Singapore’s Temasek Holdings is moving into the sub-Saharan African natural resource market. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
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On February 26, 2013, the NSIA’s sovereign wealth enterprise, NSIA Motorways Investment Company (NMIC) signed a deal with Julius Berger Investments Ltd. for the NMIC to act as an investment partner to the Second Niger Bridge Project. This infrastructure project is a public-private partnership (PPP) with the Federal Government of Nigeria.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
The Nigerian Sovereign Investment Authority (NSIA), through its infrastructure fund, has committed US$ 10 million to an agriculture-focused financing vehicle known as FAFIN, or Fund for Agricultural Financing in Nigeria. Partners in the deal include Kreditanstalt für Wiederaufbau (KfW), a German-owned development bank based in Frankfurt, and the Nigerian Federal Ministry of Agriculture and Rural Development.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
The Nigerian Sovereign Investment Authority (NSIA) is partnering with the International Finance Corporation (IFC) to develop, finance and implement infrastructure projects that will stimulate job creation, economic growth and social development in Nigeria. This occurred through the signing of a Memorandum of Understanding (MoU) between the IFC and NSIA. The NSIA and IFC want to channel investment in areas such as housing, healthcare infrastructure, transport, power and gas. By structuring commercially viable investments, the two entities are trying to entice and encourage private investment in much needed infrastructure. Nigeria is one of the largest economies in Africa. There is significant spatial distribution in connecting infrastructure in Nigeria’s northern regions compared to the southern coastal areas.
Uche Orji, Managing Director of NSIA, commented in a NSIA press release, “Our agreement with IFC reflects NSIA’s commitment to enhance partnerships with the private sector that deliver on our shared aspiration of developing infrastructure projects more effectively in Nigeria. Through this collaboration with IFC, NSIA is better positioned to fulfill its mandate of developing infrastructure projects while attracting global investors.”
This interview will appear in the 3Q Y2013 (October 2013) issue of the Sovereign Wealth Quarterly.
This is a Q&A with Uche Orji, the Managing Director/CEO of the Nigeria Sovereign Investment Authority (NSIA).
1. How can Nigeria’s sovereign wealth funds act as a catalyst and channel foreign investment to Nigeria?
The NSIA seeks to be the investment partner of choice for global investors in Nigeria. Global investors are increasingly looking to Nigeria as one of the next major growth markets and many are in search of a local partner of choice that speaks the language of the private sector and can effectively interface with government. To that end, the NSIA has recently signed MoUs with General Electric and the Africa Finance Corporation, among others. The focus of these MoUs is on infrastructure investment through the NSIA’s Nigeria Infrastructure Fund. The Future Generations Fund, which has a global mandate, will also selectively make domestic investments through its illiquids allocation.
2. Can you go into detail about the Stabilisation Fund and the purpose of it?
The objective of the Stabilisation Fund is to provide stabilisation support to the economy during times of economic stress. The Stabilisation Fund will be mainly managed in-house in a diversified portfolio of liquid, low risk products such as Treasury bills and liquid, short-term, investment grade bonds.
3. What is the mechanism for ongoing funding with regard to the Nigerian Sovereign Investment Authority?
The NSIA’s funding mechanism is defined in the NSIA Act. Essentially, it is the excess hydrocarbon revenue (oil and gas) above the budgeted “Benchmark Oil Price” set annually by the National Assembly, less contributions to budgetary buffers.
4. What sectors will the Nigeria Infrastructure Fund be allocating to?
The Nigeria Infrastructure Fund will focus on infrastructure projects in Nigeria that meet our financial return hurdles. The Infrastructure Fund is presently carrying out detailed reviews of a number of sectors, including transportation, healthcare, water resources, and energy infrastructure.
5. Does the Future Generations Fund have a target allocation by asset class?
Yes, the Future Generations Fund has a target asset allocation by asset class. This allocation will continue to develop over time. Broadly, the Future Generations Fund will invest in listed securities, including equities and fixed income globally; unlisted securities, including private equity, real estate, commodities, as well as inflation hedges.
6. When selecting investment managers and partners, what criteria are essential to you?
Philosophy, investment process and alignment are our required objectives. We also look for a sound reputation, performance track record, and a balanced service team i.e. quality, stability and cost of service.
7. How will the Nigerian Sovereign Investment Authority be a major regional player in the African institutional investor community?
