Amidst criticisms over non-accretion to fiscal savings such as the foreign reserves and the Sovereign Wealth Fund, even under current account surpluses, the Nigeria Sovereign Investment Authority (NSIA) has established five subsidiaries in a renewed approach to foster multi-sectoral investments in infrastructure, BusinessDay has gathered.
The NSIA, managers of the nation’s $1.5 billion Sovereign Wealth Fund, (SWF), under the new dispensation to ensure accountability for the common wealth of Nigerians, introduced the NSIA Motorways Company Limited, Power investment, Healthcare and Real Estate investments, some of which have commenced operations.
But some analysts have attributed the current pressure on the exchange rate to non accretion to the nation’s fiscal savings, a development that has continued to make the economy vulnerable to external shocks.
For instance, the Authority had last week signed an agreement with Julius Berger for the construction of the second Niger Bridge, while also on the way to finalising details on the Lagos-Ibadan expressway redevelopment.
The NSIA, which has declared its intention to invest in the project, is said to be currently discussing with the Federal Government, through the Federal Ministry of Works.
Uche Orji, managing director, NSIA, has said that irrespective of the amount on ground, the Authority would ensure that it judiciously invested for the collective good of Nigerians.
The Stabilisation Fund is intended to safeguard against budgetary deficits. It would be a last resort from which government may withdraw annually to meet shortfalls in the budget, brought about by falls in oil prices or other budgetary constraints, while the Future Generations Fund is a savings fund that will seek investment in long-term investments and assets to provide savings for future generations of Nigerians.
However, Orji said that the Nigeria Infrastructure Fund (NIF) which accounts for 40 percent of the fund, is expected to secure investments in the infrastructural development of the country in areas such as agriculture and other relevant projects.
But Razia Khan, analyst with Standard Chartered Bank, London, says that the current amount is absolutely inadequate. “Given Nigeria’s dependence on a single commodity for its exports, it remains vulnerable. In order to reduce vulnerability to swings in commodity prices, and because oil is a non-renewable resource, it is generally recommended that resource-rich countries invest their windfall earnings in a sovereign wealth fund. This way, they build up financial savings over time. Not only can this help to smooth out fluctuations caused by cyclicality in commodity prices, it also creates an entirely separate income stream, one that continues contributing to a country’s wealth, well into the future,” Khan said.
According to Samir Gadio, emerging markets strategist at Standard Bank, London, “The root cause of the pressure on the exchange rate is the lack of intrinsic foreign reserves (ie. fiscal savings) which is at odds with the persistent current account surplus. As long as oil revenue leakages and an opaque federally consolidated fiscal system persist, this upward pressure is unlikely to subside, whatever the level of the exchange rate is.”
According to Afrinvest analysts, with the replacement of the ECA by the SWF, the administration and focus of the latter should be aimed at more accretion, adding, “Although the stabilisation fund component of the SWF is meant to bring the economy back to shape in periods of grave fiscal stress, Afrinvest Research believes the fund will not be the first point of call to draw down, giving its nascent stage.”
Speaking on the progress of the NSIA last week in Lagos, Orji said “NSIA, in resolute pursuit of its statutory mandate, has been implementing far reaching multi-sectoral investments in infrastructure amongst other investment decisions related to its overall funds mandate. The focus has been on ensuring that the investments are relevant, of impact and geared to generate attractive returns to the benefit of Nigerians across generations; as this is their commonwealth.”
On infrastructure, which he said is restricted to Nigeria, the chief executive said “Out of approximately 12-13 areas we defined as within the infrastructure sector, our initial focus has been narrowed to the following 5 sectors: agriculture real estate, motorways, power and healthcare. We have incorporated the subsidiaries to help us execute these strategies.”
He said that the authority has allocated the $100m to the Power Sector and with an agreement with a private equity company to match the authority 2:1 on the equity, adding, “We are still looking at opportunities, both for Greenfield and secondary investments. We are looking at both Gencos and discos in the area of refinancing,” which he said will be announced very soon.
On the recently allocated $550 million by the federal government under the power to gas programme, he said that the authority is exploring opportunities for collaboration, adding, “We have also recently signed an MOU with AMA-Sinohydro to collaborate on investment opportunities in hydro-electric power plants, multipurpose dam, real estate, transportation infrastructure amongst other areas.”
He further said that, under its Motorways Investment limited, the Second Niger Bridge, in collaboration with Julius Berger, would be constructed. “We are now the lead financial partner in the consortium, with responsibility to invest our equity and attract other equity partners and raise debt for this project. We already have soft commitment from potential equity partners. This will be the first federally tendered PPP project in Motorways in Nigeria, and we believe the negotiated construction cost will be bankable in the current structure.
But between our equity, Julius Berger’s equity, soft commitment from other equity partners and government viability gap funding, we are confident that flag off can commence in March, 2014.”
He revealed that the authority is in negotiations regarding the Lagos-Ibadan Expressway, as its other core infrastructure investment.