Stanbic IBTC Pension Fund Managers, Nigeria’s biggest pension-fund manager wants the flexibility to invest directly in large local projects.
Financing the development of domestic industries with naira will also ease pressure on the nation’s currency by reducing demand for dollars, said Eric Fajemisin, Chief Executive Officer, Stanbic IBTC Pension Managers. Once up and running, local plants can help cut imports, further benefiting the naira and easing pressure on inflation that’s been decimating returns, he said.
Domestic retirement funds overseeing the equivalent of $30 billion are looking for new places to invest. That’s after yields on government debt that account for the bulk of their investments plunged because too much cash flooded into the system.
The lack of enough high quality stocks, few options by way of derivative products and small corporate debt issuance limit alternatives for investors trapped in a recession.
“We’re looking at investing in real estate and infrastructure that has economic benefits like transportation, health care and telecommunications,” Fajemisin said in an interview in Lagos. “These opportunities must be commercially viable on their own and possess the potential to improve the level of employment.”
Yields on Nigerian Treasuries are rising, but so is inflation
Despite being Africa’s biggest oil producer, Nigeria imports almost all of its fuel, machinery, pharmaceuticals and cereals due to poorly kept transport networks and electricity shortages that make local production inefficient and expensive.
While pension funds can invest in development projects, they need to do so through dedicated infrastructure funds.
The nation’s regulator has so far reacted positively to recommendations from the Pension Fund Operators Association of Nigeria that retirement funds be able to finance infrastructure directly, having allowed some co-investments, Fajemisin said.
The central bank has devalued the naira three times this year, spurring inflation that’s been fanned by higher food prices. The local unit traded at 396.06 naira against the dollar at the spot market as of 4:50 p.m. in Lagos.
The shock to Africa’s largest economy from restrictions to contain the coronavirus and lower crude prices could reverberate through the retirement-fund industry for years to come as unemployment increases.
“Considering the economic environment and its impact on businesses, the industry may experience a period of net negative cash flows if businesses continue to struggle and can’t meet their contributions,” Fajemisin said.
Any increases in its allocation to equities will be done over time and cautiously, the CEO said.