The Managing Director, Nigeria Sovereign Investment Authority, Mr. Uche Orji, in this interview speaks on the 2019 financial performance of the NSIA, the authority’s investments in infrastructure, agriculture and health care, among others. Excerpts:
How will you describe NSIA’s performance in 2019?
The international market was very positive for us last year. Almost all the investments we made in equities, hedge funds and private equity performed well last year. A lot of the returns you see came from our international investments which are mostly denominated in dollars. We also recorded significant returns from our domestic investments. For the NSIA, 2019 was a mostly favourable year. In terms of net income, we made N34.5 billion in 2019 against N46.5 billion in 2018. But if you take out the exchange rate gain of about N18 billion, the real number for last year was actually N28 billion, which means that in real terms, we performed better. The real drivers are the gains that we recorded in foreign investments, and our domestic investments that have really performed very well. In 2020, the international market unfortunately got caught up with the Covid-19 issues. It has been a weak year in most markets. Nonetheless, I am still hopeful that the international market would recover from the throes of the virus. The first three months of this year were very challenging, but all through May and June, we saw what we considered as the early signs of market recovery. We are hopeful that the rest of 2020 will be much better because we have seen the market rally in May and June. The first three months of this year have been very challenging, but all through May and June, we saw what we considered as the early signs of market recovery. We are hoping that this will run through the rest of the year.
How has the Presidential Fertilizer Initiative (PFI) fared since inception?
There are a couple of developments that we believed had shown us the areas of scalable impacts for the benefit of our people in Nigeria. Our investment in the fertilizer programme is one of them. Agriculture is a vital sector in our economy which deserves attention at strategic levels. NSIA is playing its part through the Presidential Fertilizer initiative (PFI) and other agriculture focused programmes. I have read reports that say we invested N114 billion in PFI; that is not true. What you should look at is the Annual Net Investment for the programme at any point in time. The PFI books show that the total annual investment is roughly in the region of N50bn. Out of this, the Net Annual Investment is usually about N20 billion, which consists of inventory and receivables while the balance of about N30 billion in cash. Once all the receivable and inventory are converted to cash, we re-invest for another one-year cycle. Don’t forget that a critical component of this investment is raw materials which we fund for the blending plants to blend, sell, and return the cash to use from sales, and at the end of the day, we net it out. The investment, by the end of every year, would have been converted mostly to cash because all the sales would have occurred. The remaining would be in inventory and receivables. So, it is not a huge investment. Nonetheless, it is an impactful programme. To provide more specific context to the data, the investment made in fertilizer is as follows: in 2019, the actual balance sheet size of NAIC-NPK Ltd (the fertilizer subsidiary) was N57 billion; in 2018 it was N52 billion. For the 2019 investment, N27 billion was cash, and N9 billion was in short term investments, like treasury bills, which bring the total cash and near cash assets at hand at the end of 2019 to N38 billion. From the balance, N16.8 billion was in receivables, which represents the amount of money we expect the customers to whom fertilizer was sold to pay us back while the remainder of N4.6 billion was in inventory. So, it is a very small investment. If you take out the cash, the actual net investments are in receivables and inventories which total about N20 billion.
The cycle is repeated subject to approval each year the programme is renewed. So, when I read that N300 billion had been diverted, I asked how? That report is clearly something people made up and just put out maliciously. The Net Investment of the NSIA in fertilizer in 2019 was N20 billion period! This is how the scheme works: at the beginning of every year, we spend money to buy inventory, we import the raw materials and give them to the accredited blending plants to blend, and sell at a price agreed by the president. If that price is lower than our cost, we go to the Presidency and ask for the shortfall to be made up. So, we never lose money on this programme. It is also impossible to divert any product under this programme. Whenever there is any attempt to steal or divert inventory of raw materials or finished products, we pick it up instantly and involve the authorities. The system is designed to trace every bag produced. It is audited by four groups of people–collateral managers, internal audit, and external auditors, and annually the Auditor General’s Office conducts spot checks.
What has been the benefits of the fertilizer programme to the country?
In the last three years since we started this programme, we have blended and sold over 20 million bags of fertilizers. This year, as we speak, we have sold over five million bags of fertiliser and collected cash. Unlike the previous scheme, ours is cash-and-carry. Buyers cannot pick up stock unless payment is made. No goods can leave the blending plant without being paid for. So, you can trace everything that is sold. With this scheme, farmers can actually get the products to buy as it is available at an affordable price. Notably, the local blending capacity is now over seven million metric tons. When we started, many of the plants were moribund. So unlike in previous regimes, farmers can actually get the products to buy. It is available at an affordable price. More importantly, with the resuscitation of the fertilizer blending industry, we have created hundreds of thousands of direct and indirect jobs across the agriculture value chain, be it in logistics, ports, bagging, rail, industrial warehousing, haulage touch-points and others. In the larger scheme of things, PFI was designed as an import substitution programme. This means that Nigerians can participate in the production process and derive value and pride from that. No longer does the country have to import fully blended bags of fertilizer to which no value-add has been contributed domestically.
To what extent has the coronavirus pandemic affected the fertilizer programme?
We have had difficulties this year with Covid-19 related issues. Someone died at Indorama and there were a few reported cases of suspected infections at the blending plants. On account of this, some plants had to shut down to undergo decontamination for weeks, and that has caused disruptions, especially at Indorama which is the sole supplier of Urea. The second disruption we have faced is the transit disruption due to the lockdown. Goods going from one state to the other are subjected to various checks, and a journey of two days now takes about seven days. Yes another disruption is the cost of transportation. Transporters are now using the transit issues as a reason to charge more money, which is impacting our overhead. Sales have also slowed, owing to the lockdown.
