On financing infrastructure with pension funds

There is no doubt that infrastructure deficit contributes largely to high cost of doing business in Nigeria. A report by the National Integrated Infrastructure Master Plan (NIIMP) projects that infrastructure financing in the country will gulp $145 billion (N26.9trn) in the next five years. This partly accounts for the recent agitations for the use of accumulated pension fund assets, now in excess of N5 trillion, to develop infrastructure across the country. Adequate infrastructural development, undoubtedly, is a prerequisite for sustainable growth and development.

But infrastructure deficit is a global challenge, and nations respond to such challenge differently. In Nigeria, the Federal Government responded by establishing the Infrastructure Concession Regulatory Commission (ICRC) in order to regulate how federal ministries, departments and agencies (MDAs) deliver infrastructure service through Public Private Partnership (PPP).

Traditionally, infrastructure was viewed as purely a public good, built and maintained with public funds, but developments over the years have revealed the increasing constraints on public finances, associated with growing demands for social expenditures. This has led to greater challenges in the maintenance of existing infrastructure and the construction of new facilities. The global financial and economic crises have worsened the situation, further reducing the scope for public investment in infrastructure within governments’ budget in several countries, including Nigeria. This has resulted in a significant infrastructural financing gap and the need for greater recourse to other sources of financing for infrastructure.

Nigerian banks have limited ability to finance long-term infrastructure projects due to the structure of their deposits, which are mostly short-term in nature. Although multilateral institutions have provided some level of support for infrastructural financing, the support is inadequate to address the country’s huge infrastructural financing gap.

It is therefore heartening, in view of the agitations, to hear that as much as 15 percent of the total value of pension fund assets under management could be invested in infrastructure through infrastructure bonds and another 5 percent could be invested in infrastructure through infrastructure funds, making 20 percent of the total value of accumulated pension assets.

In view of this, the National Pension Commission (PenCom) needs all the support, especially in implementing the new guidelines on Investment of Pension Fund Assets to guide Pension Fund Administrators (PFAs) and other investors who have been agitating for the use of accumulated pension fund assets. This is because, according to PenCom, citing section 5.2.3 of the draft “Regulation on Investment of Pension Fund Assets”, pension assets could be invested in infrastructure projects through eligible bonds, sukuk subject to two major conditions.

“The infrastructure project shall be not less than N5 billion in value and awarded to a concessionaire with good track record through an open and transparent bidding process in accordance with the due process requirements set out in the Infrastructure Concession and Regulatory Commission Act (ICRC Act) and any regulation made pursuant thereto and certified by the Infrastructure Concession and Regulatory Commission (ICRC) and approved by the Federal Executive Council (FEC),” it said.

Other conditions include that the business plans and financial projections of the projects must indicate that they are viable as well as economically and financially rewarding for investment by pension funds.

We commend the efforts of PenCom in this direction and, once again, call for support to ensure that the funds are invested in government guaranteed instruments. At a time that companies are downsizing, PenCom needs to be liquid enough at all times so as to meet exigencies occasioned by demand from those that may be exited summarily from their employment.

We also urge the Debt Management Office (DMO) to lend its expertise in coming out with investible long-term instruments that should be indexed to inflation. It is by so doing that the collective wealth of Nigerians for the rainy-day would be preserved.