Pension funds key to reignite Zimbabwe’s infrastructure development
HARARE – Without sound infrastructure development such as roads, rail, ports and energy and social infrastructure development the country stands little chance of jumpstarting the economy.
For asset owners such as pension funds, which have assets of over Z$10 billion under management, infrastructure development offers an attractive investment option. It satisfies a market demand, offers strong and predictable returns over time, risk can be mitigated in various ways, and it provides a way for investors to meet important environmental, social and governance issues and impact-investing goals.
With the provision of much-needed infrastructure Zimbabwe’s prospects for economic growth and social development are also boosted. Things are more likely to work as traffic can flow, students can be educated, the lights can remain on, and business will be done.
Infrastructure development makes up a big part of pension funds’ investment strategies but it is the diversity in the type of infrastructure that needs to be looked at if we are to move forward as a nation. Another problem is that smaller funds face greater barriers to entry than larger ones.
The money is there in the system but the question is on how the funds can unlock the potential that lies in infrastructure development. The answer lies in collaborative action, involving pension funds, asset consultants and international players.
With the country in electricity generation and on a solar power station tender awarding spree, the pension funds can look to tap into the renewable energy space and get better returns.
A feasible return on infrastructure equity investment will be about 10%-14% in USD terms, depending on factors such as gearing and risk. What’s especially attractive about such returns is that they tend to be dependable and predictable over the long term in annuity income that can be relied upon to materialise. The cash flows from these investments are also a better match for the liabilities of a pension fund, because they are long-dated and inflation sensitive.
In financing a tollgate one could thus accurately calculate the traffic it will bear and calculate income from toll fees and concessions over a set period. An investment in student accommodation could similarly provide accurate returns based on fixed numbers of occupants and the rentals they will pay. Renewable energy producers could sell power to ZETDC on a take-or-pay basis, at a known tariff.
Pension funds need to invest responsibly on behalf of their members, and must generate sufficient returns to allow them to live comfortably post-retirement. This is why pension funds are tightly regulated, so that they can safely fulfil their mandate in perpetuity.
Also, the southern African nation desperately needs infrastructure investment. One need only look at our potholed roads, crumbling schools and ill-equipped hospitals, innumerable informal settlements, students without a roof over their heads and the dire energy situation, to appreciate that. The economy is on a downfall, and our population continues to be ever more unequal, if the status quo remains.
We don’t have the luxuries of time and bottomless government or private equity funding to build all the things the country needs immediately. What we do have are retirement funds that are cash rich, equipped with great investment expertise not to mention institutionalised trustee responsibility. Pension funds are also in a position to make safe, profitable investments that will benefit us all in the longer term.
Above all, infrastructure development is at the epicentre of the government’s agenda for inclusive economic growth and job creation as alluded by treasury chief Mthuli Ncube in his 2021-2025 development plan. Tapiwanashe W Mangwiro