This programme has delivered over 20 million bags, all accounted for and all audited since inception. We had planned for 12 million bags this year for NPK 20:10:10, but we are running quite behind for these reasons. Despite the foregoing, the programme can be rated as very successful. When it started, Nigeria was not blending fertilizer; we were just importing and trading, and people were taking advantage of that and taking dollars out of the country. Sadly, the fertilizers were never delivered.
In the three and a half years that we have done this programme, apart from this year where we have had to contend with Covid-19 related issues, there have never been complaints about shortage of fertilizer. We have had fertilizer availability at the N5, 000 price that government wants it sold.
How much in terms of job creation, industry resuscitation and increase in yield for the farmers has the PFI programme accomplished?
When we started, there were barely four blending plants working in Nigeria. But, today, we have 32 plants with more than seven million tonnes of installed capacity. As I said, we have created tens of thousands of jobs because of this programme. We have saved our country some foreign exchange because NSIA imports all the raw materials, and the Central Bank gives us the foreign exchange to import. So, you cannot now use this programme to start playing foreign exchange games as was the case under the previous scheme where fertilizer traders were also actively trading in foreign exchange. There are people who do not like this because of the blockage of gains through the foreign markets, and who are fighting and pushing back but they cannot be allowed. We have gone from four plants to 32 and, by the end of this year, we will have 40 blending plants in Nigeria. While the investment is not massive, it is a prudent and effective system in terms of scale. This year, we are targeting the production of 12 million bags under the NSIA President Fertilizer Initiative, and another eight million non-PFI products. That would sum up to 20 million bags this year.
Is the Authority on course to deliver the three road projects under the Presidential Infrastructure Development Fund (PIDF) as planned? Or will the delivery timeliness be modified based on the work done so far?
I will take the projects one after the other. As you know, we are still working on the second Niger Bridge which has a scheduled completion date in 2022. We had spent about two years working on the substructure, the underground piling, which will guarantee stability and longevity. Today, we are working about the water surface and you will see each of those pillars above water. Each pillar is 18 storeys deep. We have begun work, and the launch deck will cover the span of all 18 pillars. It will span from Onitsha in Anambra to Asaba in Delta. The entire length of the work we are talking about is 11 kilometres; the Third Mainland Bridge is 13 kilometres. Lagos-Ibadan expressway is going on; we are hoping to finish the Lagos-Shagamu by the end of next year (2021), and the rest of Shagamu to Ibadan by 2022. The Abuja-Kano road project is progressing quite nicely, and we are on target to finish that by 2022. These projects are handled under PIDF, and here is how it works: the Presidency gives us some fund; we put it in as NSIA’s capital towards the project. We then shop for third party capital. For this, we will raise third-party funds through bonds. The NSIA will own the assets, the road projects, and operate them for about 25 years to recover its capital. We are going to toll all these projects. Because of the way it has been done so far, the Nigerian and the United States governments have agreed that $311 million of the money recovered from the late General Sani Abacha be spread in equal proportions to the three on-going projects. So, you are going to see the US government assist in the supervision of these projects, and for us, it is terrific. There is going to be lots of transparency, and we are very happy that, after 18 months of due diligence, NSIA was worthy to be trusted with the recovered funds. So, you will most likely see us at the end of this year raising a bond for the Lagos-Shagamu road project. The financial plan is being worked out.
Recently the NSIA was reported to have indicated interests in reviving the Ajaokuta Steel Company and other moribund assets to enable the country to reap the benefits of the huge investments which the government had made on them. How far have you gone in achieving these plans?
We are still very much interested in that. You know that privatization is a little bit more complicated. The NSIA does not bid. If something is out for tender, we do not tender. It is a rule we have made at the NSIA; and the reason is that if there is enough interest by the private sector, then let them do it. We only undertake projects wherein we can add values that no other can. So, we do not participate in tenders. If there is an opportunity to work in Ajaokuta, we will certainly do so. We have developed an industrialisation strategy which has now been affected by Covid-19. That plan is still there, but once things normalise, we will be more active in industrialisation. It is a key objective of the NSIA to play a role in revitalising essential entities, such as Ajaokuta, if the opportunity presents itself.
Based on the law setting up the Fund, the NSIA is supposed to pay dividends to its stakeholders if it returns profit consecutively for five years. When are you likely to start paying dividends?
We are willing to pay dividends to our stakeholders, but they are also aware that the fund needs to grow. So we have had conversations with some of them and have come to a mutual understanding that NSIA should keep re-investing profits because the country hasn’t yet built a savings base to support withdrawals from it. Our stakeholders have reiterated to us that the Fund is still small, and that we should grow it. Nonetheless, we have been profitable since inception, and we are delighted that our strategy has proved effective.
Will the Cancer Centre at Lagos University Teaching Hospital stop medical tourism for cancer?
Nothing will stop it. There are still people that prefer to go abroad for treatment for many reasons. But what we have built in LUTH is world-class, and I am happy when I go there because of the way it has been maintained and the services it provides to people. There is no need to go abroad if you have cancer in Nigeria. The facility at LUTH is world-class and the price is affordable. Our price is less than 30% of the cancer centre built in Ghana.
Covid-19 has brought many challenges to the global community. What good news should Nigerians expect from the NSIA, going forward?
The government has called for $150 million from the NSIA to help augment the federal allocation. They have announced it, but they have not really written us. We expect that the call will be made in July. Once that request is made, we will release the fund. We have sold off the investments, and the money has been kept in cash. So, we are willing to assist the government in augmenting federal allocations. That is the role of the Stabilisation Fund. If we had grown this Fund as aggressively as it was planned, we would have been able to augment more. At least, the fact that NSIA has been able to pull cash together and help the government to augment allocations is good news. The fact that we have a lot of programmes in agriculture, health and infrastructure is good news too. These will be necessary in developing the country.
Culled from thewhistler.ng