Ghana blocks pension funds from offshore investment on currency concerns

By Ibrahim Umar,

Kanempress News,

20th, November,2024

Reports say Ghana is clamping down on private pension fund managers who want to invest in offshore assets on concerns that it could worsen pressure on its cedi currency.

According to reports, after pension reforms in 2010, workers’ retirement contributions in Ghana enjoyed strong growth, buoyed by a tiered scheme which allow private firms to manage certain contributions.

Assets under management by the pension fund industry include 78.2 billion Ghanaian cedis ( about $4.93 billion) in June, of which over 73% were managed by 39 private fund management firms.

Ghana handles one tier pension fund contributions towards employees’ monthly retirement benefits, which are mandatory, while private firms manage tiers two and three – mandatory and voluntary contributions respectively for lump-sum payment at or before retirement.

Further information showed that the majority of contributions are invested in Ghanaian assets, including Ghana government Eurobonds.

However, private fund managers have been eager to explore offshore investment opportunities following the restructuring of 31 billion cedis of their holdings under a local debt rework.

Laws in Ghana permit private fund managers to invest up to 5% of total assets abroad, approximately 2.8 billion of current assets under management.

Though firms and authorities differ on the necessity of approval.

Source said two in the private pension firms and one at the finance ministry said that
some fund managers had earlier in the year invested in offshore assets, but were stopped by the regulator, the national pensions regulatory authority (NPRA).

“They (NPRA) threatened to sanction us but we didn’t find any basis in law,” a source at a fund management company said.

“We have not exited but we can’t invest more (offshore).
It’s a very strange development,” the source said that they had $5 million in offshore assets.

Head of National Pension Regulatory Authority, John Kwaning Mbroh said that “there’s no resistance” to investing pension assets offshore but the regulator needed approval from the government before signing off.

Mbroh said discussions were taking place to streamline the rules and clarify how to value offshore investments for contributors and fund managers, although he did not know when they would conclude.

‘PROTECTING LIQUIDITY’

Ghana is concluding a challenging debt-restructuring process under the G20’s Common Framework initiative, having defaulted on most of its $30 billion international debt in 2022.

Despite Ghana’s economic recovery, the cedi currency has depreciated 25% against the U.S. dollar year-to-date, having already fallen around 17% in 2023.

The source at the finance ministry, said the ministry was concerned about the need to “balance the effects” of investing pension funds abroad on domestic liquidity and value appreciation to fund managers.

“The ministry won’t say ‘no’ but it’s about how do we protect the economy, the liquidity,” the source said.

Private pension management firms in Ghana argue that authorities are overly cautious, pointing out that local mutual funds and African pension funds invest offshore without similar concerns.

The firms contend the current policy, given high inflation and cedi depreciation, limits value creation and mutes gains.

They also say it is contradictory to allow foreign pension funds to invest in Ghana’s market while preventing local funds from investing abroad.

“The world over, pension funds chase value but they want us to chase inflation,” an executive of one of the top five fund managers said, adding that investing 5% of their assets abroad doesn’t even move the needle.