|
Getting your Trinity Audio player ready...
|
Nigeria’s Pension Fund Administrators (PFAs) are lagging behind while other African pension fund administrators are increasing their investments in infrastructure projects.
Nigeria’s PFAs are mostly invested in Federal Government securities – FGN Bonds, Treasury Bills (T-Bills), and Agency Bonds even though financial analysts believe this investment structure is mainly driven by regulation.
Despite the National Pension Commission (Pencom) guideline that requires maximum investment of 5 percent of value of pension assets to any one issuer of infrastructure funds, PFAs invested only 0.03 percent (N2.06bn) of its funds under management in infrastructure bonds and funds. Pencom also requires pension assets invested in maximum of 20 percent of the value of any one infrastructure fund.

The pension fund assets under management grew remarkably to N7.09 trillion as of August 31, 2017, according to Pencom latest data.
Aside FGN securities, PFAs are also allowed to invest in domestic ordinary shares, foreign ordinary shares, state government securities, corporate debt securities, supra-national bonds, local money market securities like Commercial Papers, foreign money market securities, mutual funds, real estate properties, private equity funds, infrastructure funds, as well as hold cash and other assets.
Gregory Kronsten-led team of research analysts at Lagos-based FBNQuest, who recognised decent growth posted by Pension Fund in their assets under management, says they would also welcome even more independent industry analysis “allowing investors to compare the performance of the pension funds.”
Ayodeji Ebo, managing director, Afrinvest Securities Limited, says most of the infrastructure projects are not bankable, as “the projects need to ensure cash flow and to be able to repay the fund. For people to invest in infrastructure they need to be properly structured so that the project will be able to repay itself and the money not go down the drain.”
The Federal Government needs to come up with policies that will shield any fund invested in infrastructure, Ebo says.
Johnson Chukwu, CEO, Cowry Asset Management Limited, says the framework that will allow PFAs to invest is still in the process and has not taken effect, but notes that under the current guidelines there are two windows that allow PFAs to invest in infrastructure, which include infrastructure bond and fund.
“The conditions attached to these are stringent,” Chukwu says, adding that “the return are far below other investment instruments like FG bonds and Treasury Bills.”
According to Chukwu, PFAs will prefer to invest in instruments that will give higher security and better returns. However, either of these presents higher return or lower interest rate. FG instruments dominate PFAs portfolio, Chukwu says by phone that yields currently need to change for PFAs to invest in infrastructure.
Bolade Agbola, CEO of LAM Agro Consult Limited, says the investment of pension funds in infrastructure at 0.03 percent is low because most of Nigeria’s infrastructure are not commercialised, they are not securitised and ineligible for investments.
“We have few infrastructure bonds and virtually no equities listed on any of the exchanges .The outlets for the PFAs to invest for funding or refinancing development of our infrastructure are just few and far in between perhaps because of the poor state of the economy, its level of development and government’s monopoly of development of infrastructure at the three tiers of government,” Agbola writes in an emailed response to BusinessDay.
The total asset as of that period under review represented 6 percent of Nigeria’s GDP as against 5.57 percent in 2015. About 98.56 percent of the funds were invested in domestic market while the remaining 1.44 percent were invested in foreign market.
“The pension funds have a particular interest in the long bonds for matching purposes. More generally, they may feel that they had been missing out in the NTBs market, where the CBN has been setting the stop rates at more than 22percent since August at primary auction and open market operations (OMO). The industry’s holdings of FGN bonds at end-March represented 45.7 percent of the stock of the paper,” FBNQuest researchers note.
The World Bank estimates Africa should spend $93 billion – 5 percent of gross domestic product (GDP) – each year on infrastructure and the African Development Bank (AfDB) notes a $50 billion financing gap to reach this; local and international pension funds can help fill the gap.
While Nigeria’s pension fund administrators accumulate pension fund assets and the nation’s infrastructure remaining at a state of paralysis, its counterparts across the continent are seen increasing wager on infrastructure investments.
If Nigeria must meet its own ambitious development goals, the nation needs to spend $3 trillion on economic infrastructure over the next 30 years, according to Andrew Alli, president/chief executive of the Africa Finance Corporation (AFC).
Alli regrets that while government must be a primary source of funding, federal and state governments’ fiscal inflows are grossly inadequate to match the pace of investments required in infrastructure.
Tanzania opened an elegant new six-lane toll bridge in April across Dar es Salaam’s Kigamboni Creek, thanks in part to a $135 million investment by Tanzania’s National Social Security Fund, the state-run pension fund.
The 680-metre bridge is the longest cable bridge in East Africa, and it is also Tanzania’s first toll road. The South African Government Employee Pension Fund is the largest pension fund in Africa and the seventh largest in the world, according to the United Nations data. It has 1.3 million members (312,000 of them are pensioners).
In 2016, it launched the Pan-African Infrastructure Development Fund with other pension funds and African institutional investors. At its first close, this fund raised $627 million and has already disbursed a sizable portion into the African pipeline.
ARM-Harith Infrastructure Investment Limited (ARMHIIL), manager of the ARM-Harith Infrastructure Fund (ARMHIF), has announced ARMHIF’s investment in Amandi IPP transaction, and commencement of construction of the $552 million Amandi Energy Power Plant (Amandi project). The successful financial deal, which closed on December 2, 2016, is a 200MW combined cycle, dual-fuel power project in Aboadze, Ghana.
Iheanyi Nwachukwu and Hope Moses-Ashike
