Solomon Adeg­bie-Quaynor in­ter­view

Financial Nigeria Magazine - - Contents -

It is log­i­cal and pru­dent for PFAs to be in­ter­ested in the in­fra­struc­ture in­vest­ment class.

Solomon Adeg­bie-Quaynor, Chief In­vest­ment Of­fi­cer, Global Client Lead­er­ship and Strate­gic In­vest­ments, In­ter­na­tional Fi­nance Cor­po­ra­tion (IFC), spoke with Jide Ak­in­tunde, Man­ag­ing Editor, Fi­nan­cial Nige­ria Mag­a­zine, on the im­per­a­tive of in­fra­struc­ture devel­op­ment in Nige­ria and lever­ag­ing pen­sion as­sets as well as mul­ti­lat­eral in­vest­ment. They spoke against the back­drop of the dis­cus­sions at World Pen­sion Sum­mit: Africa Spe­cial, which held on Septem­ber 27-28 at the Transcorp Hil­ton Abuja.

Jide Ak­in­tunde (JA): It ap­pears there was a push­back by par­tic­i­pants at the just­con­cluded World Pen­sion Sum­mit: Africa Spe­cial in Abuja on the calls that Nige­rian pen­sion funds should play a more front­line role in in­fra­struc­ture devel­op­ment. The fidu­ciary re­spon­si­bil­ity to pen­sion con­trib­u­tors was taken to be all-im­por­tant. What is your view on this, given Nige­ria's quest for in­fras­truc­tural devel­op­ment and the ex­is­tent fi­nanc­ing gap?

Solomon Adeg­bie-Quaynor (SAQ): My view is that the fidu­ciary re­spon­si­bil­ity to pen­sion con­trib­u­tors should be para­mount at all times. How­ever, there can and could be align­ment be­tween the in­ter­ests of pen­sion con­trib­u­tors and the po­ten­tial ben­e­fits

from com­mer­cially vi­able in­fra­struc­ture projects that could be pur­sued by Pen­sion Fund Ad­min­is­tra­tors (PFAs). Pen­sion con­trib­u­tors ex­pect their PFAs to make wellinformed in­vest­ment de­ci­sions on their be­half for the long-term, which av­er­ages 30 years for con­trac­tual ma­tu­rity of pen­sion li­a­bil­i­ties.

Some key fac­tors, there­fore, for PFAs to con­sider in­clude the fact that poor in­fra­struc­ture in Africa can re­sult in up to 2% re­duc­tion in GDP growth. An­other is­sue is the per­ceived safety of in­vest­ing in gov­ern­ment trea­sury se­cu­ri­ties. The safety is not per­pet­ual – as real re­turns could be neg­a­tive in the fu­ture, de­pend­ing on in­ter­est rates of­fered and in­fla­tion rates. Also, poor in­fra­struc­ture hin­ders Nige­ria's re­gional and global com­pet­i­tive­ness in pro­duc­tion of goods and ser­vices. That, in turn, ad­versely af­fects the po­ten­tial for fi­nan­cial re­turns in in­vest­ments in listed pri­vate com­pa­nies and other per­mis­si­ble pen­sion in­vest­ment risk as­set classes. So it is log­i­cal and pru­dent for PFAs to be in­ter­ested in the in­fra­struc­ture in­vest­ment class.

How­ever, if in­fra­struc­ture projects are not bank­able – that is, if they are not prop­erly struc­tured, with suf­fi­cient cash flow to cre­ate a high prob­a­bil­ity of suc­cess – and their en­abling en­vi­ron­ments re­main poor – where tar­iffs are be­low cost re­cov­ery and don't in­cen­tivize in­vest­ment – then PFAs should not in­vest in these in­fra­struc­ture projects. The re­spon­si­bil­ity of en­sur­ing that most in­fra­struc­ture projects are struc­tured to be bank­able with at­trac­tive en­abling en­vi­ron­ments lies pri­mar­ily with gov­ern­ments. All the same, there are smaller scale busi­ness-to-busi­ness in­fra­struc­ture projects that do not re­quire gov­ern­ment's in­volve­ment.

