Robert McGregor
Namibia is one of the few countries with pension fund assets exceeding GDP (106.6% of nominal GDP in 2024). These long-term savings are highly regulated, both in terms of what they may be invested in and where they may invest.
Following changes gazetted in August 2018, Namibian pension funds have been required to invest at least 45.0% of their total assets in Namibia since 31 March 2019. This requirement, however, was only met by the end of March 2021. Despite a large ‘domestic savings pool’, Namibia’s investable universe is constrained.
The size of these savings has led to calls for more local and riskier investments, often for “national development” purposes. But these are workers’ retirement savings, not an abstract pool of capital. It is crucial that the risks and returns of these investments are carefully balanced. After all, these assets have a corresponding liability – the payments due to the savers upon their retirement. This includes those who are currently retired and dependent on this income.
The country’s largest pension fund is the GIPF, a defined-benefit scheme. Payments to beneficiaries are guaranteed, typically based on the person’s salary and years of service, unlike defined-contribution schemes where the pension provided is determined by the funds invested and the returns they generate. Should a defined-benefit scheme be unable to meet its liabilities, the employer is responsible for funding the difference. In the case of the GIPF, this means that taxpayers would foot the bill.
Namibian pension funds have a majority of their assets invested in Namibia. As of December 2024, Namibian pension funds had invested 50.3% of their assets within Namibia (down from 51.1% by the end of September 2024). This means that pension funds held N$13.8bn more in Namibia than the minimum requirement. A large proportion of Namibian assets are made up of government instruments, namely treasury bills and bonds. Local pension funds have thus played an important role in funding the government’s chronic deficits.
There have been calls for pension funds to, among others, increase their Namibian exposure to unlisted investments and national infrastructure. This comes with a variety of dangers, including higher risk, potential losses, difficulty in exiting positions (unlike more liquid public markets), and increasing geographic exposure. It is important to bear in mind that often national infrastructure should be the domain of central government, one of the reasons for which it administers and collects taxes. To have ‘national savings’ take over this responsibility means that, to some extent, those who contribute to pension funds are required to fund the government’s responsibilities directly (through taxes) and indirectly, through their savings. With the risk of large deficits and domestic borrowing requirements looming, it must be asked: how much more can the domestic savings pool sustain?
*Robert McGregor is the head of research at Cirrus Capital.
