By Etuna Hango
Economic history is consistent on one central point: economies that achieved durable did not rely primarily on short-term, liquid capital chasing marginal yield; they mobilised domestic savings and deployed them patiently into productive assets that expanded capacity, employment, and resilience over time.
Pension funds, insurance pools, and other long-term institutional investors were not passive holders of financial securities. They were active builders of infrastructure, food systems, and industrial foundations.
Private markets were the mechanism through which this capital was channelled. Today, many African pension funds approach private markets cautiously, citing illiquidity, governance complexity, and perceived inferior risk-adjusted returns.
These concerns are understandable but incomplete. They evaluate private markets narrowly as an asset class rather than as an economic instrument.
In doing so, they overlook how long-term domestic capital has historically been used to shape the very economies that ultimately sustain pension systems.
Historical Evidence of Pension Capital as Development Finance Canada offers one of the clearest modern illustrations of how pension capital can be deployed as development finance without compromising fiduciary discipline.
Large public pension institutions deliberately built internal investment capability and governance frameworks that allowed them to invest in infrastructure and other private assets at scale.
This approach required accepting illiquidity and higher governance costs in exchange for stable long-term cash flows and national productivity gains.
World Bank analysis links the success of the Canadian pension model to independent governance, professional management, and a long-term investment horizon that enabled ownership of ports, rails, roads, utilities, and energy systems, to mention a few (World Bank, 2018).
These assets did not always maximise short-term returns relative to listed equities during market upswings, but they anchored economic competitiveness over decades.
Australia’s experience reinforces the same principle. The compulsory superannuation system created a deep domestic pool of long-term savings, which in turn supported the growth of unlisted infrastructure investment vehicles.
OECD research documents how Australian and other large pension funds became major providers of capital to transport, energy, and water infrastructure through private markets structured for long-duration ownership (Inderst, 2013).
Crucially, financing infrastructure through domestic institutions reduced reliance on foreign currency borrowing for assets whose revenues were local, mitigating systemic risk while extending the maturity profile of national investment (Della
Croce, 2011).
Chile demonstrates how pension reform can deepen domestic capital markets and expand the frontier of long-tenor finance.
As pension assets accumulated, demand for longer-dated instruments increased, supporting market development and enabling financing for infrastructure and productive sectors previously constrained by short maturities.
While early stages of market building did not necessarily deliver immediate yield optimisation, the broader effect was a more resilient financial system capable of supporting long-term growth (Cifuentes, Desormeaux, & González, 2002).
Across these cases, the pattern is consistent. Pension capital was used not simply to seek the highest near-term return, but to finance assets that lifted productivity and reduced structural bottlenecks.
Infrastructure investment, in particular, has been shown to raise output in both the short- and long-term, crowd in private investment, and support employment when investment efficiency is adequate (IMF, 2014; Abiad, Furceri, & Topalova, 2015). These effects accrue to the broader economy, including the contribution base from which pension liabilities are ultimately paid.
Agriculture represents an equally powerful, though often underappreciated, channel for pension-driven development. For most developing economies, agriculture remains a primary source of employment and income, particularly in rural areas.
The World Bank has long argued that agriculture is central to effective development strategies due to its scale, labour intensity, and linkages to food security (World Bank, 2008). Empirical work suggests that growth originating in agriculture can be significantly more effective at reducing poverty than growth in other sectors (de Janvry & Sadoulet, 2010).
From an institutional investor perspective, the most investable entry point into agriculture is frequently not primary production, but the infrastructure that enables agricultural value chains.
Irrigation systems, power, storage, cold chains, transport corridors, and processing facilities can be structured as long-term, contracted assets with utility-like characteristics.
These investments unlock private sector growth across farms and agribusinesses while generating predictable cash flows suited to pension liabilities.
In this sense, agriculture and infrastructure are not separate themes. They are interdependent components of productive economic systems.
Implications for African Pension Funds
The relevance for African pension funds is direct. The continent now hosts some of the fastest-growing pools of long-term savings globally (Thinking Ahead Institute, 2020).
At the same time, African economies face persistent deficits in infrastructure, food systems, and logistics.
Allocating the bulk of domestic pension capital offshore while importing power, transport services, and food creates a structural contradiction.
The risks associated with underinvestment in productive assets do not disappear because capital is invested elsewhere. They re-emerge as inflation, currency pressure, unemployment, and fiscal strain, all of which ultimately affect pension sustainability.
A narrow interpretation of fiduciary duty treats development outcomes as external to investment decisions. A long-horizon interpretation recognises that pension promises are paid from the future earnings capacity of the domestic economy.
When infrastructure investment raises productivity and crowds in private activity, it expands the wage base and tax revenues over time (IMF, 2014). When agriculture investment lifts rural incomes and food system efficiency, it strengthens economic participation and reduces volatility (World Bank, 2008).
History shows that successful pension systems were willing to accept complexity, illiquidity, and longer payback periods in exchange for structural transformation, while still applying rigorous governance and risk pricing.
The choice facing African pension funds is therefore not between returns and development. It is between short-term mark-to-market comfort and long-term economic capacity.
Private markets, when deployed into infrastructure and agriculture-enabling assets with institutional discipline, are not a concession to policy goals.
They are a proven mechanism for aligning domestic savings with domestic growth. Economies that embraced this alignment, built resilience, employment, and wealth over generations.
Those that did not remained dependent on external capital and exposed to structural shocks.
The historical record suggests that patient local capital, deployed through private markets into productive assets, remains one of the most effective tools for building sustainable economies.
*Etuna is an investment professional specialising in infrastructure, agriculture and real-asset development across emerging markets. His work centres on deploying capital into high- impact sectors, shaping investment strategy and evaluating policy environments that influence long-term economic outcomes
