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In this interview under Financial Nigeria’s Notable Policy Personality Series, Uche Orji, Managing Director and Chief Executive Officer, Nigeria Sovereign Investment Authority (NSIA) spoke to Jide Akintunde, Director, Nigeria Development and Finance Forum, on investment and stakeholder engagement strategies of the NSIA, outlook of Nigeria’s economy and Sovereign Wealth Fund (SWF).

Jide Akintunde: There has been a lot of turbulence in the Nigerian financial market over the past few months. The currency has been devalued twice since November, fiscal policy is stressed and political risk toll is expected to show on portfolio performances over the next financial reporting cycles. Did the NSIA find an oasis of calm in a generally stressed market?

Uche Orji: The turbulence in the Nigerian financial markets has, in our own opinion, actually opened up a lot of opportunities for buying assets and making investments. So I prefer to see this turbulence as short-term issues, frankly. The fundamental reasons one would invest in Nigeria run beyond short-term issues. And those fundamentals do not change all of a sudden.
    
Currency devaluation is a problem for local importers but I think it presents an opportunity for external investors and the NSIA. With the bulk of our assets still held in foreign currency, which gives a lot of buying power to be deployed domestically, we actually see opportunity to buy assets. One of the promises I made when I spoke to the press recently was that we will get more active in the domestic market by taking advantage of the price decline in some sectors, particularly commercial real estate, due to devaluation of the naira.

In terms of how we see political risk as well as fiscal policy, we believe that the current environment presents two possible outcomes. Investors are watching the political events in Nigeria. I think it is a wonderful thing for investors to trade in a democratic environment. I hope the impending transition goes very smoothly. When that happens, not just the NSIA would find an oasis of calm; every investor who is looking for opportunity in Nigeria would also find that oasis to invest because stability to a political process is a very important investment metric for a lot of investors.

But my view on this is not new. Exactly a month ago, I spoke in Abu Dhabi at the National Bank of Abu Dhabi conference. I said that this is a buying opportunity for investors. There is a lot of fear with the volatility and uncertainty in the Nigerian political environment. In that kind of situation, I always go to Warren Buffet’s quote where he said: “Be greedy when everybody else is fearful. Be fearful when everybody else is greedy.” Right now, all of these factors are creating fears in the minds of investors, but I will remind them what I said a month ago: Be very active. This is a buying opportunity and I believe that sincerely.

JA: I think it was remarkable that a governmental entity like the NSIA released its annual report on a timely basis as you did last year, and you have released the accounts for 2014. Why is this important for the NSIA in terms of its investment strategies and engagement with its stakeholders?

UO: There are three points I will make in response to this. First, releasing our annual reports, even if it is just an abridged version, fully audited, is a requirement of the NSIA by law. The second point is accountability and transparency. These are two very important factors that determine how we internally judge our performance. And so being accountable to our stakeholders, by presenting the annual reports to them very early, is very crucial for us. We try to stay within 90 days of the end of the financial year to complete the audit. It is not just our internal report; it is an audited report. We work very hard at it. We have set up our systems to be able to close our books within a month of the end of the year. It was a little challenging this year but we still managed to make the timing we set for ourselves to have our results, which was March 30th.

So the first reason is statutory. The second is accountability and transparency. The third reason is culture. There is a culture in NSIA whereby we try as much as possible to make sure things are not left unresolved. I have seen that the reason many companies are unable to release their results on time is they leave many things unresolved. At the last minute, they start to scramble and that can be a challenge. The culture we have imbibed here is a culture where we try to tidy up our books as quickly as possible. I would like to think that is important in engaging with our stakeholders. If you are disciplined enough to consistently meet your statutory requirement by producing the annual reports, I think people would like to take you seriously as an organization.

Being transparent with your stakeholders is very important. That being the case, when things are tough, you don’t hide the bad news. You tell them very quickly. “We had a tough year, and here is why. And this is the plan to resolve it.” For us, it is important that we maintain this culture.     

JA: The total funding so far allocated to the NSIA is $1.5550 billion. Small as this is relative to other Sovereign Wealth Funds (SWFs), the Nigerian SWF is actually a fund of funds; it embodies three funds that are ring-fenced: Stabilization Fund; Nigeria Infrastructure Fund and Future Generations Fund. Given the understanding of the objective of each of the funds and looking forward to being able to fully allocate the funds as quickly as possible, how do you prefer these funds should grow in terms of new funding by the government in order to bolster the overall performance of NSIA’s total assets?

