THE Nigeria Sovereign Investment Authority (NSIA), manager of Nigeria’s sovereign wealth fund, has announced its results for the 2018 financial year. The results show strong performance in a year when many international markets under-performed and the global economy experienced a moderate pace of expansion.
Highlights of NSIA’s activities and performance during the period show that total comprehensive income (including the impact of foreign exchange gains) of N44.34 billion (previous year: N27.93 billion).
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.
The Managing Director, NSIA, Uche Orji, said the NSIA Act mandates the organisation to run three ring-fenced funds – stabilisation fund, future generations fund, and Nigeria infrastructure fund with asset allocation of 20:30:50 respectively.
“The governance process of NSIA is well documented in its Establishment Act. NSIA has an independent professional board that through five committees, rigorously oversees the operations of the fund. The NSIA is subject to several audits during the year – quarterly audit review by its external auditors, Price Waterhouse Coopers, and annual audits reports are published, the Auditor General and Accountant General both independently audit the accounts and operations of the fund,” he said.
The NSIA has its mission carved for it, which 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.
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. 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 (previous year: N27.93 billion).
Also, 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).
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). The LUTH Cancer Centre has been commissioned and the facility will soon be fully open for clinical operations.
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.
The company also said that Commodities Exchange (NCX) showed that progress has been made and it is 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.
NSIA has core capital of $1.5 billion while other third party managed funds comprised of PIDF – US$650 million; DMO – US$122.60 million ($120.95 – Fair value 31 Dec 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.
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.
There are no apparent expectations of recession risks in 2019. However, the authority continues to monitor the market conditions with the view to leverage the upside risks available in the market.
According to the authority, the deployment of the Presidential Infrastructure Development Fund will play a key part in its infrastructure investment strategy for the year. It also stated that healthcare would remain a focus area 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.
Financial Statement Review
The authority’s performance for 2018 reflected the strength of the its strategy across all the funds as its 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 market, 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 fund performed favorably 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 the authority’s 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, it realized a foreign exchange gain of N18.05 billion.
The Mandate Funds
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 one with significant capital deployment in the priority sectors of agriculture, healthcare, motorways and power.
The agriculture sector remains a focus area to the authority. Key programmes undertaken within the period under review include: 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, 2 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 expects to start farming activities in late 2019 with the completion of irrigation facilities expected to be finalized in H2 2019.
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 Lagos-Ibadan Expressway, Second Niger Bridge; and Abuja-Kaduna-Zaria-Kano Road. To date, NSIA has disbursed N77.6 billion under the PIDF programme. Other projects being undertaken under the 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 designed to facilitate the rapid completion of key infrastructure projects that have been stalled for years.
NSIA reached advanced stages in the implementation of three healthcare projects in the year under review. The first is the NSIA–LUTH Cancer Centre which is structured under a public-private partnership (PPP) arrangement between the NSIA and the LUTH. The project was for the rehabilitation, equipping and operation of an existing cancer centre co-located in LUTH.
The centre was subsequently commissioned by President Muhammadu Buhari in early 2019. The centre will provide advanced radiotherapy and chemotherapy treatment services.
The other two projects are NSIA-AKTH and NSIA-FMCU diagnostic centres which are scheduled for commissioning H2 2019.
Despite market volatility and softening that characterized most markets in the period under review, the authority’s maintained its comprehensive strategy for manager selection which proved effective. At year-end 2018, the SF had been fully invested.
The authority maintained its sophisticated deployment strategy with the FGF remaining evenly apportioned across global public equities, private equity, hedge funds and ‘other diversifiers’. As of December 2018, the Authority had deployed about 81 per cent of its capital across all the strategic asset classes of the FGF.