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Investors need certainty, respect for agreements before Nigeria is attractive – Nwangwu

GEORGE NWANGWU, PhD, is an investor and technocrat with over 20 years experience in legal practice, financial services and the academia in Nigeria and the United Kingdom. He advises on corporate finance, project finance, public procurement, Public-Private Partnerships (PPPs) and infrastructure finance. In this interview with OBINNA NWACHUKWU, he highlights pitfalls of infrastructure development in Nigeria and how to boost investors’ confidence. Excerpts:

It is common knowledge that many African countries suffer from infrastructure deficit; what do you think is the reason and how can Nigeria solve this problem?

I believe the problem is that of finance. Majority of African countries do not have money to invest in infrastructure, and in some instances they have tried to rely on the private sector investment through Public-Private partnerships to crowd in investment into infrastructure. However, this has still not solved the problem.

The problem with lack of infrastructure in Africa is double edged: first, you need money to fix infrastructure, which is not available, then on the other hand, there is also the need to develop infrastructure so as to attract investments. Therefore, it is a question of which one comes first. If an investor was to come to Nigeria, the first thing he or she would look at is how to move goods from the seaport to his factory. If Nigeria is not competitive enough compared to other viable investment destinations and movement of goods within the country is costly, then there is a problem as the investment would move to the other countries.

Secondly, there is a lot of money for infrastructure around the world but the money is not getting into Africa because of poorly developed projects. Some of the projects that require investors’ money are not properly structured. For instance, when I hear people say that the power sector is so profitable, I wonder what they are talking about. I just ask them why there are no local or foreign investors trying to invest in the power sector. The Electric Power Sector Reform Act 2005, allows every potential investors to come in, meet all the regulatory requirements and build a power plant to sell energy. However in the liberalized market that we operate, why are investors not rushing in to invest?

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The root cause of the problem is lack of an enabling environment. Let us also talk about risk management; every project comes with a number of risks: political risk, revenue risk, construction risk, etc. Let us take the issue of political risk first: this involves risk of expropriation; a sovereign taking your assets, risk of defaulting or contractual obligations, etc. Where there is risk that the government would fail to meet its contractual obligations, investors will shy away. Then there is the issue of foreign exchange risk An investor brings dollars here to invest and when he wants to repatriate, we tell him that there is no foreign currency to repatriate; meanwhile we continue changing the FX Policy frequently. The inconsistency in the foreign currency policy needs to be well managed to help provide certainty for investors.

There is a lot of money for infrastructure around the world but the money is not getting into Africa because of poorly developed projects.

Another issue is revenue risk; Government signs an agreement with you and says if you produce 600 megawatts of power it will buy all of it from you. You then borrow money at high interest rate, make investment, and produce the 600 megawatts. Government then says to you, ‘I can’t pay for the 600, I can only pay for 300’. Suddenly, you get stuck. The worst is the government owing you whilst the interest on your loans are running while they delay payment. With all these issues, investors will be discouraged from investing in such a country.

Investors just want certainty! If we can give them certainty and keep to agreements, we are fine. That is what is needed not just in Nigeria but other African countries.

As an investor in the Nigerian power sector, looking back at your experience so far, would you say it is worth the effort?

For me, from the beginning, it is a question of seeing how we can contribute to solve our country’s electric power problem and I think it is everyone’s responsibility to ensure the good of our society and the country. It is by taking the toughest challenges and trying to execute them that societies make progress. Although it can be discouraging when several policy and regulatory issues pull you back, you have to keep striving and working with the policy makers to solve challenges. The expectations we had in 2013-2014 when we joined in the privatization of the power sector have obviously not come to fruition. Everyone is disappointed, the citizens most importantly, government and the investors. In the midst of all these disappointments, I am still glad that I am doing my best to move things forward. The disappointing thing would have been to stay on the sidelines and complain.

Everyone did their due diligence and I can tell you that no investor nor financial institution will invest money without due diligence. We had assurances from government and the regulators that we were in this together, we had agreement on how much electricity will cost, what the government will do and several other aspects of the power value chain. But a lot of assurances and contractual agreements have not been kept, a lot of assumptions have not been met. Everyone did due diligence. By the way, most of the investors were aware that the Nigerian business environment had its own unique challenges. Although as investors we factored all of these in, nobody could have predicted what we witness now. However, we are hopeful that the situation will change for the better soon for the citizens most importantly.

Could part of the disappointment be the inability of distribution companies to eliminate estimated billing method? By the way, are you comfortable with the existence of estimated billing years after privatization of the sector?

Nobody is happy that estimated billing is still on and NERC has moved to ameliorate the problem of estimated billing. What we prefer is for everyone to be metered and to eliminate energy theft. But people still by-pass their meters and this increases the cost of power for everyone. That’s one of the major problems for the industry. If we have more people paying for power, it then means that the cost is distributed evenly across board and individuals pay less. In otherwards it translates to lower payment across board. But when you let your neighbour cheat and take electricity from the system, it increases the losses and by that way the Discosare not able to remit enough money into the system, consequently there wouldn’t be enough money to pay the generation companies. By the way, thecontract is between the generation companies and NBET, a government body responsible for payment. If NBET is not getting enough money from the Discos, then it cannot meet its obligation and it increases the burden on everyone especially the tax payers who have to subsidise the energy thieves .

On your part, what contributions have been made towards addressing the infrastructure deficit in Nigeria?

I will start by saying that the second Niger Bridge is one of the many projects that I worked on when I was working for the government. it is funny because when people talk about it, they do not talk about the people that actually conceived, initiated and made sure that the project started and succeeded. At the time I was PPP Adviser and Special Adviser to the coordinating minister for the Economy on infrastructure finance at the ministry of finance, and my mandate at the time was to get the second Niger Bridge up and running.

The other project that I am fond ofis the rehabilitation of the Lagos-Ibadan expressway basically because of the importance of the project to the economy of the country and the legal issues we had to surmount to get the project going. This projectalso started as well when I was at the Ministry of Finance. Even as far back as when I washead of strategy at the Bureau of Public Enterprises (BPE), I was also part of the reforms there. People do not realize that many of the current reform programmes were initiated by BPE. Some of the reforms are the pension reforms, the transport sector reforms, power sector reform, the port sector reforms to mention a few. I was privileged to be part of the people that pushed these reforms through. The Petroleum Industry Act that was recently signed into law by the president was initiated by BPE. I am glad that I played a significant role in a number of these efforts.

Even the recent roads tolling policy approved by the federal government; the effort was led by me while at the Ministry of Finance. Although the minister or the president takes credit for these projects, there are people at the backgroundthat initiatethese ideas and execute them when they are approved by political actors.

Are there other investments you are currently involved?

I am involved in a number of exciting projects. The one that I am most proud of and I have strong sentimental attachment to is the Onitsha RiverPort. It is a project that I have been working on for years, and the hope is that it will help change the economic landscape of Nigeria, decongest the Lagos port, open up business opportunities in the Eastern part of the country and create lots of jobs for Nigerians. Otherprojects that give me pleasure is in the education sector. I have always invested in schools and will continue to do so.


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