In this paper 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” delivered at the Nigerian Pension Industry Strategy Implementation Roadmap Retreat; the Minister of Power, Works and Housing, Babatunde Raji Fashola discusses the necessity for diversification and the various investment opportunities available for pension funds and private capital in general.
I shall try to highlight some of the important points he discussed as its a long read, but very well worth it though. Fashola discussed the failure of economic diversification in Nigeria in his words; ‘After 3 decades of prevaricating about diversification, diversification has walked into the front door of the Nigerian household. we must either embrace it with a new attitude or die in agony and anguish until when hopefully the price of oil will rise again, as it will surely do’. Given that Mr. Fashola is a part of this administration, I hope he is able to effectively ingrain this line of thinking amongst his colleagues and ensure that it is incorporated in current government policy.
That said, the focus of this paper was however to highlight various opportunities for the investment of pension funds and private capital; he did this using empirical examples from his time as Governor of Lagos state. The Lekki- Epe expressway, security and education were all fully/partly-financed using private capital. But what was really insightful were some of the challenges governments face in attracting private capital to sectors otherwise reserved for government. These challenges are of course a consequence of the political uncertainty created by governments themselves; many politicians come into office with the intention of cancelling all contracts signed by their predecessors. This naturally makes Investors wary as they are concerned about the extent to which their contracts are enforceable in the event of a change in government; this uncertainty creates a huge disincentive to both local and foreign investors. For example, in the case of the Lekki-Epe expressway, the firm demanded the state government to sign a law which would prevent the concession from being cancelled in the event of a change in government. In addition to this, the Federal government subsequently had to agree to a federal support agreement which affects Nigeria’s sovereign credit rating; it was only after these, the firm agreed to commit. Fashola thus argued that even in the case where it is suspected that a contract has been compromised, cancellation should only be a last resort if attempts at re-negotiation of the contracts failed. This makes sense considering the real costs and transaction costs associated with contracts cancellation.
With regards to actual investments, he urged local pension funds administrators to invest in infrastructure and manufacturing and not just in stocks and bonds. What I found revealing is the amount of investment the South African pension fund – South African Public Investment Corporation (PIC), has in Nigeria, apparently they have about $897 million worth of investments in our economy! The companies invested in include MTN, Dangote Cement, Mainstream energy solutions amongst others. with regards to specific investment opportunities, Fashola said; They are in roads that can be tolled, like housing, the 4th Mainland Bridge, the Coastal Road linking several coastal states from Lagos to Bayelsa ; the new seaport in Lekki and Badagry, the refinery by Dangote, Ajaokuta Steel, a petrochemical plant in the Niger Delta; the broken textile mills in the North and South of Nigeria that require new equipments and disciplined fiscal, technical and organizational management; prison in each of the 6 (six) geopolitical zones of Nigeria that can help strengthen our justice system and decongest the colonial prisons we have kept as relics of our own sense of justice; they are in hostels for students in Nigerian universities, embedded power plants in the universities, most of which have teaching hospitals and provide an opportunity to power education and healthcare and the list is endless.
What is clear in all of these is that while the federal government has to take a lead in diversification;there are loads of non-oil investment opportunities available for individuals and organisations to invest in. The decrease in government revenues should thus incentivise them to adopt more ‘business-friendly’ policies that will attract the much needed private capital.
Photo source : Guardian news and connect Nigeria.com