Case Study—Nigeria Sovereign Investment Authority–Nigeria Infrastructure Fund
Unlike private infrastructure funds, NIF does not have a fixed investment horizon and does not earn management fees or carried interest. NSIA must reinvest all proceeds of its investment activities (net of operating expenses) in existing or new assets of the fund. The only form of payout from NIF is through a dividend or distribution of profits to stakeholders. The NSIA Act 2011 states that that board can elect to make distributions after five years of consistent profitability in all three NSIA funds. Deal costs, which in a private fund would be covered by the management fee, are capped on a per-deal basis (annual budget approved by the board, against which amounts of more than US$80,000 must be approved by the board’s Direct Investments Committee) and cumulative basis (up to 1.5 percent of NIF capital).
MANDATE FOR INVESTMENT NIF invests in infrastructure projects in sectors with the potential to contribute to the growth and diversification of the Nigerian economy, create jobs, and— where possible—attract foreign investment. NIF focuses on four core sectors—agriculture, health care, power, and motorways—but has the flexibility to also invest in other infrastructure and noninfrastructure sectors. These other sectors include free trade zones and industrial parks; retail and industrial real estate; refining; water resources; ports; mining and basic materials; gas pipeline, storage, and processing; aviation; waste and sewage; tourism; rail; and communication. These sectors as well as general guidelines to NIF’s investment activities are described in a rolling five-year investment plan for NIF that, in accordance with the NSIA Act 2011, NSIA develops each year. The plan is a living document that is revised regularly throughout the year as government priorities and macroeconomic circumstances evolve. It is not intended as a detailed, prescriptive to-do list, but rather as general guidance for NIF’s deal origination and investment strategy. Some of the sectors within NIF’s mandate would not be conventionally considered direct infrastructure investments, but are considered as such by NSIA because of their potential to support and enable the economic growth of the country. For instance, NIF has invested in private schools, cancer treatment and diagnostic centers, an infrastructure debt fund, and an infrastructure bond guarantee company. The development benefits of these projects are evident, but they are very different from the typical infrastructure concession projects, which are designed to earn regulated tariffs over a long concession period. NIF targets for each investment a return in excess of US inflation and consistent with “reasonable expectations from a diversified portfolio of risk assets” (NSIA 2019). When NIF’s investment strategy was defined in 2014, the premium over inflation was set at 5 percent, resulting in target average annual returns at the time of 6 percent1 in US dollars. At the time of writing, the return target is US inflation plus 3 percent. Such a target reflects NSIA’s overall objective to preserve and grow its long-term purchasing power in US dollar terms, to support Nigeria’s population and its economic growth, and to maximize returns on behalf of the Nigerian people. NIF’s actual return in 2017 was 6.2 percent, consistent with targets.2 In addition, up to 10 percent of the NIF capital available for investment in any fiscal year can be invested in social infrastructure projects that promote economic development in underserved sectors or regions of Nigeria and may
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