Small and Medium-sized Enterprises (SMEs) make up 92% of all West African enterprises, employ 80% of the workforce, and generate 70% of the region’s GDP. While these businesses are critical to the growth of African economies and job creation, a persistent financing gap is hindering progress. The World Bank Group (WBG) has estimatedthat the financing gaps of developing economies are greater than previously thought, reporting that 40% of SMEs in developing countries “cannot get credit for an unmet financing need of $5.2tn every year, which is equivalent to about 19% of these countries’ GDP.”
As a result, emerging and established fund managers struggle to access local funding, severely limiting their success and exposing them to increased risk. Pensions offer a potential solution to the SMEs’ financing challenges as unlocking pension funding into alternative assets, such as Venture Capital and Private Equity (VC/PE) funds that invest in SMEs, could significantly boost the growth of high-growth SMEs and unleash innovation across Ghana and West Africa for impact.
Impact Investing Ghana’s solution to this SME funding gap is anchored on opening up investment opportunities, with the Pensions Industry Collaborative (PIC) and Ci-Gaba Fund of Funds at its heart. Both programmes are designed to collectively unlock US$250m and US$75m, respectively, in local pension funding in Ghana to address the funding gapfor SMEs in Ghana and West Africa over the next 3 years.
The investment landscape: The story of Ci-Gaba Fund of Funds and PIC
Managed by Savannah Impact Advisory, Ci-Gaba is a catalytic blended finance vehicle that invests in fund managers that invest in SMEs across West Africa. It was designed through a multi-stakeholder collaborative process led by Impact Investing Ghana to finance SMEs, support sustainable development, and provide investment diversification and job creation opportunities across six sectors: agriculture and agribusiness; light manufacturing; healthcare; education; financial inclusion; and technology.
While Ghana’s economy suffers from elevated inflation and subdued growth, its pension market is valued at over $4bn, making up 5.7%of its GDP. Because blended finance protects returns, the Ci-Gaba Catalytic Fund of Funds is an attractive option for local pension funds. It also reduces the perceived risks for investors who are cautious about unconventional financing approaches, and by investing in the local currency, the fund promotes domestic market engagement and stimulates economic growth.
Meanwhile, the PIC has brought together Ghana’s largest pension fund managers, together with pension trustees, regulators, and other pension industry players, to collaborate to increase pension investments into the productive sectors of Ghana’s economy. The PIC has developed the “Pensions Industry Alternative Investment Plan”, a framework for key players in the pensions industry to collaborate with government, regulators, and industry associations to increase pension investments into alternative assets. Key stakeholders include the Ministry of Finance, National Pensions Regulatory Authority, Venture Capital Trust Fund, Ghana Investment Promotion Centre, Ghana Venture Capital and Private Equity Association, and Chamber of Corporate Trustees of Ghana.
PIC has three primary objectives. First, the PIC develops and implements capacity-building programmes that increase the capacity of pension fund managers, pension trustees, and their clients to understand and make informed investments into alternative investments that drive impact. Secondly, it supports the creation of institution-grade investment options that can meet the risk-return requirements of pensions and creates more visibility on the existing pipeline of potential investment options. Lastly, it advocates for an improved regulatory environment and increased understanding of clients of pension funds in order to encourage the set up of more alternative asset venture funds with the right governance and management.
Ghana is uniquely positioned to attract investments, supported by a regulatory framework that allows pension funds to invest up to 25 % of their assets in alternative investments including private equity and private debt. However, many African countries face more significant challenges. Regulatory barriers, such as restrictions on pension fund allocations and limited investment vehicles, hinder the ability of pension funds to invest in alternative assets such as private equity and venture capital, which, in turn, invest in SMEs. In these countries, regulatory reforms are necessary to unlock the potential of pension funds to drive economic growth.
Ci-Gaba and the PIC’s work, therefore, provides a blueprint for other countries to emulate. Their framework emphasises collaboration between government, regulators, and industry leaders to create an enabling environment for pension investments in profitable alternative assets. As more countries work toward regulatory reform, the potential for regional growth and development through pension funds will expand, benefiting SMEs and boosting economic resilience across the continent.
Peer-to-peer learning on unlocking pensions in Ghana and West Africa
Backed by Impacting Investing Ghana, the PIC has invested in training workshops that deliver roadmaps for pension trustees to make investment decisions in respect of the private equity and venture capital asset (PE/VC) class, as well as strategies for managing risks, maximising returns, and achieving diversification.
Impact Investing Ghana also recognises that collaboration and knowledge sharing are vital for success, with peer-to-peer learning as a cornerstone of its strategy. It led an investment workshop at the Pension Strategy Conference, providing a platform for stakeholders to discuss a range of pension management strategies and establish partnerships to drive policy.
It has further led to training workshops to equip participants with the practical knowledge and skills needed to understand the opportunities and risks in PE/VC for the purposes of achieving diversification in the pensions industry. These workshops and training programmes enable pension fund managers and trustees to exchange best practices, investment strategies, and risk management insights. This collaborative environment helps participants demystify pension funding and investments, particularly in alternative assets, such as Ci-Gaba.
Based on the lessons from unlocking pensions for SME growth and impact in Ghana, Impact Investing Ghana is leading efforts to document and share learnings from the PIC and Ci-Gaba initiatives to inform the success of similar efforts aimed at unlocking pension assets in West Africa and across Africa, with particular reference to Nigeria, Kenya, Zambia, and South Africa.
Collaboration and partners
The Ci-Gaba’s success has been fueled by thought partnership and funding from various partners, including the Research and Innovation Systems for Africa (RISA) Fund of UK International Development, and FMO.
Authors:
Amma Sefa-Dedeh Lartey – CEO, Impact Investing Ghana
Mary Afenyie-Abekah – Program Coordinator, Impact Investing Ghana
