Gandy Gandidzanwa and Itai Mukadira

That economic misfortunes have a direct impact on the pension fund sector has never been questioned or doubted.
Could the reverse be true though – that pension fund sector sub-par management could negatively hurt an economy?
Or put slightly positively, could a more efficiently run and managed pension fund industry had helped defend the economic turmoil of the past two decades?
Seems very few have ventured to probe that, as economics has been traditionally accepted as the driver of the fortunes of the pensions sector. But what if, on the extreme, it wasn’t, or rather put more moderately, that the relationship was not as one directional as most have assumed it to be.

While the thoughts are deep, and the viewpoint, admittedly, foreign and stretched in the minds of many, there is a firm school of thought that asserts that if we had managed our pension funds differently, we could have helped alleviate some of the economic pains that we have endured.

Let’s dig in.

Bastions of economic resilience
For starters, pension funds, as long-term investors, could strategically provide counter-cyclical investments, investing more in the face of imminent downturns when other investors were beginning to pull out, thus stabilising the economy and protect it from any impending recessions.
Counter-cyclical investments help prevent deeper economic contractions, and support recovery by ensuring capital flows to sectors that need it most.

By strategically investing in sectors or assets that are less affected by economic cycles, or even benefit during recessions, pension funds could help maintain capital flow when other sources of funding dry up.
Where financial instability and short-termism dominate, pension funds can inject liquidity into key industries, support infrastructure projects, and sustain employment. Such counter-cyclical investments could act as a buffer against economic contraction, mitigating the effects of downturns and preventing the economy from spiralling into collapse by ensuring continuous financial support and economic activity.

As a key aggregator of assets of millions of retirement savers, the pension funds industry has over the decades accumulated large pools of capital that could be intentionally invested in key sectors of the economy.
That could provide the much-needed base level of economic activity, creating and defending jobs, and supporting essential infrastructure, that has been consistently deteriorating right in front of us over the years.
By channelling long-term capital into such essential areas, the pension fund industry could have fostered economic resilience, stimulated growth, and defended jobs, which could have offset any headwinds the economy was encountering.
Such investments would not have only generated steady returns for pensioners, but also contributed to strengthening key industries, ensuring that the economy remained on a solid foundation.

Through investments in strategic sectors, the industry could have promoted sustainable growth and economic diversification – both essential for mitigating any negative exogenous effects on the economy.
The steady, but intentional, flow of capital could have protected the core economic fundamentals of essential services and industries, reducing reliance on volatile external funding and foreign direct investments.

Short-term speculative behaviour has significantly ravaged our economy over the past two decades with a worsening intensity with each year that passes. The industry could, and should, step forward to provide a consistent stabilizing influence by making consistent, long-term investments.
Such investments, strategically diversified by asset class, sector, industry, and geography, could have steadied the financial markets.
They could have had provided a buffer against market crises by offering liquidity and stability, preventing sudden and gradual capital flight that has left our capital markets largely only shadows of their former selves.
They could have cushioned the economy too from any adversarial effects that were not of own making. Elsewhere, pension funds are known to anchor financial markets with their disciplined, patient, investment approach, creating very resilient economic environments.

A self-sufficient senior citizenry lessens the need for state intervention, allowing the government to allocate resources to other critical areas.
By alleviating public financial strain, pension funds could contribute to greater economic stability, helping to defend the economy from shrinking under fiscal pressures.
Regular pension payments, not only reduce the burden on government welfare programs, but also stimulate rural economic growth, thus minimising rural-urban migration across all age groups.

Foreign investment magnets
Pension funds, as large institutional investors, are expected to naturally demand higher standards of corporate governance and transparency from the companies they invest in.
That, if consistently and relentlessly applied, can have a broader positive effect on the economy by encouraging better management practices in the private sector.
Raising governance standards and promoting transparency are effective tools for reducing risk of corporate fraud and corruption, increase investor confidence, and improve the overall business environment.
As major shareholders, pension funds could act responsibly and unambiguously start to demand high standards of accountability in investee companies.
Boards, through their asset managers, should step up their shareholder activism and firmly influence corporate behaviour, push for responsible management, ethical practices, and financial transparency.
That would foster a well-rooted culture of good corporate governance that can squeeze out corrupt activities, and attract clean capital.

