The Minister of Finance, Kemi Adeosun, offered a lone, moderating check recently amid persistent efforts by key government functionaries to lay their hands on the contributory pension fund. Her advocacy for caution and the renewed lunge for the nest egg by the Minister of Power, Works and Housing, Babatunde Fashola, should jolt critical stakeholders to remain ever vigilant as the fund grows and the economy atrophies.
Adeosun’s intervention at a Works and Housing summit in Abuja was refreshingly different from the single-track “let’s have the money” sing-song that government officials have adopted in recent years towards the N5.3 trillion-strong fund. While acknowledging the immense potential of pensions for long-term financing, she declared, “…they are not an ideal source of housing at the development stage due to the high level of risk associated with this phase.” This is precisely the position we have taken on the sound grounds that the fund, as the last buffer of workers and the economy, should be jealously guarded.
Fashola however aligned with a long-held view by government and private sector players that such a huge fund should be readily available for investment in roads, rail, housing, health and education. He wants part of it to be made available for tolled highways, seaports, prisons and power plants as well as for private sector investments in housing, steel, petrochemicals and textile projects. To this, the Nigeria Labour Congress, for long lethargic to government’s stalking of the fund, reacted promptly, reminding the minister that world governments shield pension funds to ensure their safety and vowed to resist the plan.
Remarkably, critical stakeholders are agreed that the pension fund should be a component in the funding mix to redress our infrastructure deficit, quoted at N23 trillion by Chinelo Anohu-Amazu, director-general of the National Pension Commission. The World Bank says we need to invest $15 billion each year for the next decade to close the infrastructure gap. Neither PenCom nor Adeosun too ruled out channelling part of the funds into infrastructure. Indeed, the Pension Reform Act 2014, the 2004 version it replaced and subsequent regulations by PenCom have elaborate provisions, for infrastructure funding. The problem is that the public and private sectors have not been able to meet the stringent requirements set out and structure bonds acceptable to its managers. According to Anohu-Amazu, out of the N1.16 trillion of assets available for investment in infrastructure by December last year, a miserly N1.36 billion went into infrastructure bonds. There are simply no viable instruments through which to channel infrastructure bonds.
Our officials need to understand first, that the pension funds are not idle, but are invested mainly in safe instruments such as Federal Government bonds that returned 11.9 per cent in 2014, according to the Pension Fund Operators of Nigeria. Worldwide, infrastructure was once the preserve of governments, while pension funds invested in money and bond markets and equity funds with single-digit percentage for infrastructure. But a report by the World Pensions Council said the global financial shock of 2008-12 that forced governments to cut financing, led to the creation of infrastructure funding for pension funds as a new asset class. In Canada, Australia, the United States and Japan, pension funds have begun to propel growth through capital bonds. The United Kingdom Government created the Pensions Infrastructure Platform to attract $30 billion worth of investments for hospitals, airports, highways in the 10 years to 2021. South Africa’s Public Investment Corporation, with $150 billion in assets, is venturing into infrastructure.
The challenge is primarily the weak institutions that underpin the Nigerian economy. Adeosun’s alarm over investing such funds in the housing scheme is only one of the possible traps in unchecked investment or in relaxing the rules as many government officials obviously want. Only a few government-promoted mass housing schemes have ever been financial successes. Our federal, state and local governments are notoriously corrupt and incompetent in recovering public funds.
Besides, the Public Private Partnerships entered into by the Federal Government have almost always been dogged by scandal and litigation, with invariably little benefit to the taxpayer. The lack of legal and institutional capacity is demonstrated in the contentious concession of the Lagos-Ibadan Expressway and others, some of which were eventually revoked in acrimony with crafty investors benefitting from opaque bidding processes.
A study by Standard Chartered Bank found that to ensure safety of pensioners’ nest egg and success in long-term infrastructure financing, the authorities must be able to carefully manage exchange rates and interest rates. Also, a major factor guiding husbandry of pension funds is to guarantee returns higher than the rate of inflation. Nigeria’s inflation rate is now officially 11.4 per cent, while returns on bonds fetched 7-8 per cent in 2015 and could be lower this year, while our capacity to steady interest and exchange rates, shaky at the best of times, has been hit further by recession.
There can be no short cuts, or free money again as Fashola acknowledged. For a government that is borrowing about N2 trillion this year, creative measures should be put in place to access part of the fund’s N1.15 trillion assets for infrastructure. Since oil money, the major source of revenues, is now a trickle, raising bonds is no longer easy, but requires creative thinking to meet repayment requirements.
The government should streamline the operating environment and free railways, ports, airports, downstream petroleum assets and steel sectors from state ownership through transparent sale to the most reputable global investors. The IMF and other experts continue to warn against misguided nationalism that has helped put power and other key assets in the hands of indigenous investors that lack competence, track record, funds and integrity. This has deprived the country of the much needed investment.
