Dec 19 , 2021

A bill proposes to allow private and public pension funds to invest in high-yielding ventures, replacing a law that restricts them from putting the fund in all but treasury bills.

Last week, Ethiopian lawmakers forwarded the bill to parliament's Plan, Budget & Finance Standing Committee chaired by Desalegn Wedajo.

The amendment comes amidst a government restructuring of public and private pension agencies supervised by the National Bank of Ethiopia (NBE). Previously, these agencies were overseen by the former Ministry of Social Affairs. The authorities are convinced that these agencies have a semi-financial nature, warranting the central bank`s supervision.

The management of these funds gets to decide on the investment direction they would choose to take, according to Girma Sisay, legal services director at the Private Organisations’ Employees Social Security.

The social security system applies the same to both schemes. Employers contribute 11pc, and employees chip in with seven percent of salaries, making the total contribution for pensions 18pc of gross income. However, for the military, 32pc of gross salaries is contributed to retirement, of which the state covers 25pc.

The pension funds under these agencies were valued at 110 billion Br by the end of the 2018/19 fiscal year, of which 31pc came from the private pension fund. In the following year, the aggregate fund surpassed 150 billion Br. The private pension agency manages contributions from 1.6 million employees working in 200,000 private organisations. The agency had paid out pensions to 30,000 employees last year. The public pension agency manages the accounts of 2.1 million public employees, excluding those in the military and police force.

The social security funds are the primary clients for the central bank's T-bill market, spending 103 billion Br in 2018/19. Most of the fund was invested in T-bills with a 91-day maturity period, having a return in interest of 330 million Br. Two years ago, the average yield for T-bills was at 1.2pc, compared to a wobbling 11pc offered this year for a T-bill with a maturity period of 90 days.

Nonetheless, the investments from the two pension funds constituted 75pc of the total investment outlay on T-bills two years ago but showed a 30pc drop the following year. The liberalisation of the T-bill market has brought more participants into the market. At the end of 2019, the government enabled private entities to buy the security based on market-determined rates, besides banks and insurance companies.

The absence of investment opportunities for years other than T-bills has been affecting the funds, according to Fikiru Desalegn, who once served as head of the former Social Security Authority for nine years.

"It's a good decision," he said.

Fikiru says the agencies need to enhance their capacity to take on their new role, and investments should be short-term in compliance with the standards of the International Labour Organisation (ILO).

There are examples of successful African pension fund investments in real estate, banking and insurance. The funds and reserves of South Africa’s Government Employees Pension Fund, which had an investment portfolio of 124 billion dollars in 2017, grew at 10.2pc a year for the last decade. The positive experience of African countries such as Ghana could be taken as a benchmark, says Fikiru.

Ghana`s Social Security & National Insurance Trust invests its capital in real estate, especially in the construction of housing for civil servants.

PUBLISHED ON Dec 19,2021 [ VOL 22 , NO 1129]

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