By Godwin Anyebe
Growth and development are positively affected by the stock of infrastructure assets and so, infrastructure development can be highly effective to combat poverty. Furthermore, Economic Confidential checks shows that illustrative simulations for African countries suggest that these impacts are economically quite significant, and highlight the growth acceleration and inequality reduction that would result from increased availability and quality of infrastructure.
Understanding this fact, Nigeria’s Minister of Finance Kemi Adeosun has said that the Nigerian Government is planning to set up a $25bn fund dedicated to infrastructure investments.
Speaking at the inauguration of the Capital Market Master Plan Implementation Council, the National Investor Protection Fund and launch of the Corporate Governance Scorecard by the Securities and Exchange Commission recently, the minister said that the decision to set up the fund for infrastructure was in recognition of the critical role of the capital market to the kind of economy the present administration intends to develop for Nigeria. “In the current environment of significant revenue squeeze and other budgetary constraints, these investments will clearly not come from government coffers alone. We believe this is where the capital market can really make itself relevant by stepping in to close the funding gap. Government is already looking to set up a $25bn fund wholly dedicated to infrastructure investments”, she declared.
The minister challenged the capital market community to come up with other innovative ways of mobilising the funds needed to address the country’s infrastructure challenge and added that an efficient and vibrant capital market was an indispensable feature of any modern economy, supplying affordable medium to long-term capital needed for growth.
According to the minister, capital markets do facilitate the mobilisation of savings, accelerate capital formation, provide investment avenues and enhance efficient allocation of capital to growth sectors. “Nigeria needs and deserves a capital market that is characterized by high levels of liquidity, depth, breadth and sophistication to enable rapid socio-economic development. Going through the (capital market) master plan, it is heart-warming to note that this is the type of capital market you envision for our country, and indeed, we desperately need such a market to emerge in order to tackle Nigeria’s biggest challenges of huge infrastructure deficit and unacceptable level of unemployment,” she added.
It will also be recalled that the former Minister of National Planning, Abubakar Sulaiman, had sometime in in 2014 while appearing on CNBC Africa said Nigeria needs a further $3 trillion to develop its infrastructure to support economic and social development across the country in the next 30 years as the country’s available infrastructure stock was far below the global standard.
Analysts agree that there has been a huge infrastructure gap in Nigeria. For instance, railway, roads, power, hospitals, schools, water, aviation, housing, petroleum refineries among others in Nigeria have suffered a perpetual decline over the years irrespective of intermediation roles played by Infrastructure Bank, various Intervention Funds by CBN, Bilateral and multilateral funding windows, among others. The questions some of these analysts are asking include: How far can $25bn infrastructure fund proposed by the Buhari administration go? How much is actually needed to put adequate infrastructure in place? Where can Nigeria access such huge funds? And what are the modalities on ground to ensure that the funds if and when available are properly utilized?
Speaking on this issue with Economic Confidential, the Director General of the Lagos State Chambers of Commerce and Industry, Muda Yusuf said the infrastructure fund will no doubt bring about meaningful development to Nigeria as a country if only the federal government will ensure that the fund is well monitored. His words; “this is a great initiative for which the Federal Government should be commended. Clearly, given the enormity of the infrastructure deficit in the country, private sector capital has become very critical in fixing the problem.
The infrastructure master plan prepared by the former administration of President Jonathan envisaged an annual infrastructure investment of about US$100 billion in order to bring the quality of infrastructure to the desired level. In this context, the $25 billion infrastructure fund is a step in the right direction even though the financing gap is much more.”
Speaking on where Nigeria would be able to access such huge funds? The Director General posited that; “it is also desirable for us to explore the opportunities of private sector infrastructure provisions within the context of public-private partnership. There are many variants of this including concessioning, Build Operate and Transfer (BOT), management contracting among other option. This model has worked well in many of the emerging and advanced economies and we need to urgently adopt it. This is even more so with the sharp decline in government revenue and the attendant fragile fiscal position of government at all levels. The salvation lies in the capacity to attract private sector capital and expertise in the infrastructure space and I believe that this is very feasible if you put the right policy framework in place.”
Continuing, Muda Ganiyu observed that; “the provision of N1.8 trillion for capital expenditure for the 2016 budget can only have a very limited impact in improving infrastructure given the huge deficit that we are dealing with. Therefore, we need to also remember that states and local governments also have a major role to play in the provision of infrastructure. Most often the focus has always been on the Federal Government. This mind-set also needs to change. States and local governments need to be engaged to ensure appropriate allocation of resources for infrastructure development in their various domains.”
Also reacting on this issue, a Professor of Political Science from the University of Lagos, Professor Adele Jinadu, told Economic Confidential that; “$25b will go a long way to help the nation’s infrastructure problem. That is a lot of money if judiciously used and directed at the right needs. See, we will not be where we are today if we had been doing the right things in the past. In the 70s, we were used to rolling plans. For example, Five-year rolling plan, ten-year rolling plan among others. That was when our governments used to think about where we would be in the next five or ten years. Most of the major roads in Nigeria were constructed decades ago. No new ones but reconstruction of old ones. So $25b will go a long way.
While responding to how to much would be needed to put the nation’s infrastructure in order, the University Erudite pointed out: “you can’t put a figure to how much is needed. That is relative. If we put $25b today, it will go a long way. That is over a trillion naira for God’s sake. The key thing is using the money judiciously without ending in private pockets or going to the purse of the ruling party. That is the issue.”
For him, the way forward is to plan ahead. “We did not plan ahead and that is why we are here. Lagos-Ibadan Expressway for example was constructed in 1973 and it was due for reconstruction in 1993, that was 20 years after the initial construction. But here we are. Re-doing the road 42 years after the initial construction. Countries’ infrastructures are not run like that.”
Also speaking on how Nigeria can access such huge funds? An Economist, Fagbemi Oluwafemi said that, the Nigerian government recently announced plans to establish a $25 billion infrastructure fund to develop the country’s road, rail and power infrastructure.
According to the government, the fund will be set up with contributions from local and international sources including Nigeria’s sovereign wealth fund. If only government will work with the right framework, having access to the funds will not be an issue, he added.
Though, Mr. Fagbemi expressed optimism that the funds if properly channeled will have a meaningful impact on every Nigerian citizen, but he was still skeptical on implementation and management as this has always been the case in time past.
