In push for pri­vate cap­i­tal, Nige­ria shuns do­mes­tic in­vestors

Business Day (Nigeria) - - FRONT PAGE - LOLADE AKINMURELE, BALA AUGIE, MICHEAL ANI & SEGUN ADAMS

Nige­ria is in ur­gent need of pri­vate cap­i­tal to re­sus­ci­tate de­cay­ing in­fra­struc­ture and boost eco­nomic growth, but do­mes­tic in­sti­tu­tional in­vestors say the gov­ern­ment isn’t show­ing enough ur­gency.

In the face of a rev­enue short­age, Nige­ria plans to plug in­fra­struc­ture deficit by lever­ag­ing pri­vate cap­i­tal, but some do­mes­tic in­sti­tu­tional in­vestors, in­clud­ing the pen­sion fund man­agers who sit on some N9 tril­lion worth of as­sets, say there aren’t big ticket deals to back.

“We will in­vest in in­fra­struc­ture if the in­stru­ments are avail­able,” said Dave Ud­u­anu, MD/ CEO, Sigma Pen­sions Ltd, at the 2019 FMDQ Nige­rian Cap­i­tal Mar­kets Con­fer­ence. “We are not se­ri­ous about at­tract­ing pri­vate cap­i­tal into in­fra­struc­ture.”

His­tory has shown di­rect gov­ern­ment fund­ing can­not plug Nige­ria’s in­fra­struc­ture gap, which the African De­vel­op­ment Bank says re­quires about $3trn by 2024 or about $100bn an­nu­ally to fix, cre­at­ing the need for mo­bil­i­sa­tion of pri­vate in­vest­ment. A means to tap into pri­vate in­sti­tu­tional cap­i­tal re­mains miss­ing.

Ex­perts have ad­vised the gov­ern­ment to is­sue spe­cific bonds tar­geted at projects, as op­posed to gen­eral obli­ga­tion bonds, from which cash­flow gen­er­ated can set­tle obli­ga­tions.

“There is abil­ity to raise longterm fi­nance in lo­cal cur­rency,” said China Azu­bike, CEO, In­fraCredit Ltd.

In­vestors are now urg­ing the gov­ern­ment to take ad­van­tage of some low hang­ing fruits in ex­ist­ing as­sets that can eas­ily be

se­cu­ri­tised.

A panel at the FMDQ con­fer­ence sug­gested that gov­ern­ment in­crease the stock of in­vestible in­fra­struc­ture through pub­lic- pri­vate part­ner­ships (PPP) frame­work by scal­ing down large projects into bits at­trac­tive to pri­vate in­vestors, and ex­plore pos­si­bil­i­ties like con­ces­sion of air­ports.

With some chal­lenges cur­rently around PPP, the gov­ern­ment has to cre­ate in­cen­tives for the en­tire value chain in­stead of spe­cific projects to avoid sit­u­a­tions like in the power sec­tor where tar­rifs don’t re­flect cost.

At­tract­ing do­mes­tic cap­i­tal will also re­quire the gov­ern­ment to re­spect con­tracts in Nige­ria. Most times, a change in gov­ern­ment leaves in­vestors vul­ner­a­ble to dis­so­lu­tion of ex­ist­ing con­tracts by the new sher­iff in town.

Sim­i­larly, the pri­vate sec­tor has asked to be car­ried along in pol­icy for­mu­la­tion and not con­sulted only at ad­vanced stage where di­a­logue and com­pro­mise are dif­fi­cult.

Mean­while, moves by the Fed­eral Gov­ern­ment to cre­ate room for pri­vate cap­i­tal for in­fra­struc­ture through a tax in­cen­tive scheme has yielded N205bn in in­vest­ment, Adeyemi Dipeolu, spe­cial ad­viser to the pres­i­dent on eco­nomic mat­ters, said at the con­fer­ence, but the need to un­lock Nige­ria’s true po­ten­tial re­quires more fund­ing.

“The in­ter­est in the scheme shows that Nige­ria re­mains a com­pelling des­ti­na­tion of cap­i­tal de­spite our eco­nomic chal­lenges,” Dipeolu said. “There are huge op­por­tu­ni­ties in in­fra­struc­ture and the gov­ern­ment is keen to at­tract pri­vate cap­i­tal into that space.”

The amount (N205 bil­lion) is 47 per­cent higher than the en­tire pub­lic ex­pen­di­ture on trans­port in­fra­struc­ture in 2018 and 62 per­cent of the to­tal amount spent on power, works and hous­ing in the same pe­riod.

De­tails were not pro­vided on the spe­cific roads that at­tracted the money and the pri­vate in­vestors be­hind the deal.

Nige­ria’s Pres­i­dent Muham­madu Buhari signed, on 25 Jan­uary 2019, Ex­ec­u­tive Or­der No. 007 on Road In­fra­struc­ture De­vel­op­ment and Re­fur­bish­ment In­vest­ment Tax Credit Scheme.

The 10-year scheme is a pub­lic-pri­vate part­ner­ship ( PPP) in­ter­ven­tion that en­ables the cash­strapped gov­ern­ment to lever­age pri­vate sec­tor cap­i­tal and ef­fi­ciency for the con­struc­tion, re­pair, and main­te­nance of crit­i­cal road in­fra­struc­ture in key eco­nomic ar­eas in Nige­ria that have de­terred busi­ness and eco­nomic growth.

Ac­cord­ing to the In­fra­struc­ture Con­ces­sion Reg­u­lat o r y Com­mis­sion, Nige­ria has about 195,000km of road net­work out of which about 32,000km are fed­eral roads and 31,000km are state roads. In to­tal, only about 60,000km of roads are paved leav­ing 135,000km un­tarred. A large pro­por­tion of the paved roads are in bad con­di­tion due to poor main­te­nance.

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