Pension funds drive investment in Nigerian infrastructure through bond purchases

Cynthia Ezekwe

As Nigeria contends with a severe infrastructure deficit, pension fund administrators (PFAs) are seen to have stepped up their investment in corporate infrastructure bonds as a means of bridging the gap.

This strategic shift in investment portfolios, according to analysts, aims to provide the much-needed capital for large-scale infrastructure projects across the country, while also offering competitive returns for pension contributions.

In the first six months of 2023, Nigeria’s pension fund administrators  reportedly invested N91.12 billion in infrastructure bonds, according to data released by the National Pension Commission (PenCom).

In an encouraging development, PenCom reported that the PFAs raised their stake to N103.86 billion in the same period of 2024, marking a 14 percent increase from the previous year.

Emphasising the critical importance of investing in infrastructure for Nigeria’s economic development, Oguche Agudah, CEO of the Pension Fund Operators Association of Nigeria 

 (PenOp), highlighted that PFAs have identified the need to bridge the country’s infrastructure gap and are proactively investing in corporate infrastructure bonds as a means to address the issue.

“This form of investment is not solely focused on generating returns; it is also aimed at enhancing the quality of life for both contributors and retirees. By channelling funds to infrastructure projects, pension funds play a vital role in fostering economic growth and development,” Agudah said.

The PenOp chief highlighted the significant demand for corporate infrastructure bonds in the Nigerian market, with PFAs demonstrating a strong appetite for these instruments.

Agudah also underlined that pension fund managers have continually expressed their desire for more corporate infrastructure bonds to be issued in the market, suggesting a growing recognition among institutional investors of the need for increased investment in infrastructure projects to address Nigeria’s infrastructure deficit.

While investments in corporate infrastructure bonds reached a peak of N26.72 billion in January 2024, according to Agudah, investments gradually tapered off in the subsequent months, reaching N15.86 billion in June.

Despite this decline, he explained that the ongoing investments in infrastructure bonds represent a strategic approach to achieving both financial returns and sustainable development for Nigeria. He noted that these investments are not only aimed at generating profitable returns for pension contributions but are also instrumental in contributing to the overall economic stability of the country by facilitating crucial infrastructure projects.

In a significant move to boost investment in infrastructure, PFAs have significantly increased their stake in infrastructure-related investments, including Sukuk bonds and the Nigeria Infrastructure Debt Fund (NIDF).

According to a breakdown of the investment, PFAs have allocated N127 billion to Sukuk bonds (Series I-IV) for federal road projects between 2017 and 2023, with an additional N103 billion invested in the Nigerian infrastructure debt fund within the same period.

The Kano-Maiduguri Expressway, Kaduna Eastern Bypass, Enugu-Port Harcourt Expressway, Ibadan Ilorin Expressway, Ahmadu Bello Way VI, and Loko – Oweto Bridge, are amongst the infrastructure projects which received funding from the N127 billion Sukuk bond investment.

In a statement underscoring the positive impact of the Contributory Pension Scheme (CPS), Joy Ojakovo, vice president of PenOp, commended the numerous benefits the scheme has brought to individuals and the nation as a whole.

Ojakovo, who is also an advocate for the continuous improvement of the CPS, urged stakeholders to work collaboratively in identifying opportunities for further enhancement of the scheme.

“Nigeria’s pension industry has been the fulcrum for a lot of development that has happened in the country over the last 15 years. This fact is not lost on us as pension fund managers. We realise this and we take this responsibility very seriously,” she stated.

Ojakovo further elaborated on the transformative impact of the CPS, noting that one of its most significant advantages has been the creation of long-term capital accumulation, which provides a valuable pool of resources for investment in various sectors of the Nigerian economy.

She also pointed out that pension funds have played a leading role in the development of the bond and equity markets, thus contributing to the expansion and deepening of these vital financial institutions.