[vc_row type=”vc_default” full_width=”stretch_row_content_no_spaces” css=”.vc_custom_1500547593342{padding-right: 100px !important;}” el_class=”noPaddinRow”][vc_column width=”1/6″ el_class=”noPaddingLeft” offset=”vc_hidden-md vc_hidden-sm vc_hidden-xs”][vc_raw_html]JTNDZGl2JTIwY2xhc3MlM0QlMjJtYWluLXN0cmlwJTIyJTNFJTBBJTNDZGl2JTIwY2xhc3MlM0QlMjJibHVlLXN0cmlwMCUyMiUzRSUzQyUyRmRpdiUzRSUwQSUzQ2RpdiUyMGNsYXNzJTNEJTIyYmx1ZS1zdHJpcDElMjIlM0UlM0MlMkZkaXYlM0UlMEElM0NkaXYlMjBjbGFzcyUzRCUyMmJsdWUtc3RyaXAyJTIyJTNFJTNDJTJGZGl2JTNFJTBBJTNDJTJGZGl2JTNF[/vc_raw_html][/vc_column][vc_column width=”5/6″ el_class=”justifyText” css=”.vc_custom_1530354491413{padding-right: 310px !important;}” offset=”vc_hidden-md vc_hidden-sm vc_hidden-xs”][vc_empty_space height=”50px”][vc_row_inner el_id=”newsletters”][vc_column_inner width=”1/6″][/vc_column_inner][vc_column_inner width=”2/3″][vc_custom_heading text=”Pension Funds Investment in Infrastructure Development in Nigeria” font_container=”tag:h1|font_size:22|text_align:justify|color:%236699cc|line_height:1.8″ use_theme_fonts=”yes”][/vc_column_inner][vc_column_inner width=”1/6″][/vc_column_inner][/vc_row_inner][vc_empty_space height=”25px”][vc_column_text]INTRODUCTION
According to Nigeria’s Minister of Finance, Mr Olusegun Aganga in an online news report1 , Nigeria’s current infrastructure deficit is estimated to be over US$ 100 Billion. The magnitude of financing required to bridge the country’s infrastructure deficit currently outstrips the supply of capital available from the public and private sector combined. The Nigerian Government has therefore sought to close this gap by exploring the use of pension funds to obtain long term financing for infrastructure development.
To establish a sound regulatory framework for this, the National Pension Commission (PENCOM) in December 2010 released its revised regulations for Pension Fund Investments which introduce and provide guidelines for infrastructure funds/projects as a new asset class for pension fund investments. It is expected that with these new regulations, pension funds assets currently estimated at over N2 Trillion will be utilized to ease the existing constraints on infrastructure financing in the country.
Highlights of the 2010 PENCOM Regulations for Pension Funds Investment
Infrastructure Funds – Infrastructure Funds registered with the Securities and Exchange Commission have now been included as Allowable Instruments under the new regulations. Pension Fund Administrators shall however, not purchase more than 20% of any one Infrastructure Fund
Pension Fund Assets – Pension fund assets can now be invested in infrastructure projects through eligible bonds or debt securities. To qualify for investment, the infrastructure project must be:
awarded to a concessionaire through an open and transparent bidding process
not less than N5 billion in value
managed by a concessionaire with a good track record
in accordance with and meet due process requirements of the Public Private Partnership (PPP) Policy, as certified by the Infrastructure Concession and Regulatory Commission (ICRC) and approved by the Federal Executive Council (FEC)
of the nature of core infrastructure, i.e roads, railways, airports, ports, power and gas pipelines (and related facilities) and other infrastructure projects that may be approved by the Commission from time to time.
Credit Rating for Allowable Investments – The regulations stipulate that all allowable securities shall have a minimum credit rating of “A” by at least two recognised credit rating agencies before pension funds can be invested in them.
Specialist Infrastructure Funds – The regulations also provide guidelines for infrastructure projects which are financed through Specialist Infrastructure Funds. It provides amongst other things, that a minimum of 75% of the Infrastructure Fund shall be invested in projects within Nigeria.
Prospects for Pension Funds Investment in Infrastructure
The growing interest in pension funds as an infrastructure development strategy in Nigeria has been linked to the following factors:
Good Investment Match – Infrastructure assets such as toll roads, airports, and electric utilities etc, can yield long term and predictable revenue streams which match the long term liabilities of a pension fund covering the same period thereby making a good fit.
Diversification – Infrastructure serves as alternative investment classes for Pension Funds looking to expand and balance out volatile equity investments with more secure asset classes.
Low Investment Risks – Infrastructure investments are usually closely regulated and most times enjoy a monopoly within the society – e.g toll roads, railways etc. This eliminates or reduces to a minimal level competition risks making them attractive to Pension Funds.
