With huge intervention in major segments of the economy, the Nigeria Sovereign Investment Authority (NSIA) is fast becoming a strong backbone for the country, which presently yearns for exemplary leadership. For Eight straight years, the NSIA – manager of Nigeria’s Sovereign Wealth Fund has reported profits even at very difficult times. In this interview with ONYINYE NWACHUKWU, BusinessDay’s Abuja Bureau Chief, UCHE ORJI, NSIA MD/CEO shares the company’s success story, as well as short to medium term outlook. Excerpts:
The NSIA reported impressive financial outcomes in 2020, with total comprehensive income surging by as much as 343%. Talk us through that.
There are probably three things to say; one is that last year was very strong for us. If we took out the impact of devaluation, because we had to manage dollar into naira, that’s N51bn naira, we still had about N108bn of core earnings which is three times 2019 earnings, even if we still did devaluation. Obviously, there have been questions around what we did differently and where all the money came from.
Most of it is coming from most of the investments we have made in the international market. Our future generations fund did very well, investments in public equities, if you look at the US capital market, that did extremely well and we invested in that. Markets like Japan did well, we also invested in equities in those places. But the US particularly was a star performer last year, like China where we were also supposed to be heavily invested in.
We started a new strategy in venture capital, which did very well for us as well. In dollar terms, almost 30% return and in naira terms, certainly much more than that, almost 50% return. I can’t tell you the naira numbers exactly, but the dollar I can. Our private equity did very well for us. We invested in private equity for quite a long time, some of the private equity companies did well for us in 2020. Our hedge funds strategy did very well as well, we changed most of our hedge fund managers, appointed new ones, expanded the foot prints and that did well. We also started doing direct trading of ETFs and co-investment with our major capital partners.
So, all in all, these external markets investments were really it, followed by the foreign exchange gains, these were really the big engine last year. The third area was infrastructure, we operationalized our health care projects which are now producing real revenues and that reduced the losses that we made at the start-off phase. We have also seen significant improvement in institutional investments, so, Infracredit, NMRC; all these companies are doing better now and contributing to our earnings. We have also turned many elements of the Presidential Fertiliser Initiative from a loss centre to a profit centre for the NSIA. But more importantly is that the restructuring took a lot of budget out of NSIA books into the ministry of finance incorporated books. These are the things that reflected in the returns. But the real returns engine of NSIA is the future generation fund where a lot of returns came from international market investments.
NSIA is obviously big in Nigeria’s infrastructure development. Can you speak on your current strategy in this regard?
What has changed is that the NSIA is bigger now. The Presidential Fertilizer Initiative has changed or is changing. Up until last year, NSIA did everything, from the transportation, logistics, blending, storage, sales, import of raw materials, so it was a contract manufacturing relationship. The fertiliser blenders association worked with NSIA, because it was our product, we ran the whole thing. Now the relationship is changed, power is being transferred to them and the contract now has restricted NSIA to using its balance sheet and its reputation to bring in discounted raw materials, which we give to blenders, and they now pay. With this, NSIA is 100% secured, no risk, the blenders take the responsibility of transportation, logistics, blending, sales, all of that, not us. That’s how we are different from the rest of the public, the PFI has changed and this in my opinion is very important.
The intervention of NSIA has delivered its result, the industry is revived, fertiliser price has crashed, domestic production has increased, we came from seven blending plants or less to over 44 as at the end of last year and over 50 now. The industry balance sheet has improved, the quantity of fertiliser produced is the highest ever produced in the country, even higher than when we were doing phased importation. With all of that, jobs have been created, direct and indirect jobs reaching over 200,000. So job done!
In healthcare, the revenues at the health care centres have improved better than expected, they are all now running ahead of plan, they are not yet fully all profitable, but we are close and that has been a major thing. We learnt our lessons, we removed those who used to run the thing in Lagos, we changed them and created an in-house management team for our cancer centre, this has been successful. Now we are feeling confident that we are going to do many more centres, the plan we have over the medium term is to roll out 20 centres in healthcare.
In agriculture, our farm in Nasarawa is a work of art, you need to behold it, it’s really great. Most of the investments have been made with our partners, we are moving to Gurara, into Edo, Imo, Abia, Adamawa and even Lagos where there are opportunities in fishery.
