The Managing Director, Nigeria Sovereign Investment Authority (NSIA), Uche Orji, last week visited PREMIUM TIMES’ head office in Abuja . During the visit, he spoke with the Editor-in-Chief, Musikilu Mojeed, Managing Editor, Idris Akinbajo, and Business/Economy Editor, Bassey Udo, on various issues affecting his company’s business. Excerpts:
PT: The NSIA began amid controversies whether to be or not. It appears the organization has since overcome all that now. Where is NSIA now?
UCHE: We started off on October 2, 2012, with a $1billion seed capital. About $2million already earned before we took over the Fund. So, we actually began with $1.2 billion. The $2million was part of what we used to start our operations.
The money was not released until July of the following year. The processes of getting the funds released were very long. So many documents had to be filled. We started off investing in the external markets.
Our mandate was to invest in three areas, namely Stabilization Fund, Future Generations Fund and Nigeria Infrastructure Fund in the ratio 20:40:40 respectively.
The three Funds were to be ring-fenced. That means, once money is put in one Fund, it cannot be taken or moved around.
The Stabilization Fund was to be short-term in nature. The idea was that if the government needs to stabilize the economy, it can call and take money for investment, for reasons affecting the economy.
The Minister of Finance, based on the resolution of the National Economic Council and the President, can write to the NSIA, to draw money from the Stabilization Fund.
The process of getting these investments involves a lot of decisions on what to invest in each of the Funds – the benchmark, performance matrix, and process for investing.
Taking these decisions took us to the end of 2013. It was in 2014 we actually started investing with the $1billion received from the government.
We did not receive any other money until the end of 2015 when another $250million was brought by the current government. We did not receive that until 2016. Another $250 million was released a few months later, bringing the total to $1.5 billion.
In other words, the NSIA will get there as an organization, despite all the controversies about whether to start or not.
None of the successful Funds established around the world started without their controversies. Only places ruled by autocratic leaders, who decide what they want to do and go ahead to do it without questions from their subjects, that don’t have such controversies.
But, in every country where Funds like NSIA have started, especially where there is a federal structure like Nigeria, there is bound to be a pull and push. People will like to debate whether to do it or not.
The NSIA has overcome those initial controversies whether it should be established or not. We are gradually, but steadily progressing. But, I always think our real test will be when we have gone through two or three cycles of management and Boards. Then, the NSIA would have been seasoned.
We may not achieve all the big things yet, but we believe if we build ourselves, we will solidify.
PT: You said the government can draw from the Stabilization Fund to stabilize the economy. Does the government pay back such monies with interest?
UCHE: Not necessarily. That money is only available for the government to draw from, if need be. It depends on the terms. That has not be tested yet, because so far, the government has not drawn any money from the Fund before, not even when the economy was in recession.
But, if the government decides to draw from it, it is as a loan to stabilize the economy as a capital backing.
The shareholders of NSIA (Federal, State and Local Governments) obviously will have to agree. With their resolution, the Minister of Finance can write to request for the money. NSIA’s internal processes make it possible for the money to be made available within seven days.
So, the Stabilization Fund is invested 100 percent in dollars in short-term instruments outside the country, like the U.S. Treasury bills, money market instruments, etc. The money is always liquid and available any time the government asks for it.
PT: Does the $1.5billion include operational expenses?
UCHE: No. NSIA is to earn money to further expenses. But, like I said, there was about $2million earned already before we took over the Fund. That was part of what we used to start our operations. We had to borrow additional money from the Federal Government, which we paid back within a year.
PT: Can you talk about other Funds?
UCHE: The Future Generations Funds is longer in nature. We are looking at ten years since we are talking about the future generations. That investment is diversified across products and markets.
They are mostly international as well. The idea is to earn long-term returns for the future generations of Nigerians.
We invested in private and public equity markets, other alternatives and all kinds of interesting structures to earn returns for future generations of Nigerians. Most of the investments are abroad.
The investment process is very simple. We cannot sit in Nigeria and buy shares abroad. That’s difficult. We buy through Funds.
For example, if NSIA decides that a European Equity Fund is interested, it will look for a European Equity Fund manager and invest in those Funds. They will make returns for NSIA.
