Ngozi Okonjo-Iweala, minister of finance and coordinating minister of the economy, gives hint at a recent World Pension Summit in Abuja that Nigeria’s pension assets will hit the $100 billion mark in the next two decades
| By Anayo Ezugwu | Jul. 21, 2014 @ 01:00 GMT
NIGERIA’S pension assets are expected to exceed the $100 billion mark in the next two decades. Ngozi Okonjo-Iweala, coordinating minister of the economy and minister of finance, who gave this hint on Monday, July 7, also spoke of the need to encourage African countries to switch to contributory pension schemes.
Speaking at the recent World Pension Summit (Africa Special) organized by the National Pension Commission, NPC, in conjunction with the World Summit Group in Abuja, the minister noted that the continent was yet to fully harness the potentials of pension funds as a source of development. She explained that although pension assets are still around five percent of the GDP in most African countries, the situation is improving rapidly.
However, the minister said that “sustainable economic development in any country requires large long-term investments in infrastructure, agriculture, housing, education, technology, healthcare, and so on. These investments equally require long-term financing, which traditionally, banks may provide. But due to some changes in the structure of the financial system, especially in the aftermath of the 2008/09 global financial crisis, banks are finding it difficult to support such long-term financing projects. Now, institutional investors such as pension funds, insurance companies and sovereign wealth funds are stepping up to play a role in providing long-term capital.”
According to Okonjo-Iweala, with over $70 trillion in assets in 2013, institutional investors like pension funds have the muscles to invest in real, productive assets and drive growth. She said that in 2009, the total pension assets were on the average of 67.1 percent of the GDP. And the growth in value of pension funds has been phenomenal in countries like the Netherlands, United Kingdom and the United States, where pension asset amounted to 155.4 percent, 104 percent and 74.5 percent of their 2012 GDP respectively.
“In Africa, the story is not quite the same. While a few countries like South Africa and Namibia where pension assets were 78.19 percent of the GDP in 2012, many African countries are not quite in the same league. But there is clear progress. In Nigeria, the value of pension assets grew from about $4 billion in 2007 to $25 billion now, which is the equivalent of 9.7 percent of our old GDP and 5 percent of our newly rebased GDP. And we are positioned to grow more with the drive by PENCOM to expand the contributory base. I expect that two decades from now, Nigeria’s pension assets will be more than $100 billion in value,” she said.
Okonjo-Iweala noted that “the contribution of African pension funds to the growth of African economies is still low as pension funds are yet to mature.” She said that Africa needed to capture a significant proportion of its workforce, especially those in the informal sector in the pensions system, and encourage countries to switch to the contributory pensions scheme. “We are yet to fully harness the potential of pension funds as a source of development, especially in infrastructure, where the financing gaps are huge, and where long-term financing is required. Infrastructure financing is still largely seen as part of government’s responsibilities, but the trend in government’s capital expenditure indicates several competing demands that make meeting this capital requirement a challenge.”
In this regard, the minister said there was a need to review regulations and laws governing the investment of pension funds. She said that in Nigeria, for example, the regulation on investment of pension fund assets has been reviewed four times by the National Pension Commission, PenCom, to allow new investment vehicles due to the need for a more diversified investment portfolio and the need for targeted investments in the real sector of the economy particularly to support infrastructural development.
“Up to 20 percent of pension fund assets are now allowed in infrastructure bonds and funds as well as in supranational bonds and private equity funds. In the same vein, the Pension Reform Act 2004 was just amended in 2014 to allow the deployment of pension fund assets in financing infrastructure and the housing sector, in the aftermath of the establishment of the Mortgage Refinance Corporation to revitalize the operations of the mortgage institutions in the country, and boost the housing finance sub-sector. The new law also strengthens the punitive aspects because those who steal pension funds and make life difficult for our senior citizens who spent their youth serving the country must not be allowed to get away with their crime. To serve as a deterrence, they must be punished,” she said.