The Nigeria Sovereign Investment Authority (NSIA) shrugged off the impact of market volatility to post its ninth successive year of earnings, but has warned 2022 could be the most challenging year yet due to the impact of inflation, Russia’s invasion of Ukraine and supply chain bottlenecks on all asset classes.
Net asset value grew 19% in local currency terms to NGN919.7 billion, but continued weakness of the naira 10% in US$ to US$2.2 billion. Post-tax profit was down 1.9% to NGN153.6 billion (US$369 million) with forex gains offsetting most of the 8% fall in core income.
Infrastructure Drive: Tech, Toll-Roads and Agriculture
NSIA oversees three funds with different mandates, all of which reported growth in 2021. Forming the strategic part of the NSIA, the National Infrastructure Fund (NIF) remains its largest mandate, representing around half of AUM, but does not provide details on an annual return.
The NIF has a three-pronged approach:
Direct Investment Strategy: Presidential Infrastructure Development Fund for road construction and Mambilla Hydropower Project; cancer diagnostics and radiology facilities
Co-Investment Strategy: Developing agriculture and innovation through contributions to the Fund for Agricultural Finance in Nigeria, NSIA-UFF Agriculture Fund and Innovation and Digital Technology Fund
Institutions to support financial market infrastructure: launching low-cost mortgages, infrastructure credit guarantees, operationalized the Development Bank of Nigeria for banking support for MSMEs.
It is branching out into various sectors, including healthcare, fertilizer production, animal feed processing, solar energy generation, and the development of financial infrastructure to foster greater inclusion. It is going further to support local innovators through VC.
In the agricultural sector, by end-2021 the Presidential Fertiliser Infrastructure (PFI) was transferred to the Ministry of Finance Incorporated (MOFI) and is being managed by the NSIA as a third-party asset and reported its first annual profit, having previously been a subsidized program. In the second half of 2022, the NSIA expects to launch Panda Agric, an investment company set up by NSIA-UFF US$200 million Agriculture Fund. Panda farm is engaged in the two-phase development of an animal feed processing business with backward integration through the farming of maize and soybean.
Meanwhile, NSIA has secured a site for ammonia plants in partnership with Morocco’s OCP under its gas industrialization initiative, which should help support the PFI’s efforts. With annual capacity of 750,000 tonnes of ammonia and 1 million tonnes of phosphate fertilizer, the planned plant will help transform the country from a net importer to an exporter of fertilizer, potentially boosting West Africa’s relatively low agricultural yield as well as monetizing gas that is currently flared. The plant is due to come online in 2025 and will be supplied with Nigerian natural gas and Moroccan phosphate.
In the tech sector, the NSIA is investing US$250 million in a data center based in Lagos via hyperscale cloud data company, Kasi Cloud Limited. However, the NSIA’s latest statement gives no update on the progress of its Innovation Fund, which was launched in Q2 2020 to promote local innovation and technology, particularly in agri-tech, pharmacology, biotechnology, data networking and storage, and fintech.
The annual update also reports that the three road projects being implemented by the NSIA under the Presidential Infrastructure Development Fund (PIDF) had “reached advanced stages of construction.” The target completion date for the Lagos-Ibadan Expressway and Second Niger Bridge is 2022/2023 while Abuja-Kaduna-Kano Highway is set to open to traffic in 2025.
Support for healthcare is another infrastructure priority and the NSIA announced it was in the process of developing an Active Pharmaceutical Ingredient Manufacturing Plant (API) Company in Nigeria. It secured approval and began development plans for 23 new modern medical diagnostic centers of excellencea and two oncology centers. The fund says it is aiming to create access to quality healthcare for at least one million patients per annum.
The Future Generations Fund, which represents the fund's long-term savings pool with around 30% of AUM, returned 12% in 2021, in US dollar terms. Hedge funds returned 12.8% (up from 11.0% in 2020), developed equities returned 17.5% (down from 19.0%), emerging market equities declined 1.9% (down from 22.0% growth), and private equity, venture capital and other diversifiers saw 23% growth (up from 13%). NSIA did not indicate whether it had shifted from tech stocks due to expensive valuations and towards pharma, aviation and consumer discretionary, as reported last May when it anticipated a post-pandemic economic revival.
The Stabilization Fund, representing around a fifth of AUM and comprised of US dollar-denominated fixed income, returned 1.6% in US$ terms, led by 3.7% growth the structured products subset.
Outlook: Inflation is the Main Challenge
Speaking to the press, Chief Executive Uche Orji said, “I think that 2022 would be the toughest year of investing over the last 15 years. Since between 2008 and now this will be the toughest year for investing because navigating inflation and controlling it without triggering a recession is the biggest challenge that central bank governors all over the world have to deal with. And that is always not a good time for investment.”
Warning of a risk of global recession and the impact of inflation on returns, Orji stated that the NSIA was strengthening resilience through diversification and portfolio selection. Over the long-term, the fund manager hopes to expand access to third-party capital to bolster efforts in sustainability and the development of a climate-resilient economy.
Picture courtesy of NSIA: NSIA CEO Uche Orji meets President Buhari
