Nigeria pension funds look to small businesses for growth

By Chijioke Ohuocha

Nigeria’s pension regulator hopes to launch a savings scheme for the country’s widespread small business sector as it seeks ways of persuading a majority of the country’s workforce to put aside funds for their retirement.

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Traditionally driven by oil money and with large segments of the workforce unregistered for tax purposes, Nigeria’s economy has gone into reverse during a slump in crude prices that began in 2014, forcing the government to seek new ways of raising revenue.

The National Pension Commission had three years ago expected assets in the pension industry to triple by 2016 to $70 billion, as more people in the small business sector signed up to schemes. But that prediction has failed to materialise.

The commission has said it wants to launch the savings scheme next year, targeting the about 50 million Nigerians employed in small businesses of at least four employees, covering everything from barbers’ shops to accountancy firms.

The government is also looking to increase what is a vanishingly small tax take from the same sector.

The National Bureau of Statistics said in June that the sector accounted for more than 40 percent of the economy, which is now mired in its deepest recession in 25 years.

“Micro-pensions is our best bet to push the numbers higher because we are looking at 70 percent of the workforce (active in that segment),” Umaru Farouk Aminu, head of research at the commission, told Reuters.

But analysts and fund managers fear the recession coupled with a currency crisis could dampen the pensions uptake.

The crisis has caused many businesses struggling to find the hard currency needed to import raw materials to shut down, laying off workers.

Pension fund assets grew by 30 percent last year, but Dave Uduanu, who manages 220 billion naira for Pension Alliance Limited, said in October he expected that rise to slow to below 18 percent this year as funds become more conservative.

Funds have been buying bonds this year and selling equities despite cheap valuations as illiquid currency markets limit foreign participation in the stock market.

The Lagos stock index is down 10 percent in naira terms this year. By contrast short-term Nigerian treasury bills provide an 18 percent yield.

($1 = 304.45 naira) (editing by John Stonestreet)


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