Providing New Approach To Solving Nigeria Infrastructure Financing

Nigeria requires an estimated $3 Trillion to finance its infrastructure deficit over the next 30 years. Translating to $100billion in 5 years and $20 billion per annum.

Government budget allocation for infrastructure mainly coming from Oil revenues cannot provide enough resources to close the infrastructure gap.

The government will require to allocate the entire 2021 N 13.58 Trillion budget for the next 10 years to close the infrastructure gap however the reality is that less than 25% of the budget is spent on infrastructure funding demand annually.

With a huge shortfall in government revenue estimated to be over N5 Trillion finding creative way to optimize the scare resource critical for example my currently have an inefficient energy supply service, with an estimated 4000 MW for 200 million Nigeria, poor and dilapidated transportation sector impacting agricultural distribution and inter-state trade produce from the rural to the urban cities, ambiguous subsidy payment as a result of moribund refineries.

The need to adopt new strategies to close the infrastructure is very apparent. This will require making policy change to attract private capital infusion and better collaboration between private and public institution in developing bankable project.

Domestic Capital Market

Public-private partnerships (PPPs) are an important vehicle for private participation in infrastructure investment. Private capital have a major role to play however structuring capital can prove very complex and challenging. The domestic capital market is an opportunity to stream line the process by having infrastructure funds created based on widely accepted capital market requirements

The value of Nigeria’s total infrastructure stock is just 35% of GDP (Deloitte 2018), whereas South Africa boasts of stock worth 87% of GDP, while emerging economies are averaging 70%.  Clearly the opportunity for financing infrastructure project through capital market is huge.

The capital market has the ability to attract long term finance for bankable infrastructure projects with high regulatory standards and risk assessment to protect investor’s capital.

In recent years, the FG has raised N250 billion from the capital market for the financing of various green field and sukuk infrastructure projects,

Indigenous private firms have also launched infrastructure funds targeted at for real estate sector, energy and Agriculture.

Therefore, financing infrastructure gap needs a private sector lead financing investment strategy to support government funding for infrastructure.

Government Policies 

Government policies through the ease of doing business and tax relief can encourage private firms and individuals to undertake construction of projects to cut the deficit.

Road Infrastructure Tax Credit (RITC) scheme is a very good example. The Scheme grants tax credit for rehabilitation of roads.  

Dangote Cement Plc received tax credit valued at N 22.32 billion for the construction of Apapa – Oworonshoki Road in Lagos while MTN intend to refurbish the Enugu-Onitsha expressway

Pension Fund

Pension and insurance funds are suitable capital to cut the deficit because of their long term nature of the fund to match the life span of the infrastructure project. However, with Nigeria pension estimated at N 12.5 trillion, less than 1% is invested in infrastructure while the fund has invested a whopping 68.93% in government financial instruments in first quarter of 2021.

Reason given was the lack of well-structured infrastructure fund which meets regulatory laws, provide adequate safeguard and guarantees returns. Other include availability of bankable, commercially viable projects; full repayment guarantees by the Federal Government, especially in the early stages of projects financing; and strong political will and consistency in formulation of policies to retain investors’ confidence

This presents an opportunity for collaboration with the capital market operators and pencom to create an infrastructure funds which adheres to the pension fund assets regulation.

According to PENCOM the fund must establishes transparency and fair valuation, thus removing all ambiguity on the real market values and tradability of the assets. PFAs can then readily buy and sell at prevailing market prices. The eligibility requirement ensures that the assets are real, liquid and within tolerable risk levels,” PenCom stated.

Effective allocation of these pension/insurance funds to close $25B infrastructure gap into bankable infrastructure project

The capital market can create well-structured infrastructure fund