Amid lower government revenues, Nigeria’s policy makers are increasingly seduced by the concept of PPPs as the only way out to finance the country’s otherwise insurmountable infrastructure gaps.
As the world grapples with huge public deficits and the aftermath of plummeting commodity prices, policymakers across the world are baffled by the same dilemma: how to finance infrastructure and social projects in order to improve their citizens’ lives and boost economic growth? In developed economies, public-private partnerships (PPPs) have long been considered the way forward when governments are faced with infrastructure and social service provision gaps. In contrast, emerging economies, such as Nigeria, have tended to rely solely on the public sector’s funding or the government has not fully respected its contractual agreements.
PPPs, agreements between the government and a private company or pool of investors, present mutual benefits for the parties involved. The first benefit, of course, is the mobilization of private capital, allowing the government to provide the social good without breaching its borrowing limits. In addition, as the private sector is profit driven, the competition among players forces them to constantly aim for the best technology, innovation, efficiency and timeliness in delivering results. Another benefit of PPPs is the sharing of risk. Considerable risk is generally transferred from the public to the private sector in exchange for a promised stream of payments either from the government directly or other end users.
Efficient infrastructure is the backbone of any solid economy. Nigeria boasts demographics of over 180 million people, meaning arguably its human capital constitutes one of the country’s most valuable assets. Yet, inadequate infrastructure in the areas of transportation, housing, ICT, power, health, and water has become an endemic issue and a hurdle for Nigerian businesses, hence posing a threat to the country’s development. According to the World Bank, a 1% increase in a country’s infrastructural stock translates into a 1% increase in GDP growth. On top of this, strong population growth rates—2.5% per annum for Nigeria as a whole, with Lagos alone growing at an impressive 8.5%—place a future infrastructure that needs to be taken into consideration. A 2017 report by the G20’s Global Infrastructure Hub, which covers infrastructure investment needs across the world, found that Nigeria is required to make an average of about USD38.2 billion yearly investments up to 2040 in order to fill its infrastructural gaps.
Chidi Izuwah, Acting Managing Director at the Infrastructure Concession Regulatory Commission (ICRC), established by the Federal Government of Nigeria (FG) in 2008 to regulate PPPs in an effort to address this deficit, stated in July 2017 that Nigeria loses 2% of its GDP to poor infrastructure. In 2016, the country’s GDP stood at NGN101.59 trillion (USD306 billion), meaning that such loss corresponds to NGN2.3 trillion (USD6.9 billion) per year.
Izuwah explained how poor infrastructure is perceived in everyday life and how it translates into decreased productivity; for example, the time lost people spend getting to and from work because of poor roads and insufficient public transportation. To address the issue, the government signed a Memorandum of Cooperation with Aninver, a Spanish global firm specializing in infrastructure-related development and PPP projects.
In light of the aforementioned GDP figures and plummeting government revenues stemming from lower oil production following insurgencies in the Niger Delta and lower global oil prices, PPPs indeed are an intriguing way for Nigeria to fill these gaps. The FG has made clear its intentions to prioritize PPPs, and over the last decade it has embraced, although not to the required extent, the concept of PPPs, mainly of the Build-Operate-Transfer (BOT) type. Important examples of projects developed through PPPs include the Lekki-Epe Expressway, the first-ever PPP implemented in the country, as well as the Second Niger Bridge and the Domestic terminal at Murtala Muhammed Airport. More recently, the Phase II of the Adiyan water scheme, Phase I of the Gurara Hydropower Plant concession, and the Port Harcourt International Airport are accepting tenders.
Muda Yusuf, President of the Lagos Chamber of Commerce and Industry, told leading publisher of annual economic reviews The Business Year (TBY) in an interview: “The only way to fix [the infrastructural gap] is to bring in private sector capital. To do this we need to promote PPPs. The Chamber has been playing a lead role in this. For example, the Bus Rapid Transit (BRT) Corridor in Lagos is a PPP arrangement where the private sector is providing the buses for this mass transit system. A lot is also happening in education, health, and housing through PPPs.”
In another interview with TBY, Mohammad Darwish, CEO of IHT Towers, talked about the potential of PPPs to overcome the country’s power challenges. He shared, “The potential for PPPs is there and privatizing the power sector in Nigeria could be the first step. This would involve opening the door for international investors to come and invest here without putting too many restrictions on them.”
President Buhari, even prior to taking office, expressed his intentions of reviewing and strengthening the PPP framework, and has since continued to stress (echoed by Acting President Osinbajo) the critical need of partnering with the private sector. As proof of the FG’s commitment to this view, in July 2017, the Senate gave its green light for establishing PPPs for the reformation of the country’s refineries, with important consequences on the country’s self-sufficiency in oil-derivative products.
Yet, some investors remain wary of engaging in PPPs in Nigeria. As Johnson Chukwu, CEO at financial advisory firm Cowry Assets, explained to local newspaper The Business Day, “There must be a legal framework to ensure the government is unable to back-track on the agreement it enters with the investor. It’s the only way it can work. Without this, the investors will stay away.”
For Nigeria to reap the benefits of PPPs, the government needs to fully embrace the model by first and foremost creating a stable and secure business environment, and the first steps to achieve this will be enforcing the rule of law and allowing the competent ministries as well as the central bank to re-stabilize the macroeconomic environment and enable favourable taxation and regulatory frameworks. Only then will PPPs be the way, in the words of ICRC Director General Aminu Diko, to, “prove to the world that Nigeria is ready for business and that the change agenda of this administration has created an atmosphere for sustainable investment.”
Silvia Lambiase
Lambaise is Country Editor for The Business Year, Nigeria
