Ignoring the dissenting voices of workers, the Federal Government is intent on raiding a portion of the pension funds. To overcome the misgivings, the National Economic Council is on a charm offensive, couching its words in woolly statements meant to persuade workers, whose future is dangling precariously. Essentially, NEC – chaired by Vice-President Yemi Osinbajo, with the 36 state governors and the Central Bank of Nigeria Governor as members – is unwavering in its daring bid to utilise N2 trillion out of the pension funds for infrastructure upgrade. If the mismanagement that defined the pension schemes before 2004 is anything to go by, then this is a suicidal undertaking that should not be allowed.
Data from the National Pensions Commission and National Bureau of Statistics are categorical on how the funds were invested: 71.43 per cent or N6.84 trillion of the funds is invested in the Federal Government of Nigeria securities (bonds [N4.47 trillion] and Treasury bills [N2.26 trillion]). The remaining percentage has been taken up by mutual funds, state government securities at N125.24 billion or 1.31 per cent and other instruments. Bearing in mind that government had generated trillions of naira in the past with nothing to show for it and is borrowing heavily to fund the excessively high cost of governance, there are legitimate fears that it might soon ruin the future of retiring workers if it is able to dip its itchy fingers into the pension pot.
Truly, infrastructure has recently become an asset class in its own right for private sector investors – mostly, notably pension funds. Here, infrastructure is yet to be an ideal asset class. Undoubtedly, Nigeria is running a dysfunctional economy, morbidly dependent on crude oil revenue. This pedestrian economy is short on revenue, high on debts and recurrent, extremely reliant on imports for goods it can produce (like petroleum products and basic foods), suffers from massive corruption and inefficient deployment of resources. All this makes for imminent disaster.
Therefore, government cannot be trusted with the hard-earned pension of workers. Fiscally, the Nigerian government is living on borrowed time, always biting off more than it can chew. A new CBN report says that the Federal Government recorded a N4.62 trillion deficit in 2019. That year, its highest expenditure went on recurrent at N4.05 trillion out of a budget of N8.9 trillion. This is an unworkable economic paradigm. It is wrong for the country to keep allocating more resources to consumption. Government ought to provide infrastructure, not fritter resources on few public office holders and civil servants.
At the same time, government cannot meet its expensive lifestyle, part of which is that its lawmakers are overpaid for mediocre productivity. Petrol alone cost Nigeria N2.95 trillion to import in 2018, the NBS said. Illogically, the Federal Government is reluctant to privatise the four loss-making refineries that gulped about $400 million between 2013 and 2015. Such a policy is irrational because the private sector can run these assets profitably.
Additionally, the CBN coughed up $10.02 billion to the different strata of the market in the third quarter of 2019, and $9.98 billion in Q4 2019 to stabilise the naira, the bank said. Nigeria’s unwillingness to liberalise is thus hurting the economy deeply. Like all its predecessors, this regime has yet to privatise the Ajaokuta Steel Company. The toll of government control is obvious.
To cover up, government resorts to borrowing. As of September 2019, the country had a debt outlay of N26.21 trillion or $85.3 billion, the Debt Management Office figures state. Imprudently, government deceives itself that its debt-to-GDP ratio is less than the 25 per cent threshold recommended by the multilateral organisations. But what is the repayment plan when debt servicing gulps over N2 trillion annually on the average?
Sentimentally, NEC states that the N2 trillion will be pumped into revamping the rails, roads and electricity. Inasmuch as these are desirable, it cannot forcibly divert pension funds to these sectors. Its statist policy in the rail and electricity sector discourages private capital. Uneconomically, it is building a modern railway network with public resources when it lacks the resources to do so. This hinders private operators coming in to take up the slack. In power, it admits that after the November 2013 privatisation, it has channelled N1.7 trillion to stabilise the sector without the expected result. In fact, if the entire N2 trillion is poured into the sector, there is no prospect that any improvement will be recorded.
The government is even too weak to bring economic offenders to book. A few well-placed Nigerians owe over N5 trillion that the Assets Management Corporation of Nigeria deployed in bailing their firms out of the 2008 economic crisis. This money is double the N2 trillion it is looking for. In the same vein, borrowing the N2 trillion through private bonds is blatantly unreasonable. All the funds to private organisations like the Aviation Fund, and Textile Fund went down into a bottomless hole, and unaccounted for and the offenders are walking free.
The main argument that pension funds are deployed in building infrastructure in other parts of the world is self-serving and dangerous. It is a half-truth: in those countries, the ratio of the pension funds to GDP is substantial. According to the Paris-based Organisation for Economic Co-operation and Development, the pension funds to GDP ratio in Australia (132.6 per cent); Canada (85.6 per cent); Chile (70.2 per cent); Iceland (150.8 per cent); the Netherlands (171.0 per cent); Switzerland (126.9 per cent); the United Kingdom (104.5 per cent) and the United States (76.3 per cent). These countries can conveniently afford to put a slice in infrastructure without jeopardising the future of their workers. There too, the infrastructure market is well-developed and properly regulated.
Also, the argument of Kaduna State Governor, Nasir el-Rufai, that the pension funds are partly government money is insulting. It is purely contributors’ money. Why is the regime adamant on ruining a good thing that emerged from the ashes of the discredited Defined Benefit Scheme in which pensioners retired into penury and died in abject poverty?
In contrast, Nigeria’s pension funds to GDP ratio was 6.7 per cent as of 2018 (OECD data). This is inconsequential. It should first be strengthened with the right policies. Nigerians should feel free to take this up through dialogue and class action litigation if government does not renounce its intention.
To build the much-needed infrastructure, government has several options before it. First, it should withdraw from the rail and electricity sectors. The money it saves from there should be used to intensify the construction of roads and provide other social services. Critically, it should get the Railway Act 1955 repealed to promote private capital intervention. In addition, it should instil investor confidence in the infrastructure market through proper regulatory framework.
Experts have warned against the risk of “infrastructure nationalism.” On November 29, 211, the British Government reportedly unveiled a plan to encourage not force large-scale pension investment in infrastructure. It should resist the temptation of tampering with the Pension Reform Act 2004 to satisfy its ambition to build infrastructure. This was the case with Argentina, when its then president, Cristina Fernandez, manipulated the parliament and seized the country’s $30 billion pension funds. Instantly, international investors’ confidence wobbled. The outcome was that that country’s economy went into a free fall.
The cost of governance is just too high. This should be scientifically reduced. With a debt overhang, government is still creating the impression that it is rich. It is not. Government should reduce drastically the Presidential Air Fleet, cut the vulgar emoluments of public officers and live frugally in line with the current harsh economic realities, rather than secure all manner of debts.
According to an OECD report, previously, pension fund exposure to infrastructure has been via listed companies (such as utilities), or via real estate portfolios. However, some larger funds globally are beginning to invest via private-equity funds, or, occasionally, even directly. Australian, Canadian and Dutch pension funds may be considered as leaders in this field. However, barriers to such investment still exist – not least from the political risks involved with such long-term investments – and the experience of pension funds around the world with such assets has not always been positive. Such challenges only multiply if investment in projects in developing countries is considered. This is the caveat!
PenCom, the regulating authority, should not put pension funds in undue risk. Political office holders are birds of passage; they have no stake in the pension funds. As such, they should not be allowed to tamper with the future of workers. So, whatever it does, government should keep away from the pension funds to avoid Argentina’s disastrous experience.