UO: Let me be clear about assets under management. The asset that belongs to NSIA is still $1 billion. The $550 million is third-party assets that we are managing. $350 million belongs to Nigerian Bulk Electricity Trading (NBET) and $200 million belongs to Nigeria’s Debt Management Office (DMO). The DMO’s money is used for infrastructure-target investing while NBET’s is purely liquidity management and we will return the cash to them after a four-year period of managing it. The returns that you see in our books is largely NSIA’s returns on the $1 billion. Every return we earn on the $550 million goes to the agencies on whose behalf we are managing it and they give us a small amount as a fee for managing those assets.

In terms of the size of the NSIA, there are about 55 Sovereign Wealth Funds in the world that I track and only about five or six started with up to $1 billion. So when you are comparing NSIA with funds that have been in existence for 10, 30 and almost 50 years in the case of Kuwait, it is really not a fair comparison. The ideal approach is to compare them in terms of what their starting sizes were. And I can tell you confidently that Kuwait, Abu Dhabi and Norway, who have the top three SWFs today, started with much less than a billion dollars. Today, Norway is close to $1 trillion. But they started with less than $500 million in the early 90s. Abu Dhabi started with less than $100 million in 1976. The point is, all these large funds today started small.

The most important thing – and that brings me to the third aspect of your question – is the consistency of the contribution. That is what makes the difference. The starting size of NSIA puts it in the top tier of the other funds when they started. You can argue that given the current macroeconomic situation globally, that is an inconsequential size compared to what those funds started with 20 or 30 years ago. I can agree with that. But in absolute size, a billion dollars is not an inconsequential amount of money.

On the issue of consistent contributions, there are two things at stake. The first is lack of political will. This is a problem not only NSIA is facing. It is a problem other funds also faced in the past. At the time when most countries started their SWFs, they also had competing needs. So the debate has always been there: Should we support this or should we not support this? That is an argument I understand completely and we would continue to engage in that debate until we reach a solution. But I don’t think anybody would discount the value of creating a sovereign wealth fund. Managing money is very difficult. So, get yourself ready to manage a lot of money, prove that you can and the system will consistently make contributions going forward.

The second factor regarding the consistency of contributions is oil price and I think that is probably the most significant challenge. Do we have the right conditions with oil price to support consistent contributions? That is beyond my control but I want to hope the next time we have an oil rally, that we will have the political will to back this fund because it is just common sense. I read in the papers that at the peak of the oil rally in 2013, the Norwegian SWF received a billion dollars a week. I hope we can have the discipline at some point to add something, no matter how small, into the NSIA just to show that we are committed to it. For me, that is the biggest signal the government needs to send in terms of backing the SWF.

Back to the issue of size, I don’t really know what the right target size is. I have read some research where people believe that SWFs should aim to get a minimum of 10 percent of GDP as its optimum size. Nigeria’s GDP is about $510 billion. We are still very far away from that. But I want to believe we will put in place a strategy and a system in place that encourage future contributions that will take this fund to the size and scale where it should belong.             

JA: The Coordinating Minister of the Economy and Finance Minister, Dr. Ngozi Okonjo-Iweala, said the medium term objective is to grow the NSIA’s fund to $5 billion. To what extent is the NSIA allowed to leverage its assets as part of the growth strategies for the Fund, especially because the outlook of the primary funding source – crude oil earning above budget benchmark price – is inauspicious at the moment, and things can get quite unexciting if the fund remains stagnant in size over too long period of time?

UO: We are thinking about a few creative ways to grow our assets. At the moment, it is still a long way but we are working on some ideas. Some of the ideas include strategies used by other countries. Look at the Singaporean Temasek; they grew with the transfer of assets owned by their central government. Same thing with China Investment Corporation. CIC grew with the transfer of stakes held by the government of China in the banks to CIC. CIC liquidated those stakes and grew its assets. There is nothing in our laws that strictly forbids us from doing that as well. But that requires a lot of negotiations since those assets are in various hands at the moment. However, it is one possible option of growth.

The other option is to continue to put up good numbers. Of course that is a very slow process given that SWFs are designed not to be exciting; they are designed to be boring, frankly. Keeping our funds safe is our number one mantra and earning a return is number two. And between safety and earning a return, we always choose safety so that we are always on the low-risk side of investing. We have done a few things at NSIA that people might consider to be a little bit high risk. But it has been very well controlled, at least within certain levels of parameters.

