Pensions industry loses $800 million in two years to weakening cedi
Since 2020, the pensions industry has lost the dollar value of its funds by approximately US$800million on the back of the cedi’s depreciation, according to executive secretary of the Chamber of Trustees, Thomas Esso.
He said although the cedi value of assets under management (AUM) has increased, the dollar value of those assets has fallen.
Detailing the situation in an interview with the B&FT, Esso said: “The effect of the [local] currency’s depreciation has affected the assets under management in the pensions industry. In 2020 the industry in cedi terms was about GHC22 billion, and when you juxtapose that with the dollar there was about US$3.8 billion.
“Currently, we are looking at an estimate that is in 2022, let’s say in July; we are looking at an estimate of about GHC30 billion. But when you juxtapose that with the dollar that’s about US$3billion. If you look at the dollar from US$1 to GHC10, that is about $3 billion.
“So, in terms of dollar value, our assets have been lost. We’ve lost almost US$800million in terms of the dollar value of assets under management, and that is a problem,” Esso said.
For instance, between 2012 and 2019 the assets under management of a Zimbabwean pension administrator called Minerva shrank from $800 million to US$120 million.
Some industry experts have expressed concern that local pension portfolios are not resilient enough to withstand economic shocks, particularly a sovereign debt crisis.
The CEO of Axis Pension, Afriyie Oware, in an earlier engagement mentioned that this leaves contributors exposed to high risk of value erosion from inflation and interest rates.
Ghana’s headline inflation increased for the 14th consecutive time to 31.7% year on year (y/y) in July 2022 – the highest since Nov 2003. Currently, headline inflation sits 3.2x over the Bank of Ghana’s upper target of 10% and substantially well outside the long-maintained medium-term policy bracket.
“This can be mitigated with some measure of international diversification. Though not feasible in the short-term, it is imperative in the medium-term. Policies targetted at import substitution matched with funding and trade protection should be pursued to create foreign exchange liquidity in the medium-term. If we don’t do these, the Ghanaian retiree will be worse off,” Oware said.
The cedi continues to lose value due to sustained demand for the greenback. During the month of August, the cedi weakened by 7.1 on the interbank market, extending its YTD losses to 26.7%.
However, on the spot market, the USD/GHS pair was 12.8% weaker during the month and 37.6 percent weaker YTD and was quoted at GHC10.2000/ GHC10.3000 at end of August 2022.
On the back of the cedi’s declining strength, Esso maintained that as far as the local currency is eroding, value of pension funds will also be eroding; and as long as the cedi is depreciating, pension assets will also depreciate.
“The truth is that the pensions industry is also committed to ensuring that our funds greatly impact the Ghanaian economy for the economic development of our country. We are not in favour of investing in dollar-denominated assets; we are also not in favour of investing in external instruments, therefore it becomes very little – because if you go to other jurisdictions, they have used pensions to promote economic development, especially to promote impact investment,” he said.
