This chapter analyses the role of African insurance companies and pension funds as key institutional investors. It first examines the insurance and pension fund markets in Africa and highlights the factors that limit their role in capital markets. It also discusses the importance of unlocking their potential for capital market development and offers key policy considerations.
Africa Capital Markets Report 2025
Abstract
Insurance companies and pension funds, as long-term investors, can be powerful drivers of economic growth. By pooling premiums and contributions, they can mobilise large amounts of capital, boost market liquidity, increase trading volumes, and influence pricing.
In Africa, this potential remains largely unrealised. Insurance markets are small, as insurance penetration is only half of the global average, 3.5% of GDP as opposed to 7% globally. The value of assets managed by pension funds is also small relative to other parts of the world, equivalent to 22.6% of GDP compared to 33.9% on average globally.
The life insurance sector, which is typically a key source of long-term investment that is critical for capital market development, is smaller than the non-life insurance sector, which usually has a shorter-term and lower risk approach to investment. Expanding life insurance markets could bring significant benefits for capital market development. Improvements in financial literacy, the introduction of innovative distribution channels, and greater efforts to leverage digital tools could all help reach new life insurance policyholders. Banks could also take a more active role in distributing life insurance products.
Clear regulatory requirements and risk-based supervision are critical to ensuring confidence in the life insurance products that policyholders rely on for long-term security. Regulators should ensure that legal frameworks protect policyholders’ interests and foster confidence in the system. International standards can provide key guidance for strengthening oversight and governance practices.
There are a number of constraints to the growth in the value of assets managed by pensions fund. Participation in asset-backed pensions remains low due to their voluntary nature and to high levels of informality in the labour market. Introducing automatic enrolment or mandates for all workers could expand coverage. The regulatory and supervisory framework needs to be robust, transparent and clear in line with the OECD Core Principles of Private Pension Regulation.
Most African pension funds invest heavily in government bonds, limiting their impact on capital market development. Developing stock exchanges and corporate bond markets, as suggested in chapter 2 and 3, would provide additional investment options, help diversify portfolios and channel funds toward productive sectors. Authorities could also promote private investment in infrastructure projects by encouraging the establishment of consortiums that could pool resources and overcome the size fragmentation that limits infrastructure investment.
Finally, addressing capacity constraints such as a lack of in-house expertise is crucial. Asset managers of pension funds may lack the needed expertise to invest in complex assets or infrastructure. Authorities can help by publishing research, reports and market data, and providing clear frameworks and definitions for complex assets.
Insurance companies and pension funds can play a role in developing capital markets and fostering economic growth in Africa. Household savings can flow into capital markets directly through the purchase of financial instruments or indirectly through insurance premiums and pension contributions. Insurance companies and pension funds can create large pools of funds from the premiums and contributions they collect to invest into productive assets.
However, the small size of insurance markets and pension funds in Africa, relative to other regions, limit their potential role to support the development of capital markets. Recent estimates show that insurance companies and pension funds across Africa hold approximately USD 775 billion in assets (Africa Finance Corporation, 2025[1]), of which insurance companies held USD 320 billion and pension funds USD 455 billion. Demand for insurance products and participation in pension schemes is low, likely as a result of various factors such as the absence of mandates to save for retirement in asset-backed plans or acquire insurance, high levels of “informality”,1 low financial literacy, and limited public trust in formal financial institutions (Africa Finance Corporation, 2025[1]).
In addition, minimal investment allocations to equites, corporate bonds and alternative investments limits the contribution of insurance companies and pensions funds to capital market development. Increasing investment into long-term assets would support the development of stock exchanges and corporate bond markets and improve capital market depth. However, the asset allocation of pension funds in Africa remains concentrated in government securities. The chapter explores the reasons behind this and provides policy guidance.
8.1.1. Size of insurance and pension fund markets in African countries
The size of insurance companies and pension funds in most African countries is small compared to global peers. This limits the funds that they could channel to capital markets and invest in productive assets.
