If government must make headway in its quest to develop the nation’s infrastructures and meet up with the 2020 vision, bankers believe there is need to establish a special fund to tackle the problem, Babajide Komolafe writes.

The banking experts under the aegis of the Chartered Institute of Bankers of Nigeria    (CIBN) has called for speedy action from the Infrastructure Concession Commission, as  well as the establishment of a Sovereign Infrastructure Fund, and a long-term bond  market earmarked for infrastructure development, as part of measures to facilitate infrastructure financing in the country.

This was the highlight of recommendations made by the gathering of banking and finance experts that participated at the recently concluded 2nd annual banking and finance conference on Infrastructure financing in Nigeria, organized by the Chartered Institute of Bankers of Nigeria (CIBN).

Acknowledging government’s efforts by the recent enactment of the Infrastructure Act of 2006 and the establishment of Infrastructure Concession Commission, they, insist that, the Commission should speedily take steps, within   the   next   six   months,   to   institute   a framework for concession and implementation, adding that, the design should include legal jurisdiction for infrastructural plan that would enable Nigeria attain Vision 20 20-20 and beyond.

That framework should also serve as a reference in order to encourage an effective Public Private Partnership to carry out the road map.

Furthermore, participants at the conference stressed the need for the establishment of Sovereign Infrastructure Fund, adding that, “In order to give credibility to the establishment of that fund, we noted the need to identify key projects that; will follow due process which will serve as track records in terms of performance.”

It would be recalled that in recent times, due to the obvious inadequacy of government to meet the infrastructure needs of the country, there have been a shift in paradigm to private sector participation in infrastructure development, with increasing interest by banks to provide the funding requirement. But the interest of the banks in this regard has been constrained by myriad of challenges most of which are peculiar to the socio-political situation of the country.

Consequently, the conference was focused on identifying the challenges and preferring solutions to them. Alluding to this, CIBN President, Dr. Erastus Akingbola remarked that, the conference would provide a platform for practitioners and other stakeholders to collaborate and cooperate in seeking solutions to the challenges of infrastructure financing in Nigeria.

Setting the stage for deliberations at the conference, President Musa Yar’Adua acknowledged that, “Government know full well that rebuilding Nigeria’s critical infrastructure is key to realising its vision 20-2020. It also recongises that effectively tacking our infrastructural challenge would require multi-billion dollar investment, novel policies and institutional reform, such as the reforms in our banking sector, which has engendered greater stability in the financial markets”.

The way forward according to the President is, “Investment in infrastructure, rather than in collateralized debt obligations is therefore one sure way through which we can achieve the objective of overcoming the infrastructure challenge in the country.

He consequently challenged the financial sector to continue to support government’s policy on Public-Private-Partnership in financing of infrastructure and assist his administration achieves its set of goals as encapsulated in the seven point agenda.

One of the speakers at the conference, Managing Director and Head of Infrastructure, Africa, Middle East and New Markets, Renaissance Capital, Mr. Wale Shonibare noted that Nigeria is not spending enough on infrastructure when compared with countries like China, India, Russia and Brazil (the BRICs countries)

. According to him, “We need a national consensus on how much we should be spending on infrastructure in Nigeria, in order to achieve our vision 2020. Although the World Bank advocates three per cent for developing country, given where we are and where we need to be, a figure of at least 12% of GDP (Gross Domestic Product) would seem more appropriate. This would amount to approximately $33 billion per year. Corroborating, this point, Akingbola, called for a national commitment shared by all levels of governments and the private sector to increase capital spending by as much as 100 per cent above current levels.

Furthermore, Shonibare identified the dearth of large pool of savings as one of the challenges of infrastructure financing in the country stressing that there is need for massive mobilization of domestic capital. Advocating the bond market as the best option in this regard, he however noted that the cost of issuing bonds in the country is too high. He stated the biggest issue facing private infrastructure investors in Nigeria to day is the high cost of issuing corporate bonds.

Until the SEC rules are amended to make it cost efficient for the private sector to issue bonds, one of the most viable avenues for raising long-term local currency financing will remain closed to the Nigerian private sector

Under current conditions, it is still difficult to raise long-term infrastructure project financing in Nigeria although it is getting easier with the banking recapitalisation.

This he said, may take some time before we start to see the 25 -30 year financing that is available in other countries. For this to happen, we need to continue the excellent work that the DMO has done over the past few years of building a yield curve by creating longer term sovereign debt instruments against which corporate and sub-sovereigns can price their issues. There will hopefully come a time when the Federal Government, state governments, government agencies and private companies with long-term concessions start to issue 30-year debt instruments to finance their infrastructure requirements”.

Reinforcing the need to mobilise domestic capital for infrastructure financing, Mr. Andrew Alli, Deputy Managing Director, Travant Capital Partners Limited, and now President, African Finance Corporation (AFC), noted that there is growing demand for infrastructure finance across the world especially private sector finance as global infrastructure investment in emerging markets is expected to reach $22 trillion over the next ten years.

He added that though private sector is expected to increase its current ten per cent share of infrastructure spending as investors realise the vast potential and government seek alternative funding. The implication of this is that Nigeria will have to compete with other countries for private sector infrastructure funding especially from international finance institutions. 

In addition to this observation, President, Institute of Chartered Accountants of Nigeria (ICAN), Chief Richard Uche, stressed the need to tackle the problem of corruption. Corruption, he noted is an issue that should be addressed if the huge resources involved in infrastructure financing are to be administered effectively”.

The various suggestions and view points expressed at the conference was harmonized in a communiqué issued by the Institute. The communiqué stated, “The Conference noted the mistrust of the general public due to failed promises towards the growth and development of infrastructure aimed at improving the standard of living of the citizenry.

Consequently, the Chartered Institute of Bankers of Nigeria (CEBN) recommends that the following steps should be taken in order to foster credibility towards attaining Vision 20 20-20 goals: Key Ministers and Top Government appointments should be based on credibility, qualifications and competence. The appointees should be assigned specific and measurable deliverables, empowered and rewarded appropriately;

The Institute also recognizes the efforts of Government in privatising some institutions to improve the standard of living of the citizenry. However, it should set up a   framework to encourage liberalisation within   the environment for Public Private Partnership to thrive towards achieving infrastructural growth and development. Investors in the PPP should enjoy appropriate tax incentives.

Whilst we acknowledge the need for new infrastructure to meet our goals, we also need to work on our maintenance culture for the existing infrastructure. We should evolve an enduring system of awarding Project Maintenance Contracts upon completion and commissioning of key infrastructural projects.

 In order to improve the standard of living of the citizenry, and to encourage private sector partnership, an Effective Pricing System should be adopted for services and utilities provided.
The Institute also acknowledges the challenges posed by dearth of the right quantity and quality of skills in the various sectors of the national economy, However, in order to bridge the existing gap and build capacity, the Government should set up a framework to attract Nigerians in Diaspora to support the development of all infrastructure including social infrastructure such as education, health, vocational skills, to mention a few.

The Conference also recognises the need for an Effective Lobby Group for the financial industry and we believe that the CIBN is better positioned to facilitate such body. Albeit, the Institute should strengthen the process of professionalism, self discipline and promote co-operation among its members.

The Conference recognizes the effect of possible global credit squeeze. Thus, we need to consider the importance of internally generated funds.

Therefore, it is imperative to create a vibrant long - term Bond Market earmarked for infrastructural development; these bonds should accord investors appropriate tax incentives.

The   importance   of Good   Corporate   Governance   in   the   areas   of transparency and full disclosure should permeate both the private and: public sectors in order to engender confidence in the system.”
 

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