The value of Nigeria’s pension funds has witnessed a significant decline of 45.18% when valued in dollars, primarily due to the devaluation of the naira. Data obtained from the National Pension Commission (PenCom) revealed that the net asset value of pension funds stood at N17.35 trillion as of September. When dollarized at the official exchange rate of 874.71/$, this amounts to $19.83 billion. However, before the mid-June devaluation, when the pension funds were valued at N16.76 trillion in June, they were worth $36.17 billion in dollar terms, considering the exchange rate of 463.38/$ on June 9.
The devaluation of the naira, initiated by the Central Bank of Nigeria’s attempt to unify exchange rates, has affected various sectors, and the pension funds are no exception. The harmonization of forex rates into the Investors and Exporters window has led to the naira struggling against the dollar. Despite government efforts to strengthen it, the local currency has faced challenges.
In addition to the forex challenges, inflation in Nigeria has accelerated, rising from 22.79% in June to 26.72% in September, further eroding the value of pension funds. Abdulqadir Dahiru, Head of the Corporate Communications Department at PenCom, acknowledged the impact of naira devaluation on the economy at large. He explained that while the devaluation affects everyone, including pension funds, they are invested in various instruments, including fixed-income and variable-income instruments.
Dahiru highlighted that variable-income instruments, influenced by market forces, offer inflation-adjusted returns on investment. Pension funds invest in a range of assets such as securities, alternative investment assets like infrastructure funds, private equity, and real estate investment trusts, providing some level of inflation hedging within the portfolio. Despite the challenges, pension funds remain significant players in Nigeria’s capital market, attracting international attention and interest from institutional investors.