Cognisant of the important role this resource can play, it is noteworthy that African countries embarked on financing economic development using $ billion held by domestic pension funds in 2007 in an effort to reduce reliance on foreign aid and foreign direct investment. 3 The report indicates that pension funds in South Africa, Ghana and Nigeria have already invested around $ million to fund pan-African infrastructure projects. In Zambia, a study by FinMark Trust in 2007 indicated that pension and provident funds are a major potential source of capital. As regards the total amount of funds available in pension funds, the capacity of public and private sector funds is estimated to be greater than K2.5 trillion (about $ million). This is a considerable amount of resources which could be used in infrastructure development and other economic activity without resorting to expensive external financing from international financial institutions. Currently, most pension funds in Zambia make short-term investments in highly liquid securities when they have the potential to do much more. It is imperative upon African Governments with the collaboration of cooperating partners to devote as much attention and energy to domestic savings mobilisation for investment purposes. In Zambia, for example, part of the reform process in the financial sector has been to establish investment guidelines for the public pension funds and the aspect of investment in infrastructure and other economic activity can be part of the guidelines to enhance the use of domestically generated savings in financing development in Africa.
For instance, in 2007 total foreign reserves held by African countries amounted to $ billion translating into an average of 9.2 months of import cover for each country. In the same year the African Development Bank (AfDB) raised funding from international capital markets amounting to UA724 million $ million) at a weighted average cost of 6-month US Dollar LIBOR minus 32 basis points. 2 The amount raised by the AfDB accounted for a mere 0.3% of the total reserves for African countries as at 2007. Hence, an allocation of some of African countries’ foreign reserves to fund African development institutions in which most of the countries are members would greatly enhance  2  2  African Development Bank Annual Report, 2007. BIS Review 126/2009  the capacity of these institutions in the provision of development finance, thereby assist the continent’s development programmes and poverty reduction efforts. In summary, it is important for African countries to consider alternative ways of making use of foreign reserves in the financing of development using resources that are already available, including the direct use of foreign reserves in financing development and making available part of the reserves to African multilateral development institutions to augment the resources available in the financing of African development. (b)  Pension funds  African countries need stable sources of development finance and as long-term investment vehicles, pension funds seem intuitively to be one potentially good source of domestically generated financial resources.