The much needed boost to reduce the country’s alarming infrastructural shortage could be the new multi- fund structure recently launched by the National Pension Commission. As the commission sets to place efficient enabling environment for the pension managers to utilise their pension funds, infrastructural development will get a boost, analysts have said.
According to International Monetary Fund(IMF), the value of Nigeria infrastructural stock is 20-25 percent of GDP, quite low when compared to the average of 70 percent of advanced economies. Projections have seen Nigeria population to increase to 397 million by 2050 which would further hamper the infrastructural requirements needed by Nigerians.
Nigeria infrastructural stock being inadequate requires huge capital investment to fuel infrastructural vehicles in improving the socio-economic conditions within the country. This begs the need for private investment into the infrastructural capacity of the country.
Pension funds are not a form of private investment but funds contributed by individuals towards their retirement. The total pension fund under management by pension fund managers was recently disclosed to be in excess of N8.14 trillion according to breakdown by the pension fund commission. This figure represents 89.4 percent of the country’s budget in which about 22 percent of the total figure is been sourced via debt.
A look at the new multi-fund structure, which breaks down the modalities for the investment of pension fund, comprising of Fund 1, Fund 2, Fund 3 and Fund 4 varies according to their overall risk exposure to variable income instrument. Fund 1 is allowed a maximum exposure of 75 percent of portfolio value to variable income instruments, Fund 2 can only be exposed to such instruments to the maximum of 55 percent while Fund 3 and Fund 4 will be allowed a maximum exposure of 20 percent and 10 percent respectively. In like manner, there are stipulations for minimum exposure as well. These are 20 percent for Fund 1, 10 percent for Fund 2 and 5 percent and 0 percent for Funds 3 and 4.
This therefore makes it possible for pension fund managers to utilise Fund 1 and Fund 2 as individuals within this category tend to have a higher risk appetite when compared to other category utilizing this funds while ensuring due diligence at the same time.
According to Ehimeme Ohioma, head, Investment Supervision Department at PenCom , during his presentation on ‘Pension funds for Economic Development, He said, “It must be commercially viable and self-financing – generate cash flows to repay itself overtime; and bid/concession processes must be open and transparent.”
He further stated that, investment in infrastructure instrument would be beneficial to Nigeria which will reflects on its citizens as adequate infrastructure development would improve and promote the standard, create and sustain employment, promote entrepreneurship, enhance returns on pension fund investments as well as increase the pool of pension savings for economic development.
