Alternative infrastructure finance models are being sought
Nigeria’s economy, like that of most Sub-Saharan African (SSA) countries, is hampered by a massive infrastructure deficit, which is frequently cited as both a cause and an effect of the country’s poor economic performance. Nigeria’s infrastructure contribution of GDP is still considerably below the internationally recommended 70 percent, with an estimated stock of 18 percent of GDP.
As large as the infrastructural gap between Sub-Saharan African countries, including Nigeria, is, a McKinsey & Company analysis found that the region is not just behind in access but also slipping behind in addressing the gap. Empirical evidence from sectors and sub-regional mappings backs up the claim.
For example, India, which has a population equivalent to that of the region, reportedly added 100 million people to its power network in 2018, whereas Sub-Saharan Africa only added 20 million people. The region’s percentage of the global population with access to electricity, which McKinsey projected at 69 percent in 2018, could grow as a result of the gradual catch-up.
In terms of roads and other vital infrastructure, the region is not faring any better. It has an average of 204 kilometers of roads per 1,000 square kilometers, with barely a quarter of them paved, compared to a global average of 944 kilometers per 1,000 square kilometers, with more than half of them paved. According to the World Bank, low road density means that Africa’s fast-growing cities are experiencing increased congestion, which has a substantial impact on both economic development and road user safety. While the World Health Organization (WHO) lists risky driving habits and vehicle condition as contributing factors to accidents, the bad quality of roads is frequently cited as a major risk factor.
Nigeria represents the burden of SSA’s past infrastructure deterioration — unreliable electricity, pothole-ridden/narrow roads, ill-equipped ports, and so on – with around 18% of its population. Experts have recommended for more aggressive infrastructure expenditure to close the gap and strengthen the economy’s ability to produce jobs in the face of a rapidly rising population.
Previously, Nigeria relied on fiscal allocations to fund public infrastructure. As a result, in the heydays of agriculture, most of the iconic national infrastructure was either erected with windfalls from crude or earnings from cocoa or groundnut pyramid. While agriculture is barely feeding the country, crude oil production has been declining for the previous half-decade, with last year’s output being the lowest in over a decade. These have increased the number of abandoned projects at both the state and federal levels in recent decades, adding to the restrictions of direct government infrastructure. According to a 2012 report, about 12,000 Federal Government projects were abandoned between 1962 and 2012, with the Chartered Institute of Project Management valuing the projects at N12 trillion in 2017. The sum represents 17% of the country’s economy, which was valued at N72.4 trillion by the Nigerian Bureau of Statistics (NBS) last year.
These have increased the number of abandoned projects at both the state and federal levels in recent decades, adding to the restrictions of direct government infrastructure. According to a 2012 report, about 12,000 Federal Government projects were abandoned between 1962 and 2012, with the Chartered Institute of Project Management valuing the projects at N12 trillion in 2017. The sum represents 17% of the country’s economy, which was valued at N72.4 trillion by the Nigerian Bureau of Statistics (NBS) last year.
While current data is backwards-looking, future estimates are not encouraging. Nothing says more about the country’s infrastructure deficiency than the Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) for the years 2022-2024. While the current capital expenditure (CAPEX) component of the budget is 29 percent, the medium-term plan calls for CAPEX spending to be 21 percent, 20 percent, and 18 percent in 2022, 2023, and 2024, respectively. Though the capital vote was increased to 32.7 percent in the actual 2022 budget, or N5.4 trillion in absolute terms, experts feel the sum is a drop in the bucket when compared to the enormous national demand.
THE DISCUSSION OVER THE REALITY OF THE COUNTRY’S FINANCIAL SITUATION has reignited the search for a viable alternative infrastructure finance strategy. While the argument rages on, the country may have been unknowingly putting the special purpose vehicle (SPV) option to the test. According to government officials who were present for the inspection, the Second Niger Bridge, which is managed by the Nigeria Sovereign Investment Authority (NSIA), is 91 percent complete. The entire completion rate, which includes both the bridge and the supporting infrastructure, is anticipated to be 84%.
Farouk Gumel, Chairman of the NSIA Board of Directors, said of the project, “The Board is delighted with the quality and pace of development.” The Second Niger Bridge is unquestionably an important element of national infrastructure. With almost 84 percent of the project completed, it will soon begin to cut travel time and traffic, resulting in increased economic activity and improved connectivity between the northern and southern sections of the country. The Nigeria of our aspirations is one that is well-connected and has world-class infrastructure, and this road will help us get there.”
