By Kuda Mundowozi
In recent years, governments across the globe, including Zimbabwe, have increasingly granted prescribed asset status to infrastructure and renewable energy projects such as solar farms. This move is intended to attract pension fund investments by offering these projects as viable, long-term alternatives for portfolio diversification. The logic behind this strategy is twofold: to funnel institutional capital into national development priorities and to provide pension funds with stable, inflation-protected returns over time. However, a critical question remains—are these projects truly safe for pension fund investment?
The appeal of such investments lies in their alignment with the long-term liabilities that pension funds are tasked with managing. Pension obligations often span several decades, and infrastructure assets ranging from roads and bridges to solar energy plants—typically have operational lifespans of 15 to 30 years. This parallel in duration makes it easier for pension funds to match long-term obligations with long-term assets, minimizing the risk of liquidity mismatches. Furthermore, infrastructure and renewable energy projects often generate predictable cash flows. Toll roads, for example, collect steady income from users, while solar power plants usually operate under long-term power purchase agreements that ensure regular revenue. These characteristics are attractive to pension funds, which value consistency and capital preservation.
Another compelling advantage is the diversification these assets offer. Traditional pension fund portfolios are usually dominated by equities, government bonds, and real estate. Although these instruments are foundational, over-reliance on them exposes funds to market volatility, fluctuating interest rates, and inflationary pressures. Infrastructure and solar projects present an alternative asset class with low correlation to traditional financial markets. By diversifying into these areas, pension funds can better spread risk and improve the overall stability of their portfolios. Additionally, infrastructure and renewable energy investments can serve as a hedge against inflation. Many of these projects generate inflation-linked revenues, either contractually or due to the essential nature of the services they provide—such as electricity and water which are in constant demand regardless of price increases. In Zimbabwe’s economic environment, where inflation often undermines the value of money, such returns are particularly valuable for maintaining the real value of pension savings.
Government backing also adds a layer of confidence. When the state grants a project prescribed asset status, it is often perceived as an endorsement of its viability. In some cases, this is accompanied by additional benefits such as regulatory incentives, tax breaks, or even government guarantees. These measures can significantly reduce the perceived investment risk and encourage pension funds to allocate capital toward these projects. However, this perceived safety can be misleading. Not all prescribed assets are inherently low-risk, and some may be designated for political reasons rather than based on solid business fundamentals. Political and regulatory risks are especially pronounced in emerging markets, where policy direction can shift rapidly. A new administration could, for example, renegotiate power purchase agreements or delay payments, significantly affecting a project’s profitability. Even government-backed projects are not immune to the consequences of political interference or policy instability.
Moreover, the quality and viability of projects vary. Some may lack thorough feasibility studies or sound business planning, and poorly structured deals can put pension funds at risk of capital loss. Without rigorous due diligence, funds may find themselves investing in projects that are financially unsustainable. Pension fund managers must assess not only projected cash flows but also construction risks, operational challenges, and the credibility of project developers. Another issue is liquidity. Infrastructure and renewable energy projects are inherently illiquid; once capital is committed, it is often locked in for years. This limits a fund’s flexibility to respond to market changes or to rebalance its investment portfolio as needed. Illiquidity becomes a significant concern when pension funds need to meet unexpected obligations or adjust to economic shifts.
Governance is another critical factor. Even well-designed projects can falter if plagued by corruption, mismanagement, or lack of accountability. In regions where public-private partnerships are common, weak governance can result in cost overruns, delays, or outright project failure. In such cases, it is ultimately the pensioners who bear the consequences of poor investment decisions. Examples from across Africa show both the promise and the peril of such investments. In Kenya, pension funds have successfully invested in clean energy initiatives, contributing to a greener economy while earning stable returns. This success has been attributed to a well-regulated environment, professional oversight, and strong public-private collaboration. Namibia offers another positive case. The Government Institutions Pension Fund (GIPF), the country’s largest, has invested extensively in infrastructure and renewable energy, including the Omburu and Otjozondjupa solar projects. In 2023 alone, GIPF committed approximately US$123 million to real assets, with around US$62 million allocated specifically to solar energy. These investments, made under a Developmental Investment Policy, are designed to match the long-term nature of the fund’s liabilities. They have not only provided inflation-adjusted returns but also supported Namibia’s transition to cleaner energy sources.
Ghana also presents a success story. The Social Security and National Insurance Trust (SSNIT), Ghana’s largest pension fund, invested in the Amandi Energy Power Plant, a 200MW combined-cycle gas-fired facility. Backed by both private and institutional investors, the plant provides a critical boost to Ghana’s energy infrastructure while generating long-term revenue under a secured power purchase agreement. This project is seen as a benchmark for effective private-public sector collaboration. As of 2023, SSNIT reported positive returns on infrastructure investments, citing an average annual yield of 12% on its unlisted infrastructure portfolio, which includes both energy and transport projects.
In contrast, Zimbabwe has seen less favourable outcomes. Several pension funds have invested in infrastructure bonds tied to road rehabilitation and housing projects that failed to deliver promised returns. A prominent example includes a 2017 government-issued bond aimed at upgrading rural road networks. Poor oversight, misallocation of funds, and delays plagued the initiative. Years later, many of the roads remain incomplete, while interest payments to bondholders primarily pension funds have fallen behind schedule. As a result, some pension schemes have suffered capital erosion, leaving fund managers cautious about future exposure to similar state-linked projects.
Another cautionary tale involves the Harava Solar Park project. In 2018, the Reserve Bank of Zimbabwe (RBZ) and Equatorial Guinea secured approval to develop a 40MW solar facility in Seke District, near Harare. The project was granted prescribed asset status and national project approval, making it eligible for pension fund investment. However, the project faced significant financial challenges. In December 2023, it was reported that the RBZ had failed to release US$15 million in foreign currency to facilitate local investment, breaching exchange control regulations. This failure to meet financial obligations led to Old Mutual Life Assurance Company seeking corporate rescue for the project. The situation underscores the risks associated with investing in infrastructure projects that rely on timely government action and financial support.
To make infrastructure and renewable energy truly safe investment avenues, several reforms are essential. First, a transparent and robust regulatory framework must be established. Government bodies responsible for project selection and approval should operate independently, free from political influence. Regulatory authorities must ensure compliance, enforce contracts, and intervene swiftly when issues arise. Second, the process of granting prescribed asset status must be based on thorough technical and financial evaluations. Pension fund managers must have access to reliable data on projected cash flows, risk assessments, and return expectations. This information is crucial for informed decision-making.
Public-private partnerships should also be strengthened. When properly structured, these collaborations combine public policy support with private sector expertise and efficiency. The success of such partnerships hinges on clear contractual arrangements, equitable risk sharing, and performance-based incentives. Moreover, pension fund administrators need specialized skills to assess complex infrastructure investments. Capacity-building programs, training in project finance, and partnerships with experienced fund managers can significantly improve investment quality and oversight. Transparency and accountability must be prioritized. Mandatory financial reporting, independent audits, and regular project progress updates should be standard for all prescribed assets. An independent oversight body could also be established to monitor compliance and safeguard pensioners’ savings.
In conclusion, while infrastructure and solar energy projects hold significant promise as prescribed assets for pension funds, their safety and profitability are not guaranteed by designation alone. With the right regulatory safeguards, transparent processes, and skilled management, these investments can offer pension funds a secure path to long-term growth and resilience while contributing meaningfully to national development goals.
