Ladies and Gentlemen, we are gathered at a historic time to discuss an important matter.
Some may see a Pension Conference, but I see more.
I see a future for Africa, led by Nigeria, using the resources of the people to build a future that includes the people.
It is not a vision or an idea. It has gone beyond that. It is a journey, one that started a while ago when the Pension Reform Act was signed into Law.
That journey started with the coming together of some Nigerian minds. Minds like that of President Olusegun Obasanjo and Mr Fola Adeola. It has been nurtured by the dedicated hands of men and women who have served in the pension commission who are represented by the current Director- General Mrs Chinelo Amazu- Anohu. It has reached a major milestone from where it must reinvigorate itself .
The tools for that reinvigoration have been provided by our legislators in the Amendment they passed into in 2014. The success of this phase of the journey now rests with you and I. And this is why we gather.
In the letter of the Pension Commission inviting me to be a Keynote Speaker at this event, no topic was assigned.
However, some paragraphs of the letter which I have excerpted provide some directions as to the thinking of the organizers and I will share them with you:
a “Two of the most strategic themes, positive that returns (on investment) and visible (measurable) impact on the economy”
b. “creating solutions to the binding constraints that Nigeria faces in developing “bankable projects” in infrastructure and real estate that pension funds can invest in…”
c. “While the pool of Pension Funds are a veritable source of capital, lack of suitable investable vehicles with low risk profiles and sufficient comfort continues to hamper the drive to make visible economic impact”
It seems to me that the key words such as “positive real returns”, “visible impact on the economy”, “bankable products…that pension funds can invest in”, “low risk profile and sufficient comfort” makes it easy to create my own topic “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”.
In seeking to address this topic, which I hope accords with the objective of the organizers, I will attempt to be empirical by a case study discussion where I will review some of the public infrastructure that have been funded by private capital, and I will do some comparisons of what the Pension Funds are achieving in other economies.
In this way, I hope to highlight the differences between us and those economies, and in that way, make my recommendations about what we should be doing.
The History of Pension Funds in Nigeria
It is impossible in this kind of forum to exhaustively deal with the issue of Pension Funds and its management in the Nigerian public service.
What is appropriate is to highlight the largely unsuccessful initiatives that have been characterized by such brand names as the National Provident Fund (NPF) and the National Social Insurance Trust Fund (NSITF).
Those brands represent the era when pension was only the responsibility of the employer,
What simply happened was that from a failure of governance, coupled with lack of funds as a result of planning deficiency, and sometimes incompetence, pensioners faced a life of uncertainty after a lifetime of service and at a time when they had become frail, unable to work or earn income and often then left disappointed by a system that had taken all they had to give.
It is sad a story that is written on so many faces characterized by many living and dead people whose lives tell the story of anguish.
It is a chapter of Nigeria’s story that is perhaps best forgotten, but regrettably they cannot yet be consigned to history because there are still debts to be paid, there are still beneficiaries who are owed, there are still Nigerians, who gave a lot, almost everything under a defined benefit scheme that is yet to give them benefit.
The current pension regime, whose managers are the organizers of this event happily have a better story to tell. It is a story of mutual contribution, where the employee and the employer share the responsibility of planning for the tomorrow.
It is a story different from the past, where the funds are safe and have exceeded N5 Trillion.
It is a story of better management.
It is the starting point for this discussion because there is a hard lesson here.
If people put their money into what they believe in, it is likely to serve them better.
The old scheme where there was no contribution by the employee perhaps reduced their role as stakeholders but does not justify the mismanagement.
But the real story is about contribution, paying your share; and it takes me to the next point which is diversification and the relevance of diversification to our subject.
For over 3 (Three) decades we have mouthed the need to diversify our economy in order to open up more sectors for productive activities, income, economic growth and jobs.
But we failed to follow through because of oil resources. It was quick and bountiful income even though there were boom and burst cycles.
