In Nigeria, pensions and infrastructure development are not often mentioned in the same sentence, but this week as Africa’s finance and pension industry leaders gather in Nigeria for the second edition of the World Pension Summit: Africa Special, the focus will be on how the nation’s growing pool of pension funds can be mobilised to drive sustainable development.
Compared with many of its African peers, Nigeria has relatively advanced infrastructure networks that cover extensive areas of the nation’s territory and, thanks to its strong economy, it is better placed than many of its neighbours to increase the share of fiscal resources going to infrastructure. Yet, according to the African Development Bank (AfDB), the nation’s core stock of infrastructure is estimated at only 20-25 per cent of GDP, compared with 70 per cent for other middle income countries of its size, leaving a gaping infrastructure deficit of $300bn.
As in other African nations, poor construction, bad maintenance, corruption and a perceived lack of investor security deter many investors. However, these are challenges that President Muhammad Buhari’s administration recognises and is ready to confront.
One of the key ways in which he plans to do this is through continued encouragement of sustainable pension fund investments in the country. Pension reform has been one of the quiet success stories emanating from Nigeria; from a poorly managed system with a deficit of 2tn naira, we have progressed to a transparent, well-regulated, contributory pension system with assets to the tune of 5tn naira ($27bn). Great care is now taken to ensure funds are invested in secure vehicles and structured in a manner that allows reasonable returns in the long term. The focus has also shifted to one where contributors and retirees and the security of their funds are the priority.
The reform process began in 2004 when the then President Obasanjo directed a clean sweep out of the sector. President Jonathan consolidated on those initial gains with the signing of Nigeria’s Pension Reform Act in 2014, which repealed earlier pension laws and paved the way for assets from the country’s national Contributory Pension Scheme (CPS) to be invested in infrastructure and real estate development. The commitment of successive administrations to the reforms clearly demonstrates that Nigeria’s leaders recognise the CPS as a potential and essential driver of economic development.
However, pension reform isn’t the only driver of infrastructure investment in the country. The African Union Agenda 2063 is currently examining what steps need to be taken to ensure positive socioeconomic transformation across the continent within the next 50 years. From an infrastructure investment perspective, one of the flagship programmes of the Agenda is a high-speed train that will stretch the length of the continent, connecting hundreds of millions of people. Meanwhile, the Programme for Infrastructure Development (PIDA), the successor to the Medium to Long Term Strategic Framework (MLTSF), will help encourage further development of regional and continental infrastructure – energy, transport, information and communication technologies (ICT) and trans-boundary water resources – in Africa.
PenCom expects to increase its assets significantly in the coming years, as the new administration targets small businesses to try to get more people into pension schemes. This means there will be a huge opportunity for pension funds to play a more active role in the economic development of the nation through infrastructure investment. President Buhari has been clear on stamping out corruption – which will significantly help improve investor security – and knows that closing the country’s wide infrastructure gap demands novel and tough economic initiatives from the government. The imminent appointment of his cabinet will be the first step towards fulfilling this goal, and sourcing the $15bn needed annually to bring infrastructure up to scratch in Nigeria. With strong economic reform, strong regulation around the investments that pension funds partake in, and support from the new administration, the world may finally be able to stop minding Nigeria’s infrastructure gap, and start mending it.