As Investible Pension Fund Idles Away…

The disclosure that a huge chunk of pension fund meant for investment in infrastructure is currently unutilised despite the deficit in infrastructure development, has prompted another round of discussion bordering on funding for the sector. In this report, Olaseni Durojaiye examines some of the issues surrounding the debate

The issues around Nigeria’s infrastructure deficit will continue to generate topical discussion make and headline for a long time until it is seen to have been significantly bridged, chiefly because it has been said that it holds the key to unlocking the economic and entrepreneurial potentials of Nigerians.

Infrastructure being broad, stakeholders have identified physical infrastructure including road construction, power, health insurance, education and ICT among others as some of the areas that is in need of critical intervention by government. A few rating agencies and investment experts have aligned with this thought even as they canvassed for improved funding from both government and the private sector.

In its 2016 report on Nigeria titled “Unlocking Nigeria’s potentials, The Path to Well-being,” Boston Consulting Group identified five sectors in need of critical and urgent attention from government. The report stated in the executive summary section that, “to understand where Nigeria stands today and where it must go, we used the Boston Consulting Group’s Sustainable Economic Development Assessment (SEDA), a powerful diagnostic tool designed to provide government leaders with a perspective on the well-being of citizens, including how effective their countries convert wealth, as measured by income levels, into well-being.

“Our analysis reveals that the Nigerian government must address significant deficits in five areas: Governance, civil society, infrastructure, education and Health. Disciplined action in those areas are will set the country on a path to inclusive growth, prosperity and meaningful gains in the well-being of its people.” The report stated.

Other investment experts have echoed similar opinions at different occasions. Managing Director of Renaissance Capital Nigeria, Temitope Popoola, alongside other management team of the leading investment firm also identified infrastructure, particularly health insurance and financial technology as areas in need of funding if the noticeable infrastructure deficit must be bridged.

According to THISDAY findings, the country’s infrastructure deficit stands at about N23 trillion. The size of the figure, juxtaposed with the limited resources available to government especially with the dwindling oil revenue all led to why analysts contended that infrastructure funding in the country could not be left solely to budgetary allocation if the wide gap must be bridged.

Popoola underscored that much when he noted in an interview with THISDAY that, “government actually contributes a small portion output in Nigeria. Government’s impact on the economy is probably just 10 per cent; the private sector is what drives both the GDP, growth and the economy.”

The infrastructure challenge is not lost on government, particularly at the Federal level. The Minister of Power, Works and Housing, Babatunde Fashola, has reiterated so, times without number. He has also severally identified limited resources as the biggest challenge facing the determination of the current administration to bridge the infrastructure challenge facing the country.

According to a research analysts based in Lagos, Rotimi Oyelere, “The resources available to government is grossly inadequate to address the challenge of infrastructure deficit which is about N23 trillion; due to competing demands, there is then the need for government look beyond budgetary allocation for funding infrastructure in the country,” he stated.

Speaking further, Oyelere noted that, “pension fund asset due to its long-term nature is suitable for investment in infrastructure. But there is need to put certain framework in place; as it is now, government is jumping the gun with the call for pension fund to be invested in infrastructure funding.

Investing Pension Funds Infrastructure

The need to channel pension fund assets into funding infrastructure by way of investment bond and other investment instrument is not new to public discourse. The debate however, gained more traction in the aftermath of the speech of the Minister of Power, Works and Housing at the Nigerian Pension Industry Implementation Roadmap Retreat in January.

In the speech, Fashola drew example from South Africa and how the country’s pension industry was a big player in Nigeria investment space and while it’s local counterpart lagged abysmally behind. To demonstrate that investments in infrastructure provision is workable in the country, he recalled the Lekki-Epe Expressway project and how Lagos State government got the road to the state that it is today through a concession arrangement with Lekki Concession Company and, tasked operators in the Nigerian pension industry to invest more in government’s quest to bridge infrastructure deficit in the country.

The debate again returned to the front burner of public discourse following disclosure by the Director General of Nigerian Pension Commission, (PENCOM), Mrs. Chinelo Amazu-Anohu, that about N1.159 trillion of pension fund assets available for investment in infrastructure is currently lying idle. According to her, only N1.36 billion of the total N1.16 trillion has so far been invested in the infrastructure.

Amazu-Anohu, who made the disclosure during a public hearing on the need to invest pension fund in infrastructure in the country, which was organised by the House of Representative Committee on pension added while enabling regulations allowed for investment of pension fund assets in infrastructure through infrastructure bonds, the commission had yet to find viable instruments through which to channel the funds.

According to her, “The investment regulations allow for investment in infrastructure through infrastructure bonds and infrastructure funds. However, despite the availability of about N1.16 trillion for infrastructure financing, only N1.36billion had been taken as of December 31, 2015, leaving about N1.159tillion untapped. This is largely due to the non-availability of investment instruments that qualify for pension investment as stipulated in the investment regulations issued by the commission.”

However, THISDAY findings have revealed some of the reasons why the pension fund administrators may be shying away from investing in infrastructure in the country. Investment professionals and pension fund administrators who spoke to this newspaper listed lack of clear-cut regulatory framework that safeguards such investments, absence of fiscal discipline especially in the states, even as some respondents reasoned that government could take a cue from the Lagos state government in fashioning out a workable regulatory framework that ensures that investments will be repaid with profits.

Challenges of Investing in Infrastructure

While the call for the funds to be invested in infrastructure persists, the seeming reluctance by PenCom to invest in the sector may be justified, just as Amazu-Anohu stated before the house committee.

According to Oyelere, the absence of proper regulatory framework is deterrence. “Regulation is poor, implementation is weak; government is jumping the gun asking for the funds to be invested in infrastructure. Government needs to come up with a road map to state where exactly they want the funds to be invested in. Infrastructure is very broad, is it in physical infrastructure like road construction, Housing, ICT or health insurance, even education. There is need for a clear cut policy and transparency.

“We also need to consider the viability of infrastructure to payback the investment with interest. If it is road construction there must be pricing via tolls, these and needs to be articulated by government. The Lagos State model can be copied and improved on where need be; the state has demonstrated that if the service is provided people will pay for it. But government must first articulate the necessary framework and safety nets. We have seen how states raised development bonds for infrastructure development in the past through the capital markets. May be there is need to re-evaluate what was achieved with the borrowings because some of the states still lack critical infrastructure,” Oyelere stated.

Managing Director of Pal Pensions, Dave Uduanu, raised the same concern and reiterated the need for security of investments arguing that being people’s contribution, the interests of contributors must be safeguarded.

Uduanu explained in an interview that “Pension funds are long-term funds. So ideally in more developed countries, pension funds invest up to 10 per cent and in some instances like in the U.S., in Latin America, it is up to five per cent and in Canada, it is up to 20 per cent in infrastructure. One would expect that in Nigeria, that should be the case. However, in Nigeria, infrastructure as an asset class is very new, as it is not well developed. The bulk of infrastructure has been built by the government and is done through appropriations from the budget. So our initial stance is that pension fund ideally should invest in infrastructure. However we are quick to caution that such an investment should be secured; it should be well structured and investment should be through an instrument or through intermediaries who are experts in infrastructure investing.

“So my stand is that yes, pension fund should seek to invest in infrastructure in a safe and secure way,” he added.