Size of the insurance market in African countries
Insurance penetration in Africa is low relative to other regions. In Africa, the insurance penetration rate, measured as total insurance premiums written as a percentage of GDP, is half of the global average and less than half of the OECD average (Figure 8.1).2
Insurance penetration in Africa is low compared to other regions
Source: Swiss Re Institute (2024[2]), Sigma 3/2024-World insurance: strengthening global resilience with a new lease of life, https://www.swissre.com/dam/jcr:2d26776f-20e4-4228-8ee0-97cec2ddb3c4/sri-sigma3-2024-world-insurance.pdf
The share of income spent on insurance in Africa is significantly lower than in other regions. While GDP per capita in Africa is 3 times lower than global GDP per capita, premium per capita is 19 times lower (Figure 8.2). As a result, Africa’s share of the global insurance market was only 0.9% in 2023 (Swiss Re Institute, 2024[2]).
The share of income spent on insurance (insurance density) is low in Africa
Note: GDP per capita is based on purchasing power parity (PPP) with data in constant 2021 international dollars. An international dollar has the same purchasing power over GDP as the US dollar has in the United States.
Source: Swiss Re Institute (2024[2]), Sigma 3/2024-World insurance: strengthening global resilience with a new lease of life, https://www.swissre.com/dam/jcr:2d26776f-20e4-4228-8ee0-97cec2ddb3c4/sri-sigma3-2024-world-insurance.pdf ; World Bank (n.d.[3]), “GDP per capita, PPP (constant 2021 international $)”.
Insurance premiums in Africa are concentrated in a limited number of countries. Five countries (South Africa, Morocco, Egypt, Kenya and Nigeria) account for 87% of premiums, with South Africa alone accounting for more than two-thirds of collected premiums (Figure 8.3). The insurance penetration rate in South Africa at 11.5%, is significantly higher than other African countries (Figure 8.4). Morocco, Egypt and Kenya are the next largest insurance markets in Africa, although insurance penetration rates are significantly lower. Namibia has the second highest penetration rate, although its overall market weight is significantly smaller.3
Insurance premiums in Africa are concentrated in a few countries
Source: African Insurance Organisation (2024[4]), Annual Report 2024, https://african-insurances.org/wp-content/uploads/2024/10/2024_AIO_e_Final1_Web-1.pdf
Insurance penetration varies widely in Africa, and is highest in South Africa
Source: Swiss Re Institute (2024[2]), Sigma 3/2024-World insurance: strengthening global resilience with a new lease of life, https://www.swissre.com/dam/jcr:2d26776f-20e4-4228-8ee0-97cec2ddb3c4/sri-sigma3-2024-world-insurance.pdf
The non-life insurance sector dominates the insurance landscape in Africa, as in most parts of the world.4 Non-life insurance contracts are mostly short-term contracts and therefore non-life insurers’ investment allocations tend to be short-term. Life insurance contracts mostly have long-term durations and therefore life insurers will often have longer-term investment objectives that could lead to a greater contribution to capital market development and economic growth. However, life insurance represents less than 30% of insurance policies in many African countries (Africa Finance Corporation, 2025[1]). The higher uptake of non-life insurance, including auto, health and industry insurance, is mainly due to compulsory insurance requirements (Africa Finance Corporation, 2025[1]). Overall, the life insurance penetration rate in Africa was 2.4% in 2023, below the 2.9% global average and 3.3% OECD average (Swiss Re Institute, 2024[2]).
Size of assets under management in pension funds in African countries
Pension participation is low in many African countries. As a result, the value of assets managed by pension funds is small relative to other parts of the world. Low participation mainly stems from limited income and the dominance of informal and rural employment (Africa Finance Corporation, 2025[1]). In many African countries, pension systems only cover formal sector salaried employees such as public sector and formal private sector employees, and do not comprehensively cover “informal” sector workers (APSA, 2024[5]).1 Africa has the highest rate of informal employment in the world, at 85.3% in 2023 (ILO, n.d.[6]).
Low participation is also driven by the prevalence of voluntary, rather than mandatory, pensions schemes, as participation is lower in voluntary schemes. Voluntary occupational pension plans are the most common types of pension plans in Africa (Table 8.1) and are available in all countries except Malawi and Nigeria. Most countries also allow voluntary personal pension plans. Among countries with mandatory schemes, most implement them through occupational pension plans that are usually only available to formal employees.
