The private equity (PE) industry has been shown to have the capacity to bridge infrastructure gap in Nigeria as some of industry players have already made infrastructure investment of up to $1.95 billion in Nigeria and other African countries.
Stakeholders say that the government at all levels of Africa’s biggest economy lack the financial capacity to close the infrastructure deficit currently estimated at over $300 billion, but should woo PE investors to such critical areas as energy, transport, utilities, and others.
David Adeoye, senior manager transaction services, Ernst & Young, agreed that private equity investment can help the government tackle its competing infrastructure challenges, but should first create the enabling legal and regulatory framework such that private sector participants can find the proposed structures of the infrastructure projects suitable for their risk-return profile.
“The government should play its role of providing security and safe investment environment and there will be greater PE participation,” he said.
“The governments don’t have money,” said a fund manager with one of the private equity firms in Nigeria. “But with appropriate policies including adequate political risk insurance, Nigeria will be able to convince PE funds to partner with it to narrow the infrastructure gap.”
He said that even though there is a potential for PE involvement in the country’s infrastructure sphere, significant impact may not be felt soon as there is still need for investor-friendly regulations in many areas, noting that the environment for the involvement of the PE funds may not be as inviting as it is in other jurisdictions.
“There is usually lethargy from the government. When you want to move they are either not ready or are moving at discouraging pace. But this experience is not peculiar to the PE industry,” he said. “It has to do with the general ease of doing business in the country”.
Of the 92 construction projects on-going in Africa as at June 1 2016, valued at $324bn, 38 (representing 41 per cent) was initiated in Nigeria, according to figures from Deloitte 2016 Africa Infrastructure Trends Report.
South Africa had the largest number, having seen 41 of such projects representing 45 per cent of the continent’s total projects.
| WEST AFRICA CONSTRUCTION PROJECTS | |||||
| 2013 | 2014 | 2015 | 2016 | 2016 % of Continental Projects | |
| Number of projects | 66 | 66 | 79 | 92 | 32.2% |
| Value (US $ bn) | 49.9 | 74.8 | 116.2 | 119.8 | 37.0% |
Source: Deloitte: Africa Construction Trends Report
With international private equity investments to sub-Saharan Africa having grown 400 percent since 2008 to $50 billion in 2015, annual inflow is put at $12 billion, according to figures from the Overseas Development Institute.
Analysts said that governments’ clarity of intentions and respect for contracts could exploit the “unprecedented opportunity to accelerate economic development in the country” by attracting significant portions of this regional investment inflow.
In addition to private equity as a veritable source of infrastructure financing in the country, the Brookings Institution, non-profit public policy organization based in Washington DC, also hinted that Long-term investors such as Sovereign Wealth Funds (SWF) comprise a pool of funds that can alleviate the financing constraints of Nigeria’s infrastructure.
According to the organisation in its paper entitled “Financing Africa’s infrastructure deficit: From development banking to long-term investing”, Nigeria could attract investments from foreign SWFs if it can provide mechanisms for them to mitigate the usual challenges that SWFs and other long-term investors contemplating investing in infrastructure assets usually face.
INNOCENT UNAH
