The clamour for investment of the about N9.4 trillion pension fund assets in developing the country’s near moribund infrastructures had been on for years. Many, keen on witnessing Nigeria’s rapid economic growth had advanced numerous reasons to buttress their positions.
They had contended that it would amount to economic waste to allow such colossal sum of money lie fallow in the face of paucity of investible funds to remedy the dearth of basic infrastructure in the country.
Another veritable platform for the proponents of pension fund assets investment in infrastructure to ventilate their views, came up for mention, last week in Abuja at the 7th conference for Directors of Pension Funds Operators, organised by the National Pension Commission (PenCom). Pension funds directors and other stakeholders in the industry did not let the ample opportunity slip by as they took advantage of the occasion to push for deploying pension fund assets in sustainable development.
Acting Director General, PenCom, Aisha Dahir-Umar, set the tone for discussion when she told participants at the conference that the pension industry in Nigeria is leading the initiative for the attainment of one of the country’s critical national imperative for socio-economic development, which is the formation of long term domestic capital. She averred that the industry has accumulated assets worth over N9.4 trillion as at August 2019. These pension assets, according to her, are overwhelmingly invested in the national economy, with positive impact in all major sectors and a significant contribution to the Gross Domestic Product (GDP).
The Commission’s boss took participants by surprise when she told her audience that it was no longer news that pension assets are already invested in many sectors of the economy, but what is news, however, is “the recent upsurge of clamour for deployment of pension funds to support several new initiatives in both the public and private sectors. Often times, such clamours are inappropriately pursued by its proponents”.
The Pension Reform Act 2014, which is the enabling law, only empowers the regulator (PenCom) to issue Regulations on Investment of Pension Funds and Assets to guide the investment activities of the licensed operators. The law does not allow the regulator to “approve” any specific instrument for mandatory investment by operators.
Regrettably, the Commission is increasingly being inundated with requests for “clearance” of several business proposals to enable Pension Fund Administrators (PFAs) finance the initiatives with pension fund, Aisha Dahir-Umar lamented.
Her explanation did not deter pension fund stakeholders from driving home their views on why the funds’ assets should be deployed in various sectors of the economy. Many who spoke were unanimous in their summation that without investment in infrastructure, the country cannot unlock its potentials to develop and provide the much needed employment for the teeming youthful population. In their opinions, everybody is looking for investible funds and the only one readily available seems to be the pension fund.
While the debate raged on where and how the pension fund assets should be invested, some stakeholders were none committal in their positions, even when they tend to support the idea of investing the idle funds in viable economic projects.
The Chairman, Senate Committee on Establishment and Public Service, Distinguished Senator Malam Ibrahim Shekarau, did not get enmeshed in the debate, rather he took the view that the conference serves as a robust platform for cross fertilisation of ideas on best global practices on corporate governance. The NASS, he pledged, will continue to play positive role in pension administration given its commitment to the welfare of the Nigerian workers.
He went on memory lane, explaining that the Pension Reform Act was first enacted on June 2004 and subsequently reenactment in 2014. He said the current regulations on pension issued by PenCom are structured to safeguard contributors’ money in accordance with global best practices. In addition, he stated that the legislature will ensure that adequate budgetary provisions are made for timely payment of retirement benefits to all workers in the federal government service.
The Managing Director, Riscura, UK, Mr. Andrew Slater, floated the idea that airports in the country should be built through Public Private Partnership (PPP), a departure from others who canvassed for concessioning. According to Slater, the locals should be actively involved in financing such projects. He averred that the authourities should ensure control of long term local pool of funds are invested in worthwhile developments, stressing that the answer to the growing youth population in the country is industrialization, and this can easily be actualized through the PPP model.
Mr. Philip Southwell, Partner, Chapel Hill Denham was concerned with incorporating Economic, Social and Governance (ESG) issues in the investment of pension fund assets. He pointed out that ESG plays a central role in the investment narrative, but asset allocation has a huge influence on the level of impact achieved. In other words, the principles of ESG are paramount in pension fund investments. He harped on investing in infrastructure as a panacea to rapid development, citing the example of the Chinese that have been able to attain 10 percent GDP growth occasioned by investment in infrastructure.
Mr. Southwell, while speaking in a panel discusssion, noted that a focus on ESG in an investment circle will ensure an average and significant impact in the overall returns, stressing that “you want to do well by doing good”. According to him, “Impact is easier to deliver on a project-specific or individual company investment than an Index. Consequently, the returns delivered by successful ESG-based investments in infrastructure, real estate and private equity are higher. We know that ESG is part of a longer journey”.
The Head, Africa Markets Programmes, Climate Bonds Initiative, Mr. Olumide Lala called for an understanding of the sector as investment is being sought, and domestication of the criteria rather than adopting a particular country’s model hook and sinker, warning that “copy and paste should not be an option”. He expressed worries that about $12 billion is being frittered away annually in the country in self-generation of electricity.
Lala urged the Pension Fund Administrators (PFAs) to always consider environmental issues before investing and to socialize their investments on the environment, noting that governance issues are equally worth considering.
Indeed, as Lala enunciated, Environmental, Social and Governance (ESG) concern in investment is attracting significant pool of investors globally. Investors are increasingly using ESG factors to evaluate companies in which they might want to invest, and considering ESG factors can also help investors avoid companies that might pose greater financial risks due to poor risk management. Younger investors tend to pay more attention to social & environmental issues and will increasingly invest in companies more in line with their values.
He enjoined prospective investors in pension fund assets to consider accelerating their pace and shift investment pipelines to green: energy, transport, water, etc. When industries seek capital, he said it would be worthwhile to opt for blended finance from global and local sources, with potentials for risk mitigation.
He posited that enabling regulation and fiscally efficient incentives could tilt the playing field to green and shift banks to focus on green development like the European Union (EU) is showing leadership with global partnerships: Japan, China, India, Africa, etc. with green sovereign bonds to show the way.
The experts and stakeholders in the pension industry have eloquently marshalled out their views, tilting in favour of investing judiciously, pension fund assets in infrastructure, in order to achieve sustainable development that would enhance shared prosperity and unlock the growth potentials of Nigeria.