- Government should find ways to tap into the money without jeopardising the goal
The pension funds story somewhat reminds of the allegory of the dweller on the banks of the River Niger that would rather wash with spittle: A Federal Government on the brink of fiscal insolvency looking in all directions for funds to finance critical infrastructure; a pension system nearly bursting its seams with a huge potentially investible funds standing at an impressive N5.46tn by March ending. Then, a paltry spend of N1.3 billion representing some 0.01 percent out of the whopping N1.16 trillion allowable under the scheme for investment in infrastructure bonds and funds by December 2015. What emerges is a nation with abundant pool of investible funds at its backyard and yet locked in endless quest for offshore funds.
With shrinking petrodollars and yawning infrastructure gap, it is understandable that the nation’s focus would shift to the pension funds as an alternative source of revenue to finance infrastructure. Indeed, we recall that the Minister of Power, Works and Housing, Babatunde Fashola, at the Nigerian Pension Industry Strategy Implementation Road Map Retreat in January stridently made the case for channelling the nation’s pension funds towards building of roads, hospitals, educational facilities, railways, inland water ways to generate employment, create wealth and improve the standard of living of the citizens.
Much as such calls are hard to fault at this time, a number of factors are hard to gloss over.
The first is that pension funds are by nature highly regulated, hence the use of the funds for investments is somewhat restricted. Indeed, under the current National Pension Commission’s (PenCom) guidelines, only a maximum of 20 percent of the total value of pension fund assets could be invested in infrastructure – 15 percent through infrastructure bonds, and another five per cent through infrastructure funds – all of which have stringent conditions attached.
Second, given the terrible mess made of the old pension scheme, PenCom has understandably been rather careful in erecting necessary safeguards, hence the preponderance of the entire assets – some N3.68tn or 67.47 per cent –in the relatively safe Federal Government’s securities. Indeed, one hallmark of the new pension scheme is the guarantee of security of the funds, the reason it has earned its place as a success story.
Third is the challenge of finding investible vehicles with low risk profiles and with sufficient comfort to the fund custodians. The simple truth is that a good number of the projects on which the funds are being sought are either poorly conceived or not entirely bankable. That would no doubt explain the rather poor state of utilisation of the infrastructure portfolio recorded last December. To compound the problem is the legal system that has proven time and again as an investors’ nightmare, particularly in an environment where something as ordinary as contracts are not only difficult to enforce, but can drag on interminably to the point of frustrating the would-be investors.
Be that as it may, we are still of the view that current exigencies call for new thinking on the use of the funds. Indeed, as experience of the South African Public Investment Corporation (PIC) with its highly diversified portfolio worth $150 billion has shown, the funds have the potential to provide a big catalyst to the domestic economy, as well as being a ready vehicle for trans-border investments.
In the circumstance, the least we expect of the Federal Government at this time is to work with the relevant stakeholders to address these and many of such thorny issues, and by so doing evolve an agreeable framework to ensure utilisation of the portion of the funds earmarked for infrastructure.
