Lack of structured investment instruments impedes access to N1.36bn for infrastructure financing
by KEHINDE AKINTOLA
May 4, 2016 | 12:00 am| | | Start Conversation
National Pension Commission (PENCOM), responsible for the management of the contributory pension funds from both public and private sectors on Tuesday, disclosed that the sum of N1.36 billion out of the N1.16 trillion available for infrastructure financing has been accessed so far.
The Commission noted that the N1.159 trillion unutilised fund, was due largely to “non-availability of investment instruments that qualify for pension investment as stipulated in the Investment Regulations issued by the regulatory organ as well as sections 85-91 of the Pension Reform Act 2014, as well as section 115(1), which empowers the Commission to make regulations, rules or guidelines as it seems necessary or expedient for giving full effect to the provisions of the Act.
The N1.36 trillion represents 20 percent of the total sum of N5.30 trillion accrued to the pension fund as of December 31, 2015, while Nigeria’s infrastructure deficit is estimated at N23 trillion, excluding maintenance and operating costs.
Breakdown of the total pension assets invested shows that the sum of N517.76 billion or 9.76% is for domestic ordinary shares; N68.35 billion or 1.29% for foreign ordinary shares; N3.515 trillion or 66.29% for Federal Government Securities; N152.44 billion or 2.87% for State Government Securities; N183.01 billion or 3.45% for corporate debt Securities while N12.82 billion or 0.24% is for supra-national bonds.
Others include: N561.07 billion or 10.58% is for local money market securities; N20.72 billion or 0.39% for open/close-end funds; N230.34 billion or 4.34% for real estate properties; N24.55 billion or 0.46% for private equities; N1.36 billion or 0.03% for Infrastructure funds; N36.04 billion or 0.68% for cash and other assets while N20.87 billion or 0.39% was for other liabilities.
Chinelo Anohu-Amazu, PenCom director-general, disclosed this at the public hearing on the ‘need to invest Pension funds to meet Nigeria’s infrastructure challenges,’ held at the instance of the joint Committee on Pensions, Finance and Capital Market and Institution.
She however noted “there was no significant investment in infrastructure bonds and infrastructure funds despite the expansion of the permissible investment horizon in 2010, to include such asset classes. This was largely due to lack of structured investment instruments for Pension funds to participate in the provision of finance for infrastructure development in the country.
“It is therefore imperative to note that no Pension fund asset is un-invested or ‘lying idle’ in any account as is being speculated in some quarters,” adding that the Commission was performing its statutory role of monitoring the investment activities of the PFAs on daily basis.
Anohu-Amazu, who was represented by Ebenezer Foby, PenCom commissioner, however, noted, “Pension assets are being invested by the licensed PFAs/CPFA as pool of funds under the custody of licensed Pension fund custodians (PFCs).”
She explained that the legal framework for the investment that the value of Pension funds grew from N265 billion as at 31st January 2006 to N5.30 trillion as at 31st December 2015.
She also emphasised the need to refocus on development of bankable/eligible infrastructure financing structure in Nigeria that can attract Pension funds investment.
Anohu-Amazu also stressed the need have infrastructure projects that are commercially viable and self-financing, open and transparent bid/concession processes for the project as well as political risk cover to be provided by Federal Government and/or Multilateral Finance Institutions like IFC/World Bank, AfDB.
Other stakeholders who spoke in support of the disbursement of the Pension fund for infrastructure development including Securities and Exchange Commission (SEC), Pension Fund Operators Association of Nigeria (PenOp) as well as members of the House of Representatives applauded the initiative, with a call on Federal Government to ensure prompt payment of the contributory Pension from the public and civil service.
In his submission, Mounir Gwarzo, SEC Director-General urged that PenCom should invest pension funds in Nigerian infrastructure through SEC’s approved investable instruments, adding that Nigerian infrastructure investment is potentially capable of providing Pension funds with high predictable long term cash flow.
He however noted that “the 20% infrastructure investment threshold allowed by PenCom regulation is negligible, considering the liquidity in the sector and the infrastructure deficit in the country,” adding that there’s need for government to have a framework or strategy for bankable projects to encourage more Pension funds investment.
He submitted that “the risk assessment outlook and investment strategies by pension managers are skewed towards investments in Federal Government bonds and Treasury bills, rather than investment in other instruments e.g project tied infrastructural investments because of the risk perception in these products. There is the need to further engage the PFAs to identify and address the risk perception,” the SEC chief emphasised.
Also speaking, Misbahu Yola, Managing Director/CEO of Legacy Pension Managers who spoke on behalf of PenOp, also expressed support for the utilisation of over 70% investment by the pension industry in Federal Government bonds towards critical capital spending rather than being deployed largely to fund recurrent expenditure.
He maintained that the N1.06 trillion or 20% of the total industry assets of N5.3 trillion for infrastructure investment, may improve Nigerian infrastructure, but argued that “it is insufficient to fully address the infrastructural deficit of the country.
“This thus further speaks to the need to be clear in the thought process that conceives Nigeria’s infrastructure development strategy. The concept of leveraging in which the project initiator’s seed funding attracts multiple funding support from third party/external investors, can only be achieved if there is deemed to be pristine integrity in the articulation and preparation of the relative infrastructure projects. This will not come with a casual approach to infrastructure development,” Yola noted.
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