Every time the cycle burst, we scampered, and promised to diversify, we take tentative steps, we feel pain. We do not endure, and it is easy to escape because not too far on the horizon is a boom in oil prices and we go back to an old life.
Remember 1970s up to 1976; remember the early 1980s and the burst. Remember the late eighties and Gulf War boom, remember the 1990s and the drop, remember the period of 2009-2014 when oil sold for over $100 per barrel for almost 5 years.
What did we do? We went on a spending spree. Politicians promised everything free.
Everyone got a wage increase, sometimes up to 80% (minimum wage from N7,500 – N10,000 raised to N18,000.00). Did our income as a Nation increased by 80%?
As we sought after free health, free education, free fuel, free housing and free everything, we refused to confront the reality that life is not free.
It was difficult to get private capital into critical sectors of our economy like infrastructure. Private capital and fund managers were not going to invest funds entrusted to them in infrastructure if we wanted to use them for free.
As a people, we were willing to pay for these services outside our country but demanded that they be provided for free in our country.
The new pension fund has shown what can happen if people resolve to contribute and pay their way.
Health insurance is another area that can open up access to top class health service for even the poor , if people are ready to contribute and save for their well being.
Insurance will give them a choice and access to the best medical service when they need it.
It will give them a second highway away from public health service, which even with its best intentions cannot provide every service free (examples).
But today’s reality is that we are in another cycle of burst. Oil prices have crashed from over $100 per barrel and is now hovering around $30 per barrel and there is a real chance that it will fall lower.
Put very simply, our main source of revenue has taken a big blow. This household has lost its bread winner.
However, it is not without options. It has assets, it can raise money, it has savings such as the private money belonging to pensioners, but it cannot be used like oil money.
Whatever is used must return.
This calls for a new attitude. There is no free money.
Ladies and gentlemen, I have news for you.
After 3 (three) 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 idle in agony and anguish until when hopefully the price of oil will rise again, as it will surely do.
The pension funds, which are under the management of pension funds administrators will not go into roads, rail, housing, hospitals or universities unless we change our attitude.
As I said earlier, I intend to be empirical. So instead of prescribing what to do, I will simply share the experiences we are all familiar with and leave us with the options first to make rational choices, and also to be agents for change in the areas where we can influence others.
In the course of my public service, I have been privileged to be involved in getting private capital to operate in areas that were once the sole preserve of government and I will share the experiences and the results.
a. Lekki-Epe Expressway
This is a 60km road in the eastern axis of Lagos State that was built in the 1970s and has scarcely seen any maintenance.
Potholes had taken over its surface, the population it was serving was growing daily and neither Lagos State Government had the funds to rebuild it and the Federal Government at the time was not interested even though oil income was increasing.
Accidents were claiming lives regularly and nothing seemed to offer a solution until the Lagos State Government in 2005 signed a concession with a private group of financiers.
They were very skeptical of many things not the least our political environment and behaviour.
We had previously nationalized assets of investors in the oil and gas sector and other sectors before.
Investors don’t like that and they don’t forget.
But their sense of entrepreneurship if nothing else, keeps them from staying away. In spite of risks they sometimes come back when they think the waters have calmed.
But they do so with conditions, which they hoped will mitigate risks, especially political risks.
They are used to and trained to deal with business risks, but often unprepared to deal with, and frequently unable to deal with politically induced risks.
In the Lekki-Expressway, after doing their traffic studies, satisfying themselves that the business was “bankable” (which is what the organizers of this event are looking for) they asked the Lagos State Government to pass a law; in effect to tie the hands of the next government that the concession will not be cancelled.
In other economies, a contract, which Lagos State Government gave them, would have been enough; however, as I said, investors never forget, so they asked for a law, which the State House of Assembly passed.
But when we thought that will suffice, they then asked for a “Federal Support Agreement”, which was akin to a sovereign guarantee.
Of course Lagos and the Federal Government at the time had different political colours and a Federal Support Agreement was delayed by politics for 3 years.
During that time, prices changed, exchange rates changed, many economic indices changed leading to cost impact, but eventually one was signed, during the tenure of President YarAdua.
