Uche Orji: We invest to deliver value to the Nigerian people

03 Jun 2021
Uche Orji


I am very excited about NSIA's new Innovation Fund and we are very close to making our first investment with the fund.

Uche Orji, Managing Director and Chief Executive Officer, Nigeria Sovereign Investment Authority

In this exclusive interview, Uche Orji, Managing Director and Chief Executive Officer, Nigeria Sovereign Investment Authority (NSIA), discusses the performance of Nigeria’s sovereign wealth fund in 2020, how the Authority has been investing for the benefit of Nigerians, and hints on some new investments NSIA is set to make that will help transform the Nigerian economy. He spoke with Jide Akintunde, Managing Editor, Financial Nigeria.

Jide Akintunde (JA): What are the highlights of the financial performance of NSIA in 2020, and what were the drivers of the results?
Uche Orji (UO): The main financial highlight is that NSIA’s total comprehensive income went up from N34 billion in 2019 to N160 billion in 2020. In 2019, there was a small impact of naira exchange rate devaluation on the performance for that year. But in 2020, the impact was bigger, as the official exchange rate by the Central Bank of Nigeria (CBN) moved from N325/US$1 in 2019 and stood at N379/US$1 in 2020.

NSIA holds naira and foreign currency positions because of the investments we have made over the years. Applying the variation in the exchange rate in 2020 gave us over N51 billion in returns; but excluding that, we had over N109 billion in income, which in total came to N160 billion.

With regard to the key drivers of the Authority’s performance, the first is that the investments we made in foreign markets did extremely well. We were able to significantly increase the returns from the Future Generations Fund (FGF) as well as the Stabilisation Fund (SF) – two of the three core funds being managed by NSIA. However, the returns on the SF was less, because of its investment strategy.

Second, we made money from developed market equities, private equity, venture capital, and hedge funds, which were the main categories of the investments we have. Third, we also made money from direct investments in Exchange Traded Funds (ETFs) and some single stock investments, which we had never done before. The final driver of the performance was that some of the subsidiaries of the NSIA either posted improved financial returns or, in some cases, reduced their losses. Our healthcare investments, for example, have not, on the aggregate, broken even but their losses were significantly reduced in 2020, compared to 2019. However, the other investments like the Nigeria Mortgage Refinance Company (NMRC) and InfraCredit delivered strong returns.

JA: It is important to track the performance of NSIA’s Stabilisation Fund and Future Generations Fund, because of the practical and symbolic importance of their mandates. How well have the funds performed over the last eight years of their investing?

UO: The Stabilisation Fund was designed to keep cash as much as possible, but it has grown every single year since it started investing. In dollar terms, the SF was up by just under 7 per cent in 2020, against the benchmark of the US inflation rate at 1.25 per cent. Over the last five years, the fund has exceeded that benchmark. In naira terms, the returns is even bigger.

For the Future Generations Fund, the benchmark is US inflation rate plus 4 per cent, which comes to about 5.25 per cent. The FGF has exceeded its expected returns in the last five years as well.

The funds are doing well as designed. We don’t take too much risk in the management of the funds; we are quite mindful of not losing money. Over the years, the SF and the FGF have outperformed, or stayed around, their benchmarks. From the standpoint of whether they are fulfilling their mandates, I would be categorical in saying they are.

JA: Last year, we saw that the Stabilisation Fund delivered on its mandate that requires it to return funds to the government to help it smoothen fiscal spending during times of acute shortfall in public revenue. What is your comment on that?

UO: The Stabilisation Fund was designed to be available for the government when it needs it. We have generated returns on the fund, which is nice, and what was returned to the government was mostly from the returns generated. However, I would like to emphasise that the fund was not designed to be a high returning asset. It is meant to be available when the government requests for it. Therefore, the SF invests in short-term instruments.

The FGF is what the government cannot touch. Its investment horizon is 10 years at the least. This core fund of the NSIA was never designed to be called by the government.

JA: NSIA directly invests its core Infrastructure Fund in Nigeria. What are the criteria for selecting the projects the fund invests in and what major advancements were recorded in investing the fund in 2020?
UO: The criteria are very simple. The first is that the project has to be of national importance. NSIA was not designed to invest in private businesses. It is not a commercial or an investment bank. Second, we strike a balance between social impact and commercial returns. Third is whether we can attract private institutional capital, local and foreign, to the project. And fourth is the regulatory frameworks that are relevant to the project. These are the four factors that matter to us in investing our Infrastructure Fund.

We might have people come to us with their good project proposals in certain segments where they operate, but the reality is that we are keener on projects that are of national importance.

We looked at all the sectors of infrastructure, both hard and soft infrastructure, and social and commercial infrastructure, and we then decided how best to approach them. We looked at about 17 subsectors and narrowed down to six. This we did while also being mindful that we don’t have a huge amount of capital. The six subsectors we narrowed down to are agriculture, healthcare, roads, power, gas industrialization, and what we call financial market infrastructure.

