In push for private capital, Nigeria shuns domestic investors

Nigeria is in urgent need of private capital to resuscitate decaying infrastructure and boost economic growth, but domestic institutional investors say the government isn’t showing enough urgency.

In the face of a revenue shortage, Nigeria plans to plug infrastructure deficit by leveraging private capital, but some domestic institutional investors, including the pension fund managers who sit on some N9 trillion worth of assets, say there aren’t big ticket deals to back.

“We will invest in infrastructure if the instruments are available,” said Dave Uduanu, MD/CEO, Sigma Pensions Ltd, at the 2019 FMDQ Nigerian Capital Markets Conference. “We are not serious about attracting private capital into infrastructure.”

History has shown direct government funding cannot plug Nigeria’s infrastructure gap, which the African Development Bank says requires about $3trn by 2044 or about $100bn annually to fix, creating the need for mobilisation of private investment. A means to tap into private institutional capital remains missing.
Experts have advised the government to issue specific bonds targeted at projects, as opposed to general obligation bonds, from which cashflow generated can settle obligations.

“There is ability to raise long-term finance in local currency,” said China Azubike, CEO, InfraCredit Ltd.
Investors are now urging the government to take advantage of some low hanging fruits in existing assets that can easily be securitised.

A panel at the FMDQ conference suggested that government increase the stock of investible infrastructure through public-private partnerships (PPP) framework by scaling down large projects into bits attractive to private investors, and explore possibilities like concession of airports.

With some challenges currently around PPP, the government has to create incentives for the entire value chain instead of specific projects to avoid situations like in the power sector where tarrifs don’t reflect cost.

Attracting domestic capital will also require the government to respect contracts in Nigeria. Most times, a change in government leaves investors vulnerable to dissolution of existing contracts by the new sheriff in town.

Similarly, the private sector has asked to be carried along in policy formulation and not consulted only at advanced stage where dialogue and compromise are difficult.

Meanwhile, moves by the Federal Government to create room for private capital for infrastructure through a tax incentive scheme has yielded N205bn in investment, Adeyemi Dipeolu, special adviser to the president on economic matters, said at the conference, but the need to unlock Nigeria’s true potential requires more funding.

“The interest in the scheme shows that Nigeria remains a compelling destination of capital despite our economic challenges,” Dipeolu said. “There are huge opportunities in infrastructure and the government is keen to attract private capital into that space.”

The amount (N205 billion) is 47 percent higher than the entire public expenditure on transport infrastructure in 2018 and 62 percent of the total amount spent on power, works and housing in the same period.

Details were not provided on the specific roads that attracted the money and the private investors behind the deal.
Nigeria’s President Muhammadu Buhari signed, on 25 January 2019, Executive Order No. 007 on Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme.

The 10-year scheme is a public-private partnership (PPP) intervention that enables the cash-strapped government to leverage private sector capital and efficiency for the construction, repair, and maintenance of critical road infrastructure in key economic areas in Nigeria that have deterred business and economic growth.

According to the Infrastructure Concession Regulatory Commission, Nigeria has about 195,000km of road network out of which about 32,000km are federal roads and 31,000km are state roads. In total, only about 60,000km of roads are paved leaving 135,000km untarred. A large proportion of the paved roads are in bad condition due to poor maintenance.

Sukuk bonds have over the years been issued to fund several infrastructure projects in Nigeria since Osun State issued the first Islamic-infrastructure bond in Nigeria in 2013. The Federal Government already issued a Sukuk of N100bn in 2017 for the construction and rehabilitation of 25 priority roads across  the six geo-political zones, according to information from the debt office. The FG is looking to raise additional N100bn Sukuk before the end of the year, and could also issue a N10 trillion infrastructure bond in 2020.

LOLADE AKINMURELE, BALA AUGIE, MICHEAL ANI & SEGUN ADAMS