This meant that with the Federal Support Agreement, Nigeria’s Sovereign credit rating had entered the equation.
Regrettably, when the road was finally built, and tolls were to be charged to repay the financiers, all sorts of informed and misinformed players took centre stage.
There was no resistance during the painful period of construction when children had to wake up at 4a.m to get to school at 8a.m. But as soon as the road was motorable and ready for use and Tolling , some sympathizers of the Federal Government of the day, on a political front mobilized resistance to the payment of tolls.
They promised that if they were elected, they will cancel the toll.
That is not good news to investors.
I got all sort of letters from around the world. Investors sent representatives from around the world to meet with us, asking what was happening.
All lies were told against our officials after the road was built.
But we were undeterred. We bore the lies. We managed the orchestrated protests. Some artistes were mobilized to pour red paint on their faces and posted these on the social media as evidence to incense people falsely that we had used violence to stop their protests.
One newspaper falsely and recklessly carried a headline that our government had killed a person protesting illegal tolls.
That was the first and only time I used the coercive power of the State.
We deployed Policemen to the toll plazas. They were instructed to allow protests which was legitimate, but they must also protect those who were not interested in protesting and wanted to pay tolls, because those who were opposed to paying had no right to obstruct those who wanted to pay.
We begged, pleaded and held meetings for understanding.
We explained that those of us who enunciated the policy were going to be affected by it as well. I drove through the toll and paid, to show this.
In all of this, my biggest concern was not the road , it was Nigeria’s credit rating and the need to ensure that the project did not fail.
What was at risk was now bigger than the road and the Lagos State Government. It was a national reputation in the international business climate.
I am happy to say that we preserved our country’s business integrity against all odds and I will do it again.
For me, the lesson of this story is that we must not play politics with our economic survival. Investors want continuity of policies, even if Government changes.
Our politics must therefore mature to the level where we must refrain from campaigns that threaten to cancel contracts. We will be poorer for it.
Even when we perceive that the government of the day has poorly negotiated a contract, threats of cancellation do not help.
What we may at the worst seek to do is to re-negotiate after elections are over where it is possible to do so.
If we compare the quality of service on the Lekki-Epe Expressway where toll is paid to the Lagos-Ibadan Expressway where toll has been removed, the choice is ours to make.
Is it cheaper to drive on a road free of toll, and spend 5 hours for a 1 (one) hour journey? If you calculate the fuel burnt in 5 hours of standstill traffic and the stress, you will see that the toll free is not free.
The Security Trust Fund
Another example of private capital in a public area reserved for government was in the area of security.
This is the primary responsibility of Government and it is not an area of return in CASH for private business. But still there were returns and I will demonstrate it.
Before we set up the Trust Fund in Lagos, there was a State Police Command of about 103 (One Hundred and Three) Divisions that were poorly resourced. No cars, no fuel, no uniforms etc.
Banks were robbed at least 3 (three) times a week without capacity for response either by the Command or by the Rapid Response Squad, which was the special unit set up to respond to violent crimes.
They often get to crime scenes after the crime had been completed and the criminals had left.
I found out that this was deliberate partly and unavoidable partly.
It was deliberate to the extent that in a 2,000 strong squad to protect 18 million people at the time, they had only 37 rifles.
It was unavoidable partly because they barely had a dozen vehicles in poor condition and there was no clear and predictable strategy to get fuel.
Businesses closed at 7p.m and there was barely a night economy. So people worked only during the day, if they could avoid getting robbed.
The injection of private capital to support the larger portion of funding provided by Government, the constitution of the Board of Trustees, dominated by the representatives of the donors, with a minority by Government, led to the procurement of 10 Armored Personnel Carriers, 5 pairs of uniforms for over 2,000 officers, bullet proof vests, 2,000 rifles, 2 million rounds of ammunitions, 200 patrol vehicles at start, a regime of 25 litres of fuel per day.
