Ceo forum 2023

Inside details of Nigeria’s $29bn borrowing plan

…interest payments to gulp $573m per-annum …China to provide 76% of loans

A rare breakdown of how Nigeria intends to spend a $22.7 billion (N6.9 trillion) loan that still awaits approval of lawmakers shows the government will spend over half a billion dollars each year in interest payments for an average of 21 years.

The $22.7 billion loan is the final tranche of a $29 billion infrastructure funding plan first tabled by President Muhammadu Buhari in 2016.

Details showing the cost, source and intended use of the loan were first shared on social media platform, Twitter, by Ajuri Ngelale, the senior special assistant to President Buhari on public affairs, before it was confirmed to BusinessDay by the Ministry of Finance.

The loan, which would be sourced from a cocktail of multilateral development lenders including the World Bank, Africa Development Bank, China Exim Bank, Japan ICA and AFD, will cost the government some $12.1 billion (N3.7 trillion) over an average duration of 21 years. That works out to $573 million (N175 billion) each year.

Economists say that’s cheap compared to borrowing from institutional investors and commended a rare show of public transparency regarding debt utilisation.

The worry, however, was whether the loan will be invested in infrastructure from transport to power as highlighted in the breakdown and not frittered away with little to show for it.

Their worry is supported by data that show despite a near tripling in the country’s debt stock in the last four years, there’s hardly been significant improvement in infrastructure with incessant power outages and bad roads bedevilling of a stuttering economy that has contracted in per capita terms for four straight years.

This time, infrastructure has been prioritised with the proposed borrowing.

The breakdown of the proposed $22.7 billion loans showed transportation, power and social investments will get the biggest chunk with $10.25 billion (44.9 percent), $5.6 billion (24 percent) and $1.6 billion (7.02 percent) respectively.

The transport projects to be undertaken include a $5.5 billion splurge on a railway connecting Ibadan in the south-west of Nigeria to Kano, north of the country.

China will provide the loan which will stretch over 20 years and cost 2.75 percent per annum.

Then there is a Coastal Railway that runs through Calabar through Port Harcourt to the Onne Deep Sea Port. The government is seeking a $3.75 billion loan also from China with a similar maturity profile and cost as the Ibadan to Kano railway.

The final transport project, also to be funded by China for $1.25 billion, is the Abuja Mass Rail II that will connect the city centre to outer districts.

The Power projects to be undertaken at number four.

The Mambilla Hydropower Project, two Transmission Upgrade Programs for TCN and Lagos to Abeokuta as well as nine power sector vocational schools will require $5.6 billion in loans to be sourced from the China Exim Bank, the World Bank, AFD France and Japan ICA.

Under Works, some seven roads will be reconstructed with a $1.2 billion loan from China and the Africa Development Bank.

They include the East-West Road, Gombe-Biu Road (120km), Calabar-Ekang-Ajassor Road (64km), Enugu-Abakiliki-Ogoja Road (246km), Katsina-Jibiya-Niger Rep Road (65km) and Maokwa-Kaduna Road (190km).

Transport, Power and Works cumulatively account for 75 percent ($17 billion or N5.2 trillion) of the $22.7 billion loan, something analysts say could have a transformative effect on the economy if implemented to the letter.

“If the government spends that much and there’s significant private sector participation, Nigeria can move the needle in terms of infrastructure development and economic growth,” said a former senior staff at the International Finance Corporation.

Indeed the government will need the private sector to play a starring role in the infrastructure plan because even if 100 percent of the loan went into building roads, rail and upgrading power supply, it is only 22 percent of the $100 billion annual infrastructure investment needed each year for 30 years to bridge the country’s gaping deficit.

The government will, however, have a tough time convincing Nigerians that the loan will be spent efficiently.

Some also argue that the valuation of some of the projects is inflated.

Angela Okoro, a banker, said that rather than spend as much as $500 million (N153 billion) on the digitalisation of government-owned television station NTA, the asset should be sold off.

“That’s too much for a local station nobody watches when we have obvious spending gaps in critical sectors from education to health,” she said.

Nigeria is seeking the same amount that it plans to borrow for NTA’s digitalisation ($500 million) for Education from the World Bank, according to the loan breakdown.

Spending as much as $200 million (N61.2 billion) on a database linking the Economic and Financial Crimes Commission (EFCC) the National Identity Management Commission (NIMC), the National Bureau of Statistics (NBS) and the Office of the Accountant General of the Federation (OAGF), was also deemed exorbitant by some Nigerians on social media.

“There will always be doubts whether the money will be invested in bankable projects that can generate enough return to cover the cost of borrowing and at the same time trigger economic growth,” a source who did not want to be named to speak freely said.

Another source who is a consultant for the government however argued that “By borrowing from the development institutions, it shows that the government is willing to be more accountable with the loan compared to raising a Eurobond from institutional investors who are primarily concerned with repayment and not if the money is wasted on funding an expensive fuel subsidy or a bloated civil service,” the source added.

Where the bulk of the $22.7bn loan will come from

China is expected to finance the bulk of the loans or 76 percent, thanks to the $17 billion transport and power projects to be financed by Beijing. The $500 million NTA digitisation project will also come from Beijing.

There is also the $4.8 billion loan required for the Mambilla power project, coupled with the $328 million to be tapped for what the government described as “ICT backbone phase project 111” and a $381 million water supply project in Abuja, from the China Exim Bank.

The next biggest source of funds is from the World Bank at $2.78 billion, followed by the African development Bank at $1.73 billion.

Other lenders include AFD of France ($480 m), Japan ICA ($200m) and KFW of Germany ($20m).