With a crippling $300 billion infrastructure gap slowing down the economy, the National Pension Commission is right in deciding to review opportunities and barriers to investment in infrastructure from the standpoint of pension funds. Infrastructure drives competitiveness and supports economic growth by increasing private and public sector productivity, reducing business costs, diversifying the productive base and creating jobs. But such expectations should not blind us to the purpose of the new pension scheme.
The initiative may be good news for a reckless and deficit-strapped government looking to build or rebuild essential infrastructure. Drawing essentially from the 2012 document, the new rules, among others, envisage that as much as 15 per cent of the total value of pension fund assets under management, and not above N5 billion, could be invested in infrastructure through Infrastructure Bonds and another 5 per cent of the total value of pension fund assets invested in infrastructure through Infrastructure Funds, making 20 per cent of the total value of accumulated pension assets.
The existing rules on the pension funds that are already inching towards the N5 trillion mark strictly demand that the Pension Fund Administrators invest fund assets “with the objectives of ensuring safety and maintenance of fair returns.” But globally, as OECD says in a report,the financial crisis has aggravated the infrastructure gap further, reducing the scope for public investment, while at the same time affecting traditional sources of private capital. Institutional investors such as pension funds are therefore being mobilised to play a more active role in bridging the infrastructure gap.
In line with this thinking, the Federal Executive Council approved the utilisation of the pension funds for the development of infrastructure in 2012. President Goodluck Jonathan later said that there was no reason why PenCom should not invest within and outside this country as “other countries that have similar funds are even coming to invest in Nigeria.”
He is right. Institutional investors – pension funds, insurance companies and mutual funds – are playing a more active role in bridging the infrastructure gap in many countries. But the bad news is that if our national experience is anything to go by, what works elsewhere based on the strict adherence to the rule of law turns bizarre here.
This title once argued that, without exception, all specialised funding schemes set up over the years had faltered or failed outright, ruined by corruption and mismanagement. NERFUND, NEXIM and a slew of other development finance institutions have not made the impact expected of them. No one has explained what happened to the N250 billion agriculture credit schemes; the N200 billion revolving fund for textiles and the N300 billion aviation intervention fund backed by the CBN.Previous pension systems also failed because utter criminality and abuse went unpunished.
So far, institutional investment in infrastructure has been quite limited globally. It has been estimated that less than 1 per cent of pension funds worldwide are invested in infrastructure projects, excluding indirect investment in infrastructure via the equity of listed utility companies and infrastructure companies. Even some PFA sare not ready for infrastructure investment with pension funds for now. It is argued that the existing business and legal environment that allows for most obscene impunity may put the pension funds in serious jeopardy. Ronke Adedeji, Managing Director of Leadway Pensure Limited, for instance, was quoted as saying that even though the investment of pension funds in bankable infrastructure projects thrives in other parts of the world, the proposed plan should be done with clear guidelines specifying how the funds would be recovered and water-tight commitment that any policies would not affect it.
We agree. In emerging markets, Mark Wiseman, the Canada Pension Plan Investment Board President, says, it is particularly difficult to find regulatory regimes that sufficiently reduce risk for institutional investors whose investment perspectives are turned to lower risk and returns. “To really make infrastructure investing attractive in a given jurisdiction for us,” he adds, “we need that consistency and predictability of the regulatory framework. When you’re investing in quarter centuries, as opposed to the next quarter, 90 days, that regulatory framework and that consistency have to actually transcend any given government.”
But this kind of environment simply does not exist in Nigeria today. Every new government comes in with sundry policy frameworks that mostly nullify the existing ones. Or what do you make of firms listed on the stock exchange that easily disappear without a trace; the so-called well connected businessmen that default in repaying bank loans and still go on to win juicy government contracts and others that would have ended up in jail or declared bankrupt becoming beneficiaries of privatised public utilities?With such risk levels, it is difficult to get the right returns from investing in infrastructure and a guarantee of a safety net for pension funds here.
The pension system, therefore, calls for stricter rules, not a watered-down one. The pension system is normally run by the best minds in the country for the benefit of retired workers who ordinarily may not know their way through the slippery investment terrain. And when infractions are committed, the law takes a swift and severe course. It should not be different here.
Until such a time that we are able to create an investment-friendly environment with strong regulatory institutions free of entrenched networks of patronage, pension funds must be kept away from Nigeria’s dodgy business people and their cronies in government.
