Ghana's Offshore Investment Crackdown

By Maxwell Akalaare Adombila

ACCRA (Reuters) – Ghana is clamping down on private pension fund managers who wish to invest in offshore assets due to concerns it could exacerbate pressure on its cedi currency, according to three industry sources.

Following pension reforms in 2010, retirement contributions in this cocoa-producing nation experienced significant growth, bolstered by a tiered scheme allowing private firms to manage certain contributions.

As of June, assets under management by the pension fund industry totaled 78.2 billion Ghanaian cedis ($4.93 billion), with over 73% managed by 39 private fund management firms.

Ghana’s state-run pension fund handles mandatory tier one contributions toward employees' retirement benefits, while private firms manage tiers two and three—both mandatory and voluntary contributions, which provide lump-sum payments at or before retirement.

Most contributions are invested in Ghanaian assets, including government Eurobonds. However, private fund managers are eager to pursue offshore investment opportunities following the restructuring of 31 billion cedis of their local holdings.

Ghanaian laws allow private fund managers to invest up to 5% of total assets abroad, translating to approximately 2.8 billion cedis of current assets under management. However, there is disagreement between firms and authorities regarding the need for prior approval for offshore investments.

Some fund managers reportedly ventured into offshore assets earlier this year but were halted by the national pensions regulatory authority (NPRA), which threatened sanctions despite a lack of legal grounds.

NPRA's head, John Kwaning Mbroh, stated that while there is no resistance to offshore investments, government approval is required before proceeding. Discussions are ongoing to clarify rules and asset valuation for contributors and fund managers.

Protecting Liquidity

Ghana is navigating a difficult debt-restructuring process under the G20's Common Framework initiative after defaulting on most of its $30 billion international debt in 2022. Despite some economic recovery, the cedi has depreciated by 25% against the U.S. dollar year-to-date, after a 17% decline in 2023.

A source at the finance ministry expressed concern over balancing the implications of investing pension funds abroad with domestic liquidity and the value appreciation for fund managers. They indicated that while the ministry is not outright rejecting offshore investments, it emphasizes protecting the economy.

Private pension management firms argue that authorities are being overly cautious. They highlight that local mutual funds and African pension funds invest abroad without facing similar restrictions. They contend that the current policies hinder value creation amid high inflation and currency depreciation.

Furthermore, they argue that it is contradictory to allow foreign pension funds to invest in Ghanaian markets while preventing local funds from seeking opportunities abroad. An executive from one of the top five fund managers noted that the proposed 5% allocation to offshore investments is minimal and lacks substantial impact.

($1 = 15.8800 Ghanian cedi)