Babatunde Raji Fashola, minister of works and housing was recently hosted at an event by the Lagos Business School (LBS), where he responded to questions from some participants. Excerpts:
What is the framework that can be used to ensure increased participation of the private sector in infrastructure development?
Let me first say that the involvement of the Dangote group and some other groups in infrastructure starting first with roads is also part of the process of interacting with the private sector. For the record, that policy was not begun by this administration. It was inherited from the last administration but it was never used, so let us be clear. The first project that we did, when I became minister and I saw the policy, I said why is this lying idle, Dangote wants to build a road, he is paying tax, he wants to claw it back from tax and I said why not? It was the Obajana- Kabba road.
Of course, the policy was written with a sunset date but we quickly got that going on, and so in expanding its frontier, the president now said “look, can we do more of this?” Let me say for the record again that the private sector, KPMG in particular, worked with us in developing what we now have. What that policy eventually became is a road infrastructure tax credit scheme that allows people to invest in infrastructure that the public can use so it must not be something that goes only to your own place, it must be open to the public then you claw it back by way of taxes.
All over the world, only one group drives the bulk of the economy; Small and Medium Scale Enterprises (SMEs) like law firms, accounting firms, data firms, real estate businesses. These people make up 90 percent of businesses in Nigeria. The remaining 10 percent who are they? Banks, oil companies, telecommunications, and the Dangotes. How many Dangotes do we have? That’s the economy; the private sector we are talking about.
In 2005 or so when AMCON was created, what was it created for? It was to buy the debt for about 300 or 400 people whose debt was going to bring down the banking sector and possibly spill over as a virus into other sectors of this country’s economy and those were largely the big players, so who bailed them out? The same government. So let’s be logical; if I come to bail you out and then I turn around and say come and invest, where? Then when we are talking about PPPs and infrastructure, the last time we had a conversation I think the Dangote group was paying taxes to the Nigerian government in billions of Naira, so how many companies pay billions of Naira taxes to the Nigerian government?
The kind of infrastructure we are talking about is not money under the table, it is billions of Naira so how many companies owe that kind of tax liability? How many companies even turnover a billion naira from which you can then say they make 10 percent profit, from which you can then apply 30 percent tax on profit. More importantly, assuming there are those who have the capacity to do so, infrastructure is a long term asset but is there a bank that has lent 25-year money In Nigeria? And if it has, has it lent it on infrastructure? So that is why the Lagos-Ibadan expressway could not go on, who was going to lend N200 billion to an individual or to a group in Nigeria? With those questions, it was clear that project should have been taken care of by government in the very first place and we would not have wasted about nine years on it.
The only individual who is raising that kind of money today is Dangote, spending almost $20 billion in the Lekki free zone and perhaps a few others. Lagos-Ibadan is N200 billion so we need to understand asset classes. There are some assets that are just social assets only government can build, they are not even the business of private sector.
So we are talking about airport, people want to build a terminal building in an airport fine, it makes money. There are shops, food court and all of that which will sell. It takes money back to the bank quickly, but no bank will finance you to build a runway. How much money do you get from landing? So those are the kinds of things that government should focus on.
Nobody will come and build rail or invest in tracks, 100-year asset which financing is going to match it? I tried it in Lagos they said no, we advertised in Financial Times and the Economist, they said no. “Build the tracks it is a 100 year asset, we will bring the rolling stock,” and they said even at that it was difficult to raise the money.
So there are some things that we must understand that private sector just does not have the capacity to deal.
In housing, you don’t buy houses as if you are going to buy a jacket. It is something you buy over your working life of 25 years, so how many financial institutions are ready to give 25 year loan? In fact, the process that allowed some of the pension fund to be applicable to Real Estate, I know the role I played then as governor, persuading our legislators in parliament then to push this thing through. However, we must discuss housing not only in terms of ownership but in terms of rental as well.
Yes 20 percent own their houses, but please let us go back to 1918 when the United Kingdom home ownership program was started by Neil Devon. It was two years ago or three years ago, that process became a 100 years that they have been doing public housing in the UK, still not everybody owns a home but there was a benchmark when they started and they increased home ownership and reduced rental. Even at that not everyone owns a home and even the home ownership has dropped because people have lost their mortgages, so 20 percent is a place to start from and it will get better.
