Naira devaluation: Pension fund assets decline by $18.9bn in one year
By Sodiq Adelakun
The devaluation of the Naira has had a significant impact on the net asset value (NAV) of pension fund assets in Nigeria over the past year, according to data from the Pension Commission (PENCOM).
As of January 2023, the net asset value of pension funds in US dollar terms stood at $33.3 billion.
However, by January 2024, this figure had declined by $18.9 billion, plummeting to $14.4 billion.
Despite this decline in US dollar terms, the overall pension fund assets in Nigeria experienced a 30.3 percent year-on-year growth, reaching N19.53 trillion in January 2024, up from N14.99 trillion recorded in January 2023.
This growth initially appears to reflect commendable investment strategies by pension fund managers. However, when the Naira-denominated values are converted into US dollars, a different picture emerges.
In January 2023, with an exchange rate of approximately N450/$, the NAV of N14.99 trillion translated to around $33.3 billion. Conversely, by January 2024, with the exchange rate depreciating to about N1357/$, the recorded NAV of N19.53 trillion dwindled to $14.4 billion.
This decline of 56.8 percent in US dollar terms highlights the adverse impact of Naira devaluation on pension fund assets. Nonetheless, it is noteworthy that the performance of pension funds outpaced the Naira, which experienced a staggering devaluation of 201.6 percent during the same period.
The disparity between the growth in Naira terms and the decline in US dollar terms underscores the challenges posed by currency devaluation to pension fund investments and the broader economic landscape in Nigeria.
The performance of pension fund managers can be evaluated as quite satisfactory as the 30.3 percent year-on-year growth recorded in the NAV of pension fund assets as of January 2024 notably outperformed the country’s inflation rate of 29.90 percent as of January 2024.
Between January 2023 and January 2024, the number of Retirement Savings Accounts (RSA) increased by 3.36 percent from 9.89 million to 10.22 million.
January 2024 witnessed a notable surge in the net asset value (NAV) of pension fund assets in Nigeria, with an increase of N1.18 trillion compared to December 2023. This growth marked a significant contrast to the N428 billion rise observed between November and December 2023.
However, despite the substantial growth in Naira terms, the persistent devaluation of the Naira in January 2024 resulted in a decline of $6 billion in US Dollar terms for the NAV.
In December 2023, the NAV of pension funds stood at $20.4 billion, calculated at an exchange rate of N899/$. Yet, by January 2024, this figure had decreased to $14.4 billion, reflecting the impact of the Naira’s devaluation to an exchange rate of N1357/$.
The impressive growth in Naira terms underscores the robust performance of pension fund assets. However, the accompanying decline in US Dollar terms highlights the challenges posed by currency devaluation on the overall valuation of pension fund investments.
This scenario underscores the complex interplay between currency dynamics and investment performance, shaping the landscape of pension fund management and financial markets in Nigeria.
