The Managing Director, Nigeria Sovereign Investment Authority, NSIA, Uche Orji, in this interview clarified the issue of apparent expectations of recession risks in 2019. He also talked about the performance of the Authority.
WHAT can you say about the looming recession in the country and what role has the Authority to play to mitigate the risk?
There are no apparent expectations of recession risks in 2019. However, the Authority continues to monitor the market conditions with the view to leveraging the upside risks that avail themselves in the market. We expect that our strategy will continue to deliver positive returns.
NSIA just announced its results for the 2018 financial year, how do you assess your performance so far?
The results show strong performance in a year when many international markets under-performed and the global economy experienced a moderate pace of expansion. The highlights of NSIA’s activities and performance during the period shows that total comprehensive income (including the impact of foreign exchange gains) of N44.34 billion in 2018 as against previous year’s figure of N27.93 billion.
NSIA achieved total comprehensive income (excluding the impact of foreign exchange gains) of N26.29 billion (previous year: N26.28 billion) while total assets recorded a growth of 16 per cent to N617.70 billion at year end (previous year: N533.88 billion).
Return on Capital Employed (ROCE) on the core funds showed that Stabilisation Fund (100 per cent Funds deployment); Future Generations Fund (81 per cent fund deployment) and Nigeria Infrastructure Fund (17 per cent fund deployment).
Can you give a further review and breakdown on your financial statement regarding the various funds?
Like I stated earlier the authority’s performance for 2018 reflected the strength of the authority’s strategy across all the funds as the authority’s aggregate performance outstripped most global market indicators in the period.
Equity market experienced a dramatic decline in the last quarter of 2018 as investors were burdened with rising US central bank interest rates, lower than expected growth in Asian markets particularly China and other political issues including Brexit, Eurozone and the China-US trade conflict, characteristically fueled investor apathy for most of the year. However, in spite of these market challenges, the authority’s funds performed favourably by generating aggregate returns of 8.2 per cent.
Total income grew by 88.5 per cent, rising from N30.62 billion in 2017 to N57.73 billion in 2018. Considering the volatile global and generally challenging local investment environment, this performance reflects the strength and capability of Portfolio and risk management within the institution.
Interest income – N23.82 billion (a component of total income) earned in 2018 represents a nine per cent year-on-year increase from the N21.77 billion in 2017. This underscores our commitment to generate fixed income returns from low-risk securities that generate predictable interest, and steady returns including Eurobonds, Treasury bills and other secured deposits.
The authority rebased its foreign denominated balances to N325/$ from N305/$, to reflect its foreign exchange transactions appropriately in line with its market. Therefore, the Group recognized a foreign exchange gain of N18.05 billion.
Can we know about your capital structure?
NSIA has core capital of $1.5 billion while other third party managed funds comprised PIDF – US$650 million; DMO – US$122.60 million ($120.95 – Fair value Dec 31, 2017); Nigeria Stabilization Fund – N13.64 billion. There is also gross sum of US$417.46 million (US$350 million principal plus returns) repaid to the Nigeria Bulk Electricity Trading Company Plc (“NBET”) following the expiration of the four-year investment term.
The NSIA, a corporate body established by the Nigeria Sovereign Investment Authority (Establishment, among others) Act 2011, is mandated to manage funds in excess of budgeted hydrocarbon revenues.
What are your core mandate under the Act that established NSIA?
The NSIA Act mandates the organisation under, my leadership to run three ring-fenced funds – stabilisation fund, future generations fund, and Nigeria infrastructure fund with asset allocation of 20:30:50 respectively. The NSIA mission is to play a leading role in driving sustained economic development for the benefit of all Nigerians through building a savings base for the Nigerian people, enhancing the development of Nigeria’s infrastructure and providing stabilisation support in times of economic stress. NSIA operates three mandate funds: the Stabilisation Fund, the Future Generations Fund and the Nigeria Infrastructure Fund.
What are your concerns over the expected international trade flows and slow global growth in key economic indicators this year?
Despite concerns over international trade flows, slow growth in key economic indicators and increased volatility across financial markets, the Authority’s investment strategy proved robust with headline numbers maintaining a favourable trajectory across the three funds – The Stabilisation Fund, Future Generations Fund and Nigeria Infrastructure Fund.