Discipline will be the key to our success. The NSIA has received seed funding of $1 billion. While this is a modest sum by global standards, the NSIA, through the government’s disciplined contributions to the fund, could become one of the largest pools of capital in Sub-Saharan Africa. Secondly, the NSIA’s governance will be the key factor that sets us apart. The NSIA Act is very clear that the NSIA is an independent organization and the Federal Government has been very committed in supporting this. We describe our model as “F-I-T”: Financial sustainability Independence in decision-making, and Transparency in process. Finally, our ability to draw in international co-investors will only serve to enhance our credibility as an investment house.
About Uche Orji
Mr. Uche Orji is the Managing Director/CEO of the Nigeria Sovereign Investment Authority (NSIA). Mr. Orji joined the NSIA as CEO on October 2nd 2012 from UBS Securities, where he was Managing Director in the New York branch of its Equities division. Prior to his experience at UBS, Mr. Orji was a Managing Director in J.P. Morgan’s Equities division in London. Prior to JP Morgan, Mr. Orji was at Goldman Sachs Asset Management, London, as analyst/portfolio manager.
Mr. Orji holds a BEng in Chemical Engineering from the University of Port Harcourt, Nigeria and an MBA from Harvard Business School.
About the NSIA
The Nigeria Sovereign Investment Authority (NSIA) was set up by an Act of Nigeria’s National Assembly (the NSIA Act) in 2011. The objective of the NSIA is to promote fiscal stability, build a savings base for future generations of Nigerians and enhance the development of Nigeria’s infrastructure. The NSIA’s investments are made through three distinct funds: Stabilisation Fund, Future Generations Fund, and the Nigeria Infrastructure Fund. Please visit the NSIA at: www.nsia.com.ng.
Dangote Cement is the biggest listed company in Nigeria. As the Johannesburg Exchange’s largest institutional investor, the PIC is keen on expanding investments within Africa. This is not the first transaction for the PIC outside of South Africa. It recently acquired a 19.58% stake in Ecobank Transnational for nearly US$ 250 million.
The Nigerian Ministry of Finance plans to augment the size of Nigeria’s sovereign wealth funds to US$ 5 billion within the next three years. Currently, the Nigerian Sovereign Investment Authority (NISA) manages US$ 1 billion. The authority will start making investments in March 2013 after board approval. Investments from the infrastructure fund of the NISA will begin in the second half of 2013.
Political tension regarding oil resource money has existed between the Nigerian government and state governors. This has been an impediment of monetary transfers to the NISA.
Nigeria’s sovereign wealth funds have been a contentious political issue for the country. The direction of natural resource revenue has pitted the Nigerian Governors Forum against the Nigerian federal government. Nigeria is sub-Saharan Africa’s largest crude oil exporter. The one billion dollar authority plans to start operations in the coming months. The Nigerian Sovereign Investment Authority (NISA) is still recruiting the fund’s management team.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Last year, Nigeria, the biggest oil producer in sub-Saharan Africa, replaced its Excess Crude Account (ECA) with three sovereign wealth funds, Future Generations Fund, Nigerian Infrastructure Fund and Stabilization Fund, under the management of the Nigerian Sovereign Investment Authority (NSIA). The future generations fund will focus on providing and generating income for the country’s citizens. The infrastructure fund will target allocating money to Nigerian housing, roads, bridges, and railways. The stabilization fund would be utilized to reduce the effects of oil price shocks.
In December 2011, President Goodluck Jonathan put forward a budget proposal to cut Nigeria’s fiscal deficit and set a benchmark oil price of $70 per barrel. Anything earned over $70 per barrel is put into the NSIA.
Despite all the political arguments on the validity of the Nigerian sovereign wealth funds, the authority is moving forward in developing operations and selecting candidates for executive positions. The Nigerian Sovereign Investment Authority (NSIA) is hiring. This advertisement appeared off the website of the Federal Ministry of Finance (Nigeria).
Interesting to note, “All positions will be located in Nigeria. The CEO position is targeted mainly at Nigerians within and outside the country. The CIO and CRO positions are open to Nigerian and non-Nigerian applicants.”
High world oil prices greatly contribute to Nigeria’s currency reserves. Nigeria’s foreign exchange reserves slightly moved down from $34.57 billion on July 13, 2011, to $33.54 billion on July 22. This amounts to around a $1 billion drop. At the same time last year reserves were at $37.86 billion.
