investment of assets. In South Africa, there were regulatory reforms under consideration as of mid-2007 that would increase the 15 percent ceiling on pension funds permitted to be invested overseas to 25 or 30 percent, along with a broader set of reforms that would strengthen supervision and regulatory oversight of the sector. Pension funds in Zambia may invest up to 30 percent of their assets abroad under a 2000 regulatory amendment. In Namibia, institutional investors invest extensively in overseas assets—mostly assets in South Africa, given Common Monetary Area links (IMF 2007c).<sup>37</sup> There is a ceiling of 15 percent (slated to be raised to 20 percent) on total assets invested outside of the Common Monetary Area in southern Africa. Although pension funds and insurance companies in Namibia are expected to comply with the minimum local investment requirement of 35 percent of assets, in practice only 15 percent of pension fund and insurance sector assets are invested in domestic assets since investment of assets in shares of foreign companies listed on the National Stock Exchange (NSX) can count toward the minimum local investment requirement (World Bank, FSAP database). Proposed legislative reforms in Namibia would compel pension fund managers to report their international investments in more detail.

In Nigeria, pension fund managers had until recently been prohibited by foreign-exchange regulations from investing their assets abroad. As of August 2007, 6 percent of total pension fund assets were held in foreign-issued money market securities. Nigeria’s Pencom (2006) intended to determine with the country’s pension fund administrators guidelines for investing pension fund assets abroad. In many African focus countries, managers of insurance and pension funds are deterred from placing some part of their assets abroad due to poor incentives in many of these systems to search for good investment opportunities and concerns about currency mismatch due to obligations denominated in domestic currency and a lack of hedging instruments in most of these markets. Actual data are not available for Mozambique, but given the tiny size of local equity markets (one stock listing), market observers indicate that a sizeable amount of pension system assets are thought to be invested overseas, in South African and other equity markets.<sup>38</sup> In comparator country Malaysia, as a way for the compulsory pension scheme for private sector employees to diversify its investments, pension funds were first allowed in 2005 to invest in offshore listed equities through designated international fund managers.

Well-regulated institutional investors could be reliable sources of longer-term financing for infrastructure development, but regulatory and supervisory frameworks are inadequate or nonexistent in some of these countries. Investment practices suffer from excessively restrictive regulations governing pension fund investments and place too much emphasis on stability and uniform portfolio performance without regard for return. Many of these overly restrictive pension fund regulatory regimes discourage or render it impossible for pension funds to invest in infrastructure assets. In some other countries, state-run institutional investors still enjoy special exemptions from regulations governing the activities of these financial intermediaries.<sup>39</sup> The effective functioning of supervisory oversight is also complicated by

> 37 There is a ceiling of 15 percent (slated to be raised to 20 percent) on total assets invested outside of the Common Monetary Area in southern Africa.

> 38 Axco report, downloaded Aug. 2007.

> 39 For example, in Tanzania a comprehensive system for regulating and supervising insurance companies was implemented in 1998; the state insurer NIC continued to enjoy special exemptions because its policies are backed by the government (FSSA, May 2003 FSAP mission). Regulations governing the investment activities of the two staterun pension funds, NSSF and PPF, impose few restrictions other than a prohibition on their investment in assets outside Tanzania. Investment policies are largely determined by the respective boards of the two funds (Tanzania

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