The retirement funds industry has been urged to invest more funds into the local economy. This was said by Bontle Ndlovu, Retirement Funds Manager at the Non-Bank Financial Institutions Regulatory Authority (NBFIRA) during the annual conference of the Botswana Pensions Society in Kasane last week.
Ndlovu revealed that as at 30 June 2015, retirement funds in Botswana had a total asset base of P69.9 billion, 63 percent of which were invested offshore and 37 percent locally.
“While retirement funds are allowed to invest up to 70 percent of their assets offshore, asset managers must take more proactive steps in identifying opportunities locally and significantly increase the proportion of pension fund assets invested locally. NBFIRA would wish to challenge fund managers in particular to be more proactive in identifying investment opportunities locally,” she said.
Ndlovu further said the sustainable growth and development of Botswana is primarily based on provision and maintenance of supporting infrastructure such as roads, dams, power utilities and housing. She also said the government of Botswana remains the primary financier of infrastructure projects, including responsibilities for project implementation, execution and maintenance.
“Pension funds play a critical role in mobilizing domestic savings. Due to their long term investment horizon they are a significant factor in partnering governments in infrastructure development the world over. The central role and importance of retirement funds as a vehicle for the mobilization of long term domestic savings is acknowledged all over the world,” she emphasized.
Over the past 15 years, the role of pension funds in the capital markets in Botswana has assumed much greater significance. The most important development in the retirement sector was the policy pronouncements by government to establish a fully funded pension fund for civil service employees in 2001.
“The civil service pension fund rapidly increased the size of retirement fund assets from about P1.9 billion in 2000 to approximately P69 billion today. The multiplier effect was a rapid growth and development in the non-bank financial services industry, primarily the asset management industry and related service providers,” said Ndlovu.
However, the growing size of the retirement fund industry has not translated into greater
economic activity in addressing both the pre-retirement and post-retirement needs of members, who effectively are the owners of the funds that are managed.
In this discourse, Ndlovu urged pension funds not to depart from their core mandate which is post retirement financial security for members. For her part, Secretary for Financial Policy in the Ministry of Finance Elaina Gonsalves said as a facilitator of business, government acknowledges the retirement funds industry as an important partner in the economic development of Botswana.
“The impact of the billions of Pula of retirement funds is significant in Botswana’s investment landscape. The P69.9 billion referred to must be made to work in the development of Botswana’s economy. Furthermore, the social impact of retirement funds on the wellbeing of ordinary Batswana cannot be ignored,” she said.
She explained that pension funds are allowed to invest assets externally because emerging markets such as Botswana need to piggy back on the knowledge, expertise and resources of global players.
“The challenge is to strike the right balance such that investment returns also benefit the Botswana economy. There is no doubt that more pension funds must partner government and other investors in infrastructure development,” she said.
She added that government shouldn’t legislate lower levels of permitted external placements unless the local market illustrates that it is able to absorb the potential inflows, particularly in the context of risk management and returns necessary to provide suitable living incomes for pensioners. In conclusion Gonsalves urged the Botswana Pension Society to address the shortage of skills resources in the area of pensions through continuous training of various participants in the industry. The Botswana Pension Society conference was held under the theme “Retirement Funds and the Economic Development of Botswana.”
