Let’s copy Chile, again
In 2005, one year after the National Contributory Pension Scheme started, the various Pension Fund Administrators (PFAs) had received N70 billion on behalf of public and private sector clients, according to Afrinvest. An estimated N5bn, in new pension assets, was flowing monthly to the PFAs.
Today the amount under management is over N4 trillion. Nigeria’s reform of the pension system was copied from Chile and so far it has been a success. Hopefully private pension contributions will not be nationalised, as it was in Argentina, and thus shred investor confidence.
Rather the new reforms should make it easier for pension assets to fund infrastructure projects. Nigeria, as we countdown to the World Economic Forum, Africa, should seriously consider copying Chile, again, to attract PFAs and other investors to invest in infrastructure projects. If all goes as planned, the World Economic Forum, Africa scheduled for Abuja next month will be attended by heads governments and their delegates, CEOs of global companies, financiers, policymakers etc.
The federal government reckons it is “an unprecedented opportunity for economic diplomacy for Nigeria”, a unique occasion for Nigeria to set its stall as per investment openings in agriculture, automobile, light manufacturing, infrastructure, housing and construction and information technology.
Ngozi Okono-Iweala, Minister of Finance and Coordinating Minister of the Economy, says the WEF will serve as a platform to present Nigeria’s 30-year infrastructure Master Plan so that investors can spot business prospects that match their portfolio.
According to Nigeria’s ambitious National Integrated Infrastructure Master Plan (NIIMP), Nigeria requires $2.9 trillion over the next 30 years to fund infrastructure projects in energy ($900bn), transport ($800bn), agriculture, water and mining ($350bn), ICT and housing ($300bn each, education and healthcare ($150bn) and vital registration and security ($50bn). Identifying the sectors and attaching estimated costs to them are steps in the right direction. The National Planning Commission (NPC) reckons government, through bonds, will provide 52 percent of the funds in the first five years.
The balance is expected to come from Sovereign Wealth Funds (SWF), pension funds, the capital market and public-private partnerships (PPP). In addition, NPC is considering a number of financing options that have been used in other countries. For example, like the UK, Nigeria is thinking of loan guarantee instruments “to support nationally significant infrastructure projects which are financially viable with equity finance but dependent on guarantee and otherwise not financeable within reasonable timeframe”.
However infrastructure projects are complex, they often take time and overshoot the budget.
A competent team of bureaucrats with the skill and authority to design projects as well as assess their cost-benefit analysis will significantly improve the cost of projects.
The dearth of skills, corruption, political and regulatory risks will deter investors from committing funds to most projects. Project selection and operation is hampered by limited information and technical capacity (social cost-benefit analysis). Misaligned incentives e.g. corruption, encourage socially sub-optimal decisions and market failures dog project selection and operation.
This is why Chile’s National Public Investment System should be copied. Chile’s model begins with a reservoir of projects. And then the public investment system serves as a filter to assess the projects contained in an integrated data bank.
Approximately 15,000 project ideas are profiled, complemented with pre-feasibility and feasibility studies by Chile’s Ministry of Planning.
This work is conducted by technocrats i.e. professional project managers who design bankable infrastructure deals, standardise procurement procedures etc. After the pre-investment and post-evaluation stage, Chile’s Ministry of Finance takes charge of the investment stage i.e. detailed design and implementation of the project while the “sponsoring ministry” oversees implementation.
This model, along with a transparent and competitive tendering process, can be adapted in order to execute the infrastructure Nigeria sorely needs.