Experts at BusinessDay conference on Tuesday canvassed for support from industry stakeholders to make the country’s burgeoning pension industry a major catalyst and driver of growth in Africa’s largest economy.
This call is coming after Nigeria slipped into its second recession in five years as the Covid-19 pandemic took a toll on an economy that has been stuck in a low growth cycle since 2015, and is without the requisite infrastructure to power growth.
The experts, who gave their views at the 2020 BusinessDay virtual Pension Conference with the theme ‘Perspective on the Future Landscape of the Pension Industry in the Light of the Covid-19 Pandemic,’ agreed that secured investible assets were necessary and inevitable to enable utilisation of long-term funding offered by pensions to help drive growth in the economy.
Nigeria’s pension industry has N11.35 trillion in assets but that is only 7 percent of GDP, which is lower than the sub-Saharan Africa average of 15 percent. This shows the untapped potential of the sector.
There were only 9.10 million Retirement Savings Account (RSA) holders at the end October 2020, according to data by Pencom. That is less than a quarter of Nigeria’s workforce.
Andrew Nevin, chief economist at PwC, Nigeria, who set the stage vibrating with his presentation, said with the Covid-19 pandemic, and the figures coming out from the government, we have just seen an unsustainable system that is not going to change overnight.
The gap is too wide, and with the fixed income market getting tightened, the investment community including the pension industry must think differently to find investible assets that will not only sustain returns to owners of the funds, but also help grow infrastructure as well as diversification of the economy, Nevin said.
“With a gross fixed capital formation at only 19 percent of GDP, Nigeria needs significant FDI to bridge the infrastructure deficit which is key to diversification,” Nevin said.
Nigeria is projected to become the most populous country in the world by 2050 behind India and China, highlighting the urgent need to boost the country’s infrastructure stock to cater for a fast growing population. The Pension Funds Administrators are some of the largest domestic institutional investors in the country and the need to have them invest more in infrastructure is hardly new counsel.
Wale Odutola, president, Pension Fund Operators Association of Nigeria(PenOp), said some achievements had been made in growing the pension funds and the industry contributions’ to the GDP now at about 7.09 percent, but the potential is huge when you consider that only about 11 percent of the working population has keyed into the Contributory Pension Scheme.
Odutola, who is also the managing director of ARM Pensions, said some of the challenges of the pension industry today included low penetration rate, inability to adequately hedge pension assets against devaluation risks, negative real returns, inconsistency in investment reporting standards, inadequate awareness of the scheme’s benefits and operations, as well as the distinction with other government pension schemes fraught with challenges, and inability to get the Federal Government to comply with the new contribution rate of 18 percent.
The pillars of change being pursued by the industry include that operators focus on addressing current operational challenges and repositioning the industry as a digitally-driven one, while the regulator is making structural changes that promote more robust services delivery and expand the scheme’s coverage, he said.
The impact of all of these is delivering real benefits to both contributors and the society at large, by working with relevant stakeholders to create an efficient structure that allows pension assets to be channelled towards infrastructure and other real sector investments, he said.
The other one is improving the long-term wellbeing of contributors by delivering returns that exceed inflation and prevent erosion of capital value, he stated.
Tunji Andrews, co-founder, Awabah, in his presentation on ‘Unlocking Micro Pensions Opportunities: For the Good of More,’ said building trust and relationship is critical in winning consumers in the informal sector, pointing out that this remains the reason people still prefer the cooperative and why it still works despite the countless financial services available in the space.
Abiodun Oyeledun, partner designate, Detail Commercial Solicitors in his presentation, gave details of the scheme and how it has been driven by factors both structural and regulatory.
The first panel discussion moderator, Femi Oladehin, partner, Argentil Capital Partners, brought to the fore insights and expectation of the various participants on how to secure investible assets for the pension industry.
Oguche Aguda, CEO, PenOp, looking into the future, said he wants to see the pension industry drive economic growth where roads, airports and power infrastructure were being driven by the industry, and where the scheme expands such that it connects more Nigerians, and where it could invest part of its assets offshore.
Dapo Akinsaya, managing director/CEO, AXA Mansard Pension Managers Limited, said he expects an obvious impact where pension funds will be used to close housing gap to the benefit of the contributors and the larger society.
Whereas, Funsho Doherty, managing director, Pension Alliance Limited on his part, said he wished to see pension funds positively catalyse diversification, where the country’s mono-export economy could be changed to multiple-export economy. This is what I want to see, and at the moment something is being done about it, he said.
Idu Okwuosa, managing director, Access Pension Fund Custodian Limited on her part, was specific on wanting to see pension funds go into mortgage financing, while calling for infrastructure development with pension funds, he said adequate insurance protection is key when you consider what happened during the #EndSARS mayhem.
Obodo Dumebi, managing director, Chams Access Limited who was the technology expert in the panel pointed out that Nigeria has about 60-80 million people at the bottom of the pyramid to target in the Micro pension space.
He said one option to reach them would be to deploy massive technology, as this is a more viable option as it creates an avenue to reach people at the comfort of their homes.
According to Dumebi, there are lots of innovations coming up in the industry to solve some challenges, but more needs to be done.
“There is still a lot of work to be done but the changes so far are something the industry can be proud of since the pension scheme started,” Dumebi said.
The second Panel anchored by Babajide Fadahunsi, chief finance officer, FBNQuest Merchant Bank with other panel members including Chibuike Azubuike, CEO, Infracredit; Adeniyi Falade, Crusader Sterling Pensions; Babajide Ibironke, chief financial officer, Viathan Engineering; Mobolaji Adeoye, Consonance Investment Managers; Hamisu Idris, managing director, Investment One Pension Managers Limited explored the theme: ‘Viable Investment Options for Nigeria Pension Funds- Opportunities and Challenges’.
They reviewed current impacts of the pension funds in the power and energy sector particularly the ones driven by Infracredit and Viathan, assuring that more will come.
Azubike, said we will access more funding soon, but it will be driven by available projects.
Azubike said further that infrastructural development in Nigeria can deliver three key pillars of the sustainable development goal, which are economy, environment and social sustainability.
“Nigeria invests about 30 percent of GDP in infrastructure compared to 70 percent in peer countries.
“We need at least 2 trillion to 3 trillion annually over the next 30 years to increase infrastructural development. But the focus should be more on governance, type of asset and sustainability. The government must also play its role by creating an enabling environment, he said
Bolaji Adeoye, Consonance Investment Managers said the pattern of investment in the last 16 years and what it will be the next decade, is the same as allocation will still remain in stocks and bonds.
There is a small allocation from 5-6 percent that goes into infrastructure and alternative investment. That is where a lot of the work has to take place in. Pension funds managers must increase allocation into the alternative investment market, he noted, Adeoye said.
Babajide Ibironke, chief financial officer, Viathan Engineering said debt capital and equity are needed by the power sector as it will help in deleveraging as the sector is capital intensive. “Equity investment must be encouraged by pension fund administrators into the sector”.
Adeniyi Falade, CrusaderSterling Pension Managers Limited said to ensure that incremental government borrowing from the pension fund act as a catalyst for economic growth, the government must leverage on partners and allocate more to infrastructural spending.
Hamisu Idris, managing director/CEO, Investment One Pension Managers said there have been pressures to invest in some asset classes outside the country but looking at the current regulatory framework and the instruments currently available, it won’t be attractive for PFAs to invest outside the country because of the currency risk. But there is a possibility it could happen in a few years but the environment is not suitable right now, Idris said.
