How tax incentive, rebates may entice PFAs to invest in infrastructure

The Federal Government should consider encouraging Pension Fund Administrators (PFAs) with tax incentives and rebates to invest in infrastructure development.

This was part of the recommendations in a recent study published by a researcher, Augustine Adekoya, on “pension fund and infrastructural development financing in Nigeria.”

The report, published in the United Kingdom-based International Journal of Economics, Commerce and Management also called for the upward review of the percentage of the total funds asset that can be invested in infrastructure development to enhance future investment in infrastructure by PFAs.

It explored how pension fund investment in infrastructure could be achieved in many ways likes purchase of shares or bonds of listed companies operating in the economic and social sectors and owning property also in the sector.

“In the modern day, infrastructural investment can be undertaken, using primary or secondary market; the primary market involves financing of a startup or new infrastructure in form of build and deliver while the secondary relates to operational phase of capital assets. Equity or debt finance is another form by which pension fund can be used for infrastructure development. This is in the form of equity participation or purchase of infrastructure bond issued by infrastructure companies,” the researcher stated.

The rapid growth of contributory pension assets in the last 15 years has led to increased calls for the investment of pension funds in developing critical infrastructures in Nigeria.

Data sourced from the National Pension Commission (PenCom) show that pension assets hit over N10 trillion in 2019.

PenCom’s regulation on pension fund investments permits PFAs to invest up to 15 per cent of pension fund in infrastructure bond.

However, Daily Trust checks show that as at November 2019, only 0.41 per cent of pension fund is invested in infrastructure.

This may not be unconnected to Adekoya’s identified barriers to pension funds’ investment in infrastructure,

The researcher categorised barriers to pension fund investment in infrastructure into three: investment opportunities, investor capability and conditions for investment.

On investment opportunities, the report found that there is lack of political commitment over the long term, regulatory instability, fragmentation of the market among different level of governments, no clarity on investment opportunities, high bidding costs and also infrastructure investment opportunities in the market are perceived to be too risky.

On the investor capability, the report found that there is lack of expertise in the infrastructure sector, problem of scale of pension funds, misalignment of interests between infrastructure funds and pension funds and regulatory barriers.

While on the conditions for investment, the report found that there are negative perceptions of the infrastructure value, lack of transparency in the Infrastructure sector and shortage of data on infrastructure financing.

“Government should consider infrastructure bonds which are dedicated to infrastructural developments and this should be guaranteed by the government in order to make it successful,” the report stated.