Structural shifts will shape African pension fund delivery
"Something is happening in Africa!" This was the key message from Muitheri Wahome, principal consultant and head of manager research at Alexander Forbes Financial Services, presenting at StanLib's Africa Sovereign Pension Fund Summit conference in Johanne
There have been a number of developments in the fields of statutory savings and retirement fund regulation on the continent in recent times and much work still has to be done to ensure African citizens can provide for their needs in old age. The South African financial services industry, led by National Treasury, has been intensively debating possible solutions since 2004 and hopes to implement a comprehensive solution (although ambitiously) by 2010.
Wahome believes that the conditions on the African continent have never been more favourable for pension system implementations. And she identifies a number of recent structural developments and trends to support her view. These include demographics, urbanisation, technology and macro-economic stability. Wahome says "these factors will combine to create a favourable backdrop for the creation and advancement of pension funds systems in Africa."
14% of world population in Africa
Demographics play a huge role in the workings of a pension system. Africa has an advantage over Western and developed countries in this regard specifically because of the spread of age in its populations. While Western country's struggle with high numbers of old age citizens, Africa has a huge pool of young working age individuals to bolster pension fund reserves.
And this situation is not likely to change any time soon. "While the rest of the world is concerned with shrinking populations, Africa's population continues to grow! " says Wahome. This fact is confirmed by a quick look at International Monetary Fund (IMF) population growth estimates. The organisation says that Africa achieved population growth of 2.3% in 2006.
Africa, with approximately 913 million inhabitants currently accounts for 14% of the world's population. The IMF expects this to grow to 18% of the worlds population by 2030.
Rapid urbanisation likely to continue
South African's are already familiar with the concept of urbanisation, as thousands of people flock to the countrys cities in search of work and better living conditions. This trend is evident throughout Africa. Wahome notes that "according to the UN population fund, urban population growth rates in the emerging world are four times those of the developed world." The UN expects there will be 22 cities topping 10 million inhabitants by 2015. Of these, Cairo and Lagos are in Africa.
Ironically, urbanisation plays a dual role in pension systems. While it is a factor which makes implementing pension systems easier it is also responsible for the requirement for retirement provision existing in the first place. The reason is that urbanisation has destroyed the traditional African support system for the aged. Family structures are broken and people have now moved far from the land they used to draw sustenance from.
Governments have to think about solutions for retirement "because that which provided us a safety net, our families and our land, might not necessarily be able to do that in the future," said Wahome.
Mobile telephony leads the technology charge
Improvements in technology will be a major tool in African pension fund systems. According to Wahome, "Mobile technology has had a profound impact in the improving the dissemination of information and communication in ways that were unthinkable only a decade ago." But it is in the processing of micro-payments that this form of technology will probably be best applied.
Cellular companies might find they are increasingly serving the joint role of telephone service provider and bank, particularly in regions where banks find it uneconomical to operate. The problem of access to financial services for the poor has been around for decades. Even in South Africa, which has a world class financial transaction system with wide reach the poorest people remain un-banked. And the poor who do open bank accounts pay ridiculous (as a percentage of their income) fees for the privilege.
Future systems could see pensioners receiving pension payments by way of mobile phones rather than through conventional channels. In this regard, "Technology will be the great enabler."
Sound macro-economic conditions
The final factor which should contribute to social pension system implementation is the positive macro-economic outlook. Africa is a developing economy and showing consistent growth, albeit off a low base. Wahome points out that "According to the OECD African GDP has averaged five percent annually over the past six years, and is forecast to grow between five and six percent in 2007."
Strong GDP growth and better inflation outlooks make African countries more likely to attract lasting foreign direct investment. And this investment will underpin pension fund performance growth going forward too.
Editor's thoughts:
Africa has languished for years, suffering the effects of numerous historic transgressions by Western powers. But recent developments mean prospects for the continent are finally looking up. Corporate governance continues to improve and foreign direct investment is on the rise. Structurally Africa is ready to implement successful retirement solutions but does the continent have the political will? Send your comments to
gareth@fanews.co.za
