Why NSIA shows resilience amid global pestilence

The devastating impact of the COVID-19 pestilence on the global economy is obvious. Reason finance experts rightly predicted that many corporations’ finances in 2020 would be in red. The International Monetary Fund did predict that the global economy would contract by three percent as countries around the world shrink at the fastest pace in decades.

The IMF described the global decline as the worst since the Great Depression of the 1930s.

It said the pandemic had plunged the world into a “crisis like no other”.

The Fund added that a prolonged outbreak would test the ability of governments and central banks to control the crisis.

Gita Gopinath, the IMF’s chief economist, said the crisis could knock $9 trillion (£7.2 trillion) off global GDP over the next two years. It, however, expects global growth to rebound to 5.8 per cent in 2021 if the pandemic fades in the second half of 2020.

True to predictions by the IMF and experts, a lot of Tier One corporations are currently on ventilators, as they feed on a cocktail of bailouts to recover from the pestilence. However, the Nigeria Sovereign Investment Authority (NSIA), on its part, has shown resilience against all odds.

Created in 2011 through the Nigeria Sovereign Investment Authority Act, the NSIA (or Authority) was set up as an investment institution of the Federation to manage funds in excess of budgeted oil revenues.

As a Fund, the NSIA invests in real and financial assets including stocks, bonds, real estate as well as alternative investments such as private equity funds or hedge funds. For these investment purposes, the NSIA established three main funds: the Stabilisation Fund, the Future Generations Fund and the Nigeria Infrastructure Fund. The Stabilisation Fund is to provide budget support in times of economic stress; the Future Generations Fund is an inter-generational savings fund for future generations of Nigerians and the Nigeria Infrastructure Fund is to invest in domestic infrastructure.

The Authority recently unveiled its 2020 performance scorecard, which revealed that its total assets grew to N981.78 billion in 2020, at a time its counterparts across the world are limping.

The N981.78 billion is an increase of N331.93 billion when compared to the N649.85 billion recorded in the previous year.

The Authority, which manages Nigeria’s sovereign wealth fund, attributed the growth in assets to discipline, strategic financial execution and consistent implementation of well-defined infrastructure investment programmes for the year.

It further weathered the COVID-19 storm owing to strong performance from its investments in international capital markets, improved contribution from subsidiaries and affiliates and exchange gain from foreign currency positions.

Highlights of NSIA’s activities and performance during the period showed that the Authority recorded 343 per cent growth in Total Comprehensive Income to N160.06 billion in 2020 as against N36.15bn in 2019.

Excluding devaluation gain of N51 billion, core income of N109bn was recorded in 2020 compared to N33.07 billion in 2019.

The NSIA also received an additional contribution of $250 million, and provided first stabilisation support to the Federal Government where $150 million was withdrawn from the Stabilisation Fund.

At a media briefing to present the financial performance of the Authority, the Managing Director of the NSIA, Mr. Uche Orji, said the Authority received $311 million from funds recovered from the late General Sani Abacha from the US Department of Justice and Island of Jersey.

He said this amount was deployed towards the Presidential Infrastructure Development Fund projects of Abuja-Kaduna-Kano Highway, Lagos Ibadan Expressway and Second Niger Bridge.

The NSIA boss said the Authority reached major milestones through Nigeria Infrastructure Fund, and it has been able to execute projects across domestic infrastructure projects specifically in motorways, agriculture, and healthcare.

In agriculture, he lauded the Presidential Fertilizer Initiative (PFI), which holds great benefits for Nigeria.

President Muhammadu Buhari approved the PFI in 2017, with clear-cut objectives of boosting agriculture, cutting back on stupendous foreign exchange spent on fertilizer substitution and importation and boosting job creation locally.

Four years down the line, there are lots of harvested fruits from the programme, prompting the President to approve its restructuring for another four years starting from 2021, but with some modifications.

The approval, which takes effect immediately, was communicated in a letter through the Office of the Chief of Staff to the President, issued in November of 2020.

NSIA, by investing in local fertilizer production said it saved over $350 million from the erstwhile payments on subsidy and import substitution through the implementation of the PFI.

Within four years of the initiative, the programme has delivered on key outcomes including over 30 million bags of 50kg NPK 20:10:10 equivalent spanning project period; price reduction on fertilizer from over N10,000 to under N5,500, resuscitation of 41 blending plants from an initial number of four plants at project inception and creating 250,000 jobs (direct and indirect) across the agriculture value chain. This includes jobs in logistics, ports, bagging, rail, industrial warehousing, and haulage touch-points and others that have been created.

While noting that the COVID-19 pandemic adversely affected logistics around infrastructure projects especially the toll road projects and the Presidential Fertiliser Initiative, Orji said the Authority, in squaring up to the pestilence, partnered with Global Citizen, a not-for-profit group, to form the Nigeria Solidarity Support Fund.

Orji said food security has been achieved by facilitating an increase in domestic food production through the provision of affordable, high-quality fertiliser.