Note: Access to occupational pension plans is linked to an employment or professional relationship between the plan member and the entity that establishes the plan (the plan sponsor). Participation in mandatory occupational pension plans is mandatory for employers, while the establishment of voluntary occupational pension plans is voluntary for employers. Access to personal pension plans does not have to be linked to an employment relationship. Mandatory personal pension plans are personal plans that individuals must join or which are eligible to receive mandatory pension contributions. Participation in voluntary personal pension plans is voluntary for individuals.
Source: OECD Global Pension Statistics
The size of assets managed by pension funds in most African countries is small compared to global peers. Africa’s share of global GDP based on purchasing power parity was 5.2% in 2023, while Africa’s share of the global pension fund assets was lower than 1% (IMF, 2025[7]; OECD, 2025[8]). Pension funds in Botswana, Namibia and South Africa have higher pension assets-to-GDP ratios than the OECD and global averages (Figure 8.5). However, 12 out of 16 African countries have pension assets-to-GDP ratios below the African average which was 22.6% in 2023. Pension assets-to-GDP ratios ranged from 1.3% in Mozambique to 103.6% in Namibia, highlighting the remarkable divergence across African countries.
The size of pension funds` assets is small in most African countries compared to global peers
Note: The data cover autonomous pension funds except in Namibia and Zimbabwe where they also include pension insurance contracts. The total assets of South African pension funds for 2023 is estimated from FSCA Report and GDP of South Africa for 2023 is retrieved from Stats SA; total assets of pension funds to GDP ratio for Uganda is retrieved from URBRA; total assets of pension funds to GDP ratio in 2023 for Zimbabwe is estimated by taking the average of previous 4 years.
Source: OECD Global Pension Statistics; FSCA (2025[10]), 2023 Retirement Funds Statistical Report, https://www.fsca.co.za/Regulated%20Entities/Regulated%20Entities%20Documents/2023%20Pensions%20Statistical%20Report.pdf; Stats SA (2023[11]), Statistical Release, Gross Domestic Product-Fourth quarter 2023, https://www.statssa.gov.za/publications/P0441/P04414thQuarter2023.pdf; URBRA (2024[12]), Retirement Benefits Sector Annual Report 2022/2023, https://urbra.go.ug/download/retirement-benefits-sector-annual-report-2022-2023/?wpdmdl=5260&refresh=6842ebdc1c7ec1749216220
8.1.2. Asset allocation of African pension funds, underlying factors and potential consequences
The contribution of insurance companies and pension funds to capital market development depends on how they allocate their investments. Examining how African pension funds allocate their assets, the factors that explain that allocation, and the potential consequences of their investment allocation, can shed light on potential policies to improve the contribution of pension funds to capital market development.5
Asset allocation of African pension funds
African pension funds mainly invest in government securities which limits their role in capital market development. On average, pension funds allocated 44.4% of their investments to bills and bonds at the end of 2023, 26.9% to equities, 11.3% to cash and deposits and 15.9% to “other” assets (Figure 8.6). In Ghana, Nigeria, Uganda, Mozambique, Egypt, Angola and Kenya, the share of bills and bonds in pension funds’ portfolios was higher than the regional average. By contrast, in Botswana, Lesotho, Malawi, Mauritius, Morocco, Namibia and Zambia, the share of equities was higher than the average. In addition, pension funds in Kenya, Lesotho, South Africa, Zambia and Zimbabwe allocated a higher share their investment to “other” assets than the regional average. Pension funds in Angola and Egypt stand out with their higher allocations to cash and deposits, at 40.4% and 24.6%, respectively.
Pension funds in Africa mainly invest in bills and bonds
Note: The countries are ranked by their allocation to bills and bonds. CIS means Collective Investment Scheme and is shown only when the look-through is unavailable. The “other” category includes loans, land and buildings, unallocated insurance contracts, hedge funds, private equity funds, structured products, other mutual funds that are not invested in equities, bills and bonds or cash and deposits, and other investments. Data refer to 2021 for Mozambique and Uganda.
