Infrastructure in Nigeria: Unlocking Pension Fund Investments

John  Macomber; Pippa Tubman Armerding

Case | HBS Case Collection | February 2018

Infrastructure in Nigeria: Unlocking Pension Fund Investments

by John Macomber and Pippa Tubman Armerding

Abstract

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?

Keywords: Pension Fund Investing; Infrastucture; emerging markets; Power/Energy; Credit Enhancement; Infrastructure; Project Finance; Investment Funds; Emerging Markets; Nigeria; Africa;

Language: English

Format: Print

33 pages

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Citation:

Macomber, John, and Pippa Tubman Armerding. "Infrastructure in Nigeria: Unlocking Pension Fund Investments." Harvard Business School Case 218-071, February 2018.

Case | HBS Case Collection | January 2017 (Revised April 2019)

The Olmos Project: Value Creation and Value Capture

John Macomber, Fernanda Miguel, Laura Urdapilleta and Valeria Moy

Private investment in public infrastructure can be encouraged when there are multiple avenues to capture and to share the value created by such a project. Gains in the market value of land adjacent to projects are not customarily channeled back into defraying the original capital cost of the project—but they can be. This case uses irrigation, agriculture, land values, and an arrangement between the local government in northern Peru and the privatizer firm to accomplish the irrigation of vast areas of land, leading to jobs and GDP growth in the state, based on a combination of fees for water, auction price for raw land, investment in enabling infrastructure, and market value increases for irrigated land. The mechanics of this three-component deal (land company, water distribution company, construction company) are tracked on a pro forma multi-year cash flow basis with the ability to make and test a variety of different assumptions. The choice of an agricultural setting with one possible use case (farming at ground level) leads in to more complex value capture analyses. Real estate, for example, can have more dimensions (more floors allowed) and more use cases (retail, housing, office) than does agriculture. The local government can accomplish hundreds of millions of dollars of construction without advancing any funds to do so.

Keywords: Value Capture; Infrastructure; Decision Making; Agribusiness; Value Creation; South America; Peru;

Citation:

Macomber, John, Fernanda Miguel, Laura Urdapilleta, and Valeria Moy. "The Olmos Project: Value Creation and Value Capture." Harvard Business School Case 217-052, January 2017. (Revised April 2019.) View Details

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Can Singapore urban design, policy continuity, and system of laws be exported outside of Singapore to accelerate the effective development of new urban agglomerations? Nina Yang, CEO of Sustainable Urban Development at Ascendas-Singbridge, a large real estate company based in Singapore, was considering whether to build residential or commercial space in one of its sustainable urban development projects, Sino-Singapore Guangzhou Knowledge City. Could such a long-gestation urban development project be commercially viable? What were the partnership issues working with the Guangzhou government? Could Singapore livability concepts, planning expertise, safety for capital, and comfort for multinational corporations be successfully exported outside of Singapore into large urban agglomerations on a repeated basis?

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Infrastructure in Nigeria: Unlocking Pension Fund Investments

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