolio Manager, Social Security and National Insurance Trust, Ghana
- Mr Dave Uduanu, Managing Director, Sigma Pensions Nigeria and Chair, Africa Pension Funds Network
Overall, this webinar explored 5 main sections including:
- The determinants of pension fund growth
- An overview of the pension fund industry in Africa
- The investment portfolio structure of African pension funds
- The panorama of the housing market on the continent; and
- The barriers to long-term investment of African pension funds
In Africa, the main drivers of pension funds growth are linked to:
- High demographic growth;
- Macroeconomic conditions (interest rates - economic growth - effects of fiscal deficit on bond market spreads …);
- The regulatory framework;
- Privatization of pension funds;
- The level of contributions in mandatory pension schemes and;
- Capacity to allocate Assets under Management (AuM) of pension funds to alternative investments (new asset classes - investments in unlisted firms ...).
For example, in Nigeria, AuM of pension funds tended to grow between 2008 and 2014, rising from US$ 7 billion to US$ 30 billion; while they dropped from 2014 to 2017 to about US$ 20 billion.
According to the moderator, David Ashiagbor, this decrease is mainly due to the depreciation of the local currency against the dollar, and not to a decline in the activity and performance of local pension funds. In Kenya, the industry also experienced some growth between 2008 and 2015, with assets under management rising from US$ 2.17 billion to US$ 8.34 billion. As for the structure of the investment portfolio of pension funds, in Nigeria for example, nearly 70% of AuM are invested in debt securities of the federal government, while a small proportion is invested in equities and debt securities issued on the domestic market, as well as in debt securities issued on markets abroad. Overall, African pension funds AuM has grown, but this growth has not benefited the housing market. A large share of African pension assets are invested in government securities.
With respect to the housing market prospects on the continent, many countries such as Nigeria, Ghana and Kenya are characterized by large deficits in terms of residential units and financing needs. For example, in Nigeria, the current housing deficit is estimated at 17 million units with a financing requirement estimated at US$ 363 billion; in Ghana, the needs are 1.7 million residential units valued at nearly US$ 52 billion while in Kenya the housing requirement is estimated at 2 million units per year. In addition, the housing market in Africa is characterized by:
- A relatively untapped potential in the affordable housing segment, while most promoters and players in the sector focused on the top end of the market;
- The weakness of the mortgage market;
- The inadequacy of public policies in this area;
- Supply and regulatory limits and;
Demographic impact on strong medium- and long-term demand growth.#Among others, the barriers to long-term investment of pension funds include:
- Lack of data and knowledge affecting the industry, regulators, pension fund trustees and managers;
- Regulatory restrictions on offshore investments;
- Monetary policies effects on rising bond yields;
- The lack of long-term-oriented products and;
- Inadequate scale and strategies of pension funds to build credible alternative investment programs.
According to Dr. Shem Ouma, Retirement Benefits Authority of Kenya, Kenyan regulation allows pension funds to invest in mortgage bonds and REITS (Real Estate Investment Trusts) up to 20% and 30% respectively of their portfolios, with an explicit government commitment to foster public-private partnerships for affordable housing financing.
In addition, Ms. Akosua Nelson-Cofie, Portfolio Manager at the Social Security and National Insurance Trust, Ghana, discussed her institution's experience in direct and indirect investments in the affordable housing sector, while presenting the challenges facing by the affordable housing market in Ghana, such as high maintenance costs of housing assets and the difficulty of accessing mortgage financing for low and modest incomes.
Among other questions asked by participants, Olabodé Ayemo, NMRC, wanted to know the potential role of MFW4A in reducing the costs of financing investments in the housing sector in Nigeria. This question was an opportunity for David Ashiagbor to recall MFW4A's core missions of advocacy, research, information and knowledge dissemination, and networking between (local and international) stakeholders in the African financial sector to create synergies that accelerate its development.
It is in this perspective that MFW4A has set up the African Pension funds Network (APFN), and plans to set up in the very near future a network of African pension funds regulators to work towards the harmonization of regulations and foster long-term investments in sectors such as infrastructure financing and (affordable) housing on the continent.
For further details and information shared during the webinar, you can download the webinar recording and the Power Point presentation at this following link: Recording.