Interview: Uche Orji
What lessons can be drawn from the success of sovereign wealth funds (SWFs) internationally?
UCHE ORJI: There are three main lessons that I think we can draw from studying the success of sovereign wealth funds internationally.
The first is the need to build institutional capacity and strong governance principles in order to deploy the federation’s assets wisely. To that extent the investment processes, asset allocation policies and manager selection process are designed to the highest standards. We have leveraged a considerably amount of international resources to design these policies and strengthened our compliance process to ensure adherence. But more importantly we have hired the best talent we can afford to drive the performance of the three funds.
The second lesson is that it is not how much you start the fund with, but the consistency of subsequent contributions. Although the NSIA started with $1bn, which most people consider to be rather small. I will point out to you that only a handful of the world’s sovereign wealth funds started with over $1bn. In fact the largest sovereign wealth fund in the world today started with less than $1bn fewer than 20 years ago, when they received their first funding. However, consistent and disciplined contribution by the governments of these countries has led to significant growth over time. So this idea must not be static but must be continuously supported.
The third lesson is that the mandate of NSIA is relatively complex compared to the other SWFs and therefore it is necessary to be patient as we implement our plan. If you look at other SWFs they have two mandates – stabilisation and savings funds. At the NSIA we have three mandates: stabilisation, savings and domestic infrastructure funds. Most of our peers do not invest domestically, and infrastructure development is complex, especially in a country like Nigeria. But we have made some commitments and investments already, and so far it is looking good.
To what extent do you see the construction of the second Niger Bridge as a template for future public-private partnerships (PPPs)?
ORJI: It gives us a chance to practically test and fine-tune the rules related to PPPs. Since this is the first federally tendered PPP project in the road sector, we are finally able to test and fine-tune a lot of the policies and regulations. It also gives us a chance to develop alternative business models for the road sector. We are looking at opportunities in concessions for industrial and other uses, as well as media.
We plan to use this template to develop models for pricing government guarantees in a way that will encourage private sector participation. This is very important because government resources are not quite enough to support the investment needed for infrastructure.
What are the greatest challenges during the initial stages of Nigerian PPPs? What are some of the benefits this model provides?
ORJI: The first and biggest challenge with PPP projects is, of course, managing public expectations. People expect work to start immediately, but PPPs are complex by nature and take time. Secondly, PPPs require substantial amounts of government support to get off the ground. The second Niger Bridge, for example, is a four-year construction project.
However, the good news about a PPP, and something Nigeria can draw comfort from, is that once you reach financial close it is fairly easy to maintain a schedule and stick to completion deadlines.
Finally, compensation of landowners functions differently with direct government procurement. You have to pay compensation at levels that are adequate yet still attractive to private sector players. Assembling all the relevant parties – including the Ministry of Works, Ministry of Finance, financial institutions and contractors – is no easy task, but we are very happy with what we have achieved so far.
Read More from OBG
