Faced with bond yields coming off record lows and a hard-to-trade equity market, Nigeria's biggest pension fund manager wants the flexibility to invest directly in large local projects.
Financing the development of domestic industries with the naira will also ease pressure on the nation's currency by reducing demand for dollars, said Eric Fajemisin, CEO at 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. The firm has more than 3.5 trillion naira ($9 billion) in assets under management.
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," Mr. 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."
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, Mr. Fajemisin said.
The central bank has devalued the naira three times this year, spurring inflation that's been fanned by higher food prices. 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," Mr. Fajemisin said.
Any increases in its allocation to equities will be done over time and cautiously, the CEO said.
Investments into privatization efforts in the continent's most populous nation has come with mixed success. While the cement industry has been able to revive output, some developments in the steel industry have been bogged down in poor governance and incompetence, while the sale of state-owned power plants have failed to end daily power blackouts.
Still, allowing direct investments into infrastructure projects will push more money into the economy, while giving the returns pension funds need, said Ayodeji Ebo, a senior economist and head of research and strategy at Greenwich Merchant Bank in Lagos.
"There will be a faster multiplier effect on the economy," he said. "Productivity will increase in the short- to medium-term and the cost of doing business will be lower."