What we should aspire to first is that everybody must live under decent conditions and that includes ownership and rental and that is why I am advocating and evangelizing everywhere that the bulk of the empty houses, the bulk of houses that people cannot afford is with us individuals not with the government.
Let us stop asking for three years rent. Three years rent in advance is unaffordable to a man who earns his salary monthly in arrears. Let us tie our rent demand to the man’s income cycle and this country will heave a huge sigh of relief, it will become affordable, it will tie in to when the person gets paid. We will see the exponential effect on the economy.
Yes, the 17 million housing does not exist and we like to play with extreme figures. I just heard two days ago that Nigeria is going to need $100 billion every year to fix infrastructure, where is it coming from? When we launched the infrastructure master plan of 2013, we used to quote $10 billion every year that we must spend now it has gone to $100 billion, but most of the projects that we quoted for in that infrastructure master plan, this government is doing them now.
Second Niger bridge is there, Bodo-Bonny is there, the rail and airports were there, so where did these numbers come from first of all and what are we going to do with it? I have heard things like, “we want to build 1 million houses every year.” Just do the numbers, divide 1 million by 365 days working every day, how many units of housing is that daily? Then how many doors do you need a day? Who sets those kinds of targets? In the UK, they set 200,000 to 300,000 over four or five years and they never achieve 100 percent of it, so let us just be careful.
And that is why I don’t worry myself about criticism but I pushback against things that don’t make sense to me. As I always say, I’m not the smartest here, many of you there are smarter than me, but I’m the one who has to do this job on everybody’s behalf. So if you have those figures, and you have the source, share them with me.
For the 17 million housing deficits, the reason I came out public was that for the past few years, I said, how am I going to do this 17 million and I asked everybody who should know, they said they don’t know. They said it was World Bank, the World Bank said it was not them, AfDB said it was not them until I found it in the 2012 National Housing policy in my ministry before I came, it was in the preface to the minister’s foreword, maybe she didn’t read it. Somebody just put it there, we grabbed it and we all remember it.
The National population commission is preparing a census and we have been working with them. Some of the questions we would like them to help us ask is how many people own houses? How many people want houses? That is the data upon which we can plan and build as a nation.
Regarding questions about funding models, I have talked about road infrastructure tax credit, I have talked about the Sukuk, which is a type of Islamic financing, and also the Eurobond, debt is one clearly. The alternative that I know is taxing and some people have argued that okay, federal government should dispose of some assets, which assets? That’s not my responsibility, those are fiscal decisions to be made by my colleagues minister of budget, finance and National Planning.
Read Also: FG’s infrastructure spend in 6years yields 13,000km of roads – Fashola
Is the federal government providing good alternative roads besides the roads you plan to toll? Are the alternative roads going to be ready and motorable before tolling incase of people that might not be able to pay for the tolling?
First of all, what people see mainly is a toll but what we are doing is larger than a toll. It is a highway concession, we are concessioning highways, to people to now manage not only toll gates, bridges, and toll plazas, but also to provide necessary services, including ambulance services, towing vehicle services, and also to integrate the businesses that people do around the expressway into more organized businesses that are formalized. Also we want to see investment of rest houses where you can stop, rest, refuel, eat, and do so many things and those contribute to safety on the road, because between three to four hours after driving, you are advised to take a rest, stretch your legs before you continue on your journey, so that’s what we are seeing, a toll is only a small component of it, so I want to make that very clear.
Advertising on the highways is also another thing so our real estate development around that corridor is also something, so what we are looking at is beyond just collecting money or getting people to pay at toll gate. It’s a larger business.
Are there other alternatives to the roads, certainly there are. The roads that are going to be tolled are dual carriageways and they represent a very small percentage of the road network, which are largely single carriage highways. I am not really sure but I don’t think it is up to 20 percent of the total road network so oftentimes there is an alternative and those are part of the tolling policy, which I can come back later to come and discuss at another time.
