Private pension in MENA a must: KIPCO official

JEDDAH — The development of a private pension industry is indispensable in the Middle East and Africa region in order to diversify investment horizon for individual savings — allowing people to think more on sustainable returns as opposed to maximizing return in the short-term — according to Lakhdar Moussi, Senior Vice-President at Kuwait Projects Company, or KIPCO.

By Habib Shaikh

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Published: Sun 12 Sep 2010, 11:19 PM

Last updated: Mon 6 Apr 2015, 11:49 AM

He said that little is being done in the Mena region to address the provision of additional income upon retirement.

Noting that contrary to speculative stock market investments that “are practically the only option on offer today,” he said a pension “is money that you want to put aside for use after 20 or 30 years. It is not something that you want to speculate with. Preserving the purchasing power is the focus of our objectives.”

“The investment strategy will not seek maximisation of returns but more security and continuity in the flow of returns,” he added.

Moussi said that in the GCC, most products are targeting the expatriate communities, with everyone else relying on their state to support them through old age.

“But a little saving now can go a long way in helping build up infrastructure and capabilities, contributing to the overall economic development of the region,” he added.

Moussi said institutional investors in the region need to give more emphasis to productive investments and reduce their emphasis on stock markets and financial trading.

They are too engaged in international financial markets, instead of direct investments which create jobs, production, products and services. They need to access long-term funding that will ensure smooth completion and operation of these investments. Pension industry is, by definition, a provider of long-term funds.

“The pension provision platform we are promoting is not unique as such, but novel in the Middle East. The pension industry has been limited to government pension systems, with products that are available in the market offered by international companies targeting mainly expatriate communities,” he said.

He said that most people are relying on their state to provide their retirement income. “Nothing of substance is being done to address the provision of additional income upon retirement,” he added.

KIPCO’s project has a regional scope which ensures cost effectiveness of the expert resources, technology means and investments in training required for a successful implementation.

“We are trying to encourage more savings and pension products for individual national consumers,” Moussi said, and added that Mena regulators are in favour of the emergence of this industry, which would also contribute to the economic development of the region.

According to him, the potential for savings that would be available for investment is tremendous. For each dollar saving per head, it would mean additional business of $350 million.

“This money would be available for long-term investments. For governments, it would be a long-term source of financing which would help in the build-up of infrastructure and industrial capabilities,” he said, citing the mismatch between funding and the prospect of return from a project as one of the major issues today.

He said too many people are financing industrial projects with medium and short-term debts which are not necessarily compatible with what the market can do. The average income earner has the option of keeping money in the bank with, at best, a return expectation of one percent as interest.

Moussi said that stock markets in the region are not generally in favour of small investors, and added that “movements are very unpredictable and risky, and it is over speculative for investing money that you would like to have for your old age.”

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