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With NSIA, OMIG deal, Nigeria sips from FDI cup slowly

CIO, Old Mutual Investment Group, Hywei George; CEO, OMIG, Diane Radley; Minister of Finance, Kemi Adeosun; and MD/CEO, Nigeria Sovereign Investment Authority, Uche Orji, at the agreement-signing in Abuja… recently.

CIO, Old Mutual Investment Group, Hywei George; CEO, OMIG, Diane Radley; Minister of Finance, Kemi Adeosun; and MD/CEO, Nigeria Sovereign Investment Authority, Uche Orji, at the agreement-signing in Abuja… recently.

That there are no mass protests or demonstrations giving vent to public fury over rising inflation, poor public taxes and political corruption do not suggest everything is well with the Nigerian economy.

A raft of economic data published since the oil price slump has persuaded many analysts to conclude the economy is in shambolic shape and there is urgent need for economic diversification to stem the crunch, which has technically turned the federating units into 36 failed states.Admittedly, precious efforts at diversification and recourse to Foreign Direct Investment (FDI) had set the bar low.

However, the recent announcement of a partnership between the Nigeria Sovereign Investment Authority (NSIA) and Old Mutual Investment Group (OMIG), is no doubt, a new challenge for the Buhari administration to get the country out of the woods.

NSIA, the manager of Nigeria’s sovereign wealth fund, had on Friday, August 19, 2016, announced the signing of transaction documents with OMIG South Africa, and UFF Agri-Fund for the establishment of a $500 million real estate co-investment vehicle and another $200 million for agriculture.Watchers of development in the economy are quick to say that the deal is consistent with government’s goal of encouraging private sector involvement in critical sectors of the economy.

They note that the payoffs from these investments will be felt with immediate short term gains in the area of job creation, while in the future, there will be further direct foreign investment ventures, and increased foreign exchange earnings.

The Minister of Finance, Mrs. Kemi Adeosun, said the groundbreaking announcement marks a critical milestone towards delivering on NSIA’s broader mandate to invest in key sectors of the Nigerian economy. According to her, “it is consistent with the administration’s concerted efforts to diversify the Nigerian economy away from oil and attract investments into other core sectors which can stimulate sustainable growth.”

Removing the present preponderant attention away from oil, is, indeed, likely to prove popular. Economists reckon agriculture is pivotal for development and diversification, as it contributes about 20.5 per cent to overall gross domestic product (GDP) and according to latest available data, is the largest employer of labour at 63.2 per cent of total jobs created in the third quarter of 2015

The agriculture investment will be managed in conjunction with OMIG’s subsidiary, the UFF African Agri Investment (UFF) with focus primarily on production, processing and logistics. The aim is to achieve food security, import substitution and job creation, and in effect, promote rural economic development.

Taking a swipe at poor agricultural development in the continent recently, the Chief Executive Officer of Elpasso Farms, Pretoria, South Africa, Dr. Brylyne Chitsunge, said, given the rich expanse of land in the continent and its enormous deposits, Africa has no reason to suffer hunger.It is projected that in 2050, there will be more than 9 billion people inhabiting the earth, out of which 25 per cent will be based in Africa. So, food security to ensure social stability is an economic imperative.

Chitsunge, who was the guest lecturer at the third convocation ceremony of Landmark University (LMU), Omu-Aran, Kwara State, noted: “Infrastructure in Nigeria are not in very good condition. We need the right facilities to be able to access the market, and get the project on time. The branding side of it is also important to get the product to its destination in a fresh manner”, an opinion also reechoed by Adeosun at the partnership signing.

She said: “The problem with agriculture is infrastructure. It is not that we don’t grow enough, but it is that very often it rots in the field, because it is so difficult to move it out or to store it. There is need for privatisation of rail transport because unless we can move goods from the farm to where they are sold, efficiently, we can’t be competitive. We’ve got to put the enabling infrastructure in place. Our fields are as fertile, and as good as anybody else’s, anywhere in the world. The problem is that it is cheaper to move goods from China to Lagos than to move goods from Kano to Lagos, because we don’t have the infrastructure. We’ve got to get our rail moving then we can begin to really scale up on the direct primary agriculture.”

