SWF to boost domestic investment on cheap asset prices

Nigeria’s $1.55 billion sovereign wealth fund (SWF) says it is starting to shift the investment focus of the Nigeria Sovereign Investment Authority (NSIA) from external to domestic, as the selloff in the naira leads to cheap asset prices.

Uche Orji, CEO of the NSIA told the Wall Street Journal that by the end of 2017 the fund’s domestic exposure will be significantly higher, compared to about 6 percent today.
“We anticipate by the end of the year, we should be nearing somewhere in the teens, in terms of the investments we are making domestically, as the downturn has turned up significant buying opportunities,” Orji said.
According to Orji, the Nigerian economy is more diversified than people give it credit for and the NSIA is investing a lot in agriculture in Nigeria.
“We have done it two ways. One is direct investment, and the second is we have created an investment fund with a South African-based company to invest in agriculture in the country,” Orji said.
Agriculture accounts for about 30 percent of Nigeria’s GDP, compared to oil at less than 10 percent and services at 52 percent.
“So the challenge is trying to link the diversified economy to government revenues, improving tax collections and ensuring that we can manufacture to a standard for exports,” Orji said.
Nigeria’s economy entered its first full year recession last year, as the collapse in oil prices led to a slump in revenues for its three tiers of government and a severe dollar shortage.
As a result, the country’s stock and bond markets sold off, as foreign investors fled Africa’s largest economy on bets for a devaluation of the local currency, the naira.
The sovereign fund was set up five years ago to safeguard oil revenues for future generations, provide a buffer against external shocks and spur infrastructure development in Nigeria.
The NSIA invests with three funds which are the Future Generations Fund (FGF) to which it allocates 40 percent of its assets; Nigerian Infrastructure Fund, NIF (40 percent) and Stabilisation Fund (20 percent).
The Infrastructure Fund focuses entirely on domestic investments in select sectors, including Motorways, Agriculture, HealthCare, Real – Estate and Gas to Power.
The NIF has also paid compensation on right of way for the nearly 40 km, $700 million, second Niger Bridge for which significant construction activities are set to begin.
The Stabilisation Fund is fully invested and has been outsourced to three managers, according to Orji.
The fund gave UBS $50m in 2013 to invest in US Treasuries, while a further $150m went to Credit Suisse and Goldman Sachs to build a US corporate bond portfolio.
The FGF invests in five asset classes, of which equity makes up 25 percent of the total with 10 percent invested in developed market equities, while the rest (15 percent) is invested in Emerging Markets (EM).
The Nigerian SWF is the third-largest in sub-Saharan Africa, after the $6.9bn of Botswana and the $5bn of Angola, however the Nigeria Sovereign Investment Authority (NSIA) is tiny compared with those of oil producers such as Saudi Arabia, Norway and Abu Dhabi, which have more than $600bn in assets each.
For Orji, the relationship between Nigeria and the United States will not change much, despite the protectionist tone of the Trump administration, especially with large American corporations like General Electric (GE) investing in Nigeria.
“One thing that has happened, is oil prices have rallied, and that has been good for the Nigerian economy. Its helping us recover from a policy standpoint, we will just wait and see,” Orji said.

 

PATRICK ATUANYA