You said the government is interested in improving the human condition, so has the condition of human beings in Nigeria really improved under six years of the PMB government and what was the contribution of the works and housing ministry?
As I said earlier, whatever ideologies you believe in I think our purpose is the same. I don’t I can’t remember or think of any government or any politician who set out on day one to say I’m coming to destroy it and progress is relative, but it depends on whose side.
So if you ask the farmers in the country today, some of them will tell you that this is the most prolific time for them, if you ask people in the construction industry today, I think they will also say that this is the most prolific time for them. In some other sectors, of course there are challenges that have not been met. If you have those who can travel to Ibadan by train to day instead of driving, their condition has certainly improved and you may not see it.
There are relative stories but I know that I have not seen the government whose campaign mantra is that I am coming to damage it; they will never get to office. In terms of the reforms, if you look in the constitution, which is why I say we must also be familiar with our political system, there are federal roads, there are state roads and there are local government roads.
Is your ministry still engaging with state governments to construct some roads in their states? And if not, why?
For those who are interested, the national road network in Nigeria is a little over 200,000 kilometers and of that the federal government owns roughly about 18 or 16 percent. The states own their roads too and are responsible for it. The total for federal and states is 34 percent, the remaining belongs to the local government so what has happened is that up to 2015, the city has grown to pass through some of those roads like Mobolaji Bank-Anthony, Ahmadu Bello way where Silverbird is, it is a federal road and we are the one fixing that one now. Kingsway road in Lagos, Rewane road and many others like that are federal roads.
So when they break down, the federal government didn’t do its job and I have spoken about it, we went to pay creditors, what the governors did was they went to fix those roads using their own money and federal government said they will be refunded and they never paid. So it was this government that paid the first tranche which was N447 billion and that is part of the inherited debts which we are all concerned about.
The second tranche referenced to Rivers state was N447 billion to 24 states the second tranche was about one N148 billion to five states, so Rivers got the lion’s share of that. So the President has now said “you have your road, I have mine the local government has theirs, don’t set the agenda for me or my roads again.” So, that’s my answer to your question.
I want to spend my money choosing the roads that I will do, under my own management not the roads you want to do. Go and fix your own state roads and let the local government fix what they want, but if you want to do it without seeking compensation or reimbursement, go ahead you are welcome so that’s where we are.
Final remarks
If you look at what India has done in the last 20 years, one thing you will also find there is a massive investment in infrastructure, investors also want to enjoy their money when they make money. They just want to go where they move capital, they want to live there, work there with their families, so if you don’t provide that environment, they will go to your competitor. So let’s just get that.
I still believe that the real brick and mortar beauty, sand, cement, paint, those are the drivers of MSMEs when people are building, as I still believe that is a private sector matter but I believe the government can help to smoothen its rough edges.
For somebody who plays there, I think it’s also important to expect that you’re the answer. So you tell me what you think will work. And I will work through it. With you, I’ve told you about what I’m thinking of with real estate investment trust.
I do not underestimate the capital market and I know its power. But I also moderate my expectations, based on its reality. If you go back to the point I was making about the highway development management initiative, if I didn’t believe that there was money in private sector, I would not be going there. However, we are looking to raise over a trillion in investments and that is why it has taken a long time to prepare the plan, to map the rules, to put the data out. It’s a lot of planning and if the project in the plan is good, money will follow it.
There are a lot of people who come into my office and say they have $5 billion and I say it is not possible, you can’t have $5 billion, nobody keeps $5 billion when Nigeria is struggling to raise $3 billion. Some people come to me they want to build 200,000 houses and I say show me where you have built 50 before, then I know you can build 200,000. Those are the things we’re talking about. For some people it is just a joke but for me, it’s a very serious business. It is about is about people’s livelihoods, building a nation and meeting people’s expectations.
So you give somebody land, the next day he sells the land, you want the land back then goes to court to get an injunction and he can’t mobilize capital, that is very exhausting and you have spent many hours negotiating, sitting in meetings, only to find out that the man cannot do what he promised to do.
QUOTE: What we should aspire to first is that everybody must live under decent conditions and that includes ownership and rental
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