JA: I am cyn­i­cal about Nige­ria's quest for pub­lic in­fra­struc­ture devel­op­ment in light of the poor gov­er­nance en­vi­ron­ment, lack of lo­cal skills for project devel­op­ment, lack of lo­cal tech­nol­ogy, ex­per­tise and fi­nanc­ing. All of these would make projects quite costly in the coun­try. So, how can the coun­try take a strate­gic long-term view of where we should be and en­sure we get there in re­la­tion to in­fra­struc­ture?

SAQ: Your con­cerns are well noted. How­ever, with strong gov­ern­ment com­mit­ment and plan­ning, part­ners such as the IFC and the broader mul­ti­lat­eral in­sti­tu­tions such as the World Bank Group and the African Devel­op­ment Bank, will be there to sup­port pri­vate par­tic­i­pa­tion in in­fra­struc­ture devel­op­ment. This could lead to the start of a well-ex­e­cuted in­fra­struc­ture/PPP con­ces­sion­ing process in Nige­ria. The cur­rent macro en­vi­ron­ment also makes it im­per­a­tive for the gov­ern­ment to fo­cus on im­prov­ing in­fra­struc­ture in Nige­ria, dur­ing a pe­riod of limited bud­getary re­sources and where the lo­cal skills for project devel­op­ment, ex­e­cu­tion and op­er­a­tions of in­fra­struc­ture are lack­ing.

In my view, the gov­ern­ment should be se­lec­tive on in­fra­struc­ture projects based on their po­ten­tial high im­pact and prob­a­bil­ity of suc­cess (which I re­fer to as “doa­bil­ity”). They should in­clude both gov­ern­ment-owned as­sets (e.g. the gov­ern­ment joint ven­ture in­de­pen­dent power projects (IPP) with the oil ma­jors, gas projects, air­ports, key trans­port cor­ri­dors) and green­field or brown­field pri­vate projects. There are ex­am­ples of such pri­vate projects, in­clud­ing Dan­gote Group's pe­tro­leum re­fin­ery, fer­til­izer, and off­shore gas pipe­line projects; He­lios' in­vest­ment in gas dis­tri­bu­tion as­sets; Seven En­ergy's gas in­fra­struc­ture; and ARM's New Town devel­op­ment in Lekki, La­gos.

Gov­ern­ment should also take ad­van­tage of its own re­lated in­sti­tu­tions that have al­ready demon­strated to pri­vate in­vestors and op­er­a­tors their trans­parency and good gov­er­nance, such as the Nige­ria Sov­er­eign In­vest­ment Au­thor­ity (NSIA), and the Africa Fi­nance Cor­po­ra­tion (AFC), to cre­ate a gov­er­nance struc­ture on the pri­va­ti­za­tion of these se­lect in­fra­struc­ture as­sets. This will at­tract mul­ti­lat­eral and devel­op­ment fi­nance in­sti­tu­tions (MFIs and DFIs) and com­mer­cial part­ners to work with NSIA as the pri­mary ex­e­cu­tion agency for pri­va­ti­za­tion of these se­lect in­fra­struc­ture projects, with a trans­par­ent gov­er­nance struc­ture that in­cludes the gov­ern­ment, MFIs/DFIs and the pri­vate sec­tor.

In­fra­struc­ture is a large part of the global agenda around Sus­tain­able Devel­op­ment Goals, and so MFIs/DFIs are seek­ing to lend their ex­per­tise in new ways and on a much larger scale than in the past. IFC, for ex­am­ple, is en­gaged in global col­lab­o­ra­tion with other mul­ti­lat­er­als and pri­vate banks to scale up in­fra­struc­ture fi­nanc­ing with greater pri­vate cap­i­tal mo­bi­liza­tion. If se­lect projects are ad­dressed on an emer­gency ba­sis and sep­a­rated from the tra­di­tional ap­proval process for pub­lic in­fra­struc­ture PPPs in Nige­ria, it can cre­ate tremen­dous mo­men­tum. With early suc­cess and the in­fra­struc­ture im­prove­ment ex­pected, the Nige­rian gov­ern­ment will de­velop greater con­fi­dence to broaden the in­fra­struc­ture PPP process. We need to start well, so se­lec­tiv­ity, high-im­pact and doa­bilty are key!

The re­spon­si­bil­ity of en­sur­ing that most in­fra­struc­ture projects are struc­tured to be bank­able with at­trac­tive en­abling en­vi­ron­ments lies pri­mar­ily with gov­ern­ments.