The results were astonishing. Crime reduced by over 80%, no bank robbery for 2 years, no successful bank robbery until 2015 (7 years after).
A bustling night economy of 24 hours petrol stations, drug stores, night clubs , hotels, supermarkets, shopping malls and hospitality facilities unfolded and provided jobs for thousands.
This was the real return for the business community.
It might interest you to learn that private capital has found a safe haven in the American prison service and in some states the prison service is the 5th largest employer of labour topping malls and supermarkets which come 7th in a survey of 20 highest employers. So if private capital is looking for where to put money apart from roads, hospitals and bridges in Nigeria, the prison system that is overcrowded, badly managed, and not reformative is one area I will recommend. Clothing, feeding, drugs, and pharmaceuticals are some of the spin-offs.
Our “Adopt a School Initiative” where we opened a structured platform for private individuals, and corporations to enter into schools, which were hitherto the investment preserve of Government and religious missions (Christians and Muslims) is another area of our successful use of private capital coupled with government funding like the World Bank supported Eko Project.
The “Adopt a School Initiative” was so flexible that it allowed individuals and corporations to intervene according to their resources in a classroom or an entire school.
Nothing was too small. You could give cash or material or you could rebuild, refurbish or donate a school facility by yourself, once we reached an agreement with you.
Again the results were spectacular. From a result based performance where only 7% of students who sat for placement examination to universities and other tertiary institutions secured credits in 5 (five) subjects, numbers rose to 11%, 18%, 39%, 42% and 47% between 2009-2013.
The Lagos-Ibadan Expressway
The Lagos-Ibadan Expressway is a story of what investors don’t like.
The FGN granted a concession to a private company (Company A) and later withdrew and cancelled it.
The FGN then entered into a construction and financing agreement with another company (Company B).
Company A went to court and got an order to cancel the financing agreement made with Company B.
As things stand, work has been stopped on the construction of the road.
The construction companies cannot get financing because of the court order, so they have laid off about 2,000 Workers, in an economy that has so much to do and needs to create work.
These 2 (two) companies are Nigerian companies investing in Nigeria, which is a positive sign because the local investors are the most important to any economy.
Regrettably, while not going into the merits and demerits of the FGN’s cancellation of Company A’s “concession”, it sends a not welcoming message to foreign investors if the decision was without basis or influenced by politics, which I cannot comment upon.
If that was the case, as a foreign investor I will be asking myself the kind of treatment that awaits me as a foreigner if the Government does that to a citizen.
But that is only one half of the story.
The other half is judicial intervention in commercial cases.
Investors know that there will be disputes. They are used to it and that is why they insert Arbitration Clauses because they do not want disputes to drag too long in courts.
As far as the practice of law goes, my advise will be for judges called upon to decide commercial disputes to:
a. Act in a commercial and expeditious manner;
b. Refrain from granting injunctive orders that will stop the business. A worrisome number of power projects are caught up in protracted court cases while the nation waits for electricity to drive the economy;
c. Focus on resolving the dispute without detriment to the business, and award damages instead to the injured party;
d. Decline jurisdiction whenever there is an arbitration clause and refuse the invitation which is frequently made, to set aside arbitral awards unless there is a PATENT case for doing so;
e. Nigerian judges must be encouraged to attend annual conferences of the International Bar Association whenever possible, because they offer very rich sessions in PPPs.
f. We create a lot of arbitration businesses and opportunities, but we do not take the benefit of it because we have developed anti-business reputation for not respecting arbitral decisions;
g. Nigerian universities, the Nigerian Law School and the National Judicial Institute must compulsorily teach the law and practice of Public Private Partnerships (PPPs) which is an emerging global area of practice.
Having completed my empirical effort at what has worked and what has not worked, I will review what some pension funds are delivering across the world.
Pension Funds in Africa
Perhaps the appropriate starting point will be to acknowledge that Pension Reforms are just beginning to gain foothold across most of Africa in jurisdictions like Nigeria, Ghana, Botswana, Kenya and Uganda to mention a few.
