According to three industry sources who spoke to Reuters, Ghana is cracking down on private pension fund managers who wish to invest in foreign assets out of fear that it will increase pressure on the cedi.In the world’s second-largest cocoa producer, employee retirement contributions increased significantly following pension reforms in 2010. This was made possible by a tiered system that let private companies handle a portion of the contributions.In June, the pension fund industry managed 78.2 billion Ghanaian cedis ($4.93 billion), with 39 private fund management companies handling more than 73% of the total assets.
Private companies handle tiers two and three, which are mandatory and voluntary contributions, respectively, for lump-sum payments at or before retirement, while Ghana’s state-run pension fund handles tier one contributions, which are required for employees’ monthly retirement benefits.The majority of donations are used to purchase Ghanaian assets, such as Eurobonds issued by the Ghanaian government. Private fund managers, however, have been keen to investigate offshore investment opportunities after restructuring their holdings under a local debt rework after 31 billion cedis.
According to Ghanaian law, private fund managers are allowed to invest up to 5% of their total assets overseas, or about 2.8 billion of the assets currently under management. However, different companies and authorities have different opinions about whether prior approval is required.According to the sources—two from the finance ministry and one from a private pension firm—some fund managers made offshore asset investments earlier this year but were halted by the national pensions regulatory authority (NPRA).
“They (NPRA) threatened to sanction us but we didn’t find any basis in law,” one of the source at a fund management company told Reuters.”We have not exited but we can’t invest more (offshore). The source, who wished to remain anonymous, described the development as “very strange” and mentioned that they had $5 million in offshore assets.The head of the NPRA, John Kwaning Mbroh, told Reuters that “there is no resistance” to investing pension assets offshore, but the regulator needed government approval before approving the move.
Though he was unsure of when they would be finished, Mbroh stated that talks were underway to simplify the regulations and provide contributors and fund managers with clarity on how to value offshore investments
“SECURING LIQUIDITY”
Ghana, which defaulted on most of its $30 billion foreign debt in 2022, is completing a challenging debt-restructuring process with the aid of the G20’s Common Framework initiative.Following a roughly 17% decline in 2023, the cedi has lost 25% of its value in relation to the US dollar this year, despite Ghana’s economic recovery.
The ministry was worried about the need to “balance the effects” of investing pension funds overseas on domestic liquidity and value appreciation to fund managers, according to a source at the finance ministry who also asked to remain anonymous.According to the source, “the ministry will not say ‘no,’ but it is about how we protect the economy, the liquidity.”Private pension management companies in Ghana contend that the government is being unduly cautious, citing the fact that African pension funds and local mutual funds make offshore investments with no such worries.
They contend the current policy, given high inflation and cedi depreciation, limits value creation and mutes gains.Additionally, they claim that permitting foreign pension funds to invest in Ghana’s market while prohibiting local funds from doing the same is incongruous.Investing 5% of their assets overseas does not even make a difference, according to an executive of one of the top five fund managers. “Pension funds around the world chase value, but they want us to chase inflation,” the executive said.(15.8800 Ghanaian cedi = $1)