With transparent governance and strong management practices, the pension fund industry would act as a beacon of stability and sound governance even amidst broader economic challenges.
That would have helped signal to foreign investors that there are still, and have been, continued pockets of stability within the economy.
As the funds invest in stable, well-regulated sectors, foreign investors could have been more inclined to invest in those sectors too.
By attracting foreign capital, pension funds could help inject the much-needed external resources into the economy – with its consequent benefits of shoring up balance of payments, stabilisation of our currency, and financing of critical projects.

Through demonstrating a commitment to prudent, long-term investment strategies and robust risk management, pension funds build investor confidence, indicating that certain sectors of the economy remain well-managed and profitable.
This credibility can draw foreign investors seeking stable returns, who may otherwise be deterred by broader economic challenges.
Any inflow of foreign capital could bolster critical sectors, enhance liquidity, and further support infrastructure development.

Sitting in their offices in London, Paris, New York, Hong Kong, Shanghai, Sydney, Tokyo, Dubai or any of the other global capital vaults, foreign investors could view the presence of a well-managed pension fund industry as an indicator that there are still safe opportunities for investment.

Promoting financial inclusion
Financial inclusion has not only become a topical consideration from a humanitarian perspective, economies have since learnt that the catalytic effect is much stronger when capital is deployed with a clear objective of promoting financial inclusion.
By investing in financial products and services that reach underserved segments of the population, such as investing in microfinance institutions, small and medium enterprises, technology platforms that enhance access to financial services, pension funds could play a significant role in the turn-around story of our economy.

Pension funds, with their long-term focus, are best designed to take in significant liquidity risk where traditional banks and other financial institutions have proved way too conservative for the required risk appetite.
Increasing access to credit for both individuals and businesses, fostering entrepreneurship, and improving income distribution in a financial inclusion-focused spirit, could certainly boost economic growth.

Charity begins at home. Financial inclusion for the industry itself would start with encouraging extending pension coverage to the currently underserved informal sector.
Enabling legislation has been put in place by the regulator, so there is nothing stopping the industry from serving that sector.
Such broad participation would strengthen social safety nets, help reduce inequality, and ensure a more equitable distribution of wealth.
Economies are known to do better when wealth is more widely distributed across the broader citizenry, than when it’s only in the hands of a few.

Maintaining confidence in the financial system
That pension funds are generally known to manage large asset pools with professional oversight, they contribute to market confidence, reassuring other investors and preventing capital flight in times of economic uncertainty.
At the very minimal, confidence in the financial system helps avoid panic selling, currency depreciation, and the collapse of stock markets, ensuring that capital continues to circulate in the economy.
It also helps minimise the rush for the exit we have seen with the likes of BP, Shell, Anglo American, Rio Tinto, British Airways, Lufthansa, Qantas, Barclays, Standard Chartered, and others who have all walked away on us.
Unilever, with its most recent announcement, is a soon-to-be-addition to the list.

When the industry can demonstrate that it is well-structured and consistently deliver meaningful returns, it instils trust among individuals and institutional investors alike, signalling that the financial system is functioning soundly.
Such confidence helps attract and retain both domestic and foreign capital, boosting economic activity and investment.

Public trust in financial institutions has been eroded, with many preferring the shaky safety of their mattresses over concrete-reinforced banking hall vaults.
Efficiently managed pension funds could be one of the few keys to restoring confidence.
If both confidence and trust could be restored, hard currency hoarding and speculative behaviour, that has continued to decimate the economy, could be curtailed.

Where pension funds are well-governed and meet their commitments to members, they inspire broader economic participation, encouraging individuals to save and invest even outside of pension funds – further contributing to the much-needed capital for business growth.

