Ban on abroad investments for pension funds is counterproductive, executives say – Life Pulse Daily

Introduction: Ghana’s Controversial Move to Restrict Offshore Investments

In a bold economic maneuver, Ghanaian authorities have imposed a ban on pension funds engaging in offshore investments. This decision, part of broader efforts to stabilize the cedi and revive the domestic housing bond sector, has sparked fierce debate among industry executives. While policymakers tout the move as a step toward fiscal sovereignty, critics argue it undermines decades of progress in building a resilient financial ecosystem. This article delves into the rationale behind the ban, its unintended consequences, and the urgent calls for reform from sector leaders.

Analysis: Why Executives Argue the Ban Is Short-Sighted

The Cost of Isolation: Threats to Portfolio Diversification

Ghana’s pension funds, like their counterparts globally, rely on offshore investments to mitigate risks associated with volatile local markets. By restricting international allocations, regulators have limited funds’ ability to diversify portfolios across currencies, asset classes, and geographies. Afriyie Oware, CEO of Axis Pensions, emphasized: “This ban cripples our capacity to hedge against macroeconomic shocks, from inflation spikes to currency crises.”

Debt Restructuring and the Cedi’s Turbulent Journey

Following Ghana’s 2024 sovereign debt restructuring—a historic first for African nations—the cedi plummeted against the dollar amid panic. The ban, implemented in early 2024, aimed to reduce reliance on imports tied to imported inflation. However, experts like economist Boakye of Ghana’s Institute of Fiscal Studies warn: “Restricting pension funds is a blunt tool. It may stabilize the cedi temporarily but sacrifices long-term market development.”

Summary: Key Takeaways from Ghana’s Policy Shift

• Ghana’s pension asset pool grew to €6.93 billion in 2024, reflecting sector growth despite challenges.
• The ban prohibits investments in foreign equities and bonds but exempts Ghana’s dollar-denominated sovereign bonds.
• Regulators aim to bolster domestic debt markets, yet stakeholders cite liquidity shortages and investor hesitancy.
• Kenya, South Africa, and Botswana offer contrast by permitting offshore allocations tied to stable, dollarized housing sectors.

Key Points: The Debate Over Domestic Investment

Housing Bonds vs. Offshore Assets: A Policy Contradiction?

Ghana’s authorities plan to sell €2.5 billion in domestic housing bonds this year, the largest issuance in its history. However, pension funds—which hold 50% of all domestic equity stakes—struggle to invest in local assets due to illiquidity and perceived risks. Franklin Templeton, a global asset manager, noted: “Local bonds lack transparency; investors demand guaranteed returns, which state issuers cannot guarantee.”

The Cedi vs. Dollar: A Double-Edged Sword

While the cedi has stabilized 20% in 2024 after a 25% devaluation in 2023, its weakness remains a liability. Offshore investments allowed funds to offset currency losses, a strategy now off-limits. Meanwhile, dollar-denominated Ghanaian bonds trade at premiums, offering limited relief. Thomas Kwesi Esso, Ghana Pension Trustees Chamber secretary, argues: “A forward-looking pension system needs geographic diversification to weather crises like energy or trade shocks.”

Practical Advice: Pathways to Reform

Incremental Approaches to Market Confidence

Instead of abrupt bans, analysts recommend phased reforms. Suggestions include:

1. Allowing partial offshore allocations (e.g., 10-15%)
2. Creating a “safe haven” list of international bonds
3. Incentivizing domestic investment via tax breaks for pension-linked securities

Strengthening Regulatory Frameworks

Collaboration between the NPRA and industry stakeholders is critical. Escrowed accounts, enhanced disclosures, and independent audits can rebuild trust in local markets. Oware urges: “Reforms shouldn’t punish savers. Trust is built through transparency, not restriction.”

Points of Caution: Risks of Radical Policy Shifts

Radical measures often backfire. Ghana’s 2023 housing bond market recovery followed years of gradual reforms. Rushing to restore foreign investment without safeguards risks capital flight. Additionally, global asset managers warn: “Overreliance on dollarized assets could trigger panic if reserves falter again.”

Comparison: Lessons from Regional Peers

African nations with robust pension systems—like South Africa and Botswana—maintain balanced approaches. South Africa’s Housing Authority Fund allows 20% offshore investments, while Botswana’s Pension Fund permits 30% in dollar-denominated assets. These nations combine homegrown reforms with strategic global exposure, offering Ghana a template.

Legal Implications: Regulatory Overreach or Compliance Burden?

While no laws explicitly prohibit offshore investments, the NPRA’s reinterpretation of its mandate raises legal questions. Critics argue the ban exceeds its statutory authority under the 2005 Pensions (Amendment) Act, which prioritizes “investor flexibility.” Lawyers like Akwatia Kpone of Alitheia Legal Services caution: “If challenged in court, the NPRA’s directives could face judicial scrutiny.”

Conclusion: A Balancing Act for Ghana’s Future

Ghana’s policy underscores a familiar dilemma: short-term fixes vs. long-term growth. While the cedi’s recent rally and domestic bond issuance are encouraging, a blanket ban on offshore investments threatens to erode years of financial sector progress. For policymakers, the path forward lies in hybrid models—one that nurtures local markets without stifling the diversity that ensures resilience.

FAQ: Addressing Common Questions

1. Why did Ghana ban offshore investments?

To stabilize the cedi after debt restructuring and boost liquidity in domestic housing bonds.

2. How do pension funds hedge risks?

By investing in foreign assets, which offset local currency depreciation and economic shocks.

3. Is the ban legally enforceable?

Its legality is debated; stakeholders may challenge it via the courts if it violates existing pension laws.