“What I indicated was the bridge link will be completed around February or at the latest the end of the first quarter,” Babatunde Fashola, Minister of Works and Housing, said during a visit. We’re approaching the conclusion of the first quarter, and as you’ve heard from them, the east-bound link will be completed on March 15 and the west-bound link on April 2.”
The Second Niger Bridge was linked on April 2 in the presence of the Minister of Finance, Budget and National Planning, Zainab Ahmed; Gumel; NSIA Managing Director, Uche Orji; and the Deputy Governor of Anambra State, Gilbert Ibezim, during a tour during which the Finance Minister said: “Today is a very significant day in the construction cycle of the Second Niger bridge.” This is one of the country’s most recognizable projects, with a contract value of N206 billion.
“We were able to fund this project with N157 billion today, and I’m here to witness where all of that money is going.” Furthermore, the significance of today is that the two ends of the bridge are being connected, signaling the completion of the project. So, theoretically, I can tell the President that I’ve seen where the entire N157 billion went. This is a project close to the President’s heart, and it aims to improve the lives and livelihoods of people in the South-East and elsewhere in the country.”
The value of the project and the effect alternative funding approaches may make in the country’s infrastructure space are more important than the formal showboating. During the execution phase, nearly 20,000 people from the surrounding states, largely teenagers, were actively involved. Surprisingly, the beneficiary states — Anambra and Delta – have a reputation for young unrest. This shows that the project would have helped to alleviate social tensions in the neighborhood.
Perhaps the complicated history of the bridge demonstrates the necessity of learning while examining the country’s finance model. The bridge was first proposed during the former National Party of Nigeria’s political campaign in 1968/69. (NPN). In 1987, after hearing about the deterioration of the River Niger Bridge, then-Minister of Works and Housing Abubakar Umar commissioned local experts to create the Second Niger Bridge. After Gen. Ibrahim Babagida’s (rtd) dictatorship was deposed, the plan came to a halt.
There was skepticism about the project until 2007, when President Olusegun Obasanjo formally launched it a few days before the end of his presidency to effectively pass the burden to late President Umaru Yar’Adua. The N58.6 billion project was supposed to be finished in three and a half years.
For the four parties participating, the funding structure was 60:20:10:10. They were Gitto Group (the contractor), the Federal Government, and the governments of Anambra and Delta, respectively. The project remained a source of partisan politics and controversy during Goodluck Jonathan’s presidency.
THE APPEARANCE OF THE Presidential Infrastructure Development Fund (PIDF), an NSIA-managed SPV, is like the magic wand long awaited in the long road to providing Southeasterners and, indeed, Nigerians with an alternative to the River Nigeria Bridge, where travelers spend hours during festive periods to connect Onitsha and Asaba, two cities less than 10 kilometers apart.
The Second Niger Bridge demonstrates how extra-budgetary solutions can be used to deliver important infrastructure. The N15 trillion Infrastructure Corporation of Nigeria (InfraCorp), which began operations on Friday with the signing of a term sheet with independent asset managers, is potentially a grander experiment.
Surprisingly, NSIA is collaborating with the Central Bank of Nigeria (CBN) and the African Finance Corporation (AFC) to ensure that the new infrastructure giant gets off to a smooth start. The three partners are pooling N1 trillion in seed stock, with a large portion of the N14 trillion balance needed for operations coming from the local loan market.
The entire sum earmarked for infrastructure by the Federal Government in the 2022 budget is N15 trillion, which is approximately treble the amount captured in the 2021 allotment. However, Godwin Emefiele, Governor of the Central Bank of Nigeria and Chairman of InfraCorp, stated that the current projection is not a cap, but rather the first phase of the plan. He went on to say that the Corporation will identify bankable projects from essential infrastructure projects across the country that would help the economy and local capacity utilization.
These initiatives come at a time when the country’s public debt is becoming heavy, and China, which owns a substantial portion of the country’s infrastructure projects (in advanced and design stages), is showing signs of trepidation. The country may have discovered a workable inward-looking strategy to wean the economy off infrastructure deficit risks through these initiatives.
The expectation is that as the government gradually withdraws its involvement in commercially viable projects through direct budgetary allocation, the existing crowding out of private sector players will ease, resulting in a new culture where infrastructure financing is truly a business that generates long-term financial rewards while also creating much-needed social impacts. As these programs achieve market approval, that anticipation alone may begin to spark new hope in the coming months.
