Unlocking Pension Fund Capital for Infrastructure Development in Nigeria: A Pioneering Approach
FSD Africa Investments (FSDAi), a UK-backed development finance institution, has made a significant £10 million commitment to ARM-Harith’s Climate and Transition Infrastructure Fund (ACT Fund). This strategic investment aims to overcome the long-standing challenges hindering Nigerian pension funds from participating in infrastructure equity financing. By providing early liquidity and mitigating foreign exchange risks, this innovative approach is poised to catalyze substantial domestic investment in critical infrastructure projects. This initiative aligns with Nigeria’s green transition goals and several UN Sustainable Development Goals, promising to create jobs and foster sustainable economic growth. The collaboration between FSDAi and ARM-Harith represents a groundbreaking model for infrastructure finance in Africa, emphasizing local ownership and market development.
The ACT Fund, managed by ARM-Harith Infrastructure Investment Limited, focuses on climate-resilient infrastructure projects across Nigeria. Recognizing the traditional reluctance of pension funds to engage in illiquid, long-term investments, FSDAi has structured its investment to offer predictable interim distributions. This provision of early liquidity directly addresses a key concern of pension fund managers, making the ACT Fund a more attractive investment proposition. The innovative structure significantly enhances the appeal of infrastructure investments to pension funds, which have historically preferred more liquid assets. This transformative approach is anticipated to mobilize substantial domestic capital for infrastructure development, driving economic growth and contributing to Nigeria’s sustainable development agenda.
A distinguishing feature of FSDAi’s investment is the commitment to provide 75% of the £10 million in local currency. This unprecedented move at this scale aims to mitigate the impact of foreign exchange volatility, a significant deterrent for pension fund managers in emerging markets. By minimizing the currency risk, FSDAi’s investment encourages greater participation from local pension funds. The local currency facility is projected to attract an additional £31 million in pension fund commitments, nearly five times the participation level achieved in ARM-Harith’s previous infrastructure fund. This demonstrates the potential of this approach to unlock substantial domestic capital for infrastructure development.
This pioneering approach addresses a critical challenge in infrastructure financing within emerging markets. Pension funds, holding substantial assets, often remain hesitant to invest in infrastructure projects due to perceived risks related to liquidity and currency fluctuations. The innovative structure crafted by FSDAi tackles these concerns head-on, providing a blueprint for unlocking substantial domestic capital and fostering sustainable economic growth. By aligning the interests of pension funds with national development goals, this initiative paves the way for significant progress in infrastructure development and contributes to broader economic prosperity.
The ACT Fund will channel investments towards vital sectors aligned with Nigeria’s green transition agenda, including renewable energy, clean transport, water infrastructure, and digital connectivity. These investments will contribute to at least four of the UN Sustainable Development Goals, demonstrating a commitment to sustainable and inclusive development. The initiative is expected to create or support up to 3,000 green jobs, further contributing to economic growth and social progress. By prioritizing climate-resilient infrastructure, the ACT Fund addresses both immediate development needs and long-term sustainability objectives.
This collaboration between FSDAi and ARM-Harith is hailed as a game-changer in infrastructure financing in Africa. It represents a private-sector-led model that effectively addresses the needs of both investors and national development priorities. By providing early liquidity and long-term capital growth for pension funds, the initiative creates a compelling investment proposition while simultaneously channeling funds towards critical infrastructure projects. This model has the potential to be replicated across Africa, unlocking significant domestic capital for infrastructure development and driving sustainable economic growth across the continent. The initiative has been lauded by stakeholders as a pivotal milestone in financial sector development, promoting local capital market deepening, economic resilience, and sustainable development in Nigeria.
