The Nigerian Sovereign Investment Authority is partnering with GuarantCo to set up a Credit Enhancement Facility Company that will enable pension funds to invest in Nigerian Infrastructure bonds. The new company will serve as a facility to help provide credit enhancements for infrastructure projects in Nigeria.
“The company will provide enhancements for infrastructure bonds, and we believe this will make an effective platform for Nigerian pension funds to invest in them,” said Uche Orji, chief executive of the Nigeria Sovereign Investment Authority (NSIA).
The lack of an appropriate credit enhancement system has been a barrier to attracting capital to invest in infrastructure funds. The Nigeria Sovereign Investment Authority is partnering with GuarantCo towards establishing a Nigerian Credit Enhancement Facility that would provide credit enhancement for critical infrastructure projects by improving their credit ratings to investment grade.
An improvement in the credit ratings would enable a fresh surge of capital such as the Nigeria’s pension fund, which has assets under management worth $26.4 billion at December 2015.
Orji explained that most pension funds do not buy into infrastructural funds when the credit rating of the issuer is not strong enough.
The new venture will provide a form of monoline insurance, giving a guarantee and allowing pension funds and insurance companies to invest. “The NSIA cannot give guarantees by itself, so we have created a company that can do this,” he said.
The company is expected to be launched in a few weeks’ time and it aims to boost the financing of infrastructure projects in Africa’s most populous nation.
GuarantCo is a London-based development financing institution supports infrastructure related projects in low-income African, Middle East, and Asian countries by issuing guarantees in local and international currencies to banks and bond investors. It specialises in frontier market infrastructure. The governments of Netherlands, Sweden, Switzerland, and the United Kingdom are sponsors of GuarantCo. The company is rated AA- by Fitch and A1 by Moody’s.
Nigeria Sovereign Investment Authority (NSIA) is the Nigerian investment institution that manages the Nigeria sovereign wealth fund. The sovereign wealth fund was established in 2011 for the purpose of managing and investing the funds obtained from the surplus of the excess oil reserves on behalf of the government of Nigeria.
The NSIA have been instrumental in raising investments for the Nigerian government to consequently boost development in the country. In December 2016, the Federal Government announced that it was working with NSIA to raise a $600 million investment fund for the mining sector in Nigeria. The government had also recently secured a $150 million support from the World Bank for the Mineral Sector Support for Economic Diversification (MSSED) programme.
Infrastructure has been a major obstacle to harnessing Africa’s most populous country’s potential. Despite its vast amount of resources, NIgeria still suffers from a high level of poverty with 60 percent of its population lacking basic amenities such as water, electricity, education, and health facilities. An investment in infrastructure would help boost Nigeria’s growth and promote greater inclusiveness and poverty reduction.