Obviously, we are putting in more and more capital, but I think that the most exciting things for us now and which will keep us busy is the operationalization and commissioning capital raise for the PIDF projects and full concession and then the innovation fund.
As the NSIA pulls out of the fertiliser initiative, what structures will ensure continued profitability?
The industry was there, we only helped them come alive. It is an evolution, NSIA is still there, if they misbehave, we take it back. We have not dismantled the structure; we are still managing the company on their behalf and we will make sure that EFCC gets involved, to ensure that those who mess up get prosecuted.
What other areas of investment are of interest to the NSIA?
We are looking at many other sectors. We are developing projects, sponsoring projects, but there are other areas where we can just invest, we don’t have to sponsor or develop or create SPVs, other people can develop and we will invest, those include refining.
Over time as things change, our appetite changes, we can also bring in some other things into the centre circle where we are going to be sponsoring and calling areas of focus. The point is that, despite our focus areas now because of availability of capital and other factors, we are also interested in all these other areas. If we see anything compelling, we will bring them in. We are looking at ports, we are looking at logistics, refining, basic materials, these are all areas of interest and there are many more – sport, real estate.
These are areas of interest for us but not of primary focus like Healthcare and agriculture. If we see a compelling opportunity, we will invest.
Can you speak to the additional capital investment you made into NG clearing?
NG clearing for us was very interesting in terms of working for efficient operation of the equities market. There are also some things that can happen, futures market for shares can be active, and different types of auctions can be created which are the things that create liquidity of trading which then drives economic activities. We believe that derivatives clearing house is important for you to have a derivatives company. This company was sponsored by the Nigerian Stock Exchange, we are just investors in it. They have a capital call for right issues, we took it up, that’s the additional investment we made through the right issuance.
What is happening with the NSIA innovation fund?
We have just launched it, we have four projects in the pipeline and I’m hoping that we will close a couple of them in the next couple of months. You know normally we don’t talk about such things until it’s done, but, in this case, we are very confident that it’s almost done and we are very excited about the possibilities it will give us.
It will be focused on technology, biotech, Agritech anything that is innovation in those areas. In technology, software services, fintech, data networking to improve the quality and speed of internet access in Nigeria, data centres, these are all things within the frame of reference for investing in this area. So it is small, it just started, but we have an active pipeline, you will see us very active in this space.
We are looking at the digital switchover and the opportunities that it will create. I believe that this digital switchover will be a very powerful thing for Nigeria and it will create different kinds of opportunities in technology, media and telecommunications. In terms of government collaboration, we are very actively engaged with NITDA, the ministry of communications and digital economy, but like I said, let us even make the first investment. I am almost very certain that we are very close to writing our first cheques on this. We are not raising any debt, we are going to raise equity for the Innovation fund, the commitment that the NSIA board has made so far is $50 million, and we have people who want to co-invest with us. I am almost confident that we can raise over $100 million for this.
You also signalled NSIA plans to issue sukuk bonds for road projects, where are you on that?
It is one of those options we are considering for funding road projects under the Presidential Infrastructure Development Fund (PIDF) projects. You know there is a shortfall in the funding, so everything is on the table, from approaching the pension funds, sukuk bonds, convertible bonds, to all kinds of instruments.
I am very confident that we can raise some significant instruments that we issue, next year actually. This year we will start through mid-next year, but it’s either sukuk or other sources of funding. If we get cheaper funding that is not sukuk in other areas, we will pursue it, but I like sukuk because it is actually designed for long term infrastructure investment.
Can you explain NSIA’s interest in the bridge academy?
We have been investors with bridge academy for a long time. They are in Borno state, Kaduna, Edo, Rivers, and they are now making inroads in many other parts of Nigeria. This is how it works; there is a central server in Washington DC that sets a curriculum for the teachers to teach the children mathematics, English and all that. This ensures the quality of education delivered to schoolchildren is the same. Whether the school is in a batcher, what matters is what you are learning. So, the curriculum is fantastic, the teaching methods are fantastic, the teachers are trained and this is how they deliver high quality education. It’s not free, people pay for it, we are an investor there, as well as Bill and Melinda Gates, Zuckerberg and a few other people who have philanthropic tenets. So that has been successful, we are very happy with it and we will continue to push with it. Don’t forget this is part of our socially-backed investment, we are not really making any money out of it.
