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Columnists

Infrastructure: Tapping into pension fund – a step in the right direction? 

FG, after the NEC meeting, had resolved to borrow N2 trillion from the current N10 trillion pension funds.

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Kaduna Government expects N4billion Galaxy mall project to generate N1.6 billion revenue annually, El-Rufai: How Vodafone recorded its ‘biggest’ investment mistake in Nigeria, FG concludes plan to borrow N2 trillion from Pension Fund, Infrastructure: Tapping into pensions funds - a step in the right direction? 

At the end of the National Economic Council (NEC) meeting yesterday, the council disclosed that the Federal Government had resolved to borrow N2 trillion from the current N10 trillion pension funds to finance the development of infrastructure.

It also pronounced a national emergency on the power sector, noting that the Federal Government had pumped N1.7 trillion into the sector in the last three years with little or nothing to show for it.

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Mrs Ahmed Zainab

The Governor of Kaduna State, Malam Nasir el-Rufai, noted that the decision to tap into the pension funds was reached by a NEC committee headed by him.

Notably, he cited that the committees’ decision is consistent with the Pension Reform Act 2004, which empowers the government to borrow 20% of the fund to address national issues.

Over the years, Nigeria’s widening infrastructure deficit has been a recurring discourse as it is widely believed that the weak stock of infrastructure investments is one of the biggest challenges to the ease of doing business. From poor port infrastructure, dilapidated transport networks, epileptic power supply, huge housing deficit, Nigeria’s infrastructure gap cannot be overemphasized.

[READ MORE: Petrol: Fuel marketers call for increase in margins)

According to the IMF, Nigeria’s infrastructure stock of c.25% of GDP remains far below the 70% international benchmark. This implies that the country’s public capital stock per head is lower than the global average, a situation that has continued to hinder growth in GDP and private sector investment.

While the government has relied heavily on a combination of internal and external financing to fund capital projects, the overall impact on the operating environment remains negligible as manufacturers and SMEs continue to grapple with bottlenecks which ultimately make their goods more expensive and less competitive when compared to their peers in other countries.

In recent times, government reliance on borrowings has raised concerns on the sustainability of public debt given the huge interest payment incurred in debt servicing.

In our view, we think the current fiscal structure of government characterized by weak government revenue, elevated recurrent expenditure, high cost of governance and ballooning debt servicing cost made the government consider unconventional methods of financing to bridge the huge infrastructural deficit.

In principle, the long-term investment horizon of pension funds makes them ideal funding source for financing infrastructure. These investments are expected to generate predictable and stable cash flows which are used to service the debts over time.

Given the past history of incomplete or abandoned infrastructure projects, project delays and cost overruns by the Federal Government, we believe pension funds may be reluctant in extending funds to government projects as this may affect the returns on their assets and ultimately the realization of retirement benefits for their principals.

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3 Comments

3 Comments

  1. Stanley

    January 25, 2020 at 8:14 am

    1.7 trillion naira spent on power in the last 3yrs plus huge sums spent by previous administrations without any significant improvement in power supply or related infrastructure. This shows that our current distinction rating in corruption is actually an understatement. The govt has been on a borrowing spree, sourcing funds locally & internationally to stimulate the economy, but corrupt individuals in the implementation chain keep frustrating these efforts due to their greedy & selfish interests, while the burden of the growing debt remains on the shoulders of a dwindling economy. Many people don’t realize that, as the price & quantity of crude we export continue to drop, Nigeria is fast running out of options to save her economy. Spikes in crude prices can no longer come to the rescue like in time past, because the world is currently at an advanced stage of de-emphasizing the use of fossil fuels, even the US seem to be strategically doubling efforts to exploit and export their huge oil reserves both in crude and processed forms because they know demands and prices may likely crash irredeemably in the near future.

  2. Olu MICHAEL

    January 26, 2020 at 1:39 pm

    If we have spent 1.7 trillion in the last 3 years with nothing to show for it, then i think we need to do assessment of what has been spent by the current and past governments.
    There is need to know why we are spending huge money with no appreciable effect.

  3. Anonymous

    January 27, 2020 at 6:18 pm

    It is not a good step in the right direction bcos the penioners are not even enjoying their contributions.. we wait after retirement one year before you get anything from your savings. What I think should be done is to make it possible for dividents from these contributions to be shared to the contributors or start enjoying your savings as soon as you retired. But no you wait and languish in poverty before you are paid. This happens only in the core civil service. Pls look into this problem get to solved so that the idea of corruption will be reduced. Thank you.

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Columnists

5 successful ways to increase profits in your business

Constantly working on these areas of your business, you are more likely to have raised profits.

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Development Bank of Nigeria , Companies Allied Matters Act (CAMA)

Most business owners are required to make certain changes to their business operations to achieve more profits. It is a fact that it is not possible to raise the profits directly, therefore, you need to increase them indirectly. It is not going to be possible without having a specific strategy in place. The only thing that is possible is improving the variables of your business and this can lead to an increase in profits and a higher bottom line.