Jobs creation through direct investments
Real assets investments like infrastructure and real estate have a strong multiplier effect on job creation.
Purposeful allocation of capital to projects that are labour-intensive leads to income generation and stimulates domestic demand, promoting economic growth.
Where an economy is struggling, these investments can be a lifeline, generating sustainable employment opportunities and boosting household incomes.
The increased economic activity creates a foundation for stability, helping the economy resist further deterioration.

A lack of a private capital ecosystem has unfortunately hampered deployment of pension fund capital into the small and medium enterprise business sector. The industry is not investing in private equity funds as much as it should be doing.
SMEs are long-known pillars of innovation, job creation, and economic resilience and growth.
Through intentionally supporting SMEs, pension funds could strengthen the overall economic fabric, stimulate entrepreneurship, and increase productivity, helping to stabilise the economy and nurture a vibrant and diverse business environment.

Venture capital has remained a “v-word” in our economy. However, if pension funds were to meaningfully allocate to venture capital funds, they could put into motion development of smart cities and technology hubs across the country.
Investments in technology and innovation create future economies that are diversified from traditional and tired sectors.
Such technological advancements, including in fintechs and biotechs, together with their pre-requisite research and development capex, boost productivity and economic competitiveness.
Where traditional growth engines are faltering, such as in our case, funding innovation is critical for generating new industries and revenue streams.
Furthermore, not only do such investments create high-skilled jobs, but they also enhance the economy’s resilience, helping it adapt to global trends and preventing economic collapse by engineering forward-looking economic stimuli.

Skills development is another effective, and yet less talked about, area where the industry could play a more critical role.
Pension funds could fund projects such as vocational training centres and educational infrastructure beyond just student accommodation. Vocational centres produce skilled and practically-ready-for-the-market workforce.
Imagine, for instance, each industry umbrella pension fund being an anchor investor for the development of a vocational centre that specialises in offering skills required by the its own industry.

Policy shapers
The pension fund industry has largely been an observer, sitting in the terraces, when it could have strategically and meaningfully influenced national policy.
Leveraging its financial clout and long-term investment horizon, the industry could have significantly influenced and promoted sound economic practices.
The industry could have been on the table advocating for better corporate governance, fiscal discipline, regulatory stability, and policy consistency, encouraging policymakers to implement reforms that enhance transparency and reduce corruption.

Furthermore, by setting high standards for the sectors it invests in, the industry could have pushed for more sustainable policies in all critical areas.
Its ability to channel large-scale investments into targeted sectors could easily shape macro-economic policy.
The industry’s so visible absence on the policy-making table is a silent contributor to the outcomes we are today grappling with. It’s not the norm that an industry controlling such a significant proportion of national wealth finds comfort in on the furthest spot on the back bench.
A new fund order demands that the industry partially takes responsibility for where we are, but more importantly steps forward to account to the million of workers that have, and continue to, loyally contribute into the sector in the hope of a better and financially independent life in retirement.

The failure of the industry to be the voice that it ought to be could be traced back to its structural make-up. Compared to other jurisdictions, the industry has remained way too fragmented, with both way too many funds and way too many service providers. Significant consolidation is long overdue.
Both the macro-economic and policy influence potential highlighted is more effectively achieved only with a consolidated industry whose interests are firmly aligned to those of its key and primary stakeholders, the members.
The pending regulation requiring that all pension funds with under one hundred members should participate in an umbrella arrangement is a necessary requirement. It though on its own is not enough if the industry is to realise its full potential.

Conclusion
It is not lost on us at all that pension funds are ultimately tied to the fortunes of an economy.
Like many others, we have previously shared extensively on how the economic environment has caused a serious drag on the industry’s overall performance.
We though are of the firm view that the relationship is not as one directional as it has been made to be.

While the sector alone cannot fully anchor the economy from collapsing, it can, and should have played a significant role in defending it by intentionally investing, in an organised and structured manner, into the real economy and real assets.