Source: OECD Global Pension Statistics
Government securities are the dominant instruments among bills and bonds in the portfolios of most African pension funds. For example, in Ghana, the share of government securities in private pension fund investments was 81% in 2023 (NPRA, 2024[9]). In Kenya, pension schemes have also invested heavily in government securities, which accounted for 47.5% of total assets under management in 2023 (RBA, 2024[10]). In Nigeria, pension funds’ assets were mainly invested in Federal Government Securities, which accounted for 64.9% of total assets in 2023 (PenCom, 2024[11]). In Uganda, the investment portfolio composition of pension funds is significantly skewed towards government bonds, with more than 79% of the funds allocated to government securities in 2023 (URBRA, 2024[12]). In Zambia, the share of government securities in pension schemes’ investment was almost 34% in 2023, while the share of corporate bonds was 2% (PIA, 2025[13]). Additionally, the share of government bills and bonds in the total bond investment of pension funds was 100% in Angola, 99.8% in Egypt, 94.1% in Zambia, and 93.9% in Malawi in 2023 (OECD, 2025[8]).
The role of pension funds in domestic capital markets also depends on how much they may invest domestically as opposed to abroad. While pension funds may invest abroad for reasons such as limited asset availability in domestic capital markets, and to diversify and mitigate country-specific risks, this can deprive domestic markets from needed investment.
Investing abroad can offer opportunities and present risks. Pension funds investing abroad can access broader investment opportunities to diversify their portfolio. They can invest in assets that may not be available in domestic capital markets. They can reduce the reliance on one capital market and mitigate the impact of localised risks such as macroeconomic and political instability. On the downside, investing abroad can increase currency risks and raise transaction costs, such as currency conversions and regulatory compliance expenses. It can also lead to capital flowing out of the domestic market rather than funding the local economy. Additionally, capital outflows can result in depreciation of the domestic currency due to a decline in the demand for currency. Over 60% of pension fund assets in Botswana and more than 30% in Mauritius were invested abroad in 2022, limiting pension funds’ potential to support domestic capital markets and the local economy (Table 8.2).
As a percentage of total investment
Note: Data refer to end-2023 for Zambia
Source: OECD Global Pension Statistics
Factors potentially affecting the asset allocation of African pension funds
Pension funds’ decisions on how to invest depend on several factors, including market and macroeconomic conditions, political stability, and the regulatory framework. This sub-section discusses some common factors that may be affecting the asset allocation of African pension funds, although the significance of these factors is likely to vary from country to country.
Underdeveloped capital markets and limited asset availability may affect the asset allocation of African pension funds. Many stock exchanges in Africa remain small, with few listed companies and low market capitalisation (AfDB, 2023[14]; ASEA, 2022[15]). Additionally, corporate bond markets are in their infancy in many African countries and non-existent in some others (Otchere, Ofori-Sasu and Abor, 2022[16]). Among African countries, only companies in South Africa and Mauritius issued corporate bonds in 2023 (chapter 3). In addition, in many African countries, the availability of investment options in alternative assets such as infrastructure, real estate investment trusts, private equity and venture capital remain limited (IFC, AFDB, MFW4A, 2022[17]).
High yields on government securities may also have a crowding out effect in Africa. Crowding out occurs when a significant share of financial resources is directed towards a particular asset class, restricting the availability of capital for other investments. In many African countries, governments issue high-yield government bonds to meet their budgetary needs. The high yields reflect greater sovereign default risks as many African governments became more indebted in 2022 and 2023, along with growing inflation expectations (EIB, 2024[18]). However, despite these higher yields, government securities are generally considered to have relatively low default risk, which makes them a preferred asset for investors.
The availability of government bonds with longer maturities should be attractive to pension funds, given their long-term investment horizons. In most African countries, governments issue bonds with maturities longer than 10-years (Table 8.3).