JA: The IFC has been in­volved in struc­tur­ing in­vest­ment ve­hi­cles in Nige­ria. What are the ini­tia­tives you have helped de­liver in the area of pen­sions and how well are they serv­ing the in­vest­ment mar­ket?

SAQ: The IFC has a large circa US$1.5 bil­lion in­vest­ment port­fo­lio in Nige­ria, in key sec­tors such as in­fra­struc­ture, tele­coms and tech­nol­ogy, man­u­fac­tur­ing, ho­tels, com­mer­cial prop­erty, health­care, ed­u­ca­tion, bank­ing, in­sur­ance and mi­cro­fi­nance. In the area of pen­sions, we have mapped out the PFA in­dus­try to iden­tify in­vest­ment op­por­tu­ni­ties. How­ever, to date, we have not made any in­vest­ments and this is pri­mar­ily be­cause the in­vest­ment needs of most PFAs at this stage of their devel­op­ment is limited, and we gen­er­ally pre­fer to not pur­chase se­condary shares as a DFI.

On the other hand, we have been work­ing with Na­tional Pen­sion Com­mis­sion (PenCom), Se­cu­ri­ties and Ex­change Com­mis­sion (SEC), Cen­tral Bank of Nige­ria (CBN) and the Min­istry of Fi­nance over the years to sup­port the cre­ation of new risk as­set classes for pen­sions. These in­clude: sup­port­ing the es­tab­lish­ment of the Debt Man­age­ment Of­fice (DMO); ad­vis­ing SEC on re­ju­ve­nat­ing the cor­po­rate bond mar­ket where we placed a res­i­dent ad­vi­sor within SEC for 2-years; ad­vis­ing PenCom on re­vi­sion of the in­vest­ment guide­lines; and work­ing with the reg­u­la­tors to cre­ate an in­ter­na­tional supra­na­tional is­suance cat­e­gory led by IFC is­su­ing its first naira bond in Nige­ria tar­get­ing lo­cal pen­sion in­vestors. This was fol­lowed by an AfDB naira bond is­suance.

We con­tinue to de­velop new risk as­sets tar­get­ing African pen­sions. For ex­am­ple, IFC has part­nered with GrowthPoint

Prop­er­ties and In­vestec As­set Man­age­ment to cre­ate a pan-African com­mer­cial prop­erty plat­form (of­fices, mixed-use, re­tail, light industrial real es­tate). IFC has com­mit­ted $40 mil­lion and GrowthPoint com­mit­ted $50 mil­lion and we are cur­rently fund-rais­ing. It is ex­pected that up to 40% of the plat­form's in­vest­ments over the longterm will be in Nige­ria. How­ever, it is chal­leng­ing for Nige­rian pen­sions to in­vest in the plat­form as it is a pan-African ve­hi­cle, which is crit­i­cal for risk di­ver­si­fi­ca­tion and op­ti­miz­ing re­turns. This plat­form will be listed as a REIT (Real Es­tate In­vest­ment Trust) once it reaches an op­ti­mal size. An­other ex­am­ple is the JV be­tween NSIA and Guar­an­tCo to es­tab­lish the Nige­rian In­fra­struc­ture Credit En­hance­ment Fa­cil­ity, which is in­tended to cred­iten­hance in­fra­struc­ture and mass-hous­ing projects to at­tract pen­sions and in­sur­ance in­vestors, amongst oth­ers. Lastly, PenCom and IFC are work­ing on deep­en­ing our part­ner­ship go­ing-for­ward.

JA: It was sug­gested by the high-level panel you par­tic­i­pated on at the WPS that a sin­gle nar­ra­tive that fo­cuses on gov­ern­mentspon­sored in­fra­struc­ture tends to mag­nify the in­fra­struc­ture devel­op­ment chal­lenges in Nige­ria. And you par­tic­u­larly high­lighted the pos­si­bil­i­ties in the B2B and B2C in­fra­struc­ture spa­ces. What is IFC look­ing at in these ar­eas that you would like to high­light for more par­tic­i­pa­tion?

