FG’s plan to spend Pension Fund gives way to scepticism




The stakeholders are calling for the introduction of long term investment instruments and inflation linked bonds (ILB) so as to safeguard retirees of the private and public sectors, who contribute into the Retirement Savings Accounts (RSAs) against rising inflation.



The call comes amidst the surprised statement by works minister, Mike Onolememen that the Federal Government plan to use the N3 trillion from the contributory pension funds for the development of infrastructure, without clear statement on how it intends to.

“The key question is how to do it in practical terms,” says Samir Gadio, emerging markets strategist with Standard Bank, London, in note to BusinessDay. “In theory, it would make sense to tap the pension fund proceeds to finance infrastructure projects, not only in Nigeria, but more generally in developing countries.”

According to Gadio, “In the absence of tradable assets issued by infrastructure related companies such as corporate bonds and listed equities, or alternatively, loans and structured products, the mechanism through which these funds will be channelled into development projects remains somewhat unclear.”

Commenting further Gadio said, “Another possibility is that the government could itself issue infrastructure bonds to fund specific projects, as has been the case in Kenya, or some francophone African countries, although there is a thin difference between these instruments and regular sovereign bonds (in Kenya the key distinction is mainly in terms of tax treatment).

“As such, it is somewhat unclear why the authorities should segment the debt market while they can sell regular FGN instruments (and rely on FAAC allocations and ECA proceeds) to fund capital expenditure. Even in this case, the main problem will however remain the poor level of public sector project execution, which has been a consistent issue in recent years.”

An analyst told BusinessDay last night, that government needs to be wary of the negative perception about governance in the country, because the general impression is that corruption is on the increase.

“Some of us are surprised at the works minister’s pronouncement that the Federal Executive Council (FEC) has approved the use of the funds for infrastructure. Does the money belong to the government? Which infrastructure are they using employees’ retirement contributions for? Government should look elsewhere for funds to finance infrastructure,” he said.

Another source said government should be in the “vanguard of safeguarding employee’s investments and return on investments, rather than spending it on infrastructure without coherent plan or strategy.”

The pension assets managed by Pension Fund Administrators (PFAs) are currently being invested in federal and state government bonds, fixed securities, the stock market and other secured instruments within the ambit of investment guidelines issued by PenCom.

Abraham Nwankwo, director- general, Debt Management Office (DMO), the office responsible for the introduction of the instruments, told BusinessDay on inquiry early this year, that “The DMO has made substantial progress in designing the inflation linked bond (ILB) in co-operation with relevant market players – regulators, as well as investors.

The ILB will encourage investors with longer term investment horizon to invest in the bonds, since it would ensure guaranteed positive returns, under all circumstances relating to movement of the general price level in the economy”.

Mohammed Ahmad, former director-general, National Pension Commission (PenCom) said the Infrastructure Concession Regulatory Commission (ICRC) and Ministries and Departments (MDAs) need to collaborate on long term projects, to save the country the stress on the yearly budgets for infrastructure. Ahmad further said that not until long term investment instruments are introduced, it would not be advisable to spend the funds on infrastructure.

“Should we continue to finance infrastructure from the budget when we have a private sector? I don’t think so. There is this debate that you should make the bride beautiful before you offer her to the groom, is that the argument? If an activity can be financed by the private sector, give it to the private sector to finance. Why don’t we have the enabling environment for them to finance that. As a country, we need to agree on that. If we do that, then we don’t need to borrow to finance infrastructure,” said Ahmad.

Onolememen, Minister of Works, broke the news of the approval by Federal Executive Council’s (FEC) for the utilisation of the funds, at the opening of a four-day public hearing on the urgent need to address the deplorable state of federal roads across the country recently.

http://businessdayonline.com/NG/index.php/news/76-hot-topic/49510-fgs-plan-to-spend-pension-fund-gives-way-to-scepticism