Tanzania Taps Informal Sector to Boost Nation’s Pensions

  • Targets growth of 15% from last year’s 2.27 billion shillings
  • Nation may allow funds to invest around East African bloc

Tanzania’s pension regulator is looking to the nation’s vast informal sector for growth by introducing flexible products that can fit the irregular nature of income for people such as farmers.

The nation’s Social Security Regulatory Authority is targeting pension growth of 15 percent this year, building on the 2.27 trillion shillings ($1 billion) collected in 2015, Director-General Irene Isaka said Thursday in an interview. Benefits payments rose 9.4 percent to 1.5 trillion shillings last year, according to the agency’s annual report.

Tanzania’s five pension funds are offering flexible products, including loans on savings and taking commodities from rural farmers in exchange for health insurance cover, according to Isaka.

“The priority need for rural farmers is health, education for their children and maybe inputs for their families,” Isaka said in the commercial capital, Dar es Salaam.

Offshore Investment

The informal sector contributes about 80 percent of the continent’s labor force and 55 percent of its gross domestic product, according to the African Development Bank.

Just one in 10 people in Tanzania’s labor force has social security coverage, according to the regulator’s 2015 annual report. The industry’s expansion initiative could increase coverage to 40 percent of the informal sector within the next five years, Isaka said. About 95 percent of people in formal employment have social security.

While pension funds are some of the biggest institutional investors in the $48 billion economy, accounting for 7.8 trillion shillings in 2015, Tanzania currently doesn’t allow offshore investment, Isaka said. The nation is working on laws to free movement of investments and portfolios within the regional East African Community bloc.

“What we are looking at is opening up for East Africa and then maybe in the future we shall open up for further offshore investment,” Isaka said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE