Nigeria’s Pension assets are great resource put to wrong use

Nigeria paid quite a handsome price to get its now successful contributory pension fund off the ground not too long ago.

With the honest hard work of people like Fola Adeola and M K Ahmad, President Olusegun Obasanjo saw the noble initiative come to life.

The hope then and it should still be now, was that Nigeria could over time build a huge stock of long-term capital which can then be deployed to building infrastructure, promoting modern factories and generally being an enabler of economic growth and transformation.

Until now the first objective of building a significant pool of long term asset is being met and you cannot say that for the other half of our national hope.

Assets under management (AUM) of the regulated pension industry in Nigeria rose by 18.8% y/y in June to N11.09trn (US$28.7bn), and by 2.7% m/m with the monthly reports from the regulator (PenCom) showing an asset mix heavily skewed towards Federal Government of Nigeria debt securities, which represented an unbelievable 66.1% of the total.

The PFAs have become better known as lender to the federal government. It was not just for this that this asset was created.

The FBNQuest Capital note of August 227 said contrast, “its Kenyan counterpart, the Retirement Benefits Authority, puts the share of government securities at 39.4% at end-2018. It also shows immovable property and listed equities at 19.7% and 17.3% respectively: the current Nigerian equivalents are 2.0% and 4.7%.”

According to the note, “ PFAs’ holdings of FGN paper are principally bonds (56.9% of total AUM). The narrative to share, however, has been the meteoric fall in the share of NTBs by 111bps m/m and by 1,157bps y/y as a result of the crashing of yields in Q4 2019.

“The fall in holdings of NTBs has been balanced by higher exposure to FGN bonds, local money market instruments and corporate bonds.

“The very modest exposure to the infrastructure, either direct or indirect, has good reasons and yet is still a popular talking point, given Nigeria’s weaknesses in the field.

“The average value of a retirement savings account (RSA) at end-June was N946,000, compared with N926,000 in May, a modest improvement. The latest report from Pencom also shows that just N32m was invested in RSA fund V dedicated to the new micro pensions for the informal sector and firms with less than three employees, an increase of N7m in one month. “