•Funds go to FG borrowings

•We are engaging stakeholders for solution —PenCom

By Rosemary Iwunze

Federal Government’s dream of ramping up pension assets for investments into infrastructure development seems floundering as most recent report shows a stagnation in funds allocation to the sector.

Meanwhile the bulk of the over N12trillion assets are going into Federal Government Bond borrowing instrument which are used for government recurrent expenditure.

At the backdrop of the quest to address the huge infrastructure gap in the country, the pension policy had envisaged about 15 percent of the total pension asset would be deployed to the sector, but latest update on the deployment of the pension assets by the National Pension Commission, PenCom, has indicated that infrastructure share of the allocation has stagnated far below one percent.

This is compares poorly to the average of 68 percent of the assets deployed to Federal Government borrowings in form of FGN Bonds.

In Q1’21, when total pension assets recorded N12.34 trillion, according to the PenCom report, a whopping N8.5 trillion of the assets representing 68.93 per cent was invested in the FGN borrowing instrument, while the assets’ investment in the infrastructure was N66.88 billion, about 0.54 per cent of the total assets.

Further information in the report shows a similar structure in 2020. Total pension fund assets in Q1’20 stood at N10.3 trillion with about N7.02 trillion invested in FGN securities which represents 67.96 per cent of total pension assets, while N46.98 billion was invested in infrastructure, representing 0.45 per cent of pension assets.

The investment allocations in the remaining three quarters of 2020 followed similar structure with average investments in FGN Bond at about 68 percent while infrastructure averaged 0.49 percent.

The allocation pattern, according to industry analysts was informed by better security and yield in the FGN Bond, while investment climate in the infrastructure sector remained unattractive.

The experts argue that well structured infrastructure fund with structured government policy environment could offer better returns on investment than FGN securities.

They also argue that well structured infrastructure fund will greatly reduce the huge infrastructure deficit being recorded in the country.

They argue that the weak stock of infrastructure investments is one of the biggest challenges to the ease of doing business. From poor port infrastructure, dilapidated transport networks, epileptic power supply, to huge housing deficit.

This trend, they argue, needs to be reversed by emphatically supporting an investment climate that mitigates single obligor risks and hedges pension fund assets against inflation.

Accordingly, there should be more focus to have a more measurable impact on the Nigerian economy through diversified and increased investments of pension funds in infrastructure, real estate and other alternative assets.

Reacting to the poor allocation to  infrastructure, the National Pension Commission, PenCom, had stated: ‘‘The main challenge inhibiting the Pension Funds Administrators, PFAs, from investing the pension assets for infrastructure development is the non-availability of eligible instruments (funds and bonds) in the financial market. The Commission and the pension industry would support efforts at issuing eligible instruments for pension funds to support infrastructure development in Nigeria.”

However, PenCom emphasized that such investments must be done in safe and well-structured vehicles that align with the provisions of the Pension Reform Act, 2014 (PRA 2014) and the Regulation of Investment of Pension Fund Assets.

“This establishes transparency and fair valuation, thus removing all ambiguity on the real market values and tradability of the assets. PFAs can then readily buy and sell at prevailing market prices. The eligibility requirement ensures that the assets are real, liquid and within tolerable risk levels,” PenCom stated.

PenCom, experts comment

Speaking on the funds allocation structure, Head, Research and Strategy Management, PenCom,  Mr. Ibrahim Kangiwa, said that the Commission is into engagement with relevant stakeholders in a bid to promote safe investment in infrastructure development.

He said: “We are into collaborations with relevant government agencies and the organize private sector for viable public private partnership arrangements in infrastructure for pension fund investment.”

Also speaking, Director Centre for Pension Rights Advocacy, Mr. Ivor Takor, stated that pension funds are long term investable funds that can be leverage for economic development, given the right institutional and legal framework as well as economic conditions.

He said: “It is unfortunate that most of the government securities where the pension fund is invested in are used to fund recurrent expenditure, they are not even capital expenditure. 

Also speaking, Chief Executive Officer, Pension Fund Operators Association of Nigeria, PenOp, Mr. Oguche Agudah, noted that there must be a legal and commercial framework in place for any proposed infrastructure fund.

Agudah said: “There have been various discussions spanning months regarding how best to structure the funds to invest in infrastructure development and also attract local pension funds, local and international investors.

“The industry has also been engaging with various parties on how best to individually and collectively fund infrastructure in a sustainable and responsible manner with a commercial return for the benefit of all stakeholders. ‘‘The industry has recorded some success on some infrastructure funding across the country directly and through funds, investing in power plants, student accommodation, roads, telecommunication infrastructure, among others.

“It must be commercially viable and self-financing, that is, generate cash flows to repay itself overtime; and bid/concession processes must be open and transparent.”

According to Agudah investment in infrastructure would be beneficial to Nigeria and its citizens as adequate infrastructure development would improve the standard, create and sustain employment, promote entrepreneurship, enhance returns on pension fund investments as well as increase the pool of pension savings for economic development.

He added: “Pension funds remain a potential source of private financing to fund infrastructure in Nigeria, but the funds could only be invested indirectly through structured instruments, such as bonds and funds.

“The minimum requirements/criteria for pension fund investments in infrastructure, as stipulated in the investment regulation, are very robust and provide adequate safeguard for pension fund assets.

“There must be availability of bankable, commercially viable projects; full repayment guarantee by the Federal Government, especially in the early stages of projects financing; and strong political will and consistency in formulation of policies to retain investors’ confidence.’’