Ghana’s ban on foreign pension fund investments is ineffective, according to sources

Executives said Ghana’s pension funds’ capacity to hedge risks is being hampered by the country’s ban on foreign investments, as authorities look to boost the domestic bond market following its sovereign debt restructuring.

Following a restructuring of its local and foreign debts that crippled its domestic debt market, which was previously a destination for prominent international asset managers like Franklin Templeton, the Accra government this year prohibited funds from investing workers’ money in offshore ventures.

The purpose of the prohibition was to ease pressure on the cedi currency. The executives, however, claimed that the actions were ineffective.

“This is impacting our capacity to diversify our holdings and protect our investments from macroeconomic disruptions,” stated Afriyie Oware, Axis Pensions’ CEO.

Oware stated that in an effort to convince the National Pensions Regulatory Authority (NPRA) to overturn the restriction, the sector has been interacting with the agency. Attempts to remark were not answered by the NPRA.

In August, the government declared that it will begin selling bonds locally in the second half of this year. Prior to the restructuring, the government could only issue Treasury bills, which are short-dated government securities.

Pension fund managers, meanwhile, issued a warning that attempts to restore domestic markets could also be hampered by recollections of the government’s previous budgetary excesses.

“The fiscal discipline with which the government attends to business is something that will be at the forefront of our risk analysis given what has happened in the past,” Oware explained.

Africa’s pension sector assumes a new level of significance

In Africa, domestic cash pools, including pension assets, have become increasingly important as governments look for new ways to finance projects, such as the development of much-needed infrastructure, as donor funds are running low and high interest rates keep low-rated governments from accessing global markets.

Ghana, a cocoa and gold producer in West Africa, restructured its pension system in 2010 by transferring some contributions to a tiered system of private fund management, along with a state and national pension plan.

That model has resulted in expansion. Central bank data shows that total pension assets increased from 61.8 billion cedi at the end of 2023 to 86.23 billion Ghanaian cedi ($6.93 billion) at the end of 2024.

The executive secretary of the industry lobby Chamber of Pension Trustees of Ghana, Thomas Kwesi Esso, stated that “geographic diversification is necessary for a forward-looking pension system.”

According to Esso, countries like Kenya, South Africa, and Botswana all permit funds to invest a portion of their assets in overseas markets and have stable foreign exchange rates.

Due to the volatility induced by the debt restructuring, the cedi fell by 25% against the dollar in 2024; but, this year, it has strengthened by 20%.

A 10% decline in the dollar this year has supported the gains, which have been fueled by the successful debt renegotiation and a spike in the price of gold.

The fund managers offered some consolation by stating that the embargo does not apply to Ghana’s dollar bonds that are listed on international financial markets.

Said Boakye, an economist and executive director of Ghana’s Institute of Fiscal Studies, told Reuters that while this ban would assist grow the domestic market, it is wrong to restrict retirees’ funds because they cannot be used for manipulative purposes.