But perhaps the biggest and most advanced of the Pension Funds, especially in sub-saharan Africa is the South African Pension Fund.
But while the sizes of these funds are happily growing, and the number of contributors is increasing, the impact in the quality of life on the continent is not yet anywhere near minimum globally acceptable standards.
The reason is not farfetched once we take a look at where the funds are being invested.
The funds are largely invested in equities and bonds, and in the case of Nigeria, so much of it is held in Government bonds.
It is tempting therefore to argue that although the pension funds contain contributions of the working class they do not as yet penetrate enough into giving value to the lives of the contributors.
Across all of Africa, there is a visible infrastructure deficit. No country to country rail service across most parts, the highways that connect most of the countries such as in the ECOWAS region are in very poor shape and these are roads that can easily be built, and tolled to earn income to secure the return of pension funds invested in building them.
Air travel is no better. Airports are not of the quality of design and construction or efficiency that are obvious in Europe.
These are places where pension funds can be impactful.
An online publication of “Institutional Investors” estimated that Sub-Saharan Africa’s ten largest pension fund markets had approximately $310 billion in assets recently.
But while these funds are not serving the “REAL SECTOR” of roads, bridges, hospitals, rails, airports, fee paying universities, 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, when 10 (ten) pension funds had $310 Billion to invest.
Many of these countries are scurrying after multilateral agencies looking either for aid or loans, while sitting literally on a pot of money.
If Africa is poor today it is not because of a lack of resources; rather it is likely a poverty of ideas or the abundance of risk elevating attitudes, some of which I have alluded to, such as judicial and political, and these must change, as I will contend in my conclusions.
It must be mentioned of course that the attitudes that once mired pension funds management in scandals and lack of transparency, had led to very stringent legislative interventions that limited the scope of activities that pension funds could participate in.
For example, until recently, the Nigerian Pension Fund Law limited the contributor from using part of his pension to secure a mortgage.
How, one may ask is a person supposed to finance or part finance ownership of a home if he cannot use his own savings.
Happily the Amendment Act of 2014, has rectified this by the provision of Section 89 (2) of the Act which provision provides that:
“Notwithstanding the provision of sub-section (1) (c) of this section, a Pension Fund Administrator may, subject to guidelines issued by the Commission, apply a percentage of the pension assets in the retirement savings account towards payment of equity contribution for payment of residential mortgage by a holder of Retirement Savings Account”.
In contrast to the mismanagement that used to be the story of our own pension funds, the most prolific of the pension funds in Africa, which is the South African Public Investment Corporation (PIC) has over $150 Billion assets under management.
In Nigeria alone, they have $289 million in Dangote Cement , $98million approved but yet to be drawn for Notore Fertilizer, $230million in MTN Nigeria, $270million in Erin Energy (formerly CAMAC) and $150million in Mainstream Energy Solutions (in the power sector of Nigeria).
By contrast, the question to ask is what is the ‘home based’ pension fund doing? If as I have shown, the “visiting” pension fund from South Africa has a total of $897million in our economy.
The answer is obvious, that is why we are here, that is why my host in their invitation spoke of “…suitable investible vehicles with low risk profiles and sufficient comfort…” as the reason that “…continues to hamper the drive to make visible economic impact” in the letter to me.
Ladies and gentlemen, I have news for you. Those investible vehicles exist.
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.
It is as long as we can imagine. The time for it is now. This is the biggest opportunity to act towards diversification rather than sloganize about it.
This is the time to show that our Nation and our National economy is bigger than the challenges posed by the dwindling oil prices. This is the time to diversify and change the face of our economy once and for all.
But the risks that stand in the way are caused by us and they must be changed by us.
As I have pointed out, the list of assets to invest in is almost limitless.
Let me share with you some of the 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.
Each block will require an estimated number of the following materials:
225 mm block 13,395
150 mm block 17, 430
100 mm block 450
Binding Wire 33 Rolls
Nails 50 Bags