A cocktail of options on how to bridge Nigeria’s infrastructure financing gap yesterday resulted in a senior government minister, Shamsudeen Usman, minister, national planning, saying “Nigeria needs about $2.9 trillion in the next 30 years to execute its integrated infrastructure master plan.”

Usman told the audience on the first day of ongoing roundtable by the Securities and Exchange Commission (SEC) that going by the national integrated infrastructure master plan, “the nation needs an average of $25 billion annual spend between 2014 and 2043.”

About 35 percent to 40 percent stock of Nigeria’s infrastructure remain below the international benchmark of 70 percent of gross domestic product (GDP) in 2012, meaning that Nigeria needs to up its infrastructure stock to at least 70 percent in the next 30 years.

According to Usman, the integrated infrastructure master plan comes out of government’s realisation that when it creates the enabling environment, the private sector will thrive on it.

The World Bank estimates that a 1 percent increase in a country’s infrastructure stock leads to 1 percent increase in the level of GDP. Clearly, the multiplier effect of infrastructure stock will be higher in countries that are starting from a low base.

In its 2013 global competitive index report, the World Economic Forum (WEF) ranks Nigeria 130th out of 144 countries on infrastructure, a ranking that underscores the size of the challenge the nation faces.

Also at the conference, Yerima Ngama, minister of state for finance, said the Federal Government had realised that “if it gets the transformation agenda right, it will help it achieve Vision 2020. That is why we make sure that we get each plan well implemented.

“Between 2014 and 2018, which is the phase one of the master plan, the transformation agenda will require N25.7 trillion with an investment of N32 trillion on Vision 2020, while the national integrated infrastructure plan will require N464 trillion.”

Arunma Oteh, director-general, SEC, said challenges posed by traditional funding sources make capital markets increasingly the preferred way to finance infrastructure in Nigeria.

“We have seen this preference in the number of state governments that raised monies for infrastructure in the domestic bond market in recent years. Since 1978, 18 state governments have raised about N537 billion from the bond market, 75 percent of which was raised within the last five years to finance various infrastructure projects,” Oteh said.

According to her, “the Federal Government has been an active participant in both markets. FGN bonds dominate the bond market, accounting for over N4 trillion of the NSE’s market capitalisation of about N5.64 trillion. The addition of Nigeria’s sovereign bonds to the JP Morgan Government bond index has clearly made our sovereign bonds more attractive to global investors.”

The increased appetite for bonds in our market could be attributed to the measures the SEC has put in place, which include the enhancement of the framework for bond issuance, the development of appropriate rules on bond building and shelf registration, as well simplification of disclosure rules for fixed income, she said.

“We also pushed for revision of the tax regime to eliminate tax discrimination among different types of investors. In addition to the efforts made around conventional bonds, we have taken steps aimed at unlocking the potential of non-conventional financial products such as the Sukuk Islamic finance for bonds, which is very useful for infrastructure finance, capable of attracting large long-term investments from the gulf countries and other advanced Islamic finance markets,” she added.

“Government should be constructive in the kind of financing they use in infrastructure development,” said Bruno Carillo, partner, McKinsey, who made a presentation on ‘Global lessons on financing infrastructure.’

Also at the conference, Toyin Sanni, CEO, UBA Trustees/Nominee, said “capital raising via the capital market has its own features, which include objectives of funds raising, concepts of projects and efforts around investor protection.”

One of the major challenges facing our economic managers today is moving away from short-term borrowing to finance long-term projects as there are indications that Nigeria had in 2012 spent about N699 billion in paying bank interests.

The SEC on its side has a dual mandate to regulate and develop a capital market that is fair and orderly in ways that engender investor confidence. A key aspect of the SEC’s market development role is deepening capacity in the market, and the roundtable is one initiative that is expected will enhance knowledge on the important subject of infrastructure finance.

Participants at the conference are of the view that the capital market is the most viable option to financing long-term projects like infrastructure and are now deliberating on more possible investment vehicles targeted at infrastructure financing.

2013-08-11