Part of what NSIA does every day is to decide how to allocate funds across different strategies. Private equities are where NSIA has a lot of investments. We have products like that from international banks to invest.
Of late, we have also used the Future Generations Funds to invest in private equity funds that play in the Nigeria market. We believe private equity is a very important building block of the entire capital structure of Nigeria.
In the U.S. and Europe, the advent of private equities in the 80s changed the U.S. capital market completely. They were able to invest private capital in businesses to make them more efficient.
Nigeria is in the nascent stage on that. But, the NSIA has invested in a number of local private equity companies that have gone on to invest in other businesses.
But, why we used funds approach in our investment strategy is two-fold. One is the specification. If NSIA goes to invest in a business, it is taking a lot of risks in that one business. But, if the investment is in a Fund that invests in 30 businesses, the risk is a lot lower.
For the Nigeria Infrastructure Fund, it is solely dedicated to Nigeria. The biggest challenge is on currency, contractual issues, and all that.
The focal issues the NSIA sponsor, co-develop and invest in are toll roads/motorways, power, healthcare, agriculture, and more recently gas commercialization.
The other areas of interest for the NSIA are developing business plans, projects development, licensing, land procurement, etc.
Others can do all the work and we look at it, and if found to be interesting, we invest. Those areas include free trade zones, aviation, water/sewage, gas pipeline, and storage facilities, mining, refineries, real estates, ports, railways, communications, and other areas of interest the NSIA does not have the technical expertise.
Port infrastructure, in particular, is absolutely essential. We do not have enough ports to drive trade in the country.
PT: What informs NSIA’s investment decisions?
UCHE: The guides to our investment decisions are our ability to make a nation-wide strategic impact on the economy; ability to attract foreign/local institutional capital to the economy; ability to strike a balance between earning commercial and social returns, and ability to have a conducive legal and regulatory environment to invest. If we tick these four areas, then we will consider investing in that area.
PT: You did not mention power, despite its strategic importance to our economy. In NSIA not interested in investing in that sector?
UCHE: There are sectors that are of strategic importance to the nation. But, if the legal environment is not conducive, or the legal framework has not even been developed, we will skip it.
The power sector is one such difficult sector to invest in. NSIA has made attempts to invest in the power sector, but not successful. So, we will keep at it. We hope to be able to make some key investments in that sector soon.
We are currently working with the Federal Government on the development of the Mambilla Hydropower projects. It’s still in the early stages; going through business planning and development.
PT: You said earlier that investments in private and public equity markets are part of NSIA’s strategy. Could that be what was done with MTN Nigeria shares?
UCHE: The MTN is one of the transactions the NSIA made direct equity investments. It was, perhaps, the only time NSIA made a direct investment in a private company. That happened because communication was under that area.
Remember, for a long time MTN was one of the highest dividend paying companies. NSIA looked at it and said this was one area we could earn some interests and make some money.
We had high hopes of making some good returns on investment. We still have. But, that was a small ticket investment (about $15million). The NSIA has already earned decent returns. That was a company one can say was strategic to Nigeria at a time. The only one that was easily investible.
It had a track record. It was earning some really good interest. I hope it will still turn out to be a very good investment for the NSIA.
PT: When MTN faced regulatory sanctions from the NCC and was fined $1.3 trillion for regulatory violations, was NSIA apprehensive that this was, perhaps, money down the drain?
UCHE: Naturally, we were concerned. When the crisis started, the NSIA did not interfere. The NSIA had just $15million investment in MTN. We earned dividends for three years before the sanction. But, I believed these things would always be resolved.
The company is too strategic and important to be allowed to go down. When something goes wrong with a business, one can isolate the management and punish them to protect the business. Every country does that.
When you have a business that is important to the system, one will realize that its management’s behaviour is only one thing. The government can isolate the management and punish the company.
I did not believe the company will go down. The government believed the management of MTN behaved poorly. If that was true, go ahead and sanction them. This can range from paying some fine to the forms of sanctions. It’s a management problem with a regulator. Let them sort it out.
