Mobilise for infrastructure financing, experts urge insurance industry

The nation’s insurance industry has been called to position itself for infrastructure financing and development as mobiliser of long term funds like its counterparts in others parts of the world.

The call is coming on the heels of current desire by the present administration in Nigeria on infrastructure development and economic diversification amidst dwindling revenues and tightening budget.

It is believed that life insurance, which has the ability to offer long term protection on lives require investment vehicles to meet future obligations and infrastructure funding is one of them. So, it becomes an important avenue for free funds that could be deployed into infrastructure financing, infrastructure bonds or other vehicles that could help the Country achieve its infrastructure development need and target.

Experts who spoke at the recent National Insurance Conference organised under the umbrella of Insurance Industry Consultative Council (IICC) held in Abuja said what insurance funds have done in developed and some developing countries like US, China and India in infrastructure financing could be replicated in Nigeria.

They however argued that government must provided the needed support by ensuring that there is a conducive environment for insurance business to thrive through enforcement of different compulsory insurances as well as creating awareness to support growth of insurance culture at all segments of the society.

Kunle Elebute, partner & head, Advisory Services, KPMG Nigeria speaking on the theme “Expanding National Resources and Infrastructure in Challenging Times” during the conference said life insurers seek investment options that offer high yields and long maturities to back long-duration life insurance obligations. “One such option involves investments in infrastructure, such as transportation, communication, water, sewer and the generation and distribution of electric power.”

Elebute giving example, said in the US, the main funding vehicle for infrastructure projects historically has been the traditional municipal bond market. Collectively, the insurance industry has been a meaningful institutional investor in the U.S municipal bond market for many years, and many of its investments in the market are project finance bonds, he said.

He noted that at the end of 2014, the Federal Reserve Board estimated the total U.S municipal finance market to be $3.7 trillion, of which the insurance industry held approximately $500 billion, representing 14 percent of the market.”

Elebute therefore urged the insurance industry to collectively establish an Infrastructure Investment Fund with contributions from industry players over the next 10 years. “ Then appoint Infrastructure Fund Manager which will determine infrastructure assets to invest in either directly or via project finance bonds as well as fund investment committee to be responsible for making final investment decisions”,

The benefits of these effort on the industry he noted will include stable returns, reliable cash flow and low volatility, portfolio diversification, hedge against inflation (concession agreement linked to changes in inflation rate as well as long term duration to match long term liabilities.

Biodun Adeddipe, CEO, B. Adedipe Associates Limited speaking on the theme “Expanding National Resources and Infrastructure in Challenging Times” painted a picture of a Nigeria that given pressure on the economy would have to look for other sources to fund its infrastructure need.

Adedipe said infrastructure projects are long-term and require substantial amounts of funding, and the requirements are trillions of naira and far beyond the capacity of the government, even if the resources of the three tiers of government are combined. “The big question is where do we look to for funding and how do we go?.”

According to him, one thing to do is for government attract and retain private sector partners, which insurance is major as direct private sector financing that will enable delivery of its audacious infrastructure goals.

“There is over a century-old experience to learn from in this regard, even before the modern Public-Private-Partnership (PPP) model of infrastructure delivery became popular. We should be probing how China and South Korea have been able to do this creatively.”

BN Olorunfunmi, a geologist, speaking on the theme “Managing Risks Associated with Non-Oil Resources Exploration” said for there to be success in mining and exploration there must be attention on risk management.

“Mining industries require leading solutions and services for managing the risks exposures related to exploration and other stages of the mining business.” And among the risks he listed includes operational liabilities, flooding, equipment damage, health and safety, surface, underground, caving in 3rd party contractors, pollution, loss or revenue and political risks.

Modestus Anaesoronye