Pension funds merit bigger role in economy

I ask? Where is the fund going to invest all this money if it does not start looking for bankable investment opportunities in alternative asset classes?

Provided it can meet risk-return expectations; there are plenty of opportunities in the infrastructure space which the NSSF ought to be looking at. The potential for improving returns to pensioners in infrastructure projects is huge.

Because the NSSF is collects long term savings; investing that money in long term assets even if they are less liquid; such as large road construction projects; energy development projects and the building of airports; should the natural thing for the fund to do.

Today; the total asset base of pensions funds and contractual savings schemes in Kenya in general is estimated at Sh2 trillion.

But the Pension funds in Kenya have not made an impact in broader development of the economy is because they concentrate on ‘core assets’- mainly money market instruments like government securities and equities. To lesser extent; the funds have also put money in ‘alternative asset’ classes mainly real estate; private equity and hedge funds;

Statistics show that the average pension fund in Kenya is concentrated in two asset classes with fixed income and equities comprising 80 percent.

Historically; the NSSF has been the worst investor. Pensioners saving was invested in buying quarries and worthless pieces of land. Rent-seeking elites from successive regime treated the funds as a source of largesse. If the Mau Summit investment succeeds; there will be less money for corrupt elites to fight over.

Here are a few examples of how, long term and contractual savings have been deployed to roll out and to develop large infrastructure projects.

The biggest investors in recent expansions of Heathrow Airports included the UK Universities Pension Fund.

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In New Zealand; the pension fund Unispur is the largest investor in the construction of Adeliade Airport.

Australia’s Superannuation fund was the biggest investor in the construction of several unlisted airports in that country. A recent expansion of Copenhagen Airport was funded by pension funds.

The corridor between Nairobi and Mau- Summit; despite being the most critical link for us in terms of inter-regional trade- is badly overloaded only held together with the infrastructural equivalent of a rubber band. Yet this is an essential part of the Northern Corridor, which serves as the most important link connecting Kenya with Uganda and other East African countries.

Is it not the height of irony that the taxpayer is now being told to cough out a whopping Sh 6 billion for breach of contract to the Vinci Group of France who had been contracted to build the project.

From what I gather; that deal fell through because of disagreements between the French investors and government over financial models and toll fees. Government negotiators felt that the financial model on the table was going to end up with toll fees most of the road users of that corridor could not afford.

Had we put in place clear legal frameworks; completed with transparent procedures to facilitate pension funds and entities such as the NSSF to participate in the financing of such large infrastructure projects; the Nairobi Mau Summit would be in place today.

Which is a pity because for the last four years; the private pension funds industry has been knocking at the door; angling to enter into the infrastructure space.

A consortium of about 15 pension funds came together under the Kenya Pensions Funds Investment Consortium to foster collaboration in the financing of big- ticket infrastructure projects. This initiative has not moved a needle mainly because lack of support by the government.

Kenya must refocus on what matters most; on the mobilisation of national savings and the rebuilding of the kind of robust; reliable infrastructure that is essential to modern life.

Maybe we should make contributions to pensions scheme mandatory. By the way; what happened to the inventive pension plan for the informal sector that spearheaded by the former CEO of the Retirement Benefits Authority; Mr Edward Odundo; that goes by the acronym ‘Mbao’.

We don’t hear much of it these days. Is it not the heigh of irony that the South Africans; who copied it from us- are running it successfully.

The recently elected Prime Minister of Canada has just a hired Mr Marc-André Blanchard;’ a top executive from one of Canada’s top pension fund managers; to be his chief of staff.

It is a statement about the importance well- run countries like Canada accord to the role of pension funds in the economy.

The writer is a former Managing Editor for The EastAfrican