Olusegun Adeniyi: Fashola, PenCom And The Nigerian Debate Pt. 2

A career woman, who left her three young children at home with three packed meals, returned to discover that only one of them ate the three packs, leaving the others with nothing. After inflicting some severe corporal punishment that drew tears from the erring child, the mother now decided on counselling. “I beat you because you have allowed your greed and selfishness to lead you into taking what does not belong to you. And do you know where you will end up if you continue like that?”
To the amazement of the mother, the young child said he knew where he would end up.
So she asked him:

The boy replied:

“National Assembly!”

I am not the author of that joke that has been around for a while and it is possible it was actually invented somewhere in Ota where Baba has resumed his ominous vocation of letter writing, the latest of which was directed to our distinguished and honourable lawmakers in Abuja. But the moral of the joke is simple: whether it is on the ever-dwindling value of the Naira or the general direction of the economy or the security challenge still being posed by Boko Haram whose men now burn villagers alive, Nigerians are engaging themselves in informal conversations about our country at different levels and on several platforms. The tragedy, however, is that the men and women we elected to debate such issues hardly care. If they are not passing resolutions to form a committee to look for some “missing” budget, they would be busy debating how to buy cars while defending other privileges and their inflated sense of entitlement.
That was the kernel of my intervention last week on the passionate debate that followed my posting, for members of THISDAY editorial board, the speech by the Minister of Power, Works and Housing, Mr. Babatunde Raji Fashola (SAN), at the Nigerian Pension Industry Strategy Implementation Roadmap organized by PENCOM. Titled “Overcoming the Challenges and Managing the Risks and Constraints that Inhibit the Investment of Private Capital and Funds in Nigeria’s Infrastructure Landscape in Order to Make a Visible Economic Impact”, Fashola’s intervention was on how we could deploy the Pension Funds as a catalyst for revamping the nation’s dilapidated infrastructure.

In the first part published last week, I highlighted the key contributions of Messrs Kayode Komolafe, Chidi Amuta, Sonnie Ekwowusi, Waziri Adio and Femi Falana, SAN. While the discussion continues, especially following the intervention by Pastor Joe Attuenyi which I posted for the attention of both Falana and Komolafe, I promised to conclude today by addressing their positions which clearly are two. The first is about whether we can take a “risk” with pension funds by investing part of it in infrastructure, as Fashola suggested. I believe I have addressed all their concerns in my column on this page on 24 July, 2014. It is indeed remarkable and a testimony to the prudent management of the PenCom leadership that between then and now the fund has increased by over a trillion Naira. Against the background of the financial recklessness of recent years, it is the strong character of the PenCom Director-General, Mrs Chinelo Amazu-Anohu that helped to insulate the pension money from the political sharks and hyenas in Abuja.

The second issue both Falana and Komolafe harped upon is the role of the state in the welfare of the people even when they conveniently avoided the responsibility of citizens. While we have no disagreement on such other issues like leadership failings, corruption and the poor choices we have made in the past, my point of departure is that identifying those things does not address the problems at hand. For now, I do not want to go into the ideological arguments but it suffices to say we can all go back to read “Equality and Efficiency: The Big Trade-off”, by Arthur Melvin Okun, the 20th century Professor of Economics at Yale who was on President John F. Kennedy’s Council of Economic Advisers (CEA) which he would later chair under President Lyndon Johnson. We will use that timeless 1974 thesis for an ideology-based conversation about the place of the markets and all that, another day.

Although there have been several exchanges between Attuenyi and Falana, his initial comment was about “a misconception that the pension contributions are currently in some ‘riskless’ lock box in a vault in the CBN from where they are pulled out when required to pay pensions of retired workers whereas they are currently invested in mainly low interest bearing supposedly very safe bonds/loans/securities issued by the federal government.”

This was the way Attuenyi put it: “Let us assume they are safe because they are issued by government, the question we should then ask is: What is the value of N1 billion lent by the pension fund to the government of Nigeria a decade ago at 10% interest rate? Today at redemption, (simplistically) the pension fund will get only slightly more than N2 billion. So the pensioners get N2 billion degraded by inflation and currency devaluation–because the federal government may have to just print money to pay back the loan if it lacks revenue to do same–and there may or may not be anything the citizens can show for the original N1 billion borrowed 10 years ago. Does that make sense?”

Attuenyi now contrasts that with Fashola’s proposal which he endorses. According to him, “the pension fund managers could invest money in for instance a project like the Lagos-Ibadan Expressway. With tolls on the road calibrated to pay back the loan over 10 years, we the people would have a first class express road rather than today’s death trap. The petrol savings on the road (five hours instead of one hour drive) more than compensate for the tolls. Folks can actually live in Ibadan and its environs and work in Lagos which is not possible today. Post 10 years, pension funds can still own an upside in the project which helps pensioners overcome devaluation of their pensions etc. The proposal is not foolproof. There needs to be strong regulations by PenCom to avoid abuse. But played right, Fashola’s thoughts are worth implementing as long as we have the right checks and balances in place.”

