Zambian pension funds are facing the same challenges as UK schemes, says RisCura's Andrew Slater as he discusses how they are responding to them.
It was a driving habit I hadn't seen before. Malcolm, my local driver who knew every shortcut, had picked me up at Lusaka airport in Zambia and we were on our way to the hotel. As we slowed down for a speed bump Malcolm switched on the hazards as an additional signal to complement the brake lights. This simple observation told me two things. First, the locals have a courteous driving style, which as my trip unfolded, I found to be in keeping with broader culture of the Zambian people. And second, the roads are good enough to justify speed bumps! The hazards are also used at four-way stops to indicate you are going straight on rather than left or right – makes sense really.
Zambia is a butterfly shaped, landlocked country bordered by the Democratic Republic of Congo (DRC), Tanzania, Angola, Namibia, Malawi, Mozambique, Zimbabwe and Botswana. Traditionally mining, and particularly copper, has formed the vast majority of its economy but diversification is underway with a growing share of GDP being from agriculture and tourism. Agriculture feeds the local population and Zambia's neighbours – the DRC in particular was described as "a big mouth to feed" – and there is even export of certain legumes to China.
Apart from the hazard lights, the distinct memory of the drive was the steady stream of smartly dressed children on their way to school; every minute the uniform changed colour and pattern as we moved from one school catchment zone to the next. As we got closer to town we passed a shopping mall in development, the anchor tenant being South African supermarket Shoprite. The school uniforms began to give way to people in suits.
I was there to meet with public and private pension schemes. They face the same challenges as back in the UK: underfunded closed defined benefit (DB) schemes and embryonic growing trustee-based defined contribution (DC) arrangements. To tackle these challenges, legislative reform is underway and expected to be enacted next year. In the meantime, some good stuff is being done. Property, both commercial and residential, forms a large part of schemes' asset allocation and the larger schemes (mostly public) are active developers. One public scheme leads the way by providing mortgages to its members secured against the pension entitlement. It is also active in micro finance to provide a better deal than the usurers on the street corner.
I didn't see a Ferrari this time like I did on the drive into Windhoek earlier in the year. But Malcolm confirmed there were some Ferraris in town and a few Rolls Royce's too. But a Toyota was the car of choice, whether a new 4x4 or pick-up truck or a second-hand import from Japan (both drive on the left) of what the UK would call a Lexus but badged differently. Lusaka is a very pretty town – many streets are lined on both sides with regularly planted trees, each with their bottom two feet of trunk neatly whitewashed. It looks modern and has an orderly buzz about it.
Another common theme from our meetings was DC member communication. Zambian schemes aim to not only tell members what they have in a manner that they understand, but go further and encourage additional saving and upping their pension contribution. It reminded me of the attitude I encountered in Namibia earlier in the year (and that we have lost in the UK), which is quite wonderful: pension schemes are collective institutions to not just pay pensions but better the future environment into which today's employees will retire into. Surely I cannot be alone feeling distaste when pension schemes are described as just a liability number to be extinguished with no regard to the fact that behind the numbers are people?
On the last day Malcolm showed me his favourite shortcut through a still unpaved residential street, which then went past a big, Chinese-built, housing development. We ended up at the back of the new general hospital, which conveniently bordered the highway to the airport and free of what passes in Lusaka as the morning rush hour traffic. Malcolm said the new buildings were accommodation for the hospital's doctors and nurses; Zambia looked in fine health to me.
Written by Andrew Slater, managing director, RisCura
aslater@uk.riscura.com