The proposed $200 million investment by the NSIA and OMIG will support existing funding initiatives by the Central Bank of Nigeria (CBN) such as, Nigeria Incentive-based Risk Sharing for Agricultural Lending (NIRSAL) and Commercial Agriculture Credit Scheme (CACS) and others geared at boosting overall productivity.

Access to credit has been a major constraint to growth in agriculture, even as commercial banks shy away from lending to the sector primarily due to perceived high risks across activities within the agricultural value chain.The key areas of UFF’s investment process where there might be opportunities for investors in the real sector to benefit from the agric fund include, purchase of farmlands and infrastructure like, silos, cold storage etc; beneficiaries will be large farm owners or businesses that supply farm equipment/assets.

Adeosun said: “Developing agriculture is very critical in our bid to diversify the economy. To do that, you need to invest heavily in infrastructure. The main reason our economy has not grown in the way it should have is our lack of infrastructure. What we’ve done is to increase capital investment to improve our infrastructure, but honestly that is not enough. We need to supplement it through the private sector.”

As aggregated by analysis, the investment vehicle will have an important social component.It is equally expected to have substantial development impact in the following ways: increased private investment capital towards investments in primary agriculture, directly and indirectly provide employment and serve as a stimulus to the Nigerian economy and agricultural sector.

Where many are bothered is that $500m is allocated for real estate, while $200m goes to agriculture and not the other way round. She had this to say: “Those who are running the funds have the size of the projects they are looking and that informs the size of the opportunities, but this is not the only investment we will be doing around agriculture.

I think you should not see the relative size of the funds as an indication of how importantly we look at these sectors.”
Real estate investment. The up to $500 million real estate investment vehicle will be made up of equal commitments of $100 million each by the NSIA and OMIG, with the balance sought from third party investments.

Deal origination and execution will also be undertaken jointly by the NSIA and OMIG. The NSIA’s investment will be made through its wholly-owned subsidiary NSIA Property Investment Company Limited (NPIC) while OMIG’s investment will be made through its Old Mutual Property (OMP) subsidiary.

The commercial and retail segments of Nigeria’s real estate sector (7 per cent of GDP) has witnessed a lot of activity in the past few years with over 20 malls opened across major states in the country and about 10 registered as pipeline projects. Among other things, this investment is poised to boost job creation and productivity levels, and will be instrumental in improving overall socio-economic well-being.

Real estate is area where socioeconomic factors drive great outcomes because of time demand or customer demand. It is also an important part for us invest to ensure that we make sustainable difference in the countries in which we invest.Real estate opens up economic opportunities through reducing unemployment as well as creating infrastructure in which businesses can thrive and grow.

Primary beneficiaries across Nigeria’s construction/real estate value chain will include: Cement, concrete and aggregate producers and other small scale producers; mid-sized construction companies largely dominant in commercial real estate and property development and importers/suppliers of building materials and fittings such as iron rods, tiles and more .

How will Nigerians benefit?
According to the managing director and Chief Executive Officer of NSIA, Uche Orji: “This will create jobs. For every investment you make in real estate, you employ plumbers masons, painters, electricians and all kinds of people. This is one of those things that have significant multiplier effect and obviously agriculture is a key area of focus for this administration.

“Our commitment in these sectors is underpinned by the economic imperatives of urbanisation, population growth and enhancement of liquidity for the sectors.” On what is new about the deal, Orji said: “ In agriculture, it is equity that we are investing. There are several strands to what we are doing in agriculture. We are looking at industrial-scale farming with particular focus on things that can be exported. Obviously, the internal consumption is quite high as well, so we will be looking at both sides.

There is an active pipeline. It is everything from primary agriculture to taking over existing farms that are not doing well and repositioning them. This is not a lending scheme. We are raising equity to invest in this market.

First, we are making two or three investments and then we’ll go outside to get the funds. “On real estate side, the focus is commercial, which will include logistics, which is component of the idea of diversifying the economy. We are looking at office towers and we are also looking at hospitality and residential, but for now, the focus is commercial. Logistics is a key area we will be looking at and offices.”

The chief executive of OMIG, Diane Radley, said the partnership is a critical step in the development of OMIG’s commercial real estate and agriculture strategies in Africa.Radley believes OMG can add “significant value to both our clients, as well as, the development of the Nigerian economy, as we continue to be committed to sustainable, long-term investing.”



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