In USD millions and as a percentage of total issuances
Source: OECD Capital Market Series dataset
Political stability may have an impact on the asset allocation of African pension funds, especially when choosing between bills and bonds versus equities. Many African countries face varying degrees of political instability. In some African countries with the higher political stability indexes (reflecting greater political stability), such as Botswana, Mauritius and Namibia, pension funds have mainly invested in equities (Table 8.4). By contrast, in countries with lower political stability indexes, such as Nigeria, Mozambique and Kenya, pension funds have mainly invested in bills and bonds. However, in some countries, other factors may deter investment in bills and bonds. For example, in Zimbabwe, where political instability is high relative to other African countries, the share of bills and bonds in pension funds’ portfolio is low, as pension funds have allocated 69.3% of investments to “other” assets and only 0.9% to bills and bonds. This may be due to extremely high inflation as the inflation rate in Zimbabwe was 667% in 2023 as measured by the consumer price index, the highest in the world (IMF, 2025[19]). Inflation deteriorates the real return of bills and bonds, causing investors to prefer assets that hedge against inflation such as commodities and real estate.
Note: Political Stability and Absence of Violence/Terrorism measures perceptions of the likelihood of political instability and/or politically motivated violence, including terrorism. Estimate gives the country's score on the aggregate indicator, in units of a standard normal distribution, i.e. ranging from approximately -2.5 to 2.5. The highest value was in Cayman Islands: 1.63 points and the lowest value was in Syria: -2.75 points.
Pension fund asset allocation data for Mozambique and Uganda refer to 2021.
Source: OECD Global Pension Statistics; World Bank (2025[20]), Political Stability and Absence of Violence/Terrorism: Estimate, https://data.worldbank.org/indicator/PV.EST?most_recent_value_desc=false
Regulatory constraints on offshore investments may affect the asset allocation of pension funds. Many African countries implement restrictions on foreign investments (OECD, 2025[21]). For instance, Ghana applies a separate 5% limit on foreign investment into equities, corporate bonds and private investment funds. In Egypt, pension funds are not allowed to invest in foreign assets. In Mauritius, there is a 10% limit per issuer applied to foreign listed private sector bonds and a 5% limit per issuer for foreign unlisted private sector bonds. In Mozambique, investments in assets located abroad is limited to a maximum of 10% of the pension funds' assets. Uganda prohibits investment of retirement benefits scheme funds outside East Africa. Consequently, restrictions on offshore investments, coupled with the limited asset availability in domestic markets, could force pension funds to invest heavily in domestic government securities.
Portfolio ceilings or floors on the investment of pension funds by broad asset classes do not seem to have a significant impact on the asset allocation of pension funds in most African countries. Investment in equities is well below its investment limit, except in Nigeria. Additionally, most countries do not impose investment floors for bills and bonds, except in Egypt (Table 8.5).
Note: The table presents the countries with a share of bills and bonds in pension funds’ portfolios higher than the average across African countries. The OECD Annual Survey of Investment Regulation of Pension Providers 2023 is used as the basis for investment limits. For countries where the information is missing in 2023, marked with “*”, the 2025 edition of the survey is used. For Angola, the source for the limit on equities is the Angolan Insurance Regulation and Supervision Agency (ARSEG).
Source: OECD Global Pension Statistics; OECD (2023[22]), Annual Survey of Investment Regulation of Pension Providers 2023, https://www.oecd.org/content/dam/oecd/en/topics/policy-sub-issues/asset-backed-pensions/2023-Survey-Investment-Regulation-Pension-Providers.pdf; OECD (2025[21]), Annual Survey of Investment Regulation of Pension Providers 2025, https://www.oecd.org/content/dam/oecd/en/topics/policy-sub-issues/asset-backed-pensions/2025-Annual-Survey-of-Investment-Regulation-of-Pension-Providers.pdf
Additionally, limits on investment in domestic alternative assets such as real estate, private investment funds, and loans, also seem non-binding in most African countries.6 In Angola, Egypt, Ghana, Lesotho, Malawi, Mauritius and Mozambique, either no limits are imposed on domestic alternative assets, or, when there are limits, the allocation to these assets is well below the imposed limits (Table 8.6).
Imposed limits on investments in domestic alternative assets may be more of a constraint on investment in some types of alternative assets than others. In Botswana, Morocco, Namibia, Uganda and Zambia, investment in some types of domestic alternative assets is either not allowed or limited and portfolio allocations are close to the imposed limit for that asset. However, there is scope to invest more into other domestic alternative assets. For instance, pension funds are not allowed to invest in loans in Uganda, although pension funds could invest more in real estate. By contrast, in some other African countries such as Kenya, South Africa, Zimbabwe and Nigeria, investment limits may be a constraint on pension funds ability to invest in domestic alternative assets as the portfolio allocation is close to the imposed limits.