Lead generation and conversion

A process that is used for attracting interested prospects to the business is lead generation. Suppose five people out of the ten coming to your business place end up purchasing the product or services from your business, you can try to raise the number of people coming to the business to fifteen. This allows you to make more money by increasing the profits by 50%. Lead conversion is a process used for converting the leads into paying customers. It is a measure of the effectiveness of your sales efforts. If it is possible to raise the conversion rate from 1 out of 10 to 2 out of 10 it is likely to double the sales figures and get you raised profits. There is no replacement for continuous sales training sessions. It applies to the owner and everyone that speaks to the clients.

READ: How scammers use SIM cards to rob your bank accounts

 Transactions

The number of independent sales you make to the customers you have acquired can be increased by raising the frequency of the purchases by say ten percent. You will thereby increase the number of sales and also rise profits by the same amount. Think about the things you could do for getting your existing customers to purchase more from your business and also make these purchases frequently. The size of the transaction and the profit you make from every one of them matters as well. You need to be on the lookout for ways of up-selling all the customers so that this person will buy more every time.

Profit margins

Profit margins could be the gross profits you make from all the sales of products or services. By finding out the ways of raising the price or lowering the cost of making the product and services without reducing the quality you will be able to raise the profits per every sale. All the money you save while holding the costing constant flows straight to the business bottom line as profit. Every time you decrease the expenses and at the same time, if you can hold the sales and revenues constant, money is going straight to your pocket as net profit.

Reach a global audience

In the modern scheme of things, all cities are turning into global economies. Therefore language translation services can be used for increasing the profits of any business big or small. It might be a good idea to translate the content on your website to reach a global audience. The global language services industry is rising quickly and can touch a figure of $50 billion by the end of the year. Most of these services these days are used by both private and government sectors alike. With rising globalization, the demand for translation is also increasing.

Customer acquisition costs

Consider the amount of money you have to spend to acquire every paying customer. You need to continuously be on the lookout for creative ways of improving your promotion and advertising so that there is a reduction in the money you have to spend to get a new customer. This will have a positive effect on the profits of your business. You can also try to increase the number of customers that come to you as a result of referrals from your existing satisfied customers. Developing single or multiple referral systems can impact the business positively and in turn, can help in making more money for your business.

Conclusion

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When you are constantly working on these areas of your business seeking improvement in all of them, you are more likely to have raised profits. You will make more money and it will contribute to the success of your future financial endeavours.

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Columnists

Content as a viable investment vehicle

Nigerian investors from all cadres have largely overlooked content as a viable investment instrument.

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Investment gurus have taught and continue to teach about the indicators that can help identify good investments. Over time, a comprehensive list of some of these indicators has been passed on to new investment initiates; a list that includes hedge against inflation, yield, and returns, risk level, liquidity, Concealment from Tax, etc.

Yield and Returns

For an example of the potential for yield and return, according to Wikipedia, the production budget for the movie Living in Bondage II was NGN 10,000,000 while the gross revenue at the box office alone was NGN 168,000,000. This represents 1600% (approx.) return on investment from 1 channel of monetization and surely, there are other channels and that is why now more than ever, content in any form, is highly valuable – because of the different opportunities to monetize.

Hedge against inflation

Surely there’s a hedge against inflation because it would still cost the same amount to pay for production services (nobody got a pay raise because of the rise in inflation) and so the selling price is highly unlikely to change. To drive this point home, note how the inflation hasn’t affected the cost of streaming subscriptions on your favorite OTT app.

How come Nigerian investors from all cadres have largely overlooked content as a viable investment instrument then? RISK – surely this comes to mind!

Rethinking approaches to investing in Content

Yes, one can argue that there have been huge investments in content, in the past, that didn’t yield. This argument wouldn’t be entirely false however it should be noted that in most of those instances, the actual investment usually would be in an organization or platform as was the case when Verod Capital invested in Spinlet.

Needless to say that we have to rethink the approach, making Content itself the primary instrument that’s being invested in. I mean, one wouldn’t have to buy a manufacturer to invest in transportation. Why then do we think that to approach investing in Content, we have to purchase the platform or the company, or even sign the artist, etc?
Proposed approach

Due to the fact that Content is an intangible good/commodity, we tend to approach decisions relating to it from a sentimental perspective whereas

Data and analytics should be at the heart of every decision around content investment. Ideally, the services of an analyst would be required. The ideal analyst will be someone with a good understanding and appreciation for the content, combined with strong analytical capabilities.

They can then help identify content opportunities that can represent a viable investment.

Structuring the deal is another factor that should be considered. Understanding the distribution/monetization possibilities around the content under investment consideration will also allow investors to make better decisions.

There are several ways to structure investments including Joint Ventures with the content creator where Investors’ Capital goes into Marketing while the creator provides the content that meets Investors’ set standard; Outright investment in the production of content is also possible. Etc.

Team setup

In these instances, the services of a marketing agency as well as an Intellectual Property/Copyrights Lawyer should be engaged to identify the best approach to structuring the deal.

This flexible approach to investment in content will also allow for budget control and oversight as the tenure is finite, at least as far as the expenditure phase is concerned.

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One investment that would be interesting to consider under this lens would be Kupanda Capital’s recent investment in Mavin Global. While it is rather early to call, there’s been 1 commercially successful project – Rema, and a slew of other marginal projects.

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Mavin’s marketing capabilities however put them in better stead to succeed – a factor that must have definitely been considered in making the investment because the PR announcing the investment contained details like Youtube total video views, number of subscribers, etc.

 

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Written by Damilola Layode

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