African pension funds ramp up investments in African infrastructure projects

Equipment at a Main One facility in Lagos, Nigeria. African pension funds are increasingly investing in infrastructure projects. Jason Andrew for The Wall Street Journal

The fiber optic MainOne Cable that entrepreneur, Funke Opeke, laid along the Atlantic seabed from Europe has helped boost the availability of internet services in Nigeria.

It is also generating returns for the many thousands of African retirees whose money is invested in her company, MainOne.

“We’re putting their money to work,” Opeke said over the hum of server towers and air conditioners at the data center she built in Lagos to help keep banks and big companies in Africa’s top economy online.

African pension funds are starting to ramp up their investments in infrastructure projects across the continent. The African Development Bank (AfDB) hopes the deepening pool of homegrown savings can fill the $45 billion hole it sees in annual infrastructure financing required in Africa.

“It’s an unprecedented chance to make the investments in infrastructure and other sectors that the continent so desperately needs,” said David Ashiagbor, who runs a division of the AfDB devoted to developing financial markets in Africa.

Until recently, most pension funds in Africa were hesitant to invest in infrastructure such as roads, railroads, and ports. Tying up cash in decade-long projects seemed unnecessarily risky while strong economic growth was driving up local stock markets. Africa’s economy has recently grown by about 5% annually, thanks to a variety of factors including the rapid rise of Africa’s consumer class.

The continent’s sovereign bonds were also generating strong returns because they are issued at a premium, reflecting the higher perceived risk, relative to assets from more mature markets, such as the U.S.

That strategy is still working — almost too well. African pension funds that focus on stocks and bonds in their home markets have swelled. Namibia’s government pension fund manages assets worth 80% of the southern African country’s gross domestic product. Botswana’s local stock-and-bond holdings equal 40% of the diamond-rich nation’s GDP.

Regulators and fund managers are starting to recognize that keeping all their assets at home can be risky, too. As a result, some African pension funds are spreading out across the continent, seeking similarly strong returns in the stocks and infrastructure projects of other African nations.

Source:WSJ Blogs – WSJ.