Even though the United States is facing a large deficit issue and a debt ceiling conundrum, the decline in reserves were most likely attributed in the growth in demand for U.S. dollars in the domestic market.
According to the press release, “President Goodluck Ebele Jonathan has said that his Administration was fully committed to making Nigeria’s oil assets a vehicle for wealth creation, economic diversification and development.
In his remarks after signing the 2011 Appropriation (Amendment) Bill and the Nigerian Sovereign Investment Authority (NSIA) Bill into law at the Presidential Villa, Abuja, on Friday, May 27, President Jonathan said that the new NSIA will provide the country with a “strong, transparent and effective tool for the management of our nation’s petroleum wealth for the good of all Nigerians.”
The President announced that apart from its One Billion US Dollars seed capital, the NSIA will be funded every month by the excesses of budgetary revenue from oil coming into the Federation account.
He said that revenues accruing to the authority will be invested by it through three special funds – the Nigeria Infrastructure Fund, the Future Generations Fund and the Stabilisation Fund.
According to President Jonathan, the infrastructure fund will be dedicated to investments in the development of critical national infrastructure, with ten percent of it going to agriculture and government-sponsored projects that promote economic development in under-served sectors or regions of the country.
He said that the future generations fund will build an inter-generational savings base by investing in longer term assets that generate returns to accumulate wealth for future generations of Nigerians while the stabilization fund will help to protect annual national budgets by providing a stable, last resort source of financing during periods of fiscal deficit resulting from a sustained fall in oil prices.
President Jonathan commended the leadership and entire members of the National Assembly for the passage of the two bills.
He also applauded the committed efforts made by the Minister of Finance, Mr. Olusegun Aganga towards the passage of the NSIA Bill.
The signing of the two bills into law was witnessed by the Senate President, Chief David Mark, the Speaker of the House of Representatives, Mr. Dimeji Bankole, the Secretary to the Government of the Federation, Alhaji Yayale Ahmed, the Attorney General of the Federation, Mr. Mohammed Adoke, the Minister of National Planning, Dr. Shamsudeen Usman and the Minister of Finance.”
According to Reuters, “Nigeria plans to fast track the creation of a sovereign wealth fund after powerful state governors, who initially opposed the idea, softened their stance, Central Bank Governor Lamido Sanusi said on Tuesday.
A committee of three ministers and six governors had been set up to work out the legal framework for a “quick take-off” of the fund, Sanusi told reporters after a meeting of the National Economic Council in Abuja.
“We are now moving to the implementation stage,” Sanusi said, adding the committee would work out how much of the fund would be earmarked for savings, infrastructure finance and a stabilisation fund, as well as where the money would come from.
Finance Minister Olusegun Aganga, an ex-Goldman Sachs executive appointed in March, has said he wants the fund to replace the current system whereby Nigeria saves oil revenue above a benchmark price into an excess crude account (ECA).”
Read more: Reuters
Reuters states, “Nigeria’s Senate is working on legislation to create a sovereign wealth fund aimed at softening any impact falling oil prices may have on the OPEC member’s economy, the finance minister said on Wednesday. Mansur Muhtar told Reuters a presidential committee of top Nigerian economic advisers had sent lawmakers a draft proposal for the fund after deliberating on it for more than a year. The fund could allow a certain percentage of the nation’s revenues to be invested in international markets, providing protection during a downturn in oil prices. Nigeria, sub-Saharan Africa’s second biggest economy, has around $41.6 billion dollars in foreign exchange reserves, the central bank said on Tuesday.
‘The senate is now working on the proposals made by the presidential committee with a view to coming out with a legislation that will guide and empower the government in setting up the fund,’ Muhtar said before a cabinet meeting.
Resource-rich countries from Saudi Arabia to Norway established multi-billion dollar state-run funds, which invest in foreign stocks, bonds and other financial instruments, to help diversify their holdings. Nigeria’s economy still depends largely on the rise and fall of volatile oil markets, which have traded between $100 and $34 in the past 12 months. Africa’s most populous country depends on oil and gas income for more than 80 percent of its revenues. But the idea of public money being invested overseas has sparked some concerns in a country struggling with power outages, decrepit roads and underfunded hospitals and schools.”
read more: Reuters