Nigeria needs private capital to address a yawning infrastructure deficit that is holding the economy back.
At a webinar titled “Public Private Partnership Approaches to Rapidly Upscaling Nigeria’s Economic Infrastructure,” Tuesday, the speakers highlighted the constraints of government funding of infrastructure.
Mobolaji Balogun, the CEO of ChapelHill Denham said that Nigeria’s budget translates into 7 percent of GDP.
Out of this, capital expenditure (CAPEX) takes up just 29 percent (N3.85 trillion) of the proposed 2021 N13.08 trillion budget or worse off barely 2 percent of GDP.
This proposed share of capital spending for 2021 is an improvement from the current 2020 allocation of N1.96 trillion, which is 18.9 percent of the 2020 budget, Balogun said.
However, Balogun said Nigeria still has to go a long way in improving infrastructure spending to have the desired positive changes.
“Infrastructure expenditure needs to increase by 20 percent yearly; precisely the estimated allocation to the Ministry of Works & Housing needs to be at least 10 times of its $1 billion to reach $10-15 billion in having substantial impact on the sector and economy”, said Balogun.
Recently, the Minister of Finance stated Nigeria needs an estimated N36 trillion annually for the next 30 years to solve Nigeria’s infrastructure problem.
This means the sum spent by the government annually on capital projects is significantly short of the sum needed to tackle Nigeria’s infrastructure problems.
Babatunde Fashola, Minister of Works & Housing agrees that government funding is not enough but reflects on the tedious process of PPPs.
Contrary to the common assumption that Public-Private Partnerships (PPP) automatically take effect immediately they are announced, the PPP process is not that straightforward given the fact that the objectives and profit accountability for private and public ventures differ.
In highlighting the tension and difficulties of PPPs, Fashola proceeds to mention that in developed countries, private sector only funds about 30-40 percent of capital projects while the remaining 60 percent is funded by government.
Also, these advanced economies have MSMEs making up 60-70 percent unlike that of Nigeria.
Private sector previously insisted on federal support agreement in case government defaults and to prevent another government from defaulting but politics came into play until President Yar’adua approved this agreement and there is a limit to what can be achieved in 4 years before another government takes over.
Low budget constraint, the time taken to negotiate and seal deals is another critical factor.
“Also, customs service to finance mobile scanners across the nation to facilitate efficient revenue collection stemming from border closures; Government also announced the intention to construct railway as part pf capital projects”.
Also, Lamis Dikko, the Chairman of Infrastructure Bank Plc said that “the assumption that people are not willing to pay for services is wrong because persons in the rural areas set aside a certain amount each morning to pay those who carry water in gallons”.
Dikko then emphasizes that if the amount that individuals spend in paying for water is accumulated, it will exceed the funds that would have been set aside by government for that purpose.
“Worse off, Nigeria’s capital market is not determined by the forces of market which affects electricity, the downstream sector and national savings irrespective of inflation and exchange rate”, said Balogun.
Inflation of 13.2 percent, exchange rate of N381 and interest rate of 2 percent on yields affect private which eats into national savings.
“Capital optimisation cannot be taken in isolation of the pricing model, for which the people should be able to set their prices”.
Balogun cites an illustration of when telecommunication services set their prices low to attract and grow their market while steadily providing services having invested over $2 billion consistently on annual basis for 19 years, unlike the case of Nigeria.
“Markets have an incredible way of regulating itself through the forces of competition, providing opportunities for even greater investment and returns”, said Balogun.
The honorable minister emphasizes that the federal roads although important is not nearly as essential as the state and local government roads that people use every day.
Frank Aigbogun, the Publisher/Co-founder of BusinessDay Newspaper highlights that the $33 billion held in treasury and government bonds, is enough capital to start with particularly if access is improved and market-based prices are encouraged.
The World Bank’s 2020 edition for the ease of Doing Business Report notes Nigeria as one of the top 10 improvers as it moved to being ranked 131st worldwide from 2019’s 146th rank.
This reflects that despite the difficulties, the country has improved in many aspects including starting a business, dealing with construction permits, accessing electricity, registering property, trading across borders, and enforcing contracts.
This is mainly due to strong inflows from giant American companies like Uber, and Facebook, as well as Emergent Payments, and Meltwater Group.
China has also been investing considerably in the country, mainly in the textile, automotive and aerospace industries.
Despite the odds, Nigeria is the third African host economy for foreign direct investment (FDI) behind Egypt and Ethiopia.
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