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As the Nigerian Government devises means of lifting the economy out of its deepest recession in a quarter of a century, green shoots are already emerging, triggered by steady, above-the-benchmark oil prices and relative stability in crude oil production in recent weeks. However, the Government’s Economic Recovery and Growth Plan can only be sustainably attained through the diversification of the nation’s major economic base from volatile sources of foreign exchange (“forex”) earnings like oil.
There is a consensus of opinion on the fact that non-oil export based industries would have to be developed in order to buoy the country’s local capacity, productivity and competitiveness. In this direction, the economic low-hanging fruits are manufacturing & engineering, foods & agriculture, solid minerals mining, intellectual property, energy & water resources, education, health, housing, petrochemicals, agro-allied industries, telecommunications & information technology and public transportation.
Whilst it is not in doubt that the country has huge potentials to become a big player in these sectors and that investors (local and foreign) are looking to partner with the government, inadequate infrastructure however poses a great challenge and is acting as a disincentive to private sector investments in these sectors.
It is no surprise therefore, that in a bid to return the country to the path of recovery and growth, the government’s expansionary budget framework in the short to medium term has targeted the financing of substantial infrastructure in the critical sectors of the economy.
In this piece, we advocate more effort from Government at improving the infrastructure development process in Nigeria. In recognition of the need to transition from the old, ineffective era where government was the sole or principal actor in building critical national infrastructure, Government has taken steps towards the adoption of the Public Private Partnership (“PPP”) model for the development of public infrastructure.
This is in line with international best practices which now favour robust partnerships between the public and private sectors of the economy through PPP templates that promote the harnessing of private-sector capital, efficiency and expertise for the development of public infrastructure. In essence, this article presents an overview of the Nigeria’s huge infrastructure gap, the available financing mechanisms as well as the massive investment opportunities which are presented to domestic and international investors and argues for a stronger PPP legal and regulatory framework; which will take advantage of these factors to deliver the infrastructure which Nigeria sorely needs.
HIGHLIGHT OF NIGERIA’S INFRASTRUCTURE GAP
The FGN in its 2013 “National Integrated Infrastructure Master Plan” projected that the country would need about N398.1 trillion, over the next three decades, for building world class infrastructure that will guarantee sustainable economic growth and development in Nigeria.
According to the African Development Bank (“AfDB”), in its 2015 Report titled: “An Infrastructure Action Plan for Nigeria: Closing the Infrastructure Gap and Accelerating Economic Transformation”, a Federal Government of Nigeria (“FGN”) specially commissioned project; the country needs an estimated US$3 trillion in infrastructure investment in the next 30 years (and about US$165 billion in the medium-term) to close its infrastructure gap.
The Institute of Appraisers and Cost Engineers, a division of The Nigerian Society of Engineers projected in 2015 that about US$2.9 trillion investment is needed, in the next 30 years, to close current infrastructure gap in the country. That same year, a former Minister of Finance and the Coordinating Minister for the Economy, Dr. Ngozi Okonjo Iweala stated that “to fund infrastructure, Nigeria needs about US$14 billion every year.
The Lagos Chamber of Commerce and Industry (LCCI) in 2016 estimated that, Nigeria’s infrastructure deficit is up to US$300 billion (about N5.91 trillion at the then exchange rates). This figure represented 25 per cent of the Gross Domestic Product in that period.
In a February 2017 editorial, BUSINESSDAY posited that “for Nigeria to close its infrastructure gap and bring itself up to the international benchmark for infrastructure stock, it needs to spend as much as $2.9 trillion in the next 30 years and 48 percent of this sum, representing $1.4 trillion, has to come from the private sector”.
Figures which have recently been given by other stakeholders and institutions, of our infrastructure spending needs, are equally staggering. Essentially, the AfDB in specific terms stated that, plugging the infrastructure gap in Nigeria for a period of 15 years between 2015 and 2030 would require the following:
Transport – A proposed expenditure of about US$710 billion to build new infrastructures in Roads, Railways, Ports, Shipping, Inland Waterways, Civil Aviation, Gas Transport, and Urban Transport Sectors.
