Infrastructure in Nigeria: Unlocking Pension Fund Investments

The so-called “infrastructure finance gap” was a problem in Nigeria as in many parts of the world. Infrastructure projects like power plants and dams were very large capital investments that could generate long-term consistent cash flows, but their financing and delivery involved multiple risks and uncertainties. If funds for infrastructure development came from traditional international sources like the World Bank or African Development Bank, those lenders would worry about foreign exchange, interest rates, and political risk and would almost always seek sovereign guarantees (payment guarantees from the federal government). Such assurances and guarantees were hard to come by, difficult to negotiate, and project inception could take decades. In this context could pension funds or private equity-type structures be viable alternative sources of financing for infrastructure? By 2017 Nigeria had reformed its pension administration system so that pension funds could both accept significant amounts of retirement funds from workers and manage and invest those funds in a transparent and safe structure. One of the asset classes in addition to government bonds, equities, and corporate bonds that was authorized for investment by pension funds was infrastructure debt securities. Until recently, few Nigerian infrastructure securities had strong enough credit ratings to be investable by cautious pension funds. Infrastructure Credit Guarantee Company (InfraCredit) hoped to break that logjam by supporting infrastructure issues denominated in local currency with credit assurances taking the place of sovereign guarantees. Other entities took different approaches to raising capital for infrastructure in this market. Africa Plus Partners (Africa Plus), for example, proposed a fund structure with features of American private equity. It was not yet clear if this type of fund arrangement would be as attractive as debt for pension fund investors. Could InfraCredit become a very large player? If the model was proven, could it be replicated in other nations? What would be the conditions precedent to make other nations attractive for an InfraCredit model?