Note: “RE’’ refers to Real Estate, “PIF” refers to Private Investment Funds, “REIT’’ refers to Real Estate Investment Trust. The OECD Annual Survey of Investment Regulation of Pension Providers 2023 is used as the basis for investment limits. For countries where the information is missing in 2023, marked with “*”, the 2025 edition of the survey is used. For Zimbabwe, the source for the limit on loans is the Insurance and Pensions Commission of Zimbabwe.
Source: OECD Global Pension Statistics; OECD (2023[22]), Annual Survey of Investment Regulation of Pension Providers 2023, https://www.oecd.org/content/dam/oecd/en/topics/policy-sub-issues/asset-backed-pensions/2023-Survey-Investment-Regulation-Pension-Providers.pdf ; OECD (2025[21]), Annual Survey of Investment Regulation of Pension Providers 2025, https://www.oecd.org/content/dam/oecd/en/topics/policy-sub-issues/asset-backed-pensions/2025-Annual-Survey-of-Investment-Regulation-of-Pension-Providers.pdf
The size of pension funds may also affect their asset allocation. African pension funds are relatively small and pension markets are often fragmented (IFC, 2023[23]). For instance, there were 4 904 pension funds in South Africa (FSCA, 2025[24]), 1 027 in Kenya (RBA, 2023[25]) and 215 in Ghana (NPRA, 2024[9]) in 2023. Fragmentation may lead to limited investment opportunities for small funds as they lack the scale needed to invest in large projects such as infrastructure.
Lack of in-house expertise may also affect the asset allocation of African pension funds. Alternative investments such as real estate, infrastructure, private equity and private debt usually involve more complex financial structures than traditional investments and investing in these assets requires specialised knowledge (CFA Institute, n.d.[26]) and investment teams. Many pension funds do not possess the technical knowledge required to evaluate project risk, perform due diligence, or assess investments in infrastructure and private markets (Africa Finance Corporation, 2025[1]). This could limit their ability to invest in these assets. For instance, one of the largest South African pension funds has noted that many local funds continue to exhibit a limited interest in alternative investments like private equity because they do not fully understand the asset class and are adverse to the perceived risks of illiquidity with limited returns in the initial phases (IFC, AFDB, MFW4A, 2022[17]).
Potential consequences of the asset allocation of African pension funds
The impact of African pension funds investing in government bonds, on the economy varies depending on the use of those funds. Investing in government bonds provides governments with access to capital for financing their various expenditures. If governments use this capital for long-term investments, such as financing infrastructure, it could lead to an increase in productivity. However, if governments use this capital for current expenditures such as salaries of public sector workers or utility costs, it could limit pension funds’ potential to support the financing of productive activities.
The asset allocation of pension funds may also pose a risk to future retirement income adequacy. Heavy reliance on government bonds may lead to vulnerability to inflation and interest-rate hikes. In 2022, 10 out of 12 countries had negative real investment returns (Table 8.7).7 In 2023, pension funds in Angola, Egypt and Nigeria, where more than half of pension fund’s assets are allocated to bills and bonds, faced negative real returns (OECD, 2025[8]). Negative real returns may reduce the amount of money retirees accumulate to finance retirement.
In per cent
Source: OECD Global Pension Statistics
As institutional investors, insurance companies and pension funds can play an important role in boosting capital markets and in increasing innovation and productivity in Africa.
First, they can serve as catalysts for the development of stock exchanges and corporate bond markets. Many stock exchanges are underdeveloped in Africa, (AfDB, 2023[14]), while corporate bond markets are non-existent or in their infancy (Otchere, Ofori-Sasu and Abor, 2022[16]). As large investors, insurance companies and pension funds could provide a critical source of demand for corporate bond issuances or initial public offerings and incentive companies to seek capital market funding. Additionally, they could also contribute to the development of stock and corporate bond markets through improved corporate governance. For instance, when they invest in equities as large shareholders, they could campaign for better management practices, performance, accountability and transparency. Increased accountability and transparency will enhance trust in companies, making investors more willing to invest in bonds and equities.
