When FG Borrows Your Future

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Source: businessday.ng

On Thursday last week, 24th January 2020, Nasir El Rufai of Kaduna told the Press after the monthly National Economic Council meeting that the Federal Government has decided that it would take N2trn from the pension fund to invest in infrastructure. (1)

This is in line with provisions in the Pension Reform Act of 2004 which empowers the federal government to borrow up to 20% of the funds on national concerns. (2, Page 45)

At this point in the article I know that there are three possible reactions to what I have written:
1. Anti-government — “The government has come again to dip their hands in our pockets.”
2. Pro-government — “This is the best thing since slice bread. How can a group of politicians be blessed with such unbelievable foresight.”
3. Neutral — “Is today a slow news day? Nothing to break heads on over this. Funds for infrastructure is standard worldwide.”

But let’s take a step back…


Anyone who is older than 30 years living in Nigeria should remember a time when old people were always shown on NTA at 9pm queuing up under the hot sun to collect their pensions. Their pensions were never paid on time, if at all. There were always laments. Many cried on live television. Several of the retirees who had no other source of income after service collapsed and died while on queues waiting for their pensions. Those who retired before 2004 had it really bad. Sahara Reporters told of how 2 retirees from the defunct Nigerian Airways slumped and died waiting for their pensions less than 2 years ago. (3)

In 2004, President Obasanjo reformed Pensions. Previously the Defined Benefit Scheme (DBS) was in place whereby the pension account was solely the responsibility of the employer — private or government. As you may have imagined, the government and several employers refused to fund the account. While there was a yearly budget for retirement benefits, the employers considered it expensive to maintain. Unfortunately, there was little transparency and the workers had no idea they had nothing till they retired.

Hence why the decision to shift to a co-funded system was a great upgrade. Under this system — Contributory Pension Scheme (CPS) — both the government and the workers themselves are to save up a given amount of their earnings towards building up an accumulated funds reserve which the worker can fall back on after retirement. (4) The employee is to contribute 8% of his salary while the employers contribute 10%. (5) It is not so much that it is co-funded as it is about the governance puts in place for its effectiveness in disbursement. For instance, under this system you can have access to the fund even when you are unemployed for a period of time, 4 months.

Yet a lot of Nigerians don’t have pensions accounts. According to the latest National Pension Commission (PenCom) report revealing the numbers of contributors, out of 70 million Nigerians in the workforce, only 8.6 million have accounts. (6) This represents 12% of the labour force. In other words, 89 percent of employed Nigerians are not within the Nigerian pension scheme.

If you are one of the 61 million employed Nigerians who not captured under the contributory pension scheme, it means you may have to make your children your ‘retirement plan’ as a dependency on the government to take care of you is dead on arrival. I’m not sure that’s a good plan. You may also want to stop reading now as the issue I’m about to discuss does not concern you yet.


Now that you understand how pensions work, let’s go back to El Rufai’s statement.

Ideally, there is nothing wrong with government borrowing your money. They actually already do. As at January 2019 when the total fund was at N8.49trn, PenCom already said N6.16trn (72%) have been invested in government securities like treasury bills and bonds. (7)

So it’s not fundamentally a problem that the government wants your money. But like they say, the devil is in the details.

According to El Rufai,

“He said the loans, which have lower interest rate of between 5 to 6 per cent, are usually long term between 20 to 30 years.”

Now that’s the problem!

You obviously agree with me that what N1000 could buy in 2000 is not the same as what it can buy today. Like many of you know, N20 has become quite ‘useless’ these days. But think of what we bought with that amount in our days.

So, there is a lesson here. If general inflation continues to rise as we can see in the current 19-month high of 11.98% and food inflation at 14.67% (8) due to the spiral effect of border closure on the economy (which I warned about (9)), and the government insists on paying 5% for your pensions over 30 years, it means your fund is on troubled territory. The purchasing power of consumers and investors’ returns continue to worsen in the country yet the government wants to make you poorer when you can no longer fend for yourself. It’s unacceptable.

