Billions in the Shadows Strain to Step into the Capital Market

Nov 8 , 2025
By Lea Mehari

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The pension funds have long operated in the shadows of the domestic financial system, rarely entering the public debate about the future of the capital market. When the topic of the soon-to-launch Ethiopian Securities Exchange (ESX) arises, discussions tend to centre on retail investors, banks, and a handful of private firms.

However, the pension funds remain the most underappreciated and potentially transformative investors, for now hiding in plain sight. For decades, the pension structure was divided between two main entities.

The Private Organisations’ Employees Social Security Agency operated under the Ministry of Labour & Social Affairs, while the Civil Service Commission oversaw the Public Servants Social Security Agency. Together, these agencies managed vast retirement savings, but both institutions were boxed in by strict government supervision and limited investment options.

That paradigm shifted in 2011, when a pair of laws shook up the governance of the pension system. Both funds fell under the regulatory oversight of the National Bank of Ethiopia (NBE), which enabled a more unified approach to regulation.

These reforms granted the agencies financial and operational autonomy, and for the first time, the power to invest without prior approval from the Ministry of Finance. Perhaps more important than investment autonomy was the robust collection mechanism established by the reforms.

The pension agencies were granted broad powers to secure contributions directly from employers, in some cases going so far as to debit the funds straight from a company’s bank account if payments were missed. This foreclosure-style system all but guarantees a steady stream of revenue, making the pension funds among the country’s few institutions with stable, enforceable, and predictable cash flows.

The Public Servants Social Security Agency can collect contributions from government entities and, when necessary, direct the Ministry of Finance to withhold overdue sums from federal subsidies. The Agency can even order banks to withdraw funds from the accounts of defaulting institutions.

Likewise, the Private Organisations’ Employees Social Security Agency can enforce collections from private employers, recover arrears through delegated bodies, and, if required, sell property to satisfy unpaid obligations.

This legal structure means pension funds are insulated from many risks that plague other institutions. Their revenue is not a function of market swings or voluntary payments. Rather, it is secured by law, backed by the banking system, and enjoys priority of collection over most other debts.

Globally, pension funds are heavyweight investors. The Canada Pension Plan Investment Board, for example, manages more than 531 billion dollars in assets for 22 million Canadians as of mid-2025. The National Pension Service of Korea invests a little over half a trillion dollars, primarily in equities, over the same period.

The appeal of pension funds as institutional investors comes from their steady cash inflows, long investment horizons, and preference for low-to-moderate risk returns. This makes them natural participants in securities markets worldwide, where they channel funds into government bonds, infrastructure, corporate debt, and established stocks.

The Public Social Security Service Agency collected 52.9 billion Br in pension contributions and disbursed 21.2 billion Br in payments, earning 10.4 billion Br on investments in the first nine months of 2023. The Private Social Security Service Agency, which covers about 2.3 million employees and 57,000 retirees, brought in 28.7 billion Br and posted profits of 9.75 billion Br for the 2023/24 fiscal year.

Despite the considerable volume of funds at their disposal, about 90pc of these annual inflows are currently parked in low-yield Treasury bills, earning rates of 12pc to 15pc that are barely keeping pace with inflation, eroding real returns. The agencies have made some cautious forays into real estate, acquiring property in Addis Abeba and regional centres such as Hawassa, Bahir Dar, Jimma, and Harar, a tentative but meaningful step toward broader portfolio diversification.

Even a modest reallocation of these reserves toward the ESX could provide the market with badly needed liquidity and long-term stability.

The launch window is promising. With the Exchange operational and the Ethiopian Capital Market Authority (ECMA) actively issuing directives, the pieces are finally in place for pension funds to play a catalytic role.

The agencies now enjoy three decisive advantages. Their revenue is secure thanks to powerful collection mechanisms. They have regulatory flexibility to invest without seeking approval from the Ministry of Finance. Their oversight by the Central Bank opens the door to strategic and diversified investments, ranging from government securities to corporate bonds and regulated investment funds.

If policy and governance frameworks are sound, pension funds could emerge as the anchor investors the country’s nascent capital market needs, thereby instilling confidence and market depth.

Yet, greater autonomy carries risks. Pension funds should be vigilant against political meddling or speculative bets. Their stewardship should be defined by prudence, transparency, and professional management.

A coordinated effort between the Central Bank and the Authority could set out clear investment guidelines, spelling out asset classes, risk thresholds, and reporting requirements for pension funds. With capacity-building, tailored incentives, and market products designed for long-term institutional investors, Ethiopia can safely and productively channel pension assets into the capital market.

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PUBLISHED ON Nov 08,2025 [ VOL 26 , NO 1332]

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