Pension Privatization in Africa: The Coercive Power of an Idea and the Politics of Retirement Income Security Reforms in Ghana and Nigeria

Abstract

Why did Ghana and Nigeria as latecomers in social security reforms adopt private pension systems when they (a) have limited formal sector labour force to contribute to private pension fund, (b) lacked the necessary capital market for the investment of worker’s retirement contributions, and (c) lacked the administrative capacity required of a political system to be able to enforce contributions and investment regulations?  And why did the two countries differ in terms of the overall institutional arrangement of their new pension system although they were confronted with similar policy challenges, and share similar policy legacies? Existing explanations for privatization of social security in Latin America and Central and Eastern Europe show the World Bank and a coalition of other global actors were directly involved in the decision to privatize social security in countries in the two regions. However recent analysis of similar reforms in Nigeria and Ghana show that the World Bank-led coalition did not play any direct or active role in pension reforms in both countries.  This paper argues that policy makers in Ghana and Nigeria adopted private sector solutions without the Bank’s direct involvement because privatization as an idea and a policy instrument which the Bank helped to reconstruct since the 1980s had become a global norm, the adoption of which is thought to enhance a countries’ legitimacy, acceptability and investment favorability among the comity of countries.  The analysis shows that differences in how private sector solutions were applied in these two countries were driven by domestic politics. In particular, more democratic deliberation led to non-replacement of pay-as-you-go (PAYGO) in Ghana versus replacement in Nigeria. Better governance in Ghana had the same effect.

Keywords: Pension, Social Security, Privatization, Ghana, Nigeria, Africa, Ideas