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Fashola, Amaechi, Saraki, others seek better funding of transportation infrastructure

Stakeholders in the transportation and finance sectors have called for better and sustainable funding of transportation infrastructure in Nigeria.

They hinged their position on the inadequacy of traditional method of funding through annual budgetary provisions to meet the huge capital needs of the sector.

Other factors identified as limiting investment in the transport infrastructure especially by private sector investors are; legislation, low impact projects, inadequate long-term focus, weak feasibility/business plan, delays in getting license/permits, and inability to secure guarantees.

The Nigerian transport sector accounts for 74% of Public-Private Partnership (PPP) amounting to $27 billion funded projects in the country with an investment gap of about $113 billion.

While road transport accounts for 87-95% of all freight and passenger movement, and incurred 61% of annual average transport infrastructure spending in Nigeria, the figure has been insufficient for a sector serving as a strategic economic tool for Nigeria’s economic growth and prosperity.

At a well attended national conference on transportation infrastructure development financing in Nigeria, stakeholders were united in their view that traditional funding mechanism of transport infrastructure through annual budgetary allocation, grants and loans are unsustainable and difficult to match up with rapid decaying of infrastructure due to pressure from population and economic growths. At the same time, many States are yet to exploit funding alternatives to supplement traditional funding infrastructure in the country and elsewhere.

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The conference was organised by the Nigerian Institute of Transport Technology (NITT) Zaria in collaboration with the Federal Ministry of Transportation (FMT) at Shehu Musa Yar’Adua Conference Centre Abuja. Speakers and participants which include key government officials and captains of the industries stressed the need for a sustainable funding for the transportation sector bearing in mind its critical importance to national economic and social development

The conference which attracted 313 participants (180 physical and 133 virtual) from across the country mostly from transport and finance sectors also had in attendance honourable Ministers of Transportation Rotimi Amaechi, and (Transportation, State) Gbemisola Saraki; Finance, Budget and National Planning Zainab Ahmed; and Works & Housing, Babatunde Fashola. Others include, representatives of the World Bank, European Union (EU), and professional bodies such as Chartered Institute of Logistics & Transport, Chartered Institute of Transport Administration, as well as representatives of the Governors of Lagos, Kaduna, Adamawa and Ondo States, State Commissioners of Transport, Works and Finance, FRSC, Traffic Management Agencies, Academicians, Regulatory Agencies, Transport Unions, Transport Professionals, Investors, Journalists, and other stakeholders. Others who presented were the Managing Director, The Infrastructure Bank Plc Ross Oloyede; Ag. DG/CE of ICRC Mike Ohkani; DG/CE Debt Management Office, Patience Oniha; and MD/CE, Eco Bank PLC Patrick Akinwutan, Chairman Governing Board of NITT Olorogun John Onojeharho, DG/CE NITT Bayero Salih- Farah and Prof. Bamidele Badejo, a transportation management expert.

In his key note address Transportation Minister Rotimi Amaechi emphasised the need for sustainable funding mechanism to mitigate transportation infrastructure deficits in the country. According to the minister whose address was read by the Minister of state, Gbemisola Saraki, transportation as an enabler for economic development of other sectors requires long term capital investment by public and private institutions.

Minister of Finance, Zainab Ahmed said the transportation sector contributed 1.38% to the GDP in the first quarter of 2021, saying the figure can be improved if more transportation infrastructure is developed (1% growth in the infrastructure stock is associated with 1% growth in per capita GDP), but the key challenge is funding.

Works and Housing minister Babatunde Fashola identified some global phenomenal like the 2014 oil crises and the COVID-19 pandemic as compelling “oil rich” nations, like Nigeria, to have a re-think on public spending strategies on transportation infrastructure. Hence, he said, the Federal Government is supplementing infrastructure funding with other sources, such as capital market (Bonds, Sukuk etc), and multilateral & bilateral partners. The international partners also offer valuable technical assistance in addition to the financing, he said.

“Sustainable funding of transport infrastructure demands collaborative efforts among all tiers of Governments and other stakeholders to agree on a common front on how best to address the existing and future transport infrastructure deficit both in quality and quantity.

“Transport infrastructure funding is capital intensive investment and associated with multiple risks and uncertainties. Therefore, the financial institutions and investors are willing to key into bankable PPP projects initiative only. Furthermore, financing long term projects like infrastructure has an extra challenge due to short term nature of funds in the Banks from individual deposits,” Fashola stated.

Indeed, transportation high-capacity infrastructure like Seaports, Airports, Railways, Highways, and pipelines are indispensable for sustainable economic development and inclusive growth, which are capital intensives in nature. In this regards, participants said sustainable funding of transport infrastructure would require collaborative efforts among all tiers of Governments and other stakeholders to agree on a common front on how best to address the existing and future transport infrastructure deficit both in quality and quantity.

According to Emmanuel Onwodi, Director, Transport Infrastructure, Infrastructure Concession and Regulatory Commission (ICRC), transport infrastructure funding is a capital intensive investment and is associated with multiple risks and uncertainties. Therefore, the financial institutions and investors are willing to key into bankable PPP projects initiative only. He further stated that financing long term projects like infrastructure has an extra challenge due to short term nature of funds in the banks from individual deposits.