PT: Recently, MTN made public the list of its shareholders. But, NSIA was not among them. Is NSIA still holding the MTN equity?
UCHE: No, no, no. We are still there. Like I said, it was a small ticket investment. We saw an opportunity to invest, and we did. If we see an opportunity to buy more of the equity, we will. At the time, the shares were difficult to buy.
We believe the future for the Nigerian telecommunication is huge. Nobody has sat down to understand what 5G means. 5G will change the world.
I am very optimistic about the communications sector in this country. I believed there will be lots of value-added services to be added to communications technology in the near future. But, we have moved on from the early days.
People love holding to it and earning 10 percent interest every year. But, we are not buying more. We are now building roads and hospitals.
PT: How have your $1.5 billion investments grown now?
UCHE: $1.5billion is roughly over $300billion. That’s the figure the NSIA Financial Controller should be able to tell you. The NSIA has over N617 billion assets today.
PT: After the NSIA released its latest annual financial statement recently, the Board went into series of meetings to review the company’s operations and come up with the policy direction in the next five years. What were some of these Board decisions?
UCHE: The NSIA has a five-year plan. By 2019, NSIA hopes to strengthen its internal processes for sustainable growth and investment. There are different themes for 2020, up to 2023, bearing in mind that at 2022, we will have our 10th anniversary as an organization.
What became clear to the Board was the aspect of infrastructure in our perations. has become so big so suddenly.
In addition to managing NSIA’s capital, we are also managing funds on behalf of the federal government.
The NSIA is managing the $650million Presidential Infrastructure Development Fund, for Lagos-Ibadan road, Second Niger Bridge and Abuja-Kano road projects. The NSIA also has plans to build three healthcare facilities – one cancer centre and two diagnostic centres.
The health centres are ready for commissioning. We are hiring people at the moment. By August/September, we hope to get the diagnostic centres started in Kano and Umuahia. But, the Lagos University Teaching Hospital (LUTH) is already operational.
When one looks at how much the NSIA has done in infrastructure in the last two years, what is clear to the Board was that our internal processes need to be strengthened, to position our organization for growth.
Suddenly NSIA has grown from not having so many operating groups to having so many operating groups.
They include 33 hospitals; partnerships with UFF-NAIC Agriculture Fund jointly owned by the NSIA and UFF Agri Investment, an Old Mutual Specialist Fund, a company supporting agriculture.
NSIA bought a farm in Nasarawa State; running a 50-50 joint venture integrated feed mill; created InfraCredit, an infrastructure credit guarantee company, in partnership with GuarantCo, a private Infrastructure Development Group company, which is now taking extra capital from other investors.
There is another joint venture investment coming from KFW, a German company. NSIA is at the verge of creating an ammonia plant with OCB of Morocco as part of its fertilizer development programme.
NSIA is running the Presidential Fertilizer Initiative (PFI). So much is going on. NSIA has now grown from a single entity into a group structure.
So, we have to create a holding company and a group structure. NSIA has so many operating entities now. By the end of the year, the number would have grown to eight or nine, in addition to other companies the NSIA has substantial shareholdings, like the Nigeria Mortgage Refinance Company, where we have under 20 percent shareholding.
The Board said the NSIA must sit down to strengthen its internal processes, to position it to understand what is happening to growth. The key objective is the Holding Company’s subsidiary structure, to ensure there a Group Human Resources policy and other Group investment policies across the board.
The NSIA is creating co-investment funds without launching them in an aggressive way. We are creating a project development fund, where other people would be brought to co-invest with the NSIA. Having done the UFF investment successfully, the farm in Nasarawa is fully integrated and will absorb a lot of capital. At the moment, NSIA is cropping from 1,500 hectares to 3,500 hectares.
From next year, NSIA expects to see these co-investment funds become active. More capital will come from other people into our agricultural joint venture. Another capital commitment is coming to the healthcare fund.
Next year, we hope to host the NSIA Investment Submit, where we will bring all our partners to Nigeria to show them the opportunities we have.
This year is about tightening the screws to ensure the organization is fit for purpose and ready for the next phase of growth, doing bigger businesses with other people as co-players.
