Mr. Uche Orji is the Chief Executive Officer of the Nigerian Sovereign Investment Authority (NSIA), he spoke with journalists recently in Abuja. Assistant Editor, Nduka Chiejina was there.
Right now there is $1billion in the fund, How much do you see coming into the fund and the timeline, has there been an agreement within government and what exactly will be the mechanism of getting money into the fund, when would more funds be injected into the fund?
There are three factors as you know that affects contributions to the fund and those three factors include price of oil, benchmark rate and production levels. The Act is very clear as to the contributions to the fund, what it says is that revenue in excess of the benchmark rates less than what is prescribed in the budget should be contributed to the NSIA account. It takes time to be operational and the idea is that the Act will be followed interms of the contribution to the fund. We have also been very careful how we run the organisation as you know with most endowments. Regarding the governors, the NSIA is not a party to any suit, there is a suit between the federal government and the state governments, the NSIA is not a party to any suit. There is an enabling law that set up the NSIA. What we have done is to reach out to the governors who are part of the governing council anyway. The governing council is made up of roughly 54 people and the state governors are members as shareholders. This fund is owned by the three tiers of government, the federal government, state government and local governments with the President as the chairman of the economic council which also includes the governors. We are not party to any law suit as on-going with the federal government.
When would money be injected?
The Act is clear that it will be transferred monthly, but again we need to be fully operational and ready for the new funds to come in so there is conversation on-going already and for the funds to be transferred. We are ready to start investing, in June stabilisation fund gets invested starting from June as well the future generation fund starts and before the end of the year we make commitments to infrastructure. These are early stages for operational investments. The early stages will take time to work themselves out before we start seeing contributions come in.
Does that mean you will be waiting to be fully operational before funds will be injected?
I just said that discussions are on-going and conversations are on as we speak.
So you are not sure and it is open-ended when funds will come into the fund?
I don’t want to say open-ended, conversations are on-going.
In your investment portfolio, what are your expectation in terms of returns say in the next one year?
Each of the funds have returns objectives, we don’t want to put numbers down that will affect our ability to negotiate because we have co-investors, the reality is that we are going to earn commercial returns on the infrastructure side as well as earn returns that will march the benchmark we have set for the future generation and the stabilisation funds.
Our objective is to build returns above inflation. Here the reporting currency will be the dollar, the Nigerian infrastructure fund has geographical restrictions, the other two funds do not have geographical restrictions.
For the future generation funds most savings funds have done roughly four to five per cent over time. That’s for savings funds we are expecting to earn CPI at + above 400 basis points above the future generation fund. For the infrastructure fund each project will be negotiated and so we cannot put a number out there but look at what people earn in terms of commercial infrastructure investments in Nigeria and that will give you an idea as to what we are targeting. We understand what is at stake here. These funds will invest in those things that straddle commercial returns and development impact and the way it is in Nigeria these two factors are not mutually exclusive; each is negotiated on a project by project basis. The law enables us to make commercial returns on these investments. So just look at some of the infrastructure we have in Nigeria and that will give you an idea of what returns we may be having on these infrastructure investment.
You said you will service staff salaries from your earnings, if you are not likely to make any earnings in the next one year how will you service staff salaries?
As an organisation we are trying to stay within a cost to asset ratio of 1% which is why we will have a lean staff, it is easy in our opinion to earn what it takes to keep our expenses running and more. Our objective is to earn consistent profitability. Our Act says we will have to repatriate dividends to all the tiers of government that own this fund after five years of consistent profitability. It is one of our objectives and we intend to achieve it. We are keeping a very lean head count and we can afford it.
With the NSIA commencing operation, does this mean that there will no longer be sharing of the Excess Crude Account?
I will not speak on Excess Crude Account that is the Nigerian Sovereign Investment Authority. The way and when the Excess Crude Account is shared is for the Minister of Finance and the Federal Executive Council, in terms of what commitments to the Excess Crude Account that is not in my place to comment on.
In the case of Infrastructure fund that will bring in benefits for the people, are you going to charge on the roads and other infrastructure?
In terms of our infrastructure commitment, some of the infrastructure areas will be Greenfield areas that means that we are not going to earn anything for some time. It will take two to three years to complete before you start earning something, some are late stage projects and I mentioned six (6) areas that we want to focus on and we will make commitments before the end of the year in these areas. We don’t expect that we will earn anything from infrastructure fund until next year, so most of the returns we are targeting will come from the future generation fund and from the stabilisation fund in the first year that’s where we are expecting returns to come through in the first year. The idea is to grow our cost base as we earn a return. We believe that we will earn enough from the stabilisation fund and the future generation fund to cover our overhead. We add staff, as time goes on we expect to earn from infrastructure fund starting from next year, these things take time and I don’t expect it to fund our operations for some time.
