AFRICAN governments should take advantage of pension funds to bridge their infrastructure funding shortfall and de-risk pension systems.
This was one of the proposals by a group of panelists during the second day of the just-ended Africa CEO Forum 2019 in Kigali on a session called, Infrastructure and local financing: a 1000 billion dollar opportunity. Reforming the pension sector while de-risking and structuring infrastructure projects, they said, will help mobilise the highly needed funds.
Africa requires $95bn every year to cater for its funding needs in energy, roads, ports, railway and other infrastructure projects. However, they can only raise half of the required amount, which calls to look for more funding alternatives. Corneille Karekezi, the Group Managing Director and Chief Executive Officer of Africa RE, said that since investing in infrastructure requires a lot of liquidity, countries must create vehicles that will help accumulate these resources.
One way of accumulating these resources, he proposes, is by reforming the pension sector and increase on insurance penetration. The panelists raised concern over the mismatch between long term projects and the availability of short term sources of funds.
To address this problem, they say, States must therefore reform their pension systems and embrace financial inclusion to support infrastructure projects on the continent.
Claver Gatete, Rwanda’s Minister of Infrastructure, suggests that strong public private sector partnerships, if exploited, could mobilize sufficient resources to finance infrastructure development on the continent. Minister Gatete also suggests that developing Africa’s capital markets could support in mobilizing funds.
According to Claver Gatete, the cost of borrowing is still very high and therefore must be brought down so as not to transfer it to the final consumer. Samaila D. Zubairu, the President and Chief Executive Officer, Africa Finance Corporation, challenged governments to create economic corridors that will help reduce risks on most of the development projects.
The expert believes that if African governments are to attract significant investment from pension funds, they must reforms their regulatory environments. Not many African nations have a regulatory atmosphere conducive to investment from pension funds.
Colin Coleman, Chief Executive Officer of Goldman Sachs for Sub Saharan Africa, said that in order to adequately meet its infrastructure demands, Africa needs to source significant new investment to meet the continent’s considerable funding shortfall of around $50 billion. ‘However, the return on some of the projects must be timely and equally with good reputation,’ he said.