Already, the PFI has been extolled by various agriculture and finance stakeholders because aside from the gradual realisation of the food sufficiency goal, it has shown the possibility of exporting farm produce in large quantities to buoy foreign reserves, when the local consumption target is achieved.

He noted that for decades, Nigerian farmers had been hit by poor harvest because of near-zero access to fertiliser to boost crop performance, recently, however, the narrative changed. Orji said the Authority has completed the restructuring of the PFI, adding that the number of participating blending plants increased to 44 from less than seven at inception.

He said the Authority has embarked on the next phase of the PFI, which substantially reduces NSIA’s involvement and transfers more of the responsibility to the fertiliser blenders. While also indicating that the Authority has completed the construction of 3000 hectares Panda Agric Farm in Nasarawa, which is the first project of the UFF-NSIA partnership.

Nonetheless, the NSIA, under the new modifications, he revealed, has been transitioned to an upstream player thereby limiting its involvement to importation, storage and the wholesale of raw materials. Such a task has been outsourced to blenders.

More so, the NSIA subsidiary, NAIC-NPK Limited, will be spun off to the Ministry of Finance Incorporated.

With the new order, blenders will no longer be paid blending fees by NAIC-NPK as they will recover their cost directly from selling the fertilizer to the market, leaving the entire process structurally impactful.

This will balance the incentives of the business and ensure the blenders build the right capacity to actively participate in the local supply sub-sector.

With the new modification, the blending plants are expected to provide bank guarantees to cover requisitioned raw materials demand that are appropriated for their respective production volumes.

In the latest arrangement, the Federal Ministry of Finance, Budget and National Planning and the Central Bank of Nigeria are to engage Deposit Money Banks (DMBs) banks to facilitate lines of concessionary credits to blending plants for the purchase of raw materials for their businesses.

The new PFI also expects the Central Bank of Nigeria (CBN) to ensure that the foreign exchange needed for the programme is provided as and when needed to cover some raw materials

Under the new format, blenders will be responsible for the bulk of the activities in the fertilizer production value chain such as transporting the raw materials, sourcing filler, blending the fertiliser, and selling to off-takers.

Also, the Federal Ministry of Agriculture and Rural Development will perform its statutory monitoring and quality control role over blender activities.

The benefits of this new approach include but are not limited to unlocking more development finance (loans and investments) into the local fertilizer blending value chain of Nigeria.

It is also expected to strengthen market systems and encourage actor participation. This will lead potentially to mergers and acquisition and innovation and growth across the industry, which will benefit farmers.

The new approach would further reduce food price inflation in the market, as the availability of fertiliser will drive down the price or cost of food products.

It is to reduce the high rate of unemployment, as more people will become engaged in the production process.

For its Innovation Fund, Orji said the NSIA launched its Nigeria Innovation Fund to address investment opportunities within Nigeria in information technology; with an immediate pipeline that includes data networking, data centres, software, and services as well as Agri-tech and Bio-tech.

In gas industrialisation, he noted that the Authority has made significant progress on developing the Ammonia and Diammonium phosphate production plants in partnership with OCP.

One area he also spoke on is healthcare. He said the Authority operationalised the NSIA-Kano Diagnostic Centre; operationalised the NSIA-Umuahia Diagnostic Centre and Commissioned Administrative and Training centre for the NSIA-LUTH Cancer Centre.

He explained further that the NSIA also commenced a plan to roll out additional healthcare projects across the country, adding that the Authority partnered with University College London Consult to develop a pharmaceutical investment strategy with a plan to develop active direct investments in 2021.

Orji said the NSIA acquired and distributed oxygen concentrators to the 21 teaching hospitals as part of corporate social responsibility; in addition to staffing support to the Presidential task force on COVID-19.

In Financial Markets Infrastructure, he said the NSIA has significantly improved contributions from subsidiaries/affiliates such as Infrastructure Credit Guarantee Company (InfraCredit), Nigeria Mortgage Refinance Company (NMRC) and Family Homes Funds Ltd (FHFL).

Orji explained that the Authority has also invested additional capital into NG Clearing, the first derivative clearing house in Nigeria to maintain NSIA’s shareholding at 16.5 per cent following the company’s rights issue of 2020.

He added that the NSIA has admitted InfraCo Africa, a PIDG company based in the UK as 33 per cent shareholder in InfraCredit, thus reducing NSIA’s stake from 50 per cent in 2019 to 33per cent in 2021.

For the Future Generations Fund, Orji said the NSIA has significantly changed asset allocation, completely changed, and expanded the stable of hedge fund managers, made commitments into the venture capital sector and commenced direct trading and co-investments inequities with selected VC and private equity managers.

For the Stabilisation Fund, he said the Authority has been able to liquidate a portion of the Stabilisation Fund assets in 2020 to meet the $150m redemptions that augmented the July 2020 FAAC to all three tiers of government.

He explained further that the Stabilization Fund performed well given the economic climate and ultra-low interest rates set by central bankers.