SAQ: IFC has a com­pre­hen­sive in­fra­struc­ture, hous­ing and prop­erty strat­egy in Nige­ria. We have fi­nanced the Azura IPP, Eleme Petro­chem­i­cal, Eleme Fer­til­izer, He­lios Tow­ers, IHS Tow­ers, Seven En­ergy Gas, UPDC mixed-use prop­erty, and Per­sianas re­tail malls, amongst oth­ers. We have sev­eral sim­i­lar projects in the pipe­line in­clud­ing other IPPs, dis­tri­bu­tion com­pa­nies (dis­cos), so­lar projects in north­ern Nige­ria, and Dan­gote Fer­til­izer. We are also in early dis­cus­sions with the Dan­gote Group on its pro­posed 550km off­shore gas pipe­line. There are also smaller cap­tive power and gas dis­tri­bu­tion projects we are con­sid­er­ing but it is too early to dis­close specifics.

Mo­bi­liz­ing ad­di­tional in­vestors into all of these projects is a key part of IFC's man­date. Hence, mo­bi­liz­ing Nige­rian and other African pen­sion funds into such in­fra­struc­ture and hous­ing projects that re­quire lo­cal cur­rency so­lu­tions, at the right time, is also part of our goal.

JA: You re­acted to the no­tion that ad­her­ence to ESG prin­ci­ples poses an­other layer of chal­lenge to do­ing in­fra­struc­ture projects in Nige­ria. Are you see­ing a glass half-full while oth­ers see a half-empty glass, and how can we get the di­a­logue on Sus­tain­abil­ity go­ing in a mean­ing­ful way on the Nige­rian deal land­scape?

SAQ: In­cor­po­rat­ing good en­vi­ron­men­tal, so­cial, and gov­er­nance (ESG) prac­tices into in­fra­struc­ture projects from the be­gin­ning is good busi­ness, and this is what we ex­pect with all projects where we are in­volved. It is a com­bi­na­tion of good risk man­age­ment and value ad­di­tion. Let me break this down – imag­ine if you have not done a so­cial study on a green­field in­fra­struc­ture project, and as a re­sult, the com­mu­nity sab­o­tages the project? It is not only about iden­ti­fy­ing such risks but also work­ing with the com­mu­ni­ties on ac­cept­able so­lu­tions. So we try to un­der­stand where our clients are on un­der­stand­ing and ex­e­cut­ing good ESG prac­tices and we then work with them to de­sign a cus­tom­ized en­vi­ron­men­tal and so­cial im­prove­ment plan with a good mon­i­tor­ing and cor­rec­tion sys­tem.

We look to im­bue this un­der­stand­ing with all the in­sti­tu­tions we work with, and we agree that our clients are at dif­fer­ent stages of ap­pre­ci­a­tion and ex­e­cu­tion of good ESG prac­tices. We are, there­fore, work­ing on dif­fer­ent pro­grammes to deepen ex­e­cu­tion of ESG prac­tices in Nige­ria and other mar­kets. An ex­am­ple is a pro­gramme that we have with the Cen­tral Bank of Nige­ria, com­mer­cial banks and lo­cal en­vi­ron­men­tal and so­cial ad­vi­sory firms. It is aimed at help­ing im­ple­ment the Nige­rian Sus­tain­abil­ity Bank­ing Prin­ci­ples that were de­vel­oped and adopted by the Bankers' Com­mit­tee un­der the for­mer Gover­nor Sanusi Lamido Sanusi. We wel­come good and com­mit­ted part­ners on this jour­ney.

JA: Do you have rea­sons to be op­ti­mistic about in­fra­struc­ture in­vest­ment in Nige­ria, and how it can boost eco­nomic re­cov­ery in 2017, given the 2016 de­ba­cle?

SAQ: We be­lieve that the gov­ern­ment has to fo­cus on in­fra­struc­ture devel­op­ment dur­ing this par­tic­u­larly dif­fi­cult pe­riod for the ben­e­fit of the over­all econ­omy. How­ever, re­sults will be de­pen­dent on gov­ern­ment's com­mit­ment and lead­er­ship. We know that part­ners such as the IFC stand ready to sup­port the gov­ern­ment and all the other stake­hold­ers if there is strong gov­ern­ment com­mit­ment and lead­er­ship, as well as se­lec­tiv­ity, high im­pact and strong pos­si­bil­ity of suc­cess of the se­lected in­fra­struc­ture projects.

Solomon Adeg­bie-Quaynor

Solomon Adeg­bie-Quaynor

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