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After the Gross Domestic Product (GDP) growth contraction in South Africa, Africa’s second largest economy, it is safe to conclude that the two biggest economies in Africa are officially shrinking.
However, what’s more to slowing economic growth, particularly in Nigeria, are the opportunities it portends for private investors who are willing to enter a public private partnership (PPP) in aiding policy makers deliver on their obligations in a bid to restore the economy on the path of growth.
BusinessDay findings show that a PPP trend may be at hand and will gradually redefine the investment landscape, as investors increasingly leverage on the mounting pressure on governments to deliver on infrastructure and employment obligations even with plunging revenues.
“Government will have to enter PPP arrangements with the private sector such that they can concession some capital projects to investors,” Ayodeji Ebo, an investment banker at Afrinvest said in response to questions.
“If this is done, government will be able to carry out more capital projects, as plunging revenues cast doubt on the feasibility of implementing the 2016 budget.”
To compound the woes of sliding oil revenues, actual non-oil revenue from the Federation Accounts Allocation Committee (FAAC) and Value Added Tax (VAT) fell 42.7 percent to N483.63 billion on a prorata basis in the first three months of 2016, compared to the N845.3 budgeted for the quarter.
“Companies are struggling,” said Tosin Ojo, head of research at Cardinal Stone partners Ltd. Our findings corroborate this, and also show that a PPP partnership may attract tax breaks and waivers for companies, as their struggle to stay afloat amid sinking profits continue.
Our sources say Dangote’s restruction of the Ijora-Wharf road which is in abject disrepair with ditches and craters doting the entire stretch may attract tax breaks and other incentives for the most capitalised company listed on the Nigerian Stock Exchange (NSE).
The reconstruction work, expected to be completed in eight to twelve months is underway as earlier reports confirm.
Nigeria’s core stock of infrastructure is only 20-25 per cent of GDP. It’s a paltry percentage compared to 70 per cent recorded by other middle-income countries. BusinessDay calculations equate this to an infrastructure deficit of $300bn (N5.91 trillion).
“African countries need to invest in infrastructure, both human and physical. Without these investments their growth will not be sustainable,” said Jean Stephens, the global C.E.O, RSM International, a network of Audit, Tax and Consulting experts, at a recent conference in Lagos.
Ebo of Afrinvest says even the country’s borrowings would have to be channelled to bridging the burgeoning infrastructure deficit.
“In terms of utilising the $1.7 billion to be injected into the economy following the minister of budget and national planning, Udo Udoma’s speech, government must do an impact analysis on how best to invest the money to drive economic activities.
For example, investing in transport infrastructure, more particularly rail transport, will go a long way to reduce cost of transport and once transportation is cheaper, it will encourage production and boost company outputs,” Ebo said.
A recent report from the Infrastructure Concession Regulatory Commission, noted that N3.1tn was required to bridge the infrastructure gap in the transport sector.
In the course of our research, we found that the transport “and storage” sector was the only sector that recorded a quarter-on-quarter (1o.34%) and year-on-year (10.86%) growth in the Q1 GDP report released by the National Bureau of Statistics (NBS).
According to the report, the growth was largely spearheaded by road transportation.
“If you adjust for the unusual base impacts of election and less travel, the absolute real GDP of the road transport sector in Q1 2016 is still below Q2 and Q3 2015. It’s worth noting that Q2’15 was a period of unusual fuel shortages and if you recall businesses were aground for about a week or more.
So if real GDP for road transport subsector in Q2’15 (about N168.4 billion) is comparatively higher than Q1 2016 (N162.9 billion), the performance of the road transport sector in Q1 2016, put in proper perspective, is not that strong despite the YoY growth,” Ojo said in an emailed note.
Industry players say rather than an expansion, the transport sector may simply be witnessing better capturing by the NBS.
“The sector has not necessarily expanded, it has only become a bit more structured,” Edeme Kelikume, CEO of Connect Rail Services, said in response to questions.
“More companies are outsourcing their transport logistics and this has brought more informal transport activities under the NBS radar, which had before now suffered a drought of transportation statistics owing to informality.”
There was a dip in rail transport in the period under review, relative to Q2, 3 and 4 of 2015, the NBS report show.
However, as deduced from the 2016 budget, government is seeking to make more investments in the rail sector with the budgeted N202 billion for transportation. Analysts see this fuelling significant PPPs in the rail sector.
“Rail transportation is cheaper and more cost effective. You can convey more goods and it’s safer,” an anonymous investment expert said to BusinessDay.
“I see a good number of PPP arrangements with government on resuscitating railway infrastructure in Nigeria,” he added.
LOLADE AKINMURELE