Are we allowed to leverage our assets? We are not designed to manage leverage. However, we are allowed to set up subsidiary companies and those companies can take on leverage. For instance, if NSIA’s subsidiary in power decides to borrow money to build a power plant, that subsidiary can do that but the core NSIA cannot leverage its assets. The only thing we have done is to look at other SWFs to come and partner with us. But again, that doesn’t increase our own asset size. It just means that we can be more impactful in society. For example, in looking for funding for the Second Niger Bridge project, we reached out to other SWFs.

The core NSIA has to be grown when oil prices are above the budget benchmark price and there is consistency in making contributions to it. If we have a situation like what we had in the early 90s when oil price stayed below the benchmark rate, the NSIA would not receive any contribution. Frankly, suspending contribution for a few years in the grand scheme of what this fund is designed to do is really not a problem. It would make life a little less exciting but the fund should not be scrapped because there is no contribution coming into it. When oil returns in up-cycle, you can then put more money into it again.  

JA: It is believed that SWFs are better equipped with local knowledge of their domestic environments, compared with foreign fund managers. What in your view is the outlook of investments in Nigeria over the next decade?

UO: My first outlook of the Nigerian investment environment over the next 10 years is one of significant growth. I still believe this economy is one of the best places to invest. When we have dislocations like we have had in the last couple of months, I think investors should take advantage of this. We have 170 million people with an average age of 17 or 18 years old. This is one of the youngest societies in the world and that is exciting. Think about what that means in terms of buying power, creativity, entrepreneurism. If you are in housing or retail, that is an opportunity.

When I think about Nigeria, I prefer to see the glass as half-full instead of half-empty. And I say that with all sincerity. I used to cover the semi-conductors sector in the late 90s. I used to go to China, before China became the home of every single electronics manufacturer. Over those years, they produced a high number of engineers and scientists. Guess what happened when those people decided to get into the workforce in a very active manner. They turned China into the biggest electronics manufacturing hub in the world. That is similar to the story of India.   

Our biggest resource is not natural resource. Our biggest resource is human resource. Look at what is happening to our entertainment industry. There is no place I have visited, be it other African countries or the Caribbean, where you don’t see a Nollywood movie being watched. You walk past the bars in Tokyo, they are playing Nigerian music. That is revenue.    

This fund is a good idea. I wish we started it 40 years ago, when we had a really big pool of capital to make large contributions. But the next 10 years for Nigeria is very exciting especially if we navigate our political environment smoothly, continue to strengthen the rule of law, equip our young people. I would not be surprised if over the next 10 years, we are pushing for a $1 trillion economy.  

JA: How exciting have you found your job and what are your goals over the short- to long-term?

UO: My short-term goal is to build NSIA; give it credibility globally, build it into a proper agency that the government can have confidence in, position it as a trusted adviser to the government, and build it into a highly-profitable, highly-professional investment company.  

My contract ends in 2017, by which time I will surely leave and hand over to the next generation of leaders who will take NSIA forward. Longer term, I don’t know. My personal career has morphed. I grew up in Nigeria. I went to Government College, Umuahia (Abia State). I attended University of Port Harcourt where I studied chemical engineering. I did my National Youth Service Corps (NYSC) in Bauchi State. I worked for what was then Nigeria Industrial Development Bank, now Bank of Industry.

I completed NYSC in 1991 and switched careers. I went from engineering to accounting. When I switched to accounting, I moved to Lagos and worked for Arthur Andersen. I then left accounting two years later and joined banking. Between 1993 and 1996, I was Financial Controller, Diamond Bank. From my banking job, I went to Harvard Business School. From there I went into asset management with Goldman Sachs Asset Management. Then I went into investment banking with JP Morgan in London. Then I moved to New York to work with UBS in investment banking. I was Managing Director at JP Morgan and UBS. The point I am making is that I have covered quite a wide span: engineering, accounting, commercial banking, asset management and investment banking. Running NSIA is my sixth career. I don’t know what’s coming next. But I think the most important thing is to continue to develop yourself, build the right skills and take up the opportunities as they come.

But I can tell you what I think my terminal career would be. I am going to be a professor. I am going to go back to school, get a PhD and teach. That much I know. But what happens between now and my terminal career, I do not know and my terminal career starts when I am 55. So I have a few years to get there. Thank you very much.