Increasing returns on sovereign wealth for economic development


NSIA: Increasing returns on sovereign wealth for economic development
Uche Orji

By Babajide Komolafe

Nigeria’s quest to build a pool of wealth as savings for future generation and enhanced economic development has received a major boost from the Nigerian Sovereign Investment Authority (NSIA) which grew its total assets by five percent to N650 billion while generating N36 billion as income in the financial year ended December 31, 2019.

The 2019 financial year was also marked increased deployment of funds by the NSIA to support major infrastructure projects across the country as well as delivery of game-changing projects in the health and agricultural sectors.

History

Created in 2011 through the Nigeria Sovereign Investment Authority Act, the NSIA (or Authority) was set up as an investment institution of the Federation to manage funds in excess of budgeted oil revenues. As a Fund, the NSIA invests in real and financial assets including stocks, bonds, real estate as well as alternative investments such as private equity funds or hedge funds.

For these investment purposes, the NSIA established three main funds: the Stabilisation Fund, the Future Generations Fund and the Nigeria Infrastructure Fund.

The Stabilisation Fund is to provide budget support in times of economic stress; the Future Generations Fund is an inter-generational savings fund for future generations of Nigerians and the Nigeria Infrastructure Fund is to invest in domestic infrastructure.

Financials

The audited financial statements of the NSIA for the year ended 2019 showed that Interest Income rose by 13 percent to N27.02 billion in 2019 from N23.82 billion in 2018. This performance was driven by the Authority’s strategy to generate fixed income returns from securities that generate predictable interest, and steady returns including Eurobonds, Treasury bills and other secured deposits.

The NSIA also recorded Total Income of N36.15 billion in 2019, down by 18 percent from N44.34 billion in 2018. The decline was induced by a 93 percent fall in foreign exchange revaluation income to N1.28 billion in 2019 from N18.05 billion in 2018. Excluding foreign exchange gain, the net income in 2019 was N34.87 billion, up by 34 percent from N26.28 billion  in 2018

The financial statements also showed that the Authority recorded a five (5) percent growth in Total Assets, which rose to N649.84 billion in 2019 from N617.70 billion in the previous year.

Speaking on the performance of the NSIA, 2019, Managing Director/Chief Executive Officer, Uche Orji, said: “2019 was a mostly favourable year for the Authority. In the first instance, our diversified asset strategy was buoyed by positive returns from the international markets as almost all the investments made in equities, hedge funds and private equity outperformed.

“Secondly, domestic developments also favoured the Authority and enabled our infrastructure investment strategy to deliver value to the Nigerian people as more capital was deployed in key projects leading to the attainment of significant milestones.

Asset allocation strategy remains stable across the various funds: Future generations fund remains 25 percent for public equities, 25 percent for private equity, 25 percent for Absolute Returns and 25 percent for other diversifiers. Areas of focus for the Nigeria Infrastructure Fund remain agriculture, healthcare, power, toll Roads and gas industrialization. ”

Among other things, the NSIA in 2019, closed several infrastructure projects and recorded significant milestones in project development, implementation and construction works.

Healthcare sector support

In the healthcare sector, the NSIA in May 2019, commissioned and operationalized the Cancer Centre at Lagos University Teaching Hospital (NLCC).

It also completed the Advanced Diagnostic Centre located in Aminu Kano University Teaching Hospital in 2019. The centre was subsequently commissioned and operationalized in February of 2020.

The Authority also completed civil and construction works at the Advanced Diagnostic Centre in Federal Medical Centre Umuahia (FMCU) as of year-end 2019 as well as concluded equipment and staffing of the facility in early 2020.

Agric sector project

In the agriculture sector, the NSIA in furtherance of the   Presidential Fertiliser Initiative (PFI), delivered 6.5million 50kg bags of NPK 20:10:10 in 2019, bringing total deliveries since inception to 20m bags. It also increased accredited participating blending plants to 31 plants as of year-end 2019 from 18 plants in 2018. This led to the creation of significant direct and indirect jobs across the agriculture value chain including in logistics, ports, bagging, rail, industrial warehousing, and haulage touchpoints amongst others. The NSIA aims to build on this performance by delivering  between 10 million to 12 million bags in 2020.

In 2019, the NSIA upgraded the capacity of the Pandaagric, a fully integrated farm, and  a joint venture investment between NSIA and UFF African Agri Investments, a Dutch based agriculture investment firm. In 2019 the farm acquired state of the art farming, irrigation, and feed production equipment. This strengthened the farm’s capacity to cultivate the over 2300 hectares of arable land available within the facility and enabled the expansion of farming operations with notable reduction in    input costs.

In 2019, NSIA partnered with OCP of Morocco to develop a Basic Chemicals Platform Project (BCP) in Nigeria. The BCP seeks to develop an integrated Ammonia and fertilizer production plant that will benefit both the Kingdom of Morocco and Nigeria by commercializing Nigeria’s vast natural gas resources and satisfying Morocco’s demand for cost-competitive Ammonia.

The project will be developed to produce 1.5MTPA of Ammonia in two phases; about 60% – 70% of the Ammonia produced will be allocated for export to Morocco, and the balance will be routed to the production of Di-ammonium Phosphate and NPK fertilizers to feed domestic demand.

Transport and power sector support

To support the rapid development of the nation’s transport infrastructure, the NSIA  in 2019, through  its   Presidential Infrastructure Development Fund (PIDF) deployed N181.9 billion across all three projects Under the PIDF namely the 2nd Niger Bridge, Lagos – Ibadan Expressway and Abuja-Zaria-Kaduna-Kano Road.

Furthermore, as part of its efforts  to support the nation’s quest for increased power supply, the NSIA in 2019, commenced the development of a 10MW solar power plant in Kumbotso Local Government Area, Kano State. At completion, the project will contribute to the growing trend of investments in renewable energy in Nigeria.

Outlook for  2020

Expressing confidence of improved performance in 2020, notwithstanding the challenges posed by COVID-19, Orji said: “The onset of the Covid-19 pandemic has caused an unprecedented human and health crisis with significant impact on global markets. As such, it may be difficult to predict the market’s overall reaction to the development. It is predictable that the volatility introduced by the onset of the pandemic may linger.

“However, the Authority continues to monitor the market conditions with the view to leverage the upside risks that avail themselves in the market. We expect that our investment strategy will continue to deliver positive returns in the long term in 2020 as the markets normalize and new opportunities emerge.”

On the focus of the NSIA in 2020, Orji said:  “The Authority will continue to deploy capital into vital sectors of the economy with increased focus on sectors that will engineer real growth.

“We will continue to focus on agriculture, healthcare (including pharmaceuticals), toll roads, gas industrialization and power in our Infrastructure Fund.

“Operationalizing several subsidiaries of the NSIA will be a key focus especially in the healthcare sector where we have several projects in the pipeline.

“NSIA has invested in several financial companies that help develop the capital markets including Nigeria Mortgage Refinance Company (NMRC), InfraCredit, NG Clearing, Development Bank of Nigeria, and Family Homes Funds.  We will continue to work on strengthening these entities and making new investments in companies that strengthen financial market infrastructure.”

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