Second, institutional investors can improve the depth of African capital markets, which is limited in most markets. Equity markets are mostly small, with low liquidity and few listed securities, while bond markets face low liquidity and limited benchmarks for pricing securities (IFC, 2024[27]). If insurance companies and pension funds were to grow in Africa and invest in domestic capital markets, they could boost trading volumes and market liquidity. This could also lead to improvements in price benchmarking and a reduction in transaction costs.
Third, a stronger institutional investment ecosystem will increase the strength of the financial system more broadly in Africa. In contrast to short-term investors, insurance companies and pension funds with their long-term liabilities and investment horizons can hold assets for extended periods. If insurance companies and pension funds in Africa invest in long-term assets, they could increase stability in capital markets, enhancing investor confidence and the resilience of the financial system.
Fourth, institutional investors can help in addressing Africa’s infrastructure gap. Africa has a large infrastructure financing gap, estimated at USD 130 –170 billion a year (IFC, AFDB, MFW4A, 2022[17]). Many African countries face a wide range of infrastructure challenges that impede economic growth, service delivery, and overall development. These challenges include a lack of affordable housing, inadequate transportation systems, energy deficits and limited digital infrastructure. If insurance companies and pension funds invested more in infrastructure, either directly or through an infrastructure fund, they could help reduce Africa’s infrastructure gap.
Through a greater role in capital markets, institutional investors could also increase Africa’s resilience to climate-related hazards and help close the energy gap while maximising risk-adjusted returns. Climate-related hazards such as floods, storms, wildfires and drought are severe in Africa (WMO, 2022[28]). They directly affected more than 110 million people, resulting in around 5 000 fatalities, and caused a total of over USD 8.5 billion in economic damages in 2022 (WMO, 2022[28]). Moreover, the International Energy Agency estimates that 600 million people throughout the continent lack access to energy, which is nearly half of the total population (World Economic Forum, 2023[29]). By 2050, Africa’s population is expected to double and there is a need to step up energy efficiency measures and renewable capacity (World Economic Forum, 2023[29]). It is also estimated that Africa may need USD 2.5 trillion climate finance between 2020 and 2030, or USD 250 billion each year on average (Climate Policy Initiative, 2022[30]).
Finally, a greater role for institutional investors in African capital markets would help foster entrepreneurship and innovation. In Africa, entrepreneurs often encounter financial challenges that hinder business start-up and innovations. For instance, the cost of starting a new enterprise in Africa is on average around 120% of annual income per capita, compared to around 50% globally and less than 1% in North America (Assenova and Agarwal, 2023[31]). As a result, new enterprise creation is out of reach for large sections of African populations (Assenova and Agarwal, 2023[31]). Entrepreneurs can raise funding in private capital markets through assets such as private equity, private debt and venture capital. In general, retail investors may be reluctant to invest in these assets due to limited liquidity, long-term commitments and risky returns. By contrast, insurance companies and pension funds have more financial expertise to handle risks and illiquidity. Their long-term liabilities and investment horizon also enable them to tolerate temporary underperformance. If insurance companies and pension funds in Africa were to invest more in private equity, private debt and venture capital, they could provide entrepreneurs with capital for innovation, expansion or restructuring.
The size of insurance markets and of the assets managed by pension funds is small in Africa’s countries, compared to global peers. This limited size constrains their capacity to mobilise long-term savings and channel them towards productive investment. Moreover, the investment portfolios of pension funds are heavily allocated to government securities. This concentration in allocation may limit diversification and reduce the potential of insurance companies and pension funds to support capital market development and economic growth. Other barriers include the limited life insurance market, and the low participation in asset-backed pensions, as life insurers and pension funds tend to have long-term investment horizons. Low participation in pensions markets is largely due to the voluntary nature of pension systems and the high levels of “informality” in African labour markets.
There are several measures that national authorities could implement to promote a bigger role for insurance companies and pension funds in African capital markets.
Regulators should ensure that the regulatory framework in place for life insurance markets protects the interests of policyholders and promotes confidence. Additionally, supervisors could conduct risk-based supervision in life insurance markets. Clear regulations and risk-based supervision are particularly important in life insurance since policyholders need assurance that the insurer will be able to meet their claims over such long time periods. The OECD Guidelines on Insurer Governance can provide guidance.
