‘Rescue national infrastructure with insurance, pension funds’

Rather than lying fallow, experts have urged the Federal Government to channel some of the Pension Fund into providing adequate social infrastructure in the country.

They argued that the insurance industry can assist the government to fund the infrastructure deficits in the country, noting that the decaying infrastructure and the need to repair and provide new ones may overwhelm government in view of the current economic recession.

Roads, railways, airports, seaports, water system, electricity, and a host of other infrastructure, have been begging for serious attention for years. But the huge capital outlay for these projects makes them too heavy to fix from government-generated revenue.

The experts suggested that government could tap into the N5.6 trillion pension assets through floating of infrastructure bonds. But there are however indications that government cannot meet the guidelines stipulated in the pension fund investment guidelines in the 2014 Pension Reforms Act (PRA), and the National Pension Commission (PenCom) is not ready to shift ground in a bid to safeguard the savings of workers.

They also implored insurance companies to invest in infrastructure development through Annuity, since it’s a long-term fund.

As at July 2015, PenCom said the total number of annuity retirees had reached 21,211, with the Pension Fund Administrators, (PFAs) so far transferred a total premium of N104.52 billion to the insurance companies, which have risen in the last one-year.

According to the Partner & Head, Advisory Services, KPMG Nigeria, Kunle Elebute, inadequate infrastructure have remained a major impediment to growth in Nigeria.

He argued that infrastructure such as electricity; roads, airports, water systems and telecommunications are the foundations of modern economies, noting that investment in infrastructure not only generates direct employment in construction and operation of the various projects but also improves efficiency and productivity levels, thereby, and increasing competitive advantage.

Elebute, noted that infrastructure projects are long-term and require substantial amounts of funding, adding that the requirements are trillions of Naira and far beyond the capacity of the government, which is why other economic players, such as the underwriters, must support government with funding.

He argued that life insurers seek investment options that offer high yields and long maturities to back long-duration life insurance obligations. One of such options, he said, involves investments in infrastructure, such as transportation, communication, water, and the generation and distribution of electric power.

Using the United States (U.S.) as an example, he said the main funding vehicle for infrastructure projects in the country has been the traditional municipal bond market.

Collectively, the insurance industry has been a meaningful institutional investor in the U.S municipal bond market for many years, and many of its investments in the market are project finance bonds, he pointed out.

At the end of 2014, he said the Federal Reserve Board estimated the total U.S. municipal finance market to be $3.7 trillion, of which the insurance industry held approximately $500 billion, representing 14 per cent of the market.

Elebute therefore urged Nigerian insurers to borrow a leaf from the U.S. and collectively establish an Infrastructure Investment Fund with contributions from industry players over the next 10 years. Thereafter, they will appoint Infrastructure Fund Manager, who will determine infrastructure assets to invest in either directly or via project finance bonds, adding that a Fund investment committee will ultimately be responsible for making final investment decisions.

He identified the advantages underwriters would derive from investing in infrastructure, to include stable returns, reliable cash flow and low volatility, portfolio diversification, hedging against inflation (concession agreement linked to changes in inflation rate) as well as long-term duration to match long-term liabilities.

Government plea
The Minister of Finance, Kemi Adeosun, had stressed the imperative for the insurance sector to key into the drive of the present administration towards rebuilding a virile national economy through diversification and expansion of national infrastructural resources.

The Commissioner for Insurance, Alhaji Mohammed Kari, on his part, said: “insurance companies facilitates investment in infrastructure and high-risk return activities, by generating sources of long-term finance, manage high-risk exposures as well as help stimulates the growth of debt and equity markets.”

The Minister of Power, Works and Housing, Babatunde Fashola, also urged insurance practitioners to be more innovative, entrepreneurial and embracing the diverse needs of the country’s big and promising economy.

According to him, the role of insurance practitioners goes beyond providing performance bonds given to ensure that contractors discharged their responsibility; to embracing health insurance that guarantees access to the healthcare facility.
He also said that housing programmes would provide ‘a potential market of opportunities by way of performance bonds and mortgage insurance policies.

On how the insurance industry could act as a change agent in the current efforts to rebuild the economy, Fashola reminded the practitioners that insurance is a component and important part of the finance subsector.

He however expressed regrets that the sector “has probably played a second role to banking, and without intending to be judgmental has not optimised the opportunities for growth, expansion and inclusion.”

Fashola, who cited some instances of how insurance was deployed innovatively to accomplish several initiatives and programmes during his tenure as the Lagos State Governor, expressed joy that today a lot of changes were being introduced to address the anomalies that brought about infrastructure decay.

How insurers can be involved
Speaking at the weekend, the new Managing Director, FBN General Insurance Limited, Bode Opadokun, said the Life arm of the industry is better suited for infrastructure because it has long term funds unlike the General Insurance business that deals with short-term funds.

“For me, nothing is impossible. What is just required is for us to have a clear understanding on what we really want to do. It is good they are talking about annuity, but for General Business, we might not be able to do so, because our fund is a short term. The risk that we manage is not a long term risk.

“So, the level of commitment of insurance companies like ours in the general insurance business cannot be as much as that of a life office, but that does not mean we cannot play, but only that the percentage of the fund we can commit into such projects cannot be compared to a life office that have a long term fund with it,” he said.

Nigeria’s National Integrated Infrastructure Master Plan, said about $3.1 trillion investment is required over the next 30 years to achieve the desired infrastructure stock in the country.

About N1.7 trillion is needed to deliver 206 federal roads covering over 6,000 kilometres with contract value at over N2 trillion, while there are about 17.37 million housing deficit for a population estimated at 182.2 million with fertility rate of 6.1 per cent.

The implication of this is that the country needs trillions of Naira to address its infrastructural deficits at a time when the economy is financially challenged, while the Federal Government had struggled for years to secure domestic and foreign funds to fix them.

Many questions are begging for answers – Are underwriters ready for this? Will government be sincere and transparent under the terms of the funding, if insurers are ready? What are the benefits for the insurance industry? Are the sources of funding be revolving?