After the four criteria enumerated above have been fulfilled for a project to be sponsored by us, we go into due diligence -- on partners, co-sponsors or co-developers -- and the project then goes through the Exco process, Investment Exco process, Board Investment Committee process, and to the full Board. If it gets all the approvals, we then make investment. These are our core organizing principles and they will remain.

JA: As a government agency, the work of the NSIA is expected to ultimately benefit the Nigerian people. How is NSIA delivering on this expectation?

UO: There are a variety of ways that NSIA looks at this. NSIA looks to deliver financial returns to the Nigerian people. Our ability to earn returns and pay dividends or being there to release some capital to the federal and state governments to help balance the budget in the period of economic crisis, is a foremost role of the NSIA. We take this quite seriously. We invest internationally and use the returns at home.

We have invested in some sectors, for instance healthcare. Without our cancer centre at the Lagos University Teaching Hospital (LUTH), many people would have died of cancer last year as COVID-19 restrictions prevented a sizeable number of cancer patients from traveling abroad for treatment. We had a significant spike in our patient count in LUTH and most of the patients attested to the quality of treatment as being world-class. The facility has continued to save lives.

It is unbelievable but true, the diagnostic centres we built in Kano and Umuahia are of international standards and they are running 24/7. You can get an MRI done at these our facilities at 3:00AM. In Abuja, anytime from 4:00PM on weekends, you can’t get an MRI done. We are here to serve people and healthcare is where you are going to see a lot more of our investments.

We started a conversation with University College London on the development of pharmaceutical manufacturing in Nigeria without realizing that this is going to be an area of significant importance as COVID-19 has now made it clear, when the pandemic disrupted the global supply chains that countries including Nigeria rely on for pharmaceutical products. We are going to start building the facility this year through our pharmaceutical company. Our plant will deliver WHO-certified medications to international standards using production processes consistent with best practice.

In 2020, we understood that the only things that matter are your health and food. As you know, long before 2020, we have been actively investing in Agriculture. For instance, the NSIA ran the fertilizer programme of the President from December 2016 until January 2021. We have been quiet about the impact of this intervention. Before we started the fertilizer programme in 2016, the price of a bag of 50kg NPK 20:10:10 fertilizer was N13,000.00. Hardly were there any local blending plants working; the country was mainly importing fertilizers to meet domestic demand. So, no real jobs were created locally in the industry. And there was little evidence that the fertilizers being imported by the government, and subsidized by it, got to the people that needed them. The government had an outstanding subsidy bill of about N76 billion.

Within 12 months of NSIA running the fertilizer programme, we had in excess of 7 million bags of locally blended fertilizer in warehouses around the country. The price of fertilizer crashed from N13,000.00, to N5,000.00, per 50kg bag. The number of functioning blending plants went up from virtually zero, to 11, then to 22, and now 50. By the estimates of the Fertiliser Producers & Suppliers Association of Nigeria, we have created about 250,000 jobs in the fertiliser industry.

We also made direct investment in a farm project in Panda, in Nasarawa State, where we are showcasing how a proper industrial farm should operate. We did this in partnership with UFF, an Old Mutual-backed investment company based in South Africa. The project is on track to farm 6,000 hectares of land and eventually expand to 13 hectares, for maize and soybean farming. We have other projects we are doing in agriculture.

Also, NSIA developed a company called Family Homes Fund (FHF) Limited. At the moment, we still own 49 per cent of the equity of the fund. FHF was initially developed by the federal government, but the NSIA anchored it, to deliver low-cost housing. It currently has low-cost housing projects around the country, including in Yobe, Adamawa, Borno, Delta, Kaduna and Nasarawa states.

A local infrastructure bond market didn’t really exist in Nigeria; therefore, pension funds could not invest in the infrastructure asset class as it was not deemed to be safe. To create the level of security needed, the market had to have a bond guarantee scheme. NSIA cannot provide guarantee. But I actually wrote the first line of the business plan of what became InfraCredit on October 1, 2014.

InfraCredit is an entity wholly sponsored by NSIA. We got help from GuarantCo and PIDG, later on the Africa Finance Corporation (AFC) also invested in the company. This project, which was developed and incubated by NSIA, has now enabled pension funds to invest in infrastructure in the country.

I should also mention our investment in Bridge Academy, an online platform that delivers high quality education to children from low-income home. We made 10 per cent equity investment in the entity. Bridge provides access to quality primary school education to the children of under-privileged parents, some of whom earn less than $2.00 a day. This is a fantastic programme. The children are taught world class curriculum out of Washington, D.C. It is largely the same Math, English and Sciences as those taught to children in the United States. The result has been stunning. The literacy and numeracy level of the beneficiary kids have gone up. We believe that very soon we will start to make profit from our investment in the project. This project represents areas where we simply make financial investments, unlike roads and healthcare where we are developing and sponsoring the projects.

We can go on and on. But suffice to say that the things we do here deliver value to the people, including the masses.

JA: Perhaps for the sake of specificity, what are the institutional contributions of NSIA to strengthening Nigeria’s financial market infrastructure?

