An infrastructure-focused fund that draws contributions from pension funds, Development Finance Institutions (DFI) and foreign investors is being set up to tackle Nigeria’s infrastructure needs and boost the economy.
This is according to Dave Uduanu, CEO of Lagos-based pension fund administrator, Sigma Pensions, who has been a part of deliberations over the government initiative.
The fund will be managed by the Nigerian Sovereign Investment Authority (NSIA) and would take at least one year to conceptualise and the investment would be made possibly over a five-year period, according to Uduanu, who sits on the committee planning the fund.
The NSIA, National Pension Commission (PenCom), Ministry of Finance and the Central Bank of Nigeria (CBN) are named members of the committee.
Uduanu told CNBC Africa that the planned fund could possibly be the most important investment project in Nigeria in the last decade.
“What we have been asking the government is to issue infrastructure bonds or create a national infrastructure fund that is run by private sector operators,” said Uduanu.
The news about the planned infrastructure fund clears the air over initial suspicions that the government was going to borrow N2trn from the national pension asset to fund its budget.
Pension Fund Administrators (PFAs) will invest in the infrastructure fund as typical investors as will DFIs like the African Development Bank (AfDB), hence it would not be the FG borrowing money outside an investment vehicle from pension funds as commonly assumed.
“Government is not borrowing, it is a fund that would be managed by the NSIA, it is a commercial fund,” said Uduanu.
Nigeria’s infrastructure stock is only a quarter of its GDP, far below the 70 percent international benchmark, according to the International Monetary Fund.
Zaniab Ahmed, minister of finance, budget and national planning, last year said investment of $100 billion annually was needed for the next 30 years to effectively tackle infrastructure challenges in the country.
But the government is cash-strapped and the national budget leaves little room for capital investment already competing with the high recurrent expenditure and the cost of debt servicing.
Uduanu estimates that with just around N380bn allocated to transport infrastructure in 2020, relying on the budget would take 20 years to build the projects earmarked in the national spending plan.
The impasse prompted the government’s initiative for NSIA to set up a dedicated team to run the new fund which for pension funds would be one of their several investible, like private equity funds.
“We (PFAs) are going to sit on the advisory board to make sure that things are done properly and the asset would be run under a public-private partnership (PPP) framework,” he said.
Uduanu, however, said to ensure success of the project, the PPP framework has to be finalised as well as the national tolling policy to ensure that capital would be recycled back into the fund.
He also noted that the concern for PFAs would be the interest rate at which the fund would issue notes given that current low interest rate environment which has been driven by recent policy directives is unsustainable.
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