Specific areas I mentioned include agriculture, water resources, power, health care, transportation including aviation, infrastructure and housing. These are the infrastructure we have in the pipeline, there are many other areas as we build capacity we will explore these ares as well. These are the priority areas we will focus on. We cannot mention specific projects that we will go into right now. The Act demands that we tell you what projects but until we are about to sign the projects we cannot tell you now.
The Nigerian infrastructure fund will focus only on Nigeria. We have done extensive work so far on some initial areas that form our initial focus, some of the areas we have assessed opportunity include housing, agriculture, power, water resources, transportation which includes ports and aviation and health care.
Will you be charging for the use of these infrastructure?
Of course, these are commercial infrastructure, so will charge for their use. We are investing with co investors some of them are other Sovereign Wealth funds, some are private equity investors; it’s not a charity, if you look at infrastructure funds around the world most of them earn on the average six to seven per cent. We will invest in areas where there are commercial returns.
The Act allows us to earn commercial returns. This is a self sustaining enterprise. Our three principles are financial sustainability, independence of decision making and transparency. We will invest in areas where we will make returns that is why it is called Sovereign Wealth Fund. Other intervention programmes like the budget will be done with the budget. Here we are investors, that is the difference between what we do and what other arms of government do. Don’t forget the returns are for the Nigerian people. At the end of the day this money goes back to Nigerians, it goes back to the three tiers of government that own it.
This fund will be managed in-house and the idea is to earn commercial returns as you know there is within the Act a sub set of the fund which should be devoted to social infrastructure. They access up to 10 per cent of the infrastructure fund which should be devoted to social infrastructure. This fund is not a grant scheme, it will also earn returns as we invest in social infrastructure which by definition includes health care, education, inland water resources and in my opinion environmental factors.
In the build up to the establishment of this authority is the argument that it would attract other investors from outside, have you had any discussions with other Sovereign Wealth funds and what is the outlook in this regards?
In the last six months we have spent time visiting many sovereign wealth funds. Many sovereign wealth funds as you know were my clients, I have had discussions with them and we have letters of encouragement and pledges of co investment if we show them viable ideas. What we plan to do is to become a credible vehicle for those of them who want to engage in Nigeria. It is now up to us to bring ideas and investment opportunities many people are interested to come in to Nigeria, people see the potentials everybody. The policies of the past and present are beginning to bear positive fruits. As a result, Nigeria is one of the few countries that had ratings upgrade in the last two years That’s very important because when your rating is upgraded your cost of debt goes down. People see a lot of potentials in Nigeria internationally than you can imagine. As we bring ideas that are commercially viable other people will want to come and invest with us. You also need to know that the profit’s the NSIA makes is not for profit sake but it goes to every Nigerian.
This is an enterprise structured in the way of other Sovereign wealth funds; the idea here, as the Act has mandated us, invest prudently, earn commercial returns where possible as an organisation to contribute to development impact within the country.
How and when will the future generation begin to benefit from the fund?
Future generation fund is a savings fund. It is not a pension where we invest for a payout. The idea is to grow a savings base to prepare the country in the event of a depletion of our hydrocarbon resources. If you watch what is happening in other Sovereign Wealth Funds,they invest $200 million or more and years down the line the investment grows so large that it is the future generation that benefits from that investment. This is a savings funds. If this fund makes consistent profit for five years, future generation funds will also invest in real estate infrastructure as well invest in private equity, in some cases depending on the area of investment the benefit can come sooner or come later but the purpose of this fund is the savings for the future generation of Nigerians. Like other funds, the benefits tend to come much later, at the minimum if this fund makes profit consistently for five years as we are hoping we will start to partake of the dividends to the three tiers of government. The earliest you will start to see any benefits will be through the return this savings fund will make in five years of consistent profitability before we start making repatriations of dividends to the Nigerian people. But the ideal scenario here is to grow the savings so that the same way you look at other countries with big bragging rights of funds that are big which really is the basis for their future generation to spend, that I think should be the objective.
It takes quite a while before you commit to projects, in most countries project development takes at least 14 months and consequently a lot of work is going on here and as I have committed to you we will announce our first commitment before the year runs out. These things take time and we will be careful with the way we allocate resources in these sectors.