National authorities could also support the development of life insurance markets through various mechanisms. These include establishing financial literacy programmes to develop knowledge of life insurance products and developing new distribution channels and digital tools. For example, banks could have a more active role in the distribution of life insurance products.
Increasing participation in asset-backed pensions represents another critical reform. Authorities could increase participation through mandates or by implementing automatic enrolment. The focus should be on informal workers who do not have to save for retirement or are excluded from standard pension plans. Personal pension plans such as micro pension plans may help to cover workers who are excluded from pension schemes. Some African countries have micro pension programmes targeting “informal” sector workers. For instance, Kenya launched Mbao Pension Plan in 2011 to extend pension and savings scheme coverage to the informal sector (Kwena and Turner, 2013[32]). Uganda also has two voluntary micro-pension schemes targeting low-income informal sector workers: the Mazima voluntary individual retirement benefits scheme and the Kampala City Traders Association Uganda Provident Fund Scheme (APSA, 2024[33]).
To strengthen the role of pension funds as institutional investors, authorities should also encourage greater portfolio diversification towards corporate bonds, equities, infrastructure, and private markets. The absence of corporate bond markets in many African countries and low capitalisation in stock exchanges are major impediments to pension fund investment in these assets. Accordingly, efforts to develop domestic capital markets, including national stock exchanges and corporate bond markets, would be essential to expand investment opportunities.8
A coherent policy and regulatory environment are vital for promoting long-term investment. Regulators could design or enhance frameworks that explicitly facilitate such investment, drawing on the G20/OECD High-Level Principles of Long-Term Investment Financing by Institutional Investors, which identify a set of general recommendations to promote long-term investment by institutional investors (OECD, 2013[34]). These principles provide guidance on financial regulation, valuation and tax treatment to facilitate long-term investments. A clear regulatory framework would also help build investors confidence in these assets.
Authorities could also promote investment in infrastructure projects. In Africa, many pension funds are small and pension markets are often fragmented, making it difficult to invest in large projects such as infrastructure. The establishment of consortiums may address this challenge by bringing pension funds together. For instance, Kenya Pension Funds Investment Consortium (KEPFIC) was launched in 2020 to pool assets for infrastructure investments (KEPFIC, 2025[35]). Additionally, the Asset Owners Forum of South Africa (AOFSA) is a South African consortium established to increase the participation of pension funds in infrastructure and real estate assets (Cross Boundary Group, n.d.[36]).
Finally, pension funds need policies to help them address capacity constraints such as a lack of in-house expertise. Authorities could consider funding or publishing research and market data to help asset managers analyse complex assets. They could also provide clear frameworks or definitions on complex assets to reduce uncertainty. Strengthening technical and analytical capacity within pension funds will enable more sophisticated investment strategies, thereby enhancing their role as long-term investors and contributors to capital market deepening and sustainable economic growth across Africa.
References
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← 1. “Informal” workers include also those workers that are not obliged to save for retirement like the self-employed.
← 2. The data for Africa includes South Africa, which is in the top three countries with the highest insurance penetration among 54 countries, according to the OECD Global Insurance Market Trends 2024.
← 3. Namibia is in the “others” category in Figure 8.4. Its share is 1.5 percent.
← 4. This is the case in most reporting jurisdictions around the world, what matters is the importance of asset-backed pensions and the role of life insurance in the pay-out phase of retirement systems (OECD Global Insurance Market Trends 2024).
← 5. The analysis here abstracts from looking at the asset allocation of insurance companies for lack of data.
← 6. Joint research study conducted by the African Development Bank Group, the International Finance Corporation and Making Finance Work for Africa reaches a similar conclusion about the impact of investment limits in African countries (IFC, AFDB, MFW4A, 2022[17]). The study covers Botswana, Ghana, Kenya, Namibia, Nigeria, South Africa and the West African Economic and Monetary Union (WAEMU). It concludes that based on available data, national regulatory ceilings do not pose major impediment to further diversification in these markets.
← 7. This was also the case in many OECD countries.
← 8. Chapters 2 and 3 in this publication explain how.