UO: The first investment we made in Nigerian financial market infrastructure is Nigeria Mortgage Refinance Company (NMRC), which is the Nigerian equivalent of Fannie Mae in the US. To catalyse the mortgage industry, we believed that a mortgage refinancing company was needed. Such a company can raise cheap capital, blend it with donor funding and Nigerian government equity, and also raise money in the bond market. This pool of capital would be used in funding primary mortgage institutions to refinance mortgages that have been issued by the commercial banks. In one year of NMRC’s operation, the cost of mortgage fell by 800 basis points. NSIA running the company brought governance, transparency, accountability and confidence in order for other people to invest. NMRC is making progress; it is profitable and delivering on refinancing mortgages.

As I have noted, InfraCredit has enabled pension funds to invest in infrastructure. This is important as we have our gaze on investing in real estate.

The third intervention is Development Bank of Nigeria (DBN). We co-anchored DBN and I was a co-chair of the wholesale Development Finance Institution (DFI) at some point. NSIA holds in trust for the federal government about 40 per cent shares of DBN. We got other people to invest. DBN funds commercial and microfinance banks who then go on to lend to small and medium scale enterprises.

Again, I have discussed our investment and role in the Family Home Fund. The other intervention I would like to talk about is NG Clearing. To have a well-functioning financial market, derivatives and derivative trading are very important. So, we took a 16 per cent position in NG Clearing, which is driven by Nigerian Stock Exchange – as it then was – but now Nigerian Exchange Group. The other one is Abuja Commodity Exchange. Unfortunately, we ran into all sorts of political challenges with that. We couldn’t develop it and invest as we had wanted to do. But we are now partnering with the CBN to develop the commodity exchange.

JA: During your presentation of the 2020 financial statements of the NSIA to the media, you were excited about the Authority’s new Innovation Fund. What does NSIA aim to achieve with this fund?

UO: I am still very excited about the fund. I am usually very careful about pre-announcing things. But I am very excited about this because I believe we are very close to some of the first few investments of this fund anyway. We will be investing in data networking, submarine cables, data centres, software, and services programmes.

With the fund, we will make Series A investments; we will not go into funding seed-stage ventures. The innovation fund will ensure that those who have developed ideas and products get the capital required for them to be commercially successful.

This fund also aims to help in developing the bio-technology industry in Nigeria. One of the investments NSIA made in the industry in the US has been returning annualized 25 per cent for the last five years, in dollar terms. The company specializes in buying healthcare patents. They go to universities and research labs to buy patents, which are eventually sold to pharmaceutical giants like Pfizer and AstraZeneca to produce drugs. Every time the drugs are sold, we get royalty income.

We can replicate this idea in Nigeria. There are various research innovations that have been abandoned in our universities and such research centres as Raw Materials Research and Development Council, National Institute for Pharmaceutical Research and Development, and National Biotechnology Development Agency. Industrialising our research is something we have failed at. NSIA wants to mobilise funds, both from itself and co-investors, to turn research by Nigerian institutions into commercially available products.

I should add that NSIA is watching with keen interest what is happening in fintech and software services. We are going to play a role in that area. Watch this space.

JA: What is your outlook for 2021?

UO: We believe inflation is back. This will have implications for asset prices. The direct area that higher inflation in the US will impact Nigeria is the naira-dollar exchange rate. The other challenge is that, as the world starts to de-fund fossil fuel, the country’s foreign exchange income from crude oil will take a hit.

But we have to look at how to overcome this, especially in the context of the high rate of unemployment in the country and the surge in migration for economic reasons. There are many Indians who are working for US companies without leaving India. When I was working in JP Morgan in London, we outsourced a lot of research to India and we pay the Indian workers in dollars, same wages as in London for the same level of skill.

There is a massive skill set in Nigeria on coding. We have time zone and language advantages. Nothing should stop us from putting between 500,000 and four million Nigerians in the outsourcing sector to work for the big foreign firms from the country. NSIA is making investments in submarine cables and data centres to facilitate this area where we can take significant advantage of our youthful population.

At NSIA, we are very optimistic. I don’t think our performance in 2021 will be as strong as in 202o. Last year was very unique. Nonetheless, I am very hopeful that we will make money this year. The first quarter has already turned out very well. Our second quarter numbers are also looking strong as well.

I would like to clarify the headlines about our pivot to Europe. In the international markets, we have been very heavy in the United States and Japan. We were very light on Europe. But looking ahead, we will make more investments in Europe. I believe that as the world opens up post-COVID-19 pandemic, the leisure and industrial sectors are areas Europe is going to be very strong.

European stocks have underperformed the United States. Since 2008, the US has gone up 4x in value and Europe has flattened down. As the world moves away from tech, which has gone through a bubble, and as investors start to put more in the products markets, Europe is going to provide a lot of opportunities.

So, we are going to increase our allocation to Europe, and we will reduce our allocation to technology. Technology is a highly valued sector that is very sensitive to high interest rate and inflation. If inflation goes up, fixed income will go down; technology stocks that already have very high valuation will also go down.