Public Service Obligations – Pension Funds also find infrastructure projects attractive as their public goods status makes them socially responsive investments.
Major Concerns
Investment in Infrastructure being a relatively new arena for pension funds raises some potential challenges which will need to be addressed if the long term success of the pension funds investment in infrastructure development is to be secured. Two major concerns would be:
Regulatory Risks: Infrastructure investments in Nigeria are usually greatly impacted by infrastructure regulations given their public service status, and historically, these regulations have been unpredictable to say the least. To ensure that pension funds have a stable and conducive regulatory climate to thrive, clarity and continuity in the regulatory and supervisory approach is essential to create comfort for conservative pension boards.
Political/Social Risks: Infrastructure is not a pure private investment given government’s involvement, which is inherently political. Pension Funds therefore would seek to ensure that their investments in infrastructure are protected from politically induced adverse regulations or community resistance/negative press by disgruntled citizens which could pose a reputation risk to pension fund managers. A case in point here would be the Lekki Toll Road Concession which has been facing strong resistance from community leaders and other private citizens thereby hindering the ability of the Concessionaire to start tolling even though certain sections of the road have been completed.
Conclusion
With PENCOM’s revised regulations setting the tone for increased private sector financing for infrastructure development, Nigeria may very well be on its way to achieving its infrastructure goals come year 2020!
1 Sunnewsonline – http://www.sunnewsonline.com/webpages/news/businessnews/2010/nov/01/bussines-01-11-2010-005.htm[/vc_column_text][/vc_column][/vc_row][vc_row type=”vc_default” full_width=”stretch_row_content_no_spaces” css=”.vc_custom_1500547593342{padding-right: 100px !important;}” el_class=”noPaddinRow”][vc_column el_class=”noPaddingLeft” offset=”vc_hidden-lg vc_hidden-xs”][vc_raw_html]JTNDZGl2JTIwY2xhc3MlM0QlMjJ0YWItbWFpbi1zdHJpcCUyMiUzRSUwQSUzQ2RpdiUyMGNsYXNzJTNEJTIydGFiLWJsdWUtc3RyaXAwJTIyJTNFJTNDJTJGZGl2JTNFJTBBJTNDZGl2JTIwY2xhc3MlM0QlMjJ0YWItYmx1ZS1zdHJpcDElMjIlM0UlM0MlMkZkaXYlM0UlMEElM0NkaXYlMjBjbGFzcyUzRCUyMnRhYi1ibHVlLXN0cmlwMiUyMiUzRSUzQyUyRmRpdiUzRSUwQSUzQyUyRmRpdiUzRQ==[/vc_raw_html][vc_empty_space height=”25px”][vc_row_inner][vc_column_inner width=”1/6″][/vc_column_inner][vc_column_inner width=”2/3″][vc_custom_heading text=”Pension Funds Investment in Infrastructure Development in Nigeria” font_container=”tag:h1|font_size:22|text_align:justify|color:%236699cc|line_height:1.8″ use_theme_fonts=”yes”][vc_column_text]INTRODUCTION
According to Nigeria’s Minister of Finance, Mr Olusegun Aganga in an online news report1 , Nigeria’s current infrastructure deficit is estimated to be over US$ 100 Billion. The magnitude of financing required to bridge the country’s infrastructure deficit currently outstrips the supply of capital available from the public and private sector combined. The Nigerian Government has therefore sought to close this gap by exploring the use of pension funds to obtain long term financing for infrastructure development.
To establish a sound regulatory framework for this, the National Pension Commission (PENCOM) in December 2010 released its revised regulations for Pension Fund Investments which introduce and provide guidelines for infrastructure funds/projects as a new asset class for pension fund investments. It is expected that with these new regulations, pension funds assets currently estimated at over N2 Trillion will be utilized to ease the existing constraints on infrastructure financing in the country.
Highlights of the 2010 PENCOM Regulations for Pension Funds Investment
Infrastructure Funds – Infrastructure Funds registered with the Securities and Exchange Commission have now been included as Allowable Instruments under the new regulations. Pension Fund Administrators shall however, not purchase more than 20% of any one Infrastructure Fund
Pension Fund Assets – Pension fund assets can now be invested in infrastructure projects through eligible bonds or debt securities. To qualify for investment, the infrastructure project must be:
awarded to a concessionaire through an open and transparent bidding process
not less than N5 billion in value
managed by a concessionaire with a good track record
in accordance with and meet due process requirements of the Public Private Partnership (PPP) Policy, as certified by the Infrastructure Concession and Regulatory Commission (ICRC) and approved by the Federal Executive Council (FEC)
of the nature of core infrastructure, i.e roads, railways, airports, ports, power and gas pipelines (and related facilities) and other infrastructure projects that may be approved by the Commission from time to time.
