The rise of Institutional Investments in Africa

Demographic drivers of African Institutional Investment Management

Insurance companies, pension funds, retail investment funds… They all depend on people’s appetite for their products. A lot has already been said about the rapidly growing population in Africa (from 1.2 billion people in 2016, it is expected to double by 2050, according to the INED organization¹). Instead, let’s look at some demographic trends:

• Between 2000 and 2050, the population of Africans aged 20 to 64 years old will be the fastest growing, shifting from 46 to 54 % of the total population, according to the US Census Bureau², thereby fueling Institutional premiums.

• Urbanization is also key to boost institutional investment:

  • It enhances educational standards, favoring the interest and need for financial services;

  • It supports the manufacturing workforce in need of pension and insurance products;

  • It provides investment asset classes (listed equities and bonds, infrastructure, housing and real estate).

• The African urban population is expected to register the fastest growth worldwide, reaching an impressive share of 60% of the total African population in 2050, according to the United Nations (Department of Economics and Social Affairs), up from 27% in 1950³.

• Middle classes traditionally feed most of the Institutional Investments and, in Africa, they should move up from 34% now, to 42% of the total population (ie some 1.1 billion people) in 2060, according to the African Development Bank⁴, following the trend of urbanization and economic diversification towards manufacturing and services sectors.

Current Institutional Investment growth in Africa

Unsurprisingly, these structural changes have already impacted Institutional Investments in Africa.

It is worth noting that total Assets Under Management (AUM) in the 12 major economic powers in Africa will increase from 634 bn USD in 2014 to an expected 1,100 bn USD in 2020, recording a healthy 9.6% average yearly rate over the period, according to figures from local authorities^5, says Nathan Derhy, Head of International Coordination at SGSS.

African pension funds have proved to be very dynamic, reaching close to half a trillion USD of assets⁶, but it is only fair to state that situations vary significantly from one country to another. For example, in Ghana a proper pension framework has been created, where in other countries there is virtually no pension scheme at all today. Hence a huge potential for growth.

The premiums collected by insurers in Africa amount to 3.5% of the GDP according to Riscura⁷. The penetration rate has been growing regularly but, like for pension funds, we can expect a spectacular increase if we compare this to the penetration rate of the most advanced African economic power – South Africa - which registers an enviable 14%.

Anuj Awargal, Chief Financial Officer of Allianz Africa, Insurance company established in 13 African countries with 1500 employees, states that Nigeria and Ghana, for instance, present a promising potential for growth, given the insurance policies under penetration in the middle class⁸.