Why investing pension funds in infrastructure not visible – Expert

Mrs Chinelo Anohu-Amazu, DG, PenCom

Owing to the deficit of infrastructure in Nigeria, the head of investments, Pensions Alliance Limited, Lagos, Abimbola Sulaiman has said the money allocated to infrastructure from the pension funds is not sufficient to address the problem of infrastructure in the country.

It would be recalled that the regulatory body, National Pension Commission (PenCom) has placed a limit on investment of pension funds with a maximum of 20 per cent of the pension funds to be invested in infrastructure and the breakdown is that a corporate bonds, including infrastructure bonds get maximum of 15 per cent and infrastructure funds get five per cent.

Sulaiman, recently at a media retreat organized by the Pension Fund Operators Association of Nigeria (PenOp) in Lagos, said the National Integrated Infrastructure Master Plan required infrastructure spend in Nigeria is estimated at $3 trillion over 30 years, which is $100 billion annually and the Nigeria total pension savings is however $25 billion which is equivalent to N5.29 trillion as at February, 2016.

Based on current regulation by PenCom, Sulaiman said the maximum possible spend on infrastructure by pension funds is approximately N682 billion that is $3.4 billion, adding that while this amount may improve infrastructure within the economy, it is insufficient to fully address the deficit.

The head of investments said though the amount is insufficient, other issues that could mar PenOp investing in infrastructure could be construction and development risks of greenfield projects; operational, demand and market risks, like for instance, changing traffic numbers; financial and interest rate risks which could be leverage and refinancing; governance risks that could come in form of corruption and regulotory risks which could be changing energy regulations and political risks like changing in government and infrastructure policies.

Speaking further, Sulaiman said risk around government support for infrastructure investment are lack of political commitment over the long term which could lead to regulatory instability, inadequate viable Public Private Partnership (PPP) legal frameworks, fragmentation of market among different levels of government and high bidding costs and lack of investor capability which could lack of expertise in infrastructure sector, short-termism and risk aversion of investors, regulatory barriers in Nigeria and other countries in Sub-Sahara Africa (SSA) on allocation to infrastructure, investment geography and type of infrastructure investment vehicle.

Others, according to Sulaiman are issues with investment conditions like the lack of investment options (bankable projects) and providers with good record; lack of transparency and shortage of data; high risk related to greenfield investment; mis-alignment of interests between infrastructure funds and pension funds; valuation issues and reporting and impact on pension contributors exiting the fund before its lifetime.

She however advocated for more collaboration across SSA countries, that is, flexibility of infrastructure investment regulations in order to allow more investment in geographies other than Nigeria; credible partners should be utilized in all stages of the transaction; infrastructure bonds is the easiest way to introduce majority of pension funds into infrastructure investments, as it is similar to traditional bond investments and the bonds should be tied to specific projects and should be issued with government guarantees, issued at project completion or close to cash flow generation, could be linked to domestic inflation with tax free interest payments and explore role of monoline insurance.