Global crunch has affected profits for pension funds, says Kanyama

Global crunch has affected profits for pension funds, says Kanyama
Written by Fridah Zinyama
Tuesday, March 31, 2009 4:53:02 PM

LUSAKA economist Chibamba Kanyama has said the global credit crunch has affected profits and growth prospects for most pension funds in the country.

According to Kanyama, some of the recently released financial statements from some leading pension funds showed significant losses for the year 2008 and that the poor performance may already be reflecting in the first quarter of 2009.

“It is important that authorities take a keen interest on the likely impact of this decline mostly on investments,” he said.

Kanyama observed that it was unfortunate that the government had not fully captured the role of pension funds in the economy.

“Though the total contribution of local pension funds and institutional investors is marginally lower than capital inflows through foreign direct and portfolio investments, their impact has a much more direct impact towards economic stability than foreign investments,” he said.

Kanyama added that for more than ten years, pension funds and institutional investors had supported the domestic borrowings of the government that went towards the national budget.

“The same pension funds have been the primary drivers of the equity market through the Lusaka Stock Exchange. And much more recently the pension funds and institutional investors have supported the private sector through private equity and bond finance at an annual sum of more than US $30 million per annum,” he added.

Kanyama said direct investments by the pension funds in various projects were hugely responsible for the recent expansion in domestic investments in the economy.

“This is why the negative performance by most pension funds in the past few months should not only worry the various employer schemes that have investment money in the pension funds but the government as well,” he said. “Some pension funds have been impacted by unanticipated claims from mining companies that seek to fully compensate retrenched employees.”

Kanyama said the poor performance in stocks on both the local and international markets as well as the poor performance of private companies that accessed these funds had also led to the fund deficits.

“The investment exposure for the pension funds in Zambia is towards public and private equities, government securities, the corporate bond market, real estate, money market and offshore investments,” he said. “All these vehicles on average performed poorly in 2008 owing to the economic global crunch.”

Kanyama said while this would have an immediate impact on available funds for investments and support of the government deficit in 2009, the performance should not worry employers and employees who would experience negative bonuses for the year.

“However, it is likely the trend will improve in the medium and long term,” observed Kanyama.