By Paddy Ezeala

The challenges of infrastructure are a major impediment to the diversification of the economy. The infrastructural deficiencies of the country are acknowledged and well-documented and the negative impact on productivity glaring.

Our mineral resources would not have a competitive price tag if the cost of production remains prohibitive because of lack of basic infrastructure and necessary incentives. The same goes for agriculture which produce rots away owing to inadequate storage facilities. We should see infrastructure beyond buildings, roads, electricity, running water, etc. It should also include the necessary policy framework to drive growth.

The Contributory Pension Scheme (CPS) has the potential to provide the necessary financial cushion in our drive to build a solid economy beginning with addressing our infrastructural deficiencies. From a deficit of more than N2 trillion in the old defined benefit scheme before 2004, the CPS is closing in on N6 trillion in the amassment of pension funds even when a greater percentage of this is illiquid as pension funds don’t lie idle in bank accounts. This is even with far less than 10% market penetration in the pension industry.

In other words, less than 10% of Nigerian workers in the formal and informal sectors of the economy have enrolled in the CPS. This explains the great potential and immense possibilities of the industry. While savouring the excitement generated by the remarkable success of the CPS, it is important to note the marked difference between it and the old defined benefit scheme. This is because the word pension in Nigeria has acquired a pejorative connotation as a result of the runaway corruption that characterized the old scheme and still persists.

The various tiers of government have been eyeing the pension funds as a possible source of funding for infrastructure and other development projects. Interestingly, this includes some states that have yet to comply with the Pension Reform Act 2014, by putting the necessary structures in place and enlisting in the CPS. The Federal Government has yet to wield the big stick to bring every state and every worker into the scheme.

There is no gainsaying the fact that there must be an airtight policy framework for investment to ensure that risks are reduced to the barest minimum. Pension funds are held sacrosanct in view of the fiduciary relationship that exists between the Retirement Savings Account (RSA) holders and the Pension Fund Administrators (PFAs).

It should be reiterated that pension funds are well-positioned to play a critical role in economic development in Nigeria. However, excitement must give way to reason to ensure proper application of the funds. It is gratifying that the investment portfolio in the pension industry has since 2010 been diversified to allow investments in infrastructure funds and bonds as well as other asset classes such as supranational bonds and private equity funds. Before then, The National Pension Commission (PenCom) regulation on the investment of pension assets only allowed investment in ordinary shares, money market, corporate bonds and open -and close-end funds. All these are core asset classes. PenCom has done a marvelous job in regulating the industry so far.

The question now remains how funds in this subsector can be mobilized without the necessary prudential safeguards watered down or even compromised. The Minister of Power, Works and Housing, Mr. Babatunde Fashola recently at the Nigerian Pension Industry Strategy Implementation Roadmap Retreat organised by PenCom advocated the use of pension funds to address the infrastructural deficiencies of the country. In fact, the minister stated that Nigeria should take the lead in Africa in using people’s funds to drive inclusive growth. Said he, “I see a future for Africa led by Nigeria, using the resources of the people to build a future that include the people.”