Credit Rating for Allowable Investments – The regulations stipulate that all allowable securities shall have a minimum credit rating of “A” by at least two recognised credit rating agencies before pension funds can be invested in them.
Specialist Infrastructure Funds – The regulations also provide guidelines for infrastructure projects which are financed through Specialist Infrastructure Funds. It provides amongst other things, that a minimum of 75% of the Infrastructure Fund shall be invested in projects within Nigeria.
Prospects for Pension Funds Investment in Infrastructure
The growing interest in pension funds as an infrastructure development strategy in Nigeria has been linked to the following factors:
Good Investment Match – Infrastructure assets such as toll roads, airports, and electric utilities etc, can yield long term and predictable revenue streams which match the long term liabilities of a pension fund covering the same period thereby making a good fit.
Diversification – Infrastructure serves as alternative investment classes for Pension Funds looking to expand and balance out volatile equity investments with more secure asset classes.
Low Investment Risks – Infrastructure investments are usually closely regulated and most times enjoy a monopoly within the society – e.g toll roads, railways etc. This eliminates or reduces to a minimal level competition risks making them attractive to Pension Funds.
Public Service Obligations – Pension Funds also find infrastructure projects attractive as their public goods status makes them socially responsive investments.
Major Concerns
Investment in Infrastructure being a relatively new arena for pension funds raises some potential challenges which will need to be addressed if the long term success of the pension funds investment in infrastructure development is to be secured. Two major concerns would be:
Regulatory Risks: Infrastructure investments in Nigeria are usually greatly impacted by infrastructure regulations given their public service status, and historically, these regulations have been unpredictable to say the least. To ensure that pension funds have a stable and conducive regulatory climate to thrive, clarity and continuity in the regulatory and supervisory approach is essential to create comfort for conservative pension boards.
Political/Social Risks: Infrastructure is not a pure private investment given government’s involvement, which is inherently political. Pension Funds therefore would seek to ensure that their investments in infrastructure are protected from politically induced adverse regulations or community resistance/negative press by disgruntled citizens which could pose a reputation risk to pension fund managers. A case in point here would be the Lekki Toll Road Concession which has been facing strong resistance from community leaders and other private citizens thereby hindering the ability of the Concessionaire to start tolling even though certain sections of the road have been completed.
Conclusion
With PENCOM’s revised regulations setting the tone for increased private sector financing for infrastructure development, Nigeria may very well be on its way to achieving its infrastructure goals come year 2020!
1 Sunnewsonline – http://www.sunnewsonline.com/webpages/news/businessnews/2010/nov/01/bussines-01-11-2010-005.htm[/vc_column_text][/vc_column_inner][vc_column_inner width=”1/6″][/vc_column_inner][/vc_row_inner][/vc_column][/vc_row][vc_row type=”vc_default” full_width=”stretch_row_content_no_spaces” css=”.vc_custom_1500547593342{padding-right: 100px !important;}” el_class=”noPaddinRow”][vc_column el_class=”noPaddingLeft” offset=”vc_hidden-lg vc_hidden-md vc_hidden-sm” css=”.vc_custom_1530354643293{padding-right: 75px !important;padding-left: 60px !important;}”][vc_raw_html]JTNDZGl2JTIwY2xhc3MlM0QlMjJtb2ItbWFpbi1zdHJpcCUyMiUzRSUwQSUzQ2RpdiUyMGNsYXNzJTNEJTIybW9iLWJsdWUtc3RyaXAwJTIyJTNFJTNDJTJGZGl2JTNFJTBBJTNDZGl2JTIwY2xhc3MlM0QlMjJtb2ItYmx1ZS1zdHJpcDElMjIlM0UlM0MlMkZkaXYlM0UlMEElM0NkaXYlMjBjbGFzcyUzRCUyMm1vYi1ibHVlLXN0cmlwMiUyMiUzRSUzQyUyRmRpdiUzRSUwQSUzQyUyRmRpdiUzRQ==[/vc_raw_html][vc_empty_space height=”25px”][vc_row_inner][vc_column_inner width=”1/6″][/vc_column_inner][vc_column_inner width=”2/3″][vc_custom_heading text=”Pension Funds Investment in Infrastructure Development in Nigeria” font_container=”tag:h1|font_size:22|text_align:justify|color:%236699cc|line_height:1.8″ use_theme_fonts=”yes”][vc_column_text]INTRODUCTION
According to Nigeria’s Minister of Finance, Mr Olusegun Aganga in an online news report1 , Nigeria’s current infrastructure deficit is estimated to be over US$ 100 Billion. The magnitude of financing required to bridge the country’s infrastructure deficit currently outstrips the supply of capital available from the public and private sector combined. The Nigerian Government has therefore sought to close this gap by exploring the use of pension funds to obtain long term financing for infrastructure development.