And to think that there are less worse alternatives PenCom can put the funds into.

The marginal rate for FGN bonds sold in December 2019 is 12%. The true yield of the Open Market Operations is 15%. (10) Investment in Eurobond and Dollar denominated mutual funds has the potential to insulate against depreciation of the naira which precedence shows is inevitable in the long-term.

What further worries is that the operation of available infrastructure does not give comfort that there will be return of and on investment based on the proposed infrastructure.

Take the much-touted Abuja-Kaduna railway line as a case in point. Barely two years and it’s already bedeviled by gross inefficiency. Deplorable acts of racketeering is the order of the day to the extent that on a scheduled visit the Minister of Transportation still caught the officials red-handed doubling the fare for desperate passengers. (11) An e-ticketing service promised since the rail line began operation in 2018 is yet to be effected. (12) The train breaks down regularly — well if at least 3 times in the last one year qualifies — in places susceptible to kidnapping and armed robbery. Yesterday, the Daily Post reported many people shot at and several abducted at the Rigasa railway station in Kaduna state. (13)

Nigeria took a loan of $500m from China for this train project (14). According to the Managing Director of Nigeria Railway Corporation, the train service generates N80m monthly but spends N100m monthly on its operations. (15) Are we sure China won’t seize this railway like they have done in other places? (16) The minister of transportation says China is already mounting pressure on Federal Government to repay loan secured to build the Abuja-Kaduna rail service. (17) If this railway is seized, I doubt it would be as a result of China’s draconian terms, but Nigeria’s operational inefficiencies.

If this is so for Chinese loans, why should the federal government be trusted to judiciously use the pensions of millions of Nigerian workers?

I know my answer.


Please leave the pensions of Nigerian workers alone, if there will be no guarantee of repayment as seen by the way current infrastructure are run, and if the interest rate will effectively be a waste of time for the investors. The suggested return (5%) is way below inflation (11%) which means that in just 5 years Nigerians investors under this scheme will be at least 5% poorer. Now imagine it for 30 years. For the investment to make any sense at all, it has to be at least inflation-linked.

While I understand that the National Integrated Infrastructure Master Plan (NIIMP) requires an investment of N10trn annually in the first 5 years and another N865trn over the next 25 years after (18), less than 1% of pension funds worldwide are invested in infrastructure projects, (19, Page 16) it is thus disingenuous to allocate a generous 20% for Nigeria’s.

There’s obviously a reason why the pension approach is favoured for our infrastructural development. It is the less rigorous way to plug the holes. The other alternatives like the Public-Private Partnership approach will require substantial reforms necessary for the sustainability of the projects.

For instance, there is InfraCredit set up in January 2017 by the well-run Nigerian Sovereign Investment Authority to provide guarantees which would act as a catalyst to attract the investment interest from long term investors. (20) Due to its rigorous private sector-led processes, it’s only been able to okay just 2 investments in Nigeria’s infrastructural space. (21) Such is the level of effort it takes to attract private sector participation in infrastructural development.

I do not need to start highlighting what needs to be done to bridge the huge infrastructural deficit as the federal government itself has developed a blueprint in the Economic Recovery Growth Plan (ERGP). (22) Yet as is often seen, the political will to attract private sector participation is wholly lacking. The curious case of the Land Use Act which is archaic but is left unattended to is an obvious example..

If the federal government will not put its own house in order, it should keep its hands off the funds of millions of hardworking Nigerians saving for their future.

If I will speak to the Nigerian worker whose funds is being cornered for the infrastructure, I will offer them an adage I got from Chinua Achebe’s Arrow of God,

“ Ọ bụrụ na a gbaghi ụzọ owere mgba, ọ naghị e chi.”

Unless a man wrestles with those who walk behind his compound the path will not close.

Before this, total investment in infrastructure was capped at 5% of the fund.(23, Page 11) The new limit is 20%. Who says the limit of this ‘easy’ money will not be increased further?

Give them an inch and watch them take a mile.

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