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Analysis
Africa 'attracting worldwide pension funds'

Africa 'attracting worldwide pension funds'

IFC Capital Markets Africa 2017 conference

by OMFIF in Nairobi

Thu 11 May 2017

Africa is in a good position to unlock hundreds of billions of dollars from worldwide pension funds to channel into infrastructure and other development projects to take advantage of a positive reappraisal of African risks, according to speakers at an International Finance Corporation capital markets conference in Nairobi.

Paul Muthaura, chief executive of the Kenya Capital Markets Authority, said encouraging flows of capital across borders, including through market and stock exchange link-ups and standardisation within East Africa, is 'not an option – it's a necessity'. Achieving a better equilibrium between the large supply of potential funds for African projects and the demand for investment, linking up long-term assets with long-term liabilities, particularly in infrastructure, is a prerequisite for the Kenyan regulatory authorities, he said. Africa needs to develop a 'big picture ecosystem' to attract foreign investors at a time when an estimated $9tn of bond market investments in advanced countries were generating negative yields.

The IFC is the private sector financing arm of the World Bank Group. OMFIF is a partner for IFC for the conference. David Marsh, OMFIF managing director, told the conference that, at a time of low investment rewards as well as change and uncertainty in the US, Asia and Europe, Africa provides investors with an alternative source of returns where 'at least we know that risk is adequately priced'.

Aymetric Saha, managing director of an American initiative (MiDA) for developing infrastructure investment in Africa, said he was encouraged by strong demand for this pan-African initiative geared to US institutional investors. He cited keen interest in a recent trip to South Africa by 40 top US institutions. The MiDA drive, a joint group organised by the National Association of Securities Professionals and United States Agency for International Development, showed that 'a lot of these institutions had appetite to invest [in other African countries] outside South Africa,' he said. 'Where we can find good deals and an adequate risk-return profile, we will carry them out,' he said.

Joyce-Ann Wainana, chief executive for Citibank in Kenya and East Africa, said progress was building momentum for an East African asset class to encourage institutional investors to place money across borders in this propitious part of Africa. ‘In five years, we will have this in place,’ she said. The size of local financing markets and savings was dwarfed by the need for investment, so managing inflows from abroad was indispensable, she said. African companies needed to develop ‘good stories’ to attract overseas funds. Asked whether US investors were getting the message, she replied, ‘Absolutely yes,’ pointing out that US funds were important purchasers of African sovereign bonds issued in recent years.

Kamau Thugge, principal secretary at the Kenyan Treasury, told the conference that the Kenyan government was giving priority to measures to increase local currency access to finance, including from foreign investors, through changes intended to improve the country’s effectiveness as an investment location.

Ibukun Adebayo, co-head of emerging market strategy at the London Stock Exchange, reassured African fundraisers that access to the UK capital markets would continue unabated after Britain’s departure from the European Union. He pointed out that only 9% of international funds placed in London emanated from the rest of Europe.

 

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