Could pension funds fuel Malawi’s growth?
Like many young Malawians, John Zakeyo decided to trek down to South Africa in 2010 to seek greener pastures.
After almost 10 years of hussling in the Rainbow Nation, the opportunities run dry due the impact of Covid and John is forced to come back to Malawi.
On his way to his father’s house in Mtandire, John is amazed to see a magnificent shopping mall standing on what used to be a bushy area off the Lilongwe-Mchinji Road in the low density suburb of Area 47 near Africa Bible College (ABC).
The structure, the Gate Way Mall, was opened in 2014 by Malawi Property Investment Company Limited (Mpico), a property investment firm of Old Mutual Malawi.
The shopping mall was built with funds amounting to K20 billion and now houses a number of super markets such as Shoprite and Food Lovers.
“I no longer have to travel to town when looking for merchandise. This shopping mall is closer to home and it is beautiful. International standard, I must say,” John says.
The Gateway Mall in Lilongwe is just an example of how pension funds investment could help in fuelling infrastructure development in a country.
In early 2000, pensions and insurance group Nico also opened the Chichiri Shopping Mall on what used to be a swampy area opposite Kamuzu Stadium.
The opening of Chichiri Shopping Mall opened up Blantyre and created a new trading hub within the then deserted Chichiri area.
On March 1 2011, Parliament adopted Pension Bill No. 14 of 2010, which established a mandatory pension system to which employers and employees would make periodic, mandatory pension contributions.
The objective was to ensure that every employee in Malawi receives pension and supplementary benefits on retirement.
Under the National Pension Scheme (NPS), an employee contributes a minimum of 5 percent of the pensionable emoluments while the employer contributes at least 10 percent of the employee’s pensionable emoluments.
According to the June 2020 Reserve Bank of Malawi Financial Stability Report, total pension assets were recorded at K945.5 billion.
Listed equity constituted the larges t share of investment assets at 49 percent. Government securities accounted for 31.4 percent, fixed deposits 6.1 percent, private debt 5.5 percent and property at 3.9 percent.
Malawi Stock Exchange Chief Executive Officer, John Kamanga, agrees that capital markets have benefitted a lot from the growth of pension funds.
“Capital markets have benefitted from pension funds through direct investment into the market during Initial Public Offers (IPOs) as well during secondary markets,” Kamanga says.
But RBM notes in the Financial Stability Report that due to substantial exposure of pension funds in listed equities, market risk arose from volatility of asset prices.
Even former Reserve Bank of Malawi Governor Dalitso Kabambe warned in July 2017 of an impending asset bubble if new investment doors were not opened to accommodate the fast growing pension funds.
Ironically sharp growth in pension funds is happening at the time local councils, parastatals and other businesses are struggling to raise funds for their development projects.
Life and Pensions Association President Stain Singo says pension funds are open to investments which are reliable and would ensure that the money would be available by the time the contributors retire.
“The problem is not the insurance companies. The funds are there but it’s the certainty that we will get back the money when the owners need it. It is unfortunate that Malawi is going out looking for money for various projects when the pension funds have got that money,” Singo said.
Bridgepath Capital Malawi Chief Executive Officer Emmanuel Chokani said pension funds are peoples’ retirement savings, saying that is why they are also risk averse. He observed that most projects sometimes lack the detailed analysis to be conducted before approaching financiers.
“The feasibility studies need to be packaged together into what is known as an information memorandum which will talk about the promoters, sources of financing etc. This information pack allows potential financiers to assess the project in detail with full disclosures on the project, investment returns and risks,” Chokani said.
He added parastatals or councils should ensure you have latest audited financial statements and able to provide detailed forecasts or projections.
Just last month, President Lazarus Chakwera launched the Malawi 2063 in which Malawi has a vision of becoming an upper middle class economy by 2063.
National Planning Commission (NPC) Director General Thomas Munthali said tapping into the pension funds could be crucial in fostering Malawi’s infrastructure development.
Munthali was quick to note that Malawi lacks solid bankable projects that could be financed using such funds.
According to the World Bank, upper middle-income economies are countries with a Gross National Income (GNI) per capita of between $4,046 and $12,535 (2021).
As at 2019, Malawi’s GNI per capita, which is simply the dollar value of a country’s final income in a year divided by its population, stood at $380, which means Malawi has a daunting task to raise the figure to upper middle income entry level of $4,046.
With government currently pursuing 335 projects worth about K3.3 trillion, Capital Hill needs to dig deeper to source money for the projects. Could the growing pensions pot provide the solution?