PenCom: A Regulator’s Drive for Foreign Partnerships and Investments

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Oscar Igiebor

If anyone had prophesied about 10 years ago that the Nigerian pension industry would become the toast of the global pension industry, industry leader in Africa, and a gateway to direct foreign investment in Nigeria, nobody would have taken it even with a pinch of salt.

However, like the rejected stone that is fast turning into the cornerstone, the industry stands out as a major gain of the current democratic era and while the firm regulatory control of the National Pension Commission (PenCom) a flagship platform and ambassador of President Muhammadu Buhari’s quest for economic diversification and foreign direct investment; thanks to Pension Reform Act (PRA) 2004 which brought the industry under makes, PRA 2014, and no-nonsense, dynamic, and foresighted regulatory agency.

It is heartwarming, for instance, opening to the website of the Sustainable Business Initiative (SBI) of the University of Edinburgh, United Kingdom, to read that “PenCom is clearly a trailblazer in Africa in terms of transforming a regulatory vision into reality”.

This unequivocal endorsement came in the aftermath the high profile inaugural lecture of the Scottish Business in Africa Forum (SBIF) delivered by the Director-General (DG) of PenCom at the University of Edinburgh.

The SBIF is a collaborative effort of the Sustainable Business Initiative (SBI), University of Edinburgh, UK and the Royal African Society (RAS) to inform and inspire Scottish businesses interested in doing business in Africa and to engage African companies interested in collaborating with Scottish industry.

It covers all sectors and aims to connect high-level African and Scottish business leaders and improve mutual trade and relations. Through the dynamic networking sessions at the events, the organisers believe there is the unique opportunity to learn more about business operations in different contexts and obtain insights into cultural approaches across diverse environments.

The Royal African Society (RAS), on the other hand, is regarded as Britain’s foremost African organisation with rich history of promoting Africa in business, politics, culture and academia. It has worked hard over the years to foster better understanding and strong relationships between Britain and Africa. It’s in-depth knowledge of Africa and collaborative approach to programmes and partnerships has made it the first choice for professionals, corporate entities that seek to engage, understand, celebrate or learn more about the continent and inherent opportunities in it.

Among Scottish business interests present at the event were the Walter Scott, Rathbones, Cameron Hume Limited, LeapFrog Investments, Dundas Global, Aberdeen Asset Management and Scottish Development International (SDI), etc.

It was therefore another moment in the sun for Nigeria as the DG of PenCom ceased the rare privilege of delivering the inaugural or maiden lecture of this Forum entitled “Pension Funds: Opportunities for Infrastructure Support in the Development of African Economies”, to push further the frontiers for foreign investment in Africa, particularly in Nigeria and especially in the area of infrastructure.

This is understanble given the wider import of infrastructure to the economy and the huge spending needs on infrastructure in Africa estimated at about USD93 annually. This is about 15% of the continent’s Gross Domestic Product (GDP). It natural means that Africa needs long-term financing to stand a chance of bridging the infrastructural deficit. Herein lies the key role of institutional investors such as PenCom because the growing nature of pension assets makes them a true and proper source of developmental infrastructure.

For instance, six African pension funds have invested in USD630 Million funds that injected USD30 Million into the investment of fiber-optic laid along the seabed from Europe to bring Internet to Nigeria way back in 2009. The difference the Internet has made in the socio-economic life of Nigerians cannot be overemphasized.

To get the prospective investors to key in, the DG took the Forum on a sector-by-sector tour of investment opportunities in Africa, namely industrial investment, emerging advisory services, power/energy, transportation, agriculture and agro-business value chain, ICT, and real estate.

Nigeria’s Contributory Pension Scheme (CPS), according to her, has grown from about USD15 Billion deficit in June 2004 upon creation to about USD27 Billion in assets as at December 2015. This represents an unprecedented 300% growth within 10 years. The CPS enjoys an average monthly inflow of USD200 Million and an average growth of 20%.

On opportunities for infrastructure financing under the CPS, Anohu-Amazu told the international business community that the estimated requirement for infrastructure development in Nigeria is over USD100 Billion for power, roads, railway, bridges, and seaports, but about USD228 Million would be needed to address housing deficit.

The Federal Government’s budget, on the other hand, offers limited funds for infrastructural development because of competing demands. The long-term financing market is underdeveloped, shallow and offered limited capital for deployment to develop infrastructure. That still makes capital provided by pension funds, which are long-term obligations, best suited to address the need for long-term financing instruments that have maturities commensurate with the long-term nature of infrastructure projects.

Unfortunately, only 5.4% of the total allocation to infrastructure financing was utilised as at December 2015 due largely to non-availability of investment instruments that meet the requirements for pension fund investments.
It means Nigeria is still a fertile ground and makes co-investment with pension funds in Nigerian infrastructure attractive.

Beyond the opportunities presented by the huge gap to fill, improved elections and historic smooth transition from one political party and government to another is a further are glaring evidences of a stable democratic environment conducive for investment. The forced quest for economic has led to a clamour for investment in infrastructure to diversify the economy. What more, Nigeria’s over 160 million population with about 60% below 30 years, is an impressive demography and qualifies her as an investment destination.

Beyond the Edinburgh engagement, PenCom has been in the forefront of spreading the economic re-engineering efforts of the President Muhammadu Buhari administration and diversification efforts in the face of oil price slump.

For instance, an appearance of the Commission’s DG on the CNBC Asia in April proved a bountiful expository to Nigeria’s abounding investment opportunities and how the nation is now upping her efforts in agricultural, manufacturing, and entertainment sectors to cushion the effect of the dwindled oil revenues.

She told the international channel that “The thing about Nigeria is that we have a lot of entrepreneurial spirit and people move very fast; the clear leadership that we have in President Buhari is forcing everyone to look inwards. Of course, this is the slowest time to getting started, but when Nigerians start, they move, and they move very quickly”.

On advise for would-be investors, Anohu-Amazu advised investors to reduce risk by structuring their investment properly to suit local environment rather than “bringing in things from outside that have no bearing on what the local climate is”.

“If I was looking to come as an outsider, I will look to where the pension funds, for instance, are invested, and will put my money there because am certain of one thing- safety and the second thing is returns. It is always good to work with local investors who are skilled in the game and local environment”.

Also on “The Pulse” with Bloomberg’s Mark Barton, the DG impressed when she said the slump in oil price was actually good news. She maintained that while the initial shock and current challenges are bad news for the portfolio investors, it is actually time for developmental or long-term investors to dig in because Nigeria has much more than oil to offer to the world.

On this occasion of Democracy Day, there is no doubt that the Pension Reform is one good step we have to be proud of as a nation, although there are still a lot to be done, while the states have a lot of catching up to do. And as President Buhari marks one-year in office, PenCom deserves all the kudos for complementing the President’s quest for foreign investment and rebuilding of the nation’s infrastructure to create the necessary environment for diversification of her economy that will help Nigeria to live beyond oil.

Igiebor is a financial analyst