Nigeria's sovereign wealth fund is setting up a company in partnership with London-based local currency guarantee firm GuarantCo to enable pension funds to invest in Nigerian infrastructure bonds, its chief executive said on Thursday.
The new business will be launched in a few weeks' time and aims to overcome some of the challenges facing the financing of infrastructure projects in Africa's most populous nation.
"The company will provide enhancements for infrastructure bonds, and we believe this will make an effective platform for Nigerian pension funds to invest in them," said Uche Orji, chief executive of the Nigeria Sovereign Investment Authority (NSIA), which has some $1.25 billion under management.
GuarantCo facilitates infrastructure development in low income countries by providing credit guarantees denominated in local currency to financial institutions and bond investors. It is funded by Britain, Switzerland, Sweden, the Netherlands and Australia, and specialises in frontier market infrastructure.
Poor infrastructure and access to capital is a major bottleneck to growth in Nigeria, and the government has identified infrastructure investment as a major priority.
Unlocking fresh sources of capital will help, with Nigeria's pension fund assets at $26.4 billion at December 2015, according to data from Nigeria's National Pension Commission.
Orji said that currently, when municipalities want to issue bonds to fund infrastructure projects, most pension funds won't buy them because the credit rating of the issuer isn't strong enough.
The new venture will provide a form of monoline insurance, giving a guarantee and allowing pension funds and insurance companies to invest.