In this debate, Attuenyi and Waziri speak for me but before I conclude let me first present a true picture of the pension funds. As at November 2015, the funds had reached a threshold of N5.212 trillion, all of which has been invested. Disaggregated into Approved Existing Schemes (AES), Closed Pension Fund Administrators (CPFAs), Retirement Savings Account (RSA), Active Contributors Fund and RSA Retiree Fund, the Pension Fund has been invested in 14 instruments otherwise called Asset Classes.

The assets classes are: Domestic Ordinary Shares–N505.7 billion representing 9.69 percent of total assets; FGN Bonds–N69.1 billion, representing 1.32 percent of total assets; FGN Bonds–N2.96 trillion, representing 56.69 percent of total assets; Treasury Bills–N533.34 billion, representing 10.22 percent of total assets; State Government Securities–N157.14 billion, representing 3.01 percent of total assets; Corporate Debt Securities–N179.5 billion representing 3.44 percent; Supra-National Bonds–N12.7 billion, representing 0.24 percent of total assets; Local Money Market Securities–N516.2 billion, representing 9.89 percent of total assets; Foreign Money Market Securities–N645.57 million, representing 0.01 percent of total assets; Open/Close-End Funds–N19.36  billion, representing 0.37 percent of total assets; Real Estate Properties–N207.3 billion, representing 3.97 percent of total assets; Private Equity Funds–N13.44 billion, representing 0.26 percent of total assets; Infrastructure Fund—N1.4 billion, representing 0.03 percent of total assets as well as cash and other Assets of N44.63 billion, representing 0.86 percent of total assets.

What the above suggests very clearly is that only a negligible fraction (0.03 percent!) has been invested in infrastructure in a nation where virtually all the major roads are in a state of disrepair. However, even before Fashola came on the scene, PENCOM had already identified investment in the sector not only as a veritable means of further securing the funds into the future but also for bridging the huge infrastructure gaps. And that was one of the main reasons behind the Pension Reform Act (PRA) 2014.

Fashola, who in his paper listed the number of nails, blocks, binding wire roof timbers, trucks of sharp sand, bags of cement aside other finishes like granite, paint, windows, tiles, whose demand and supply would constitute the real economic impact that local Pension Funds could do to the economy if judiciously applied especially in the area of mortgage, added that “a preliminary data coming out of the preparatory work we have commissioned on Housing Economies and impact. One block of 12 (Twelve) flats will require about 93 workers multiplied by 40 Blocks amounting to 3,720” job opportunities in the informal sector.

Yet, according to Fashola, while pension funds are not serving the ‘REAL SECTOR’ of roads, bridges, hospitals, rails, airports etc. in sub-Sahara Africa where “there is a palpably visible poverty in most of these countries, some of who gathered to seek funding support in South Africa recently at the instance of the Chinese Government who offered funding support (loans) of $60 billion for all of Africa” whereas ten largest pension fund markets within the sub-region is estimated to have accumulated approximately $310 billion that remains unutilized.

Fortunately for Fashola, the PenCom Investment Regulation allows pension funds investment in Infrastructure through Infrastructure Fund to the tune of 5 percent of pension assets and Infrastructure Bond with a cap of 15 of pension assets. But there are conditionalities which include: Minimum project value of N5 billion; government/multi-lateral development finance organization (MDFO) guarantees or other credit enhancements; transparent bidding process in award to concessionaire; at least 10 years’ experience for both the Chief Executive Officer (CEO) and Chief Investment Officer (CIO) of the Fund; representation of PFAs on Fund Advisory Boards while they must be projects with predictable cash flows. The whole idea is to ensure that pension funds are safe and that they also work for the people.

From a recent discussion with the PenCom DG, Amazu-Anohu, I was made to understand that PenCom’s next target is a plan for the workers in the informal sector of the economy who constitute the bulk of workers in the country yet are not covered by most organized financial services. The Micro Pension Plan already designed is therefore tailored to fit the pension needs of this category of workers who are mostly artisans, farmers, transport workers, textile workers, small scale business owners, etc.

The targeted beneficiaries would be expected to be above 18 years and belong to a trade, profession or business association and can remit their contributions daily, weekly or monthly. However, due to the peculiarities of this segment, provisions would be made in allowing contributors access to some portion of the savings where eligible, while the balance is retained for retirement purpose.

In the case of infrastructure funding, it is an open secret that PenCom has a history of doing business with Fashola. Not only is the state one of the frontline states in adoption and compliance with the Contributory Pension Scheme (CPS), Lagos under Fashola also derived one of the benefits of compliance through significant Pension fund investments in its development bond issuances which commenced in 2009. Out of the N274.50 billion raised by the State in these bond Issuances between 2009 and 2013, about 49% of the investments were subscribed by pension funds. And to the extent that the pension funds realized both the payment of principal and competitive interest rates, it was a win-win situation for both parties.

All said, Fashola and Amazu-Anohu are two professionals who concentrate on the whole by looking at the interconnections between the parts with a focus on processes and procedures for achieving long-term results regardless of short-term pressures. I have no doubt in my mind that with the backing of President Muhammadu Buhari both of them can collaborate to use a fraction of the pension funds to deliver in the area of critical infrastructure, which will in addition to improving citizens’ welfare stimulate productivity while engendering growth and development in our country.


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