For instance, road transport, he said, accounts for 87-95% of all freight and passenger movement, and incurs 61% of annual average transport infrastructure spending in Nigeria, which makes it a strategic economic tool for Nigeria’s economic growth and prosperity. The Federal Road network which is 35,000 KM represents 17% of the national road network of 200,000km and involves strategic routes that carry 70% of road traffic in Nigeria.

Recently, Nigeria made moderate progress in terms of Transport infrastructure development in road construction, standard Rail lines, Deep Blue Sea Port, and Airports. That notwithstanding, the transport sector productivity is still very gloomy when compared with peer countries like Ghana and Kenya, necessitating more investments in the sector are required.

That nevertheless, the massive increase in the provision of roads and other transport infrastructure in the country by the Governments has created investment opportunities for small and medium scale enterprises.

Fashola listed Federal Government funding initiatives to complement the Transport infrastructure financing to include:

– The Road Infrastructure Tax Credit Scheme (RITS) designed to swap corporate tax with Transport project.

– The Highway Development and Management Initiative (HDMI) program designed to address the road project from development, management and maintenance.

– The National Tolling Policy recently ratified by the Federal Executive Council (FEC).

– Concessions and PPP arrangements in sea ports and Airport respectively.

– Establishment of Infrastructure Company (Infraco)

Although stakeholders at the conference recognized the existence of alternative funding for Transport infrastructure from international organizations namely the World Bank, African Development Bank, Chinese Banks, EU grants and other development partners, they however said funding requirements are strenuous especially the aspect relating to sovereign guarantees.

They opined that the Nigerian private sector capital market through infrastructure bonds could sufficiently fund the transport sector infrastructure gap, provided the infrastructure investment has liquidity with guaranteed returns.

Transport infrastructure could leverage on the Pension Fund, since infrastructure is a potential investment opportunity. Although the Pension Investment guidelines stipulate that maximum of 10% of pension funds should be allocated to Infrastructure fund, Infrastructure financing from the pension fund has remained grossly insufficient standing at N67.01billion (0.054%) from the total pension assets portfolio of N12.40Trillion as at April 2021.

To bridge the existing gaps and future needs, the conference said there should be massive investment in transport infrastructural development in all the transport modes, so as to achieve rapid economic recovery, wealth redistribution, GDP improvement, and enhance transport sector productivity and that the focus of such infrastructure funding should be on projects with greatest capacity that can be impactful. Other recommendations include:

1 Federal Ministry of Finance, Budget & National planning should collaborate with the Federal Ministries of Transportation; Aviation; Works; and NITT Zaria to design a comprehensive Transportation Infrastructure Roadmap and Strategic action Plan for Nigeria. The roadmap should aim at making Nigeria the transportation hub for Africa continent in terms of connectivity and attractiveness to private investors.

2 Federal Government’s supplementary funding mechanism like capital market bonds, Sukuk, International development partners, China BRI, HDMI, RITS, Concessions, and National Tolling Policy should be intensified and strengthened.

3 Alternative funding opportunities should also be extended to States.

4 More private Corporations (Conglomerates & Multinational) in Nigeria should be encouraged to participate in the special Road Infrastructure Tax-credit Scheme (RITS) introduced by the FGN. The Federal Ministry of Finance and Federal Inland Revenue Services (FIRS) should sensitize the companies on the benefits and procedures of the scheme. In this regard, appropriate policy and regulation that will ensure project quality should be established.

5 Federal Ministry of Finance and CBN should collaborate and support NITT research activities, particularly on sustainable funding mechanism for transport infrastructure development in Nigeria.

6 The executive and legislative arms of government should provide enabling environment for private financing with appropriate policy, regulations, and legislation to protect private investments in any Transportation project financing and interventions. This move the participants said would mitigate the challenges associated with private financing like concessions, HDMI etc

7 Federal Ministry of Finance and CBN should provide loan guarantees as a way of minimizing investment risk in transport infrastructure financing. The special loan should have a low interest rate at single digit for Transport project financing commensurate with international markets.

8 To ensure sustainability in transport development, the Federal Ministry of Finance should devise a model that would enable recovery of the funds invested in provision of transport infrastructure, either by public or private investors.

9 That NITT should take cognisance of other international models and advice the Federal Ministry of Finance & National Planning on more viable alternative funding mechanism for Transport Infrastructure.

10 That NITT should identify Transport infrastructure projects with bankability in Nigeria and advice financial institutions, while the CBN and ICRC should put in place internationally acceptable models to evaluate the Bankability of PPP Projects taking into consideration the value for money (VFM) and risk elements.

11 The Insurance industry should be empowered to effectively provide insurance cover for transport infrastructure projects.

12 There should be policy on PPP projects that will prioritise indigenous investors with required capacity, where possible.

13 The ICRC should consider reviewing the life span of transportation infrastructure in planning PPP projects, so as to enable private investments recoup their fund within the time frame.

14 Federal Ministries of Finance; and Works & Housing should support the development of the national Transport Databank in NITT as well as ensure all road infrastructure projects designed, have provisions that would complement services such as walkways, bicycle lanes, and other road requirements.