Nigeria’s 36 state governors have finally woken from their devious slumber. It has now dawned on them that they are sitting on a mountain of decaying infrastructure where roads have become death traps and the rural communities that produce 70 per cent of Nigeria’s food items, are practically inaccessible.
They now know that Nigeria has one of the highest infant and maternal mortality rates in the world because of decaying healthcare delivery facilities.
Two weeks ago, the governors rose from a meeting of the Nigerian Governors Forum vowing to rehabilitate decaying infrastructure. That is good news. The bad news from the proposal is the source of funding the gargantuan infrastructure rehabilitation bid.
At the forum, the governors endorsed the proposal by Nasir el-Rufai, Kaduna state governor who doubles as chairman of the National Economic Council and Ad-Hoc Committee, to borrow N17 trillion from pension fund for infrastructure development.
The governors’ plan has drawn flaks from labour unions and human rights organisations who see deceit and fraud in the proposal.
The plan by the governors is bad news for pensioners and the entire economy. If they are allowed to export their indecent opulence to the contributory pension fund, they would rob the pensioners of their means of livelihood in the dusk of their life. That in essence would make the defrauded pensioners a huge burden on a society that has never provided for its senior citizens.
The state governors are planning to reap where they did not sow. More than 14 years after its inauguration, only five per cent of the state governments have keyed into the contributory pension scheme. The rest are not remitting their workers’ pension deductions to the fund administrators.
The consequence of the criminal action of the state governments is that their workers hope hangs precariously on a balance as they would eventually retire into penury. Failure to remit deductions from workers’ pay to the contributory pension fund is a crime.
However, no one has been prosecuted for the heinous crime committed by 95 per cent of the state governments and thousands of employers in the organized private sector.
The disturbing fact is that the state governments are not qualified to draw from pension fund. Even if they contributed to it, they are not credit worthy.
Their bonds, the debt instrument they would use to borrow from the fund is perilously close to junk status.
Most of the state governments are bankrupt. They owe their workers several months’ salary arrears. Besides, practically all the state governments, including Lagos, the richest state in the federation, are heavily indebted to pensioners.
Oyo state has not paid pensioners who retired some seven years ago. As rich as Lagos state is, workers who retired two years ago are yet to be paid their gratuities or pension.
Pensioners in Imo state are in a showdown with the state government over pension arrears. The debt to pensioners is a recurring decimal. Even the federal government owes pensioners.
Retired federal workers wait for a minimum of one year to collect their gratuity and pension.
Nigeria is very cruel to pensioners.
The truth with the pension loans bid is that most of the state governments are not credit worthy. Most of them are not even qualified to obtain bank loans.
The creation of risk assets from pension fund is guarded by very stringent rules that is more demanding than what applies in banks. That automatically suggests that except for Lagos state, no state government might be qualified for a loan from pension fund if fund managers are conscious of the fact that state governments could plunge the nation into anarchy if they are granted uninhibited access to the fund.
Even if they were adjudged credit worthy and could be allowed to borrow from the fund, the sheer magnitude of the sum in demand borders on over-exposure to one questionable debtor which no one can really trust.
The fund is already over-exposed to the federal government. At a time when the total sum in pension fund was N8.6 trillion in 2018, the federal government alone had drawn the colossal sum of N6.16 trillion. That amounted to 72.5 per cent of the total sum.
The federal government is a tempting target for pension fund administrators because of the stringent rules surrounding its disbursement. With the colossal sum sitting in their till, pension fund managers have practically two major sources of investing the huge sums.
The fund could only be safely invested in federal government debt instruments or selected blue chip stocks in the capital market. Consequently, while N6.16 trillion has been invested in federal government debt instruments, about N560 billion has been invested in blue chip stocks in the Nigerian Stock Exchange (NSE).
The crisis in Nigeria’s money market pushed pension fund managers into the unavoidable over-exposure to federal government debt instruments. In a rather clumsy effort to compel fund owners to channel idle funds to direct investments that would create jobs and reduce Nigeria’s alarming unemployment, the Central Bank of Nigeria (CBN) crashed savings deposit rate to an appalling one per cent. Fund owners responded to the development by raiding the capital market with idle funds, seemingly crowding out pension funds in the process.
Pension fund managers have huge funds sitting idle with nowhere to invest.
The situation is worsened by the federal, states and local governments blocking direct investments with the deplorable security situation and decaying infrastructure which have combined to escalate the cost of doing business.
Now with government debt instrument at three per cent below inflation rate, saving deposit rate at 13 per cent below inflation rate and even CBN monetary policy rate (MPR) standing at almost four per cent below inflation rate, what pension fund managers invested in government debt instruments is attracting negative returns because the yield is below inflation rate.
The precarious situation could tempt pension fund administrators to see the Greek gift by state governments as the way out of declining returns on investment. The trouble with risk assets is that the risk rises with the attraction in the yield. The higher the return on investment, the higher the risk of repayment. High risk borrowers normally offer attractive yields, which might not compensate for the difficulty in getting repayment.
Pension fund administrators must resist the potential high yield that state governments might use to lure them to lend the risky fund to them. They should realise that it is better to keep their funds idle than lend to a borrower that may never pay back.
