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Chinwendu Obienyi
Infrastructural advancement positively correlates with the economic growth and development of an economy.
This is because it forms the bedrock of economic prosperity through institutional productivity and overall human well being, which results in efficient power, transport,healthcare, education, housing, and ICT systems.
Sadly, for Nigeria, the elusiveness of infrastructure isn’t just the problem, but reliable financing remains an unsolved puzzle. It is even more worrisome given the burgeoning
deficits courtesy of increasing decadence in the existing infrastructure, poor funding, and corruption.
According to the National Integrated Infrastructure Master Plan (NIIMP), $3 trillion would be required to fund the infrastructure gap in thirty years (this estimate may have become inaccurate since it was before the 2016 devaluation). Meanwhile, Mckinsey reportedly puts the estimate at $31billion (N9.5 trillion) annually for a decade. Hence, taking the same funding approach will still fail to bridge the deficit.
On the average, Nigeria spends about 3.6 per cent of GDP between 2007 and 2017 on public infrastructure compared with 4.8 per cent in South Africa and 4.7 per cent in India and when considered on a per capita basis, Nigeria’s public capital is less than half of the Sub-Sahara average. Also, the increasing demand for infrastructure in Nigeria is largely tied to her rising population, and more specifically the teeming urbanization (50 per cent of Nigerians live in urban areas).
It is estimated that the current population would have ballooned to about 330 million people in the next 21 years, making Nigeria the fourth most populous country by 2040, behind India, China, and the US. Hence, it is expected that there would only be more pressure on the existing facilities, and the government’s financing capacity will even be more challenged.
This brings the challenging question of where infrastructure financing will come from? The commercial banks? Ideally, the commercial banks have been the first point of call for government and private institutions when it comes to infusing private capital into infrastructural development but depositors’ monies have gone bad in recent times.
The capital market then represents a viable option and is almost natural since they offer a better fit for the large chunk of investors given attractive yields, consistent cash flow, unlike equities.
This doesn’t preclude the relevance or existence of financing that partly or fully incorporate equity structures (such as the Nigeria Infrastructure Debt Fund, also listed on the Nigerian Stock Exchange).
Unarguably, the potential of the capital market in addressing Nigeria’s infrastructural needs is determined by the size of the domestic investor base, mainly pension funds, and to a much lesser extent insurance companies and sovereign wealth funds.
Although the argument against the Nigerian capital market will be that it has suffered monumental loss due to sustained decline in stock prices, but analysts are of the view that Nigeria can attract more investments in the capital market if only the Federal Government can consistently work towards creating a sound investment environment devoid of political, social risk as well as maintaining transparency.
Delivering a keynote speech titled “ Bridging Nigeria’s infrastructure Gap, the Capital Market Option” at the 2019 annual conference of the Capital Market Correspondents Association of Nigeria (CAMCAN), recently in Lagos, Acting Director-General, Securities and Exchange Commission (SEC), Mary Uduk, noted that the Nigerian government like other developing countries continues to face significant challenges in implementing programmes to build basic infrastructure due to inadequate sources of funding.
Uduk urged government to leverage on the alternative sources of infrastructure financing in the capital market in a bid to diversify the economy and develop infrastructure in Nigeria.
She said: “The international capital markets are the largest and deepest pool of financing in the world, and in conjunction with local capital markets, which represent an essentially untapped source of funds for infrastructure projects, they can make a huge contribution to economic development, if effective transaction structures are developed”.
Corroborating her, the Chief Executive Officer, Nigerian Stock Exchange (NSE), Oscar Onyema , who was represented by the Divisional Head, Trading Business, Jude Chiemeka, stressed that infrastructural gap is not only a Nigerian factor but is found among other African countries.
“It is a problem that cuts across Africa and to a large extent, funding is not the main issue rather the issue centers around government policies. The capital market thus, represents a platform to provide guarantee to these investors because the government cannot do it all alone”, he said.
He thereafter called on the government to sustain collaboration with the private sector, adding that the Exchange will continue to create products that can finance infrastructure.
For his part, Head, Debt Capital Markets, FBNQuest Merchant Bank Limited, Oluseun Olatidoye, stressed the need for sound macroeconomic and policy frameworks to enable the capital market attract investors to long-term domestic projects.
Olatidoye said that the capital market represents a very good platform for raising funding for infrastructure development going by some landmark transactions in which it has funded over portions of 26 roads across the six geopolitical zones in the country with the sum of N200billion on the FGN Sukuk I and II.
He, however, urged the state governments to priortise funding for specific projects.
“One of the challenges facing Nigeria is that we have so many programmes but we are not concentrating well enough on them. There is need to focus funding on specific projects and provide some form of guarantee, that way, investments can flow into the economy”, Olatidoye said.