We understand the NSIA is also planning to build a world-class quaternary hospital in Abuja?
Yes, that just started. We expect to break ground this year and start construction, we are hopeful to finish before the end of next year. That’s really all I can say at this point. It’s something that I think everybody in Abuja should be very interested in. We are indirect investors in Evercare in Lagos. But this one in Abuja will be one of those that we will co-sponsor, co-develop, build from scratch.
I am very confident that we will start this year and finish within 12 months. We will do everything from cancer treatment to renal treatment to neuroscience, neurosurgery, to highly sophisticated orthopaedic surgeries, this is a very important project for us and we encourage you to watch the space. The decisions have been made, capital has been quoted, board has approved, we are just about to complete the design with the contractors and then start work.
How much does the NSIA plan to invest in health care this year?
The quaternary hospital will cost us over $100M to equip, build and provide working capital. We are hoping NSIA will provide about half of that through a commission, get equity, and others will also contribute. For the rest of the centres that we are rolling out, diagnostics, cancer treatment and all that, we are looking at more than that $100M and we are also hoping that the NSIA would at least invest close to half of that. If you put all those together, my sense is that just for capital spend, NSIA will be committing more than $100M to $150M in the next year, but we are looking to leverage that by taking advantages of capital from outsiders, with other people joining us in those projects to augment what we have committed. The lessons we have learnt is that it has helped us to now be able to bring other people from outside to participate alongside us, at least we have shown that we can manage these things.
Why is NSIA not as aggressive when it comes to investing the future generation and stabilisation components of the SWF?
What I mean is that we are not as aggressive as I would have liked us to be. In the context of Nigeria, we are afraid of losing money, you know risk and reward go together. Let’s be honest, if we went all out and took all that risk and the market went against us, and if we came back and said the market went down and we lost 200 million dollars, what will you say? The rest of Nigerians will ask EFCC to go and check, nobody needs that kind of harassment.
Last year, I told my colleagues you will not see a market like this again because if you look at what was happening; Americans were sitting at home, they were not travelling, they were not going to restaurants, movies, they were not buying clothes, they were not spending money and the government was pumping money into their pockets every day. You know what they were doing? They were buying in the stock market, so stock market went up, it went crazy, all that money went into the stock market. I knew that was going to happen and we took advantage of it, but if we had gone even more aggressive as I had hoped for, my goodness, the numbers would have been crazy.
You sound like 2021 may not be as bullish as 2020, why that sentiment?
The sentiment is very simple, number one, in 2020, every central bank in the world; from India to Japan, USA, all the major central banks were pumping money into the system. This year, 2021 as the world economy starts to open, you will see that support will gradually be withdrawn. Don’t get me wrong, I don’t think it’s going to be negative, I am just saying it’s not going to be as crazy as last year was.
What’s your outlook for Nigeria’s SWF in 2021?
With vaccinations, easing of the economies, I think industrial sectors will open, aviation, travel and leisure, retail, luxury goods will open, but I think tech will pull back and things will change a little bit, it will be a year that will be solid but not as great as last year. For the NSIA, all these infrastructure projects I talked about will begin to make money. Look at the healthcare projects that were launched in 2019, we still haven’t broken even yet, even in our revenues we haven’t broken even. When you deploy more capital into the infrastructure, you will lose for a while before you start making profits.
For the Future Generations Fund, we expect to allocate more capital to venture capital, global equity markets and an increasing exposure to European equities where we had been under exposed in 2020. We also believe that broad opening of the markets will provide a comprehensive lift to equities. Our plan is to complete concession, capital raise and operationalization of the three PIDF road projects: Lagos-Ibadan Expressway, Second Niger Bridge and Abuja-Kaduna-Kano Highway and breaking ground on the Ammonia and Diammonium Phosphate Plant joint venture with OCP. For the infrastructure Fund, the Innovation Fund is expected to be very active as we see opportunities in datacenters, data networking, software, pharmaceutical manufacturing, and many others.
