Experts List Private Capital Financing Constraints

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BY CHINYERE OBIORA, LAGOS –Experts in the nation’s financial industry have endorsed private capital funding as the productive solution to inadequate infrastructure financing in the country.

In building the consensus, they argued with governments facing serious funding constraints, long-term financing that is independent of government budget and boards in an on-going basis is required to embark on and complete big ticket projects nationwide.

Speaking at the 2017 annual conference by the Finance Correspondents Association of Nigeria (FICAN) in Lagos, Acting Director General of Infrastructure Concession Regulatory Commission (ICRC), Engineer Chidi Kingsley Izuwah said that private capital sanitizes the system and checks corruption because ‘nobody borrows to go and pay a bribe.’

According to him, large transportation projects require on-going investments and funding beyond the capacity of the Federal Government of Nigeria (FGN) and States in any single year, given competing priorities, adding that external funding sources are inevitable for long-term projects’ implementation. 

Referencing case studies in India, Kenya, South Africa, and even Zimbabwe, Izuwah said Nigeria requires stable, multi-year funding mechanisms, independent of annual fiscal constraints, “to catalyze long-term funding various sources: banks, contractors, pensions, donors, multilateral agencies and bond markets.

“PPPs cannot by themselves bridge the gap. Government spending needs to be more smartly deployed, to achieve the best value for money in any given project, e.g. through annuity payment contracts.”

He however said there are a number of major policy constraints to private investment in-flows into infrastructure in Nigeria, broadly categorized into three areas namely: tariffs and regulations; public procurement approach and investment climate.

The ICRC boss further said Natural Gas monetization requires significant investment in prospecting, development, gathering, processing, production, transportation and delivery, adding that with such inter-dependencies in the value chain, highly specialized investors with strong appetite for onshore Nigeria risk are required.

Similarly, he said mining requires significant prospecting, processing and transportation, with all of them requiring long-term funding profile.

Describing private capital as a productive force for excellent development process, Izuwah however noted that a number of factors do conspire to prevent Foreign Direct Investment (FDI) and cause diversion of capital to other countries where the investment climate is more favourable.   

He listed the constraints and major hurdles for investors to include: government controlled tariffs  that are disincentives to investments and limit scope for private sector participation; uncertainty, bureaucracy and opaqueness in contract bidding; preference for pay-to-build versus pay-for-service contract models; lack of transparency or due process in concession negotiations and awards; governments’ requirement for speed and haste to award contracts; limited investment in projects’ preparation by Ministries, Agencies and Departments (MDAs); securing permits, and contracts, agreements.

He said political will is also critical in ensuring appropriate tariffs across sectors and  projects, adding that most sub-sectors are still not open to investments, specially rail and roads .

“Enhancing the investment climate and clearing roadblocks to investor entry is one major area where FGN can make a direct, near-term impact,” said Izuwah who spoke on “facilitating infrastructure financing in Nigeria: ICRC perspectives.”  

Challenging the media to collaborate with the Commission in the battle to provide infrastructure in Nigeria, he said, “We need a national infrastructure acupuncture plan. We need to choose the areas to put the pin. If we are not careful, our factor endowment can become a problem. Our total broad money is 20 percent of our GDP. Government money is 20 percent of our GDP. When you combine logistics and lack of energy, your productivity goes south. A developed country is not where the poor has a car but where the rich use public transport. Time waits for no one, so the concept of African time makes no sense. Transforming Nigeria is doable.”

He said because Project development cycle involves long lead-times for large power projects to be built, early results can be achieved from specific interventions, but overall policy framework needs strengthening for future inflows.

Chief Executive Officer, Rand Merchant Bank Nigeria, Michael Larbie, who enumerated the things required to attract private investments, said; “Clearer legal  and  regulatory framework; improved and efficient competitive bidding procedures; consistent sector policies, (eg tariffs regimes, rule of engagement); Strengthened management of fiscal obligations and supportive regulatory environment are key.”

He opines that government should strive to allocate the risk to the party best able to manage it, while ensuring that Political risks are adequately covered.

“Government must build a track record of public private partnership (PPP) performance to attract large sums of long-term funding from pensions funds and insurance”, he added.

In his presentation, Chief Executive Officer, Viathan Engineering Limited, Mr. Ladi Sanni said considering the fact that Nigeria needs about $100million annually to effectively handle proper infrastructure financing as government alone cannot provide adequate resources, amidst concerns around political risk. He added that among other areas, the government needs to ensure that the judiciary understands that requirements of infrastructure financing.

Sanni said, “Part of the problem we have in Nigeria is contract sanctity. The Judiciary has a role in interpreting the legal framework for POP. Government needs to demonstrate that private investors can go onto long term investment with them. Government bonds limits investment into high risk power project. We would like government to look at the issues of infrastructural bond.”

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