There were also increased focus on domestic infrastructure projects specifically in agriculture, healthcare, and infrastructure enabling financial institutions. For instance, on healthcare, the company reached financial close on three healthcare projects including a Cancer Centre at Lagos University Teaching Hospital (LUTH) and Advanced Diagnostic Centres at Federal Medical Centre Umuahia (FMCU) and Aminu Kano Teaching Hospital (AKTH). We have commissioned the LUTH cancer Centre. The facility will soon be fully open for clinical operations.
What initiative has government taken to ensure that the country is not affected in the expected global slow growth rate?
The Presidential fertiliser initiative showed that increased output with approximately 12 million bags of fertiliser produced to date with a total of 18 blending plants participating while Presidential Infrastructure Development Fund (PIDF) received $ 650 million from NEC and commenced capital deployment across three of the major road projects under PIDF including second Niger Bridge, Lagos – Ibadan Expressway and Abuja-Zaria-Kaduna-Kano Road.
The joint venture of NSIA and UFF reached financial close on Project Novum, a fully integrated farm located on 3,500 hectares of land in Panda, Nasarawa State. The NSIA having created InfraCredit, attracted other investors to the company and de-recognized it from the book. InfraCredit is poised to transform the infrastructure bond market having facilitated transactions for North South Power and Vitan.
Other key infrastructure projects in the pipeline for 2019 include: The company also said that Commodities Exchange (NCX) showed that progress has been made and we are in the process of choosing a strategic partner. There was also Investment in Basic Chemicals with OCP Morocco: Basic Chemical Platform to produce ammonia and other fertilizer products.
What is your view about outlook for 2019?
The global market in 2018 experienced high volatility, however, 2019 is expected to return to a relatively stable terrain. According to JP Morgan, there is a deceleration in growth momentum which is expected to end by midyear 2018 on account of policy changes that supports China easing and the Federal Reserve pausing.
The deployment of the Presidential Infrastructure Development Fund will play a key part of our infrastructure investment strategy for the year. Healthcare remains a focus area going forward with the implementation of next phase of diagnostic and treatment centres. The Board has also approved Gas industralisation as an area of focus. Increased focus and capital deployment in Infrastructure is likely to affect future returns.
What are the specific sectors that the Authority has invested in?
Within the year, the Authority committed significant capital across all three ring-fenced funds and gained traction within the Nigeria Infrastructure Fund (NIF) as commitments were being made on approved project/investment opportunities. With respect to the other funds, the Authority continued to operate a diverse and global investment portfolio of traditional and alternative assets.
The year was an eventful year with significant capital deployment in the priority sectors of Agriculture, Healthcare, Motorways and Power. Highlight of activities undertaken across the infrastructure sectors are provided as follows-
Agriculture: The agriculture sector remains a focus area to the Authority. Key programmes undertaken by the authority within the period under review included: Presidential Fertiliser Initiative (PFI). Continuing its role as programme manager, the NSIA sustained the implementation plans for the PFI. As at year end, an addition 5.5 million bags of NPK 20:10:10 fertilizer had been produced and sold in Nigeria bringing the total project output from inception to date at over 12 million bags. Furthermore, two additional blending plants were accredited in Kaduna and Zamfara respectively bringing the number of plants to 18 in total. With PFI, NSIA is helping to reduce input induced food price inflation.
Novum Agric Industries Ltd : Under the UFF-NAIC Fund (a US$200 million 50-50 co-sponsored agriculture fund with UFF Agric Fund), NSIA acquired a fully integrated farm located in Panda, Nasarawa State. Development of the farm land has commenced. The Authority expect to start farming activities in late 2019 with the completion of irrigation facilities expected to be finalized in second half of 2019.
In key National Road Projects, following NSIA’s appointment as the programme manager of the PIDF, the Authority received the sum of US$650 million from the National Economic Council. Funds have already been disbursed for construction works on; (i) Lagos-Ibadan Expressway, (ii) Second Niger Bridge; and (iii) Abuja-Kaduna-Zaria-Kano Road. To date, NSIA has disbursed N77.6 billion under the PIDF programme. Other projects being undertaken under PIDF include Mambilla Hydro-Power Project and East West Road. NSIA’s involvement is principally to ensure an increased inland road stock while creating cross-country arterial roads to catalyze the flow of economic activities. The programme is an initiative of President Muhammadu Buhari which is designed to facilitate the rapid completion of key infrastructure projects that have been stalled for years.
