The Federal Government is eyeing the N5.4 trillion pension funds to develop infrastructure. But the fund is dwindling because of unemployment and joblessness, according to Usman Suleiman, Future Unity Glanvills Pensions Limited (FUG Pensions) Managing Director. The number of Contributors to the Retirement Savings Account (RSA) has reduced because of retrenchment, he notes. He tells Omobola Tolu-Kusimo that there has to be a template to take care of long term investment, safety and returns on investment (RoI) if pension funds must be used for infrastructure development.
How would you assess the economy against the backdrop of the challenges?
A major issue still standing as an obstacle to the overall recommencement of economic activities is the issue of power generation consequent upon lack of gas. This is because a significant number of our power generation infrastructure is based on the thermal system, which is powered by gas. The existing hydro power station cannot generate enough power to significantly improve supply to the national grid. Unfortunately, we do not have other alternative sources of power generation such as coal, which we have in abundance in this country. There should have been power plants based on coal in Enugu, Kogi and Gombe States.
Of course, we know that Ashaka Cement is building a small power plant in Gombe based on coal, but there should have been a major plant based on coal. The construction of Mambilla power plant, which is planned to be a huge plant that will generate over 3000 megawatts should have taken off. The whole of the Sahelian region-Sokoto, Jigawa and Borno, should have had solar power plants located severally. If this had happened, we will not be so much tied to thermal plants. As it is presently, all the major plants including the biggest one, the Egbin thermal plant based in Ikorodu, Lagos, are based on gas. With what is happening now in the Niger Delta, where the gas is sourced from and along the routes where the pipes pass, it becomes a very challenging situation. The issue of vandalism of gas pipelines will have to be addressed and clearly, it is not just an issue of vandalism, it has so many sore factors both political and economic. This is a major obstacle to the forward movement of the economy. For us in FUG, we continue to maintain our optimism and sustain the expectation that we will be able to achieve our medium term goals, substantially, in the second quarter of this year.
So far, since we commenced business, particularly in the second quarter, we have been able to recover part of what we were not able to fully achieve last year.
Many organisations have closed shops. some in operation have scaled down. How have these affected pension funds administration?
It affected our business in two ways. The first has to do with when you have a depreciation in the wealth of employment generation, it automatically affects our business in terms of the new accounts that we generate. Secondly, it affects our business in terms of having to service the employees, who are now out of job and would require to sustain themselves. The law has provided that in the event of job loss and inability to get another job for a period of four months and above, an account holder can apply to access 25 per cent of the balance of their pension account. This is an amount that would have remained in their account being invested and growing. But, because of the circumstances of being laid off, the owner of the account will come and withdraw 25 per cent of it for consumption, meaning that it will go off and it is the 75 per cent remaining that will be invested and no new inflow will come in until that retrenched employee gets another job and starts contributing again.
If the employee fails to get another job and he is 50 years, he will then come back as a retiree to fully access that account by taking lump sum and receiving pension, which he would not have done if he was employed. So, these are the two parts in which our business is affected. It is the reality, as I stated, it is a situation that I can see improving from the third quarter of this year. We anticipate that as these companies start investing again, a lot of those in the labour market will actually be called back to employment. And the government itself is targeting employment generation as one of its core objectives with agriculture in particular and private sector employment generation as the other. For us, generating employment in all sectors is good for our business.
The Federal Government wants to use pension funds to bridge infrastructure gaps, what are the issues?
First of all, let me state that it is not an issue of accessing the money. The government has been accessing the money with 70 per cent of the money invested in Federal and state government bonds. When we say 70 per cent, it means that 70 per cent of N5.4 trillion is in bonds and those bonds could fund anything. But, what we are talking about here is funding capital projects and the question is: How are you going to do it? PFAs are not project managers. We don’t have the capacity of phasing, packaging and funding projects. The capacity that we have is to manage and invest the funds for long term with safety and return as our goal. We are, therefore, available and ready to fund projects that meets these reqirements. The requirements are of safety and reasonable return. But, how do you generate those projects? It is the parties that want to implement those projects that have the responsibility of packaging the projects to meet the requirement that will enable pension funds go into the funding of those projects. What we have been saying is let project promoters, either government institutions, private sector, multilateral agencies or development finance institutions create vehicles for generating, developing and presenting the projects to us. Once these projects meet our requirements, they meet the international best practices, which are known to everybody, the funds will definitely go into funding of the projects because that’s what we want. The government could make those bonds specific by floating a bond for funding a particular bridge such as the second Niger Bridge, proposed bridge in Nasarawa across the Benue River or package a bond specifically for funding the East/West rail line. The project promoters and managers will then develop and package the projects for financing. In the absence of such projects, there is a little we can do other than to invest in whatever available classes of assets are there.
