The failure of the Federal Government to issue Infrastructure Bond for specific projects is holding back an estimated N508 billion for infrastructure financing from the country’s pension fund assets which currently stands at N5.3 trillion, analysts say.
The analysts further say that from an estimated 64 percent active funds, equal to N3.4 trillion from contributors Retirement Savings Account (RSA), a maximum 15 percent investment in infrastructure bond from the National Pension Commission’s investment guideline, would help address Nigeria’s infrastructure gap.
According to the National Integrated Infrastructure Master Plan, required infrastructure spend in Nigeria is estimated at $3 trillion over 30 years ($100 billion annually), which underscores why the present government recently ran to the pension industry to see how it could tap from its swelling pension fund to support infrastructure development in the country.
Abimbola Sulaiman, head of Investments, Pensions Alliance Limited, said that infrastructure bonds are the easiest way to introduce majority of pension funds into infrastructure investments, as it is similar to traditional bond investments.
Sulaiman further said that “The bonds should be tied to specific projects and issued with government guarantees.”
Eguarekhide Longe, chairman, Pension Funds Operators Association of Nigeria(PenOp), said PFA’s are ready to invest in infrastructural bonds whenever the government decides to float them to finance key developmental projects.
Promising that the pension fund managers are ready to engage with government to expand the economic space, even though it is not their primary objective, he added that care must be taken not to invest pension fund in projects that will not regenerate, saying, “If you put pension fund in a project that does not regenerate it, the money is gone and in many cases, as we have found, the project has not been delivered because it was not properly conceived.”
While debunking claims that PFAs don’t want to invest pension assets in infrastructure, Longe said the managers had requested the investment banking community to come up with products that abide by the investment guidelines in the Pension Act which operators can finance, observing that to date, nothing has been done.
“The fact is that there are ample provisions in the investment guidelines that allow for investment in projects, so to say, infrastructure, private equities and real estate bonds, among others. But what has happened is not that the money is idle in the PFAs, or that the fund managers have not looked for those projects. It is not their job to go and create projects, but we have actively sought the investment banking community to develop products that we can invest in,” he pointed out.
Detail Commercial Solicitors, in its latest report on “How much can Nigerian pension funds really spend on infrastructure?” concludes that from the current investment regulation, the bulk of pension funds available for infrastructure may be obtained via FGN and CBN securities and bonds. “Therefore, government should first and foremost focus on FGN secured infrastructure bonds and not on infrastructure funds. To maximise this benefit, government may need to recalibrate its utilisation of funds accessed via this window – by reducing utilisation for recurrent expenditure and increasing utilisation for infrastructure investment.”
The report further said that PFAs simply require a guaranteed return and are not concerned with how the FGN utilises the money.
It further observed that a structure for FGN guaranteed corporate bonds (floated by project SPVs or FGN entities like the Federal Airports Authority) on specific infrastructure projects, may be explored. “This manner of project enhancement would go a long way to unlock pension funds for infrastructure projects and reduce the project risk profile.”
On the proposed multitier investment guideline being proposed by the industry regulator, Detail Commercial Solicitors noted that as soon as the regulations are passed, FGN and PenCom should enforce the minimum investment of 5 percent to incentivise PFAs to start investing in infrastructure, albeit in bit sizes. “PFA’s must learn the ropes with investing in infrastructure projects.”
Modestus Anaesoronye
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