Electric Power and Access to Energy – A proposed expenditure of US$40.9 billion during the period 2011-2020 for upgrading grid infrastructure for electricity transmission and rural electrification, to support adequate power generation, transmission and distribution.
Water Resources, Supply and Sanitation – A proposed expenditure of US$101 billion for developing infrastructures for Irrigation of agricultural farmland, and water supply to support lives and improve sanitation.
Information and Communication Technologies (ICT) – A proposed expenditure of about US$ 3.5 billion for expanding and building ICT infrastructure, for telecoms and internet services in the increasing urban centers; for better tele-density; for improved internet resources for online education and research institutions; as well as establishment of a national digital library and promotion of e-application, e-learning, e-governance and e-commerce.
Soft Infrastructure – According to the Infrastructure Consortium for Africa (2013), some measures are needed to support or accompany the production of physical infrastructure outputs, including research, enabling legislation, project preparation, and capacity building. The AfDB report estimated that these measures would cost about US$50 billion in Nigeria, in the period under consideration (2015 – 2030).
INFRASTRUCTURE FINANCING MECHANISMS AND INVESTMENT OPPORTUNITIES
As the largest economy in Africa and most populous black nation on earth, demographic data presents Nigeria as a global economic frontier with high rates of returns on investments. Latest country data include:
Population of about 170 million people half of whom are youths
Population projected to surpass that of the US by 2050 – World Population Prospects Report, United Nations, 2013
Largest market for consumer goods and services on the continent
Highest and fastest mobile telecoms penetration rates on the continent
Largest producer of crude oil in Africa and 8th in the world
Nineth (9th) largest proven reserve for natural gas in the world
Large deposit of diverse solid mineral resources
Uncultivated vast arable land
Africa’s regional economic hub
Going forward, Nigeria’s bourgeoning population and increasing urbanization are all going to exert great pressure on the existing inadequate infrastructure and will compel a scale-up in infrastructure spending on housing, social amenities, health, education, road networks and energy (power, oil & gas). This provides viable investment options for investors in areas of hard/physical and soft infrastructure if Government will take steps to provide necessary investment comfort.
Nigeria’s wide infrastructure gap currently requires that new thinking and new approach be adopted in the planning, financing, development and maintenance of infrastructure projects. The dominant role played by the government in the past had only created inefficient, huge public utilities and decaying, poorly maintained infrastructure; confirming argument in certain quarters that government, unlike private enterprises, is not good in handling profitable business entities.
Trillions of Naira has been spent in the name of turn-around maintenance and new infrastructure projects in the past; with little or nothing to show for it. Time indeed has come, for the government to create conducive legal and regulatory framework backed by reliable political will for giving the private sector the opportunity to take the lead in the development of critical infrastructure.
Efforts being made by the government to “spend our way out of recession” are noted. Whilst fiscal measures are good, they are not sufficient and would need to be complemented by private sector capital for optimum performance; especially now that government’s purse is lean due to the falling forex earnings. Developmental efforts that can be funded by private sector funds should be given to the private sector under a clearly articulated PPP policy and defined regulatory/legal framework, in order to free scarce public funds for other social developmental initiatives which are not suited to private sector funding.
The expansionary budget plan contained in the government’s Medium Term Expenditure Framework and Fiscal Strategy Paper (2017 – 2019) anticipates deficit financing of critical infrastructure through sourcing of funds from both the domestic and international capital markets. PPP initiatives can effectively be strategically deployed to meet government’s needs in this area.
to be continued next week
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The Grey Matter Concept is an initiative of the law firm, Banwo & Ighodalo
DISCLAIMER: This article is only intended to provide general information on the subject matter and does not by itself create a client/attorney relationship between readers and our Law Firm. Specialist legal advice should be sought about the readers’ specific circumstances when they arise.