With the situation of the economy, how confident are you in investing pension funds in the capital market?
Pension funds will always be invested in the capital market, but the significance will depend on the strategies of the particular investment manager. Not all PFAs will have same exposure every time in the capital market. However, at present, the average is just about eight per cent exposure of the funds under management in the capital market. But you can be sure that investment managers in the PFAs are watching the market on a regular basis and carrying out analyses. We anticipate that with the deregulation of the exchange regime and deregulation of petroleum downstream, foreign portfolio investors, who play a significant role in making the markets, will start coming back. And when they come back, initially, there might be profit taking and so on and so forth, but we anticipate that the market will start looking upwards and then investing managers in PFAs will start taking positions. So, but even at present, we have pension funds in the capital market.
How did your firm fare last year? What is its present position?
Last year was generally a difficult one for the economy as a whole for obvious reason. The year 2015 was an election year and there was a lot of apprehension in the country in terms of the political direction and the future. There was a lot of fear about crisis arising from election, particularly when the election dates were shifted to over a period of some weeks. However, as it turned out, the elections were concluded successfully. The country avoided crisis and the new administration took off at the end of May. This doused a lot of tension and therefore, made a lot of investors and the public to realise that we could in fact, have confidence in the future. Investors and the public then positioned to look and understand the focus of the new administration. But it took a little bit of time for the administration to fully settle, get the cabinet running and come up with concise and clear policy directions. This took almost the end of the year and for that reason, the economy became very slow. For us in the pension industry, this naturally affected our performance in terms of growth and registration.
Specifically, how was your sector affected?
We are in the contributory pension scheme, effectively meaning that unlike the defined benefit, it is totally and completely dependent on employment generation and employees opening Retirement Savings Accoumt (RSAs). As a consequence of slowing down of economic activities and the waiting stance of investing public, there was a lull in employment generation over that period, not only in the private sector, which is supposed to be the major employer, but in the public sector, including both Federal and states.
For this reason, there wasn’t very significant growth in the number of employees registered into the system. However, in spite of this circumstance, we in FUG have been able to weather that storm and move into 2016 with the confidence of being able to move towards achieving our projections for the medium term strategy plan. At the beginning of the first quarter of this year, semblance of direction was being identified, particularly in relations to policies that have to do with exchange rate and petroleum pricing.
In the second quarter, even though there is no clear cut policy statement, it is clear that the exchange rate regime is now liberalised. Therefore, investors clearly now have a direction. They can anticipate and forecast unlike in the latter part of last year. With that, we expect that in the second half of this year which are the third and fourth quarters of the year, we will see a rejuvenation of activities in the economy. We anticipate that investors now see that bringing in their funds to invest, they have a window where the liberalised exchange regime of being able to repatriate their capital and profit.
We, therefore, anticipate that companies that have been waiting for investment and therefore, regeneration of activities will now be able to attract partners, who will come in with investment. We also expect that portfolio investors will also stage a comeback into the capital market in the third quarter of the year. We anticipate that petroleum marketers will now be ready to truly recommence importation of fuel particularly petrol and aviation fuel because they can now sell at a reasonable price. Although we are told that it will not go beyond N145, but effectively, with the pricing regime we are looking at, they have an avenue of manipulating both the import cost, transportation and their own margin. So, we anticipate less pressure in that effect.
What is the total asset under your management?
As at present, I will say we have total asset of about N44 billion out of which RSA fund is N39 billion. We are looking at achieving N50 billion assets under management by the end of this year. We have recorded about N44 billion now.
