With several trillions of naira needed to provide adequate social infrastructures in the country, at a time of economic crunch, experts felt insurance industry can assist the government fund the infrastructural deficits in the country. ABDUL-KHALIQ OLALEKAN writes.
The decaying infrastructure and the need to repair and provide new ones has become a serious issue to tackle by the government over the years.
Roads, railways, airports, seaports, water system, electricity, among other infrastructure, have consistently been begging for serious attention over the years. But the weight of funding, running into several trillions of Naira, makes these projects too heavy to fix from government generated revenue.
The Nigeria’s National Integrated Infrastructure Master Plan stated that investment of US$3.1 trillion is required over the next 30 years to achieve desired infrastructure stock in the country.
About N1.7 trillion is needed now to deliver 206 federal roads covering over 6,000 kilometres with contract value at over N2 trillion, an estimated deficit of about 17.37 million housing units for the population estimate of 182.2 million with fertility rate of 6.1. In the same vein, electricity, rail systems, airports, seaports are equally begging for financial attention.
The implication of these is that the country needs several trillions of Naira to address its infrastructural deficits at a time when the economy is financially challenged while the Federal Government, for years, has been sourcing for domestic and foreign funds to fix these infrastructures.
Experts have suggested that government could tap into the N5.6 trillion pension assets through floating of infrastructure bonds, but the body language of the government shows it could not meet the guidelines stipulated in the pension fund investment guidelines in the 2014 Pension Reforms Act (PRA) and the National Pension Commission (PenCom) is not ready to shift ground in a bid to safeguard the savings of workers.
However, some experts implored insurance companies to invest in infrastructural development through Annuity, since it’s a long-term fund.
As at July 2015, PenCom said the total number of annuity retirees had reached 21,211, with the Pension Fund Administrators, (PFAs) so far transferred a total premium of N104.52 billion to the insurance companies, though the figure must have risen beyond this in the last one year.
Are underwriters ready for this? Will government be sincere and transparent under the terms of contract of this funding, if insurers are ready? What advantages lies in it for the insurance industry? Are the sourced funding going to regenerate itself? These, among others, are questions begging for answers.
Experts’ reactions
According to Mr. Kunle Elebute, Partner & Head, Advisory Services, KPMG Nigeria, inadequate infrastructure has been a leading impediment of growth in Nigeria, as the country is behind both in terms of availability and quality of infrastructure.
Infrastructure projects, such as electricity, roads, airports, water systems and telecommunications, he said, are the foundations of modern economies, noting that investment in infrastructure not only generates direct employment in construction and operation of the various projects but also improves efficiency and productivity levels, thereby, and increasing competitive advantage.
To Mr. Biodun Adedipe, Managing Partner, B. Adedipe Associates Limited, infrastructure projects are long-term and require substantial amounts of funding, adding that the requirements are trillions of Naira and far beyond the capacity of the government, even if the resources of the three tiers of government are combined, a reason why other economic players, such as the underwriters, must support government with funding.
On his part, Elebute disclosed that life insurers seek investment options that offer high yields and long maturities to back long-duration life insurance obligations. One of such options, he said, involves investments in infrastructure, such as transportation, communication, water, sewer and the generation and distribution of electric power.
Citing example, he said in the US, the main funding vehicle for infrastructure projects historically has been the traditional municipal bond market.
Collectively, the insurance industry has been a meaningful institutional investor in the U.S municipal bond market for many years, and many of its investments in the market are project finance bonds, he pointed out. At the end of 2014, he said the Federal Reserve Board estimated the total U.S municipal finance market to be $3.7 trillion, of which the insurance industry held approximately $500 billion, representing 14 per cent of the market.
Urging the insurers in the country to borrow a leaf from U.S, he urged insurance players to collectively establish an Infrastructure Investment Fund with contributions from industry players over the next 10 years, appoint Infrastructure Fund Manager which will determine infrastructure assets to invest in either directly or via project finance bonds, stressing that Fund investment committee will ultimately be responsible for making final investment decisions.
Highlighting the advantages underwriters would drive from investment in infrastructure, he said there would be stable returns, reliable cash flow and low volatility, portfolio diversification, hedging against inflation (concession agreement linked to changes in inflation rate) as well as long term duration to match long term liabilities.
The Minister of Finance, Mrs Kemi Adeosun said it is imperative for the insurance industry in the country to key into the drive of the present administration towards rebuilding a virile national economy through diversification and expansion of national infrastructural resources.
Commissioner for Insurance, Alhaji Mohammed Kari, on his part, said: “insurance companies facilitates investment in infrastructure and high-risk return activities, by generating sources of long-term finance, manage high-risk exposures as well as help stimulates the growth of debt and equity markets.”
The Minister of Power, Works and Housing, Mr. Babatunde Fashola, said there was need for insurance practitioners to be more innovative, entrepreneurial and embracing of the diverse needs of the country’s big and promising economy.
According to him, the role of insurance practitioners goes beyond providing performance bonds given to ensure that contractors discharged their responsibility; to embracing health insurance that guaranteed access to the healthcare facility that was built as well as housing programmes, which he pointed out, would provide ‘a potential market of opportunities by way of performance bonds and mortgage insurance policies as a start.
On how the insurance industry could act as a change agent in the current efforts to rebuild the economy, Fashola reminded the practitioners that insurance was a component and important part of the finance subsector. He however, expressed regrets that the industry “has probably played a second role to banking, and without intending to be judgmental has not optimized the opportunities for growth, expansion and inclusion”.
Fashola, who cited several instances of how insurance was deployed innovatively to accomplish several initiatives and programmes during his tenure as Governor in Lagos, expressed joy that today a lot of changes were being introduced to address the anomalies that brought about infrastructural decay.
Speaking at the weekend, the new Managing Director, FBN General Insurance Limited, Mr. Bode Opadokun, said though insurance industry can invest in infrastructural development in the country, but that Life arm of the industry could perform better in this regard because they have long term funds unlike the General Insurance business that deals with short-term funds.
“For me, nothing is impossible. What is just required is for us to have a clear understanding on what we really want to do. It is good they are talking about annuity, but for General Business, we might not be able to do so, because our fund is a short term. The risk that we managed is not a long term risk.
“So, the level of commitment of insurance companies like ours in the general insurance business cannot be as much as compared to a life office, but that does not mean we cannot play, but only that the percentage of the fund we can commit into such project cannot be compared to a life office that have a long term fund with it,” he said.
He added: “it’s a good development for us because if you look at it, the challenge we are having as a nation in driving our business today is the cost of providing infrastructure for ourselves.”
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