To establish a sound regulatory framework for this, the National Pension Commission (PENCOM) in December 2010 released its revised regulations for Pension Fund Investments which introduce and provide guidelines for infrastructure funds/projects as a new asset class for pension fund investments. It is expected that with these new regulations, pension funds assets currently estimated at over N2 Trillion will be utilized to ease the existing constraints on infrastructure financing in the country.
Highlights of the 2010 PENCOM Regulations for Pension Funds Investment
Infrastructure Funds – Infrastructure Funds registered with the Securities and Exchange Commission have now been included as Allowable Instruments under the new regulations. Pension Fund Administrators shall however, not purchase more than 20% of any one Infrastructure Fund
Pension Fund Assets – Pension fund assets can now be invested in infrastructure projects through eligible bonds or debt securities. To qualify for investment, the infrastructure project must be:
awarded to a concessionaire through an open and transparent bidding process
not less than N5 billion in value
managed by a concessionaire with a good track record
in accordance with and meet due process requirements of the Public Private Partnership (PPP) Policy, as certified by the Infrastructure Concession and Regulatory Commission (ICRC) and approved by the Federal Executive Council (FEC)
of the nature of core infrastructure, i.e roads, railways, airports, ports, power and gas pipelines (and related facilities) and other infrastructure projects that may be approved by the Commission from time to time.
Credit Rating for Allowable Investments – The regulations stipulate that all allowable securities shall have a minimum credit rating of “A” by at least two recognised credit rating agencies before pension funds can be invested in them.
Specialist Infrastructure Funds – The regulations also provide guidelines for infrastructure projects which are financed through Specialist Infrastructure Funds. It provides amongst other things, that a minimum of 75% of the Infrastructure Fund shall be invested in projects within Nigeria.
Prospects for Pension Funds Investment in Infrastructure
The growing interest in pension funds as an infrastructure development strategy in Nigeria has been linked to the following factors:
Good Investment Match – Infrastructure assets such as toll roads, airports, and electric utilities etc, can yield long term and predictable revenue streams which match the long term liabilities of a pension fund covering the same period thereby making a good fit.
Diversification – Infrastructure serves as alternative investment classes for Pension Funds looking to expand and balance out volatile equity investments with more secure asset classes.
Low Investment Risks – Infrastructure investments are usually closely regulated and most times enjoy a monopoly within the society – e.g toll roads, railways etc. This eliminates or reduces to a minimal level competition risks making them attractive to Pension Funds.
Public Service Obligations – Pension Funds also find infrastructure projects attractive as their public goods status makes them socially responsive investments.
Major Concerns
Investment in Infrastructure being a relatively new arena for pension funds raises some potential challenges which will need to be addressed if the long term success of the pension funds investment in infrastructure development is to be secured. Two major concerns would be:
Regulatory Risks: Infrastructure investments in Nigeria are usually greatly impacted by infrastructure regulations given their public service status, and historically, these regulations have been unpredictable to say the least. To ensure that pension funds have a stable and conducive regulatory climate to thrive, clarity and continuity in the regulatory and supervisory approach is essential to create comfort for conservative pension boards.
Political/Social Risks: Infrastructure is not a pure private investment given government’s involvement, which is inherently political. Pension Funds therefore would seek to ensure that their investments in infrastructure are protected from politically induced adverse regulations or community resistance/negative press by disgruntled citizens which could pose a reputation risk to pension fund managers. A case in point here would be the Lekki Toll Road Concession which has been facing strong resistance from community leaders and other private citizens thereby hindering the ability of the Concessionaire to start tolling even though certain sections of the road have been completed.
Conclusion
With PENCOM’s revised regulations setting the tone for increased private sector financing for infrastructure development, Nigeria may very well be on its way to achieving its infrastructure goals come year 2020!
1 Sunnewsonline – http://www.sunnewsonline.com/webpages/news/businessnews/2010/nov/01/bussines-01-11-2010-005.htm[/vc_column_text][/vc_column_inner][vc_column_inner width=”1/6″][/vc_column_inner][/vc_row_inner][/vc_column][/vc_row][vc_row type=”vc_default” full_width=”stretch_row” el_class=”footerWidget”][vc_column width=”1/4″][/vc_column][vc_column width=”2/4″][vc_row_inner][vc_column_inner width=”3/4″][/vc_column_inner][vc_column_inner width=”1/4″][/vc_column_inner][/vc_row_inner][/vc_column][vc_column width=”1/4″][/vc_column][/vc_row]