There are also people within Nigeria who want to invest and see NSIA as the ideal partner. So, we are setting up the structures and preparing the ground for all that. While our projects are running, the NSIA will not be doing too many new projects in 2019. We will spend a lot of time internally to prepare the company for the next phase of growth.
So, 2020 is about growing the external markets, co-investment, co-development of projects and bringing external capital into Nigeria through NSIA.
By 2021, the NSIA will begin to exit some of these projects. NSIA is not holding the interests in these projects in perpetuity. The idea is that by the 10thanniversary of the organization, the NSIA will be recycling capital.
Underlining all these is the expectation that the NSIA will continue to grow as an organization and wean from the government as the only source of capital.
NSIA has a plan for the Commodity Exchange. But, the harsh reality is that we still have some work to do. It’s not enough to talk about $10 million to put up the Exchange, with all the systems in place. What about the supporting infrastructure? That is where the issue is.
I find the Commodity Exchange as essential to the agricultural sector. There are many things the government should do to make the agricultural sector investible. The Commodity Exchange is one. Land titles issue is another, although it is outside the NSIA realm.
PT: Compared to other sovereign wealth investment entities around the world, where can we place the NSIA?
UCHE: There are two ways. In terms of size, the NSIA is one of the last in the world, about 52 out of 56 or so.
It is better than seven years ago when it was zero. The fact that we have a basis today to compare ourselves to the rest of the world is a good thing. The NSIA will grow. I believe the NSIA still needs to prove itself.
In the life of a nation, seven, 20, or 50 years is nothing. The NSIA is wealth for future generations of Nigerians. We undertake one building block at a time. We must build ourselves to a point where we are able to take on more assets for the country.
Don’t forget where this organization started. There were all kinds of challenges. There are still challenges. But, we have gone beyond the challenge of whether we should exist or not. We are looking at a slightly more hopeful future, where we are under $2billion, we still have time.
I believe the NSIA can grow, not necessarily with cash, but through asset transfers. There are assets the government can decide to transfer to the NSIA to manage, rather than privatize.
The NSIA is not the biggest, even in Africa. Algeria is, followed by Libya, Botswana, Angola, and Nigeria. We may not be big in size, but we try to demonstrate good governance in all that we do, including assets we have. We publish all our assets for the public to know. The NSIA is about one of a few that does that.
PT: The NSIA is in charge of the Presidential Fertilizer Initiative. Despite the intervention, the allegation has been that nobody buys the commodity at the N5,500 per bag the government says it should be sold. What is going on?
UCHE: This is what is going on. The distributors collect the fertilizer at the factory base price of N5,000, and sell at N5,500 per bag, to take a distribution margin of N500.
In Abuja, Kaduna and such other places where the blending plants are located, that is the price obtained. It is when one goes outside these locations that the price changes.
The NSIA has been affected by the insecurity and the insurgency in other places. The transportation cost to all those places are part of it, not really the consequences of the issues we are facing, but many other reasons.
Once you go outside areas where our 22 blending plants are located, like Kano, Kaduna, Niger, Plateau, Ebonyi, Lagos, Edo where the bulk of the plants are, the price of the commodity is higher.
When one is transporting from the plant to other locations, particularly the areas affected by the insurgency, the price is higher, for obvious reasons. There are people who are taking advantage of what is happening in the country and the cost of transportation of the commodity to far places across the country.
Regardless, the bulk of the people within the catchment areas get the fertilizer at the price the President has set.
There are people who are racketeering, When we find them, the law takes its course. The Presidential Fertilizer initiative is not for racketeering.
PT: How do you check this?
UCHE: There is a whistle-blowing number on every fertilizer bag. When people call to report an incident, we get the police to move in. We also work with Nigerian Security and Civil Defence Corps, to try to stop the racketeering.
We should not forget there are other fertilizers that are not part of the presidential fertilizer initiative that is not selling at N5,500. The PFI is not the only game in town. There are private people who also have their own pricing as well. They can sell whatever price they want.
PT: What is the solution to this?
UCHE: The solution is more blending plants all over the country.
PT: Thank you very much for your time.
UCHE: Thanks for having me.