Insight: Nigeria’s Pension Puzzle 2

To conclude our Africa focus week, we go to the continent’s largest economy and most populous nation.

Nigeria – as the International Monetary Fund concluded this week – faces a multitude of challenges. Lower oil prices have sharply reduced Nigeria’s export earnings at a time when the country is facing an “urgent need to address a massive infrastructure deficit and high levels of poverty and inequality,” said IMF Managing Director Christine Lagarde.

Frontera spoke with a Nigeria official who believes she has an answer to at least one of these problems. Pensions regulator, Chinelo Anohu-Amazu, is working on ways to channel the nation’s 5 trillion naira ($25 billion) of retirement assets into financing infrastructure.

Nigeria’s Pension Puzzle

What’s behind this growth in pension assets?

“Nigeria’s pension system is the best example of continuation between four presidents,” since being created by Olusegun Obasanjo in 2004. “I remember all the negativity about pension funds in the country – they said it couldn’t work. Obasanjo said, ‘we’ll do it anyway.’ We’ve gone from negative to zero to 5 trillion naira in the pension industry.”

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Where is the money invested?

More than 63% of pension fund assets are in Federal Government bonds as the “safest” market (the rules allow for up to 80%). Of the remaining 37%, state government investments account for 13% and equities are the next largest slice. “Almost nothing” is invested in infrastructure bonds.

How is the investment profile changing?

“We want to encourage diversification into real estate and infrastructure. There is a clear nexus with solving the infrastructure deficit and pension funds.”

Are people willing to invest given the environment?

“The people who are interested in the long term potential, they’re not going anywhere. What we are doing in Nigeria now is cleaning up the room. We have got to do what’s best for Nigeria.”

What are the growth prospects?

The focus until now has been on pensions for employees of the state and the organized private sector, as a first step. The Commission is now looking to broaden participation to the informal sector, which constitutes over 80% of the workforce including farmers, drivers, textile workers and artisans.

Recognizing the particular needs of this category of workers, a “Micro Pension plan” is being designed to provide more flexibility in terms of contributions, ease of registration and access, with engagement by mobile money platforms.

What’s next?

The Commission has already commenced engagements with the leadership of informal sector unions and associations to obtain their buy-in and plans continuous “enlightenment” sessions on the Micro Pension. A formal launch is expected across Nigeria’s six geopolitical zones in the first quarter of 2016.

January 8, 2016

A recap on Africa Week at Frontera:

South Africa ~ Flipping Finance Ministers: A Turning Point?

Kenya ~ Financial Inclusion Jumps to Next Level

Benin ~ Beyond Paris: How to Fight Climate Change When 80% Can’t Turn on a Light

Morocco, Cameroon, Senegal, Cote D’Ivoire, Ethiopia, Uganda, Tanzania ~ Energy Prospects


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