At the 77th United Nations General Assembly, while soliciting for foreign direct investment into the country, the president declared that Nigeria requires N438 trillion (approximately $1.0trn) investment in infrastructure over the next 10 years. Undoubtedly, the nation requires investments in road infrastructure, rail infrastructure, aviation, education and healthcare, etc. A simple average computation indicates an investment of N43.8 trillion annually.
Where will this money come from? The president in the same speech attempted to answer this question by suggesting that 85.7 percent of the investments will come from the private sector. Putting things in perspective, we look at infrastructure deficit and the possible solutions. While this write-up will not provide a panacea, it will set us thinking in the right direction.
The vice president had in August 2022, while inaugurating the National Council on Infrastructure put the infrastructure deficit at $2.3 trillion. According to ISD Foundation and Izuwa, “At present, the value of Nigeria’s infrastructure is about 35 percent of Gross Domestic Product (GDP), paling in comparison with 70 percent for larger economies,” “For over 75 percent of businesses operating in Nigeria, a power supply is a major constraint”.”
About 68 percent of all roads in the country are in deplorable condition, with only about 18 percent of Nigerian federal roads paved. These underscore the magnitude of the problem of infrastructure. Economic development and opportunity in any economy depends largely on the quality stock of infrastructure. For government to make a positive economic impact therefore, it must focus its energy and resources on resolving the infrastructure conundrum.
Identifying a problem is the first step towards a resolution. Seeking the right solutions is the next step, implementing, progress review and performance follow. The Government has identified albeit with varying estimations, that there is a problem. Government’s past resolution efforts included annual budget interventions, setting up the national council on infrastructure, setting up the Infrastructure Concession Regulatory Commission (ICRC) etc. Despite these indicative efforts, the results have been a continuous decay of infrastructure. What therefore needs to be done? Strategy? finance? Laws? Policies? All of these are elements of the solution.
N17.1 trillion was budgeted for the 2022 fiscal year
Nigeria’s GDP for 2021 was N173.5 trillion or $407 billion. The Federal Government budgeted N1.45 trillion for infrastructure in the 2022 budget. By end of June 2022, according to the CBN, total bank assets stood at N65.48 trillion while total deposits rose to N42.03 trillion. The capitalization of the NGX stood at N27.09 trillion. Total pension funds assets stood at N14.27 trillion. Based on these figures, it is doubtful that the country will be able to achieve the required yearly investment of N43.8 Trillion. However, nothing is impossible with a good financing strategy and commitment. Money is an idea and ideas can generate money/finance.
Successive governments have made slower investments in infrastructure as a result of budget constraints. A coordinated and concerted effort will require all stakeholders – Federal Government and ist agencies, state governments, local governments, the organized private sector and financiers to come together to audit, evaluate the infrastructure needs in various areas, determine the gap and fashion a strategic infrastructure development plan for the country. Execution of such development plans will be jointly implemented by all the stakeholders.
A peculiar problem usually requires a peculiar solution. A customized and relevant financing strategy will be required by the government. Government borrowing has skyrocketed in the last few years, leading to unsustainable levels of debt and debt servicing. This is definitely not the way to go. Solutions for government capital fund raising may include;
Financialization of existing assets. Various assets of government litters the whole country. From real estate e.g. former federal secretarial in Lagos, manufacturing facilities e.g. Delta steel company Aladja etc. A comprehensive audit and list of such assets which can be financialized should be carried out with the objective of raising funds through financialization of these assets.
Capital agglomeration vehicles and schemes. The only capital agglomeration vehicle in the country is the pension fund scheme which has currently received contributions of N14Trillion. Policies to set up other long-term capital agglomeration schemes should be put in place. This will include strengthening of the insurance sector and set up of infrastructure dedicated funds with recycling and refinancing capacity.
Commercialization of rights and guarantees.
The government can use its rights and powers to generate capital required for infrastructure investments. This will include the formulation of relevant laws and policies to facilitate the process. An example is the licensing of Telecommunications companies from which the government generated some $500 million at inception. The investment in railways and airports could have been executed in the same fashion rather than borrowing externally.
A number of public enterprises can be listed within and outside Nigeria like the Saudi government did. Saudi Aramco, our equivalent of NNPC listed at a valuation of $1.7 trillion in 2019 with the Saudi government able to cash out up to $26billion from the sale of 1.5 percent of the shares of the company.
Resolving the gargantuan problem of infrastructure deficit in Nigeria can be resolved with concerted and focused efforts from all stakeholders with a bespoke and well thought through financing and execution strategy. The benefits will be enormous both economically and socially.
Ayoade is the managing director/CEO of MBC Securities
