Eze Nwagbaraji
The most onerous economic challenge facing Nigeria at the beginning of the second decade of the 21st century is how to fund the massive infrastructure needs of the nation.

Meaningful economic growth, repositioning for global competitiveness, and middle class prosperity in Nigeria, will over the next two decades all depend on a national infrastructure system that is state of the art, properly planned with the best global practices, energy efficient, environmentally sound, and secure.

Nigeria’s basic infrastructures are outdated, worn, and failing. Where attempts are being to address the inadequacies, we have continued to refuse or deny the existence of best practices. In our pursuit for adequate electricity supply, a robust alternative energy regime has not been articulated, even though from a global perspective, smart money has continued to flow towards that direction.

Nigeria's infrastructures

Most experts now agree that unless Nigeria adequately addresses its infrastructure deficits, we may lag behind meaningful economic development indexes. At its minimum, failure to address the infrastructure deficits will widen the development gap between Nigeria and such countries as China, India, Brazil, South Korea, etc. who have continued to engage in serious repositioning of their infrastructures for the development challenges of the 21st century.

In every State, across every region, and within the three tiers of governance (local, state, and federal governments) in Nigeria, the importance of addressing the infrastructure deficits and challenges are enormous. Inadequate and dilapidated road networks, poor or nonexistent public water and sewer systems, poor and failed public transportation or mass transit systems, lack of sanitation systems, lack of effective or adequate security systems, dysfunctional public and private housing construction regimes that have resulted in numerous new residential and business developments that are best described as slums.

Even in such cities as  Abuja, new road constructions are set out without adequate median demarcations, dysfunctional traffic lighting systems, and shopping centers with poorly planned vehicle parking systems. In a technology dependent world, reasonable community telephony and broadband expansions that have become part of our critical infrastructure needs are not properly being addressed.
The scenarios that are emerging are development economists’ nightmares. However, there are some attempts at understanding the issues or articulating some solutions.

The Banker’s Committee (a loose association of bank CEOs, heads of financial institutions, and the Central Bank of Nigeria), rising from its recent retreat, early December 2010, stated that it focused on power,  transport infrastructure, and the agricultural sectors. In its communiqué, the Committee pointed out that these sectors were most critical and changes in them would drive development of other sectors of the Nigerian economy. The Central Bank of Nigeria (CBN), Governor, Mallam Sanusi Lamido Sanusi, was quoted as stating that “transport infrastructural development has remained weak as a result of insufficient financing.”

The Minister of Finance, Olusegun Aganga, explaining the proposed 2011 federal budget, late December, 2010, pointed out that “the government had evolved a new approach to close its infrastructural gap with three potential sources of funding which include the private sector, and public private partnership arrangements.”

Minister of Lands, Housing and Urban Development, Nduese Essien, inaugurating the reconstituted Board of the Federal Mortgage Bank of Nigeria (FMBN), mid-December 2010, challenged the Agency to “come up with practical solutions to the nation’s mortgage problems and create opportunities for Nigerians to own houses with cheap and well structured facilities.”

Funding Infrastructure DevelopmentOur national infrastructures are facilities that are essential for the functioning of our economy. These include responsible electricity generation, transmission, and distribution, production of oil, its transportation, and distribution.
Telecommunications and all facets of its associated technologies, drinking water supply, waste water and sewage management systems, agricultural production and distribution, production and supply of gas, public health facilities, transportation systems, banking and financial systems, effective public and private systems and their associated mortgages, effective policing and military systems, sufficiently equipped national aviation and air transportation systems and networks, etc.

A pragmatic, effective, and result oriented infrastructure funding in Nigeria require a multi-faceted approach with the various tiers of government taking the lead. While various experts and policy makers within Nigeria have harped on the various infrastructure funding vehicles percolating within the field of development economics, it is important to bear in mind that it is primarily the role of governments to initiate and execute principled and visionary infrastructure developments.

Majority of these projects are not amenable to free market conditions and where they are poorly articulated, generally lead to failed systems. To be meaningful, significant percentages of both local governments, state governments, and the federal government annual budgets must be dedicated to infrastructure build up.

Infrastructure build ups are capital projects and several must not follow election cycles. They must acquire a life of continuity, irrespective of the persons or political party in power. One of the greatest attributes of infrastructure build up is its employment creating capacity.

A nationwide project, geared towards building adequate public water and sewer system in Nigeria, for example, will infuse massive permanent employment across the country.

Their operation and maintenance will create both private and public sector permanent employment opportunities. Pragmatic infrastructure regimes are an aggregation of numerous legislative and executive initiatives, sometimes targeted at specific economic areas of interest with the deliberate attempt at addressing a perceived deficiency or establishing permanent mechanisms that will lead into expansive market or economic results over time.

These are not initiatives, consigned to the short term interests of private market agents, who measure the bottom line by market quarters.

The United States and the United Kingdom provide ample examples. As far back as 1775, the United Kingdom, in attempt to address the problem of affordable housing, encouraged the establishment of building societies. The building societies of the 18th century England, terminated or went out of existence after all their members had been housed. These building societies were specifically encouraged to compete against commercial banks, whose interest rates on mortgages were absurd and embarrassing to the government.

By the 19th, 20th, and early 21st centuries, these building societies have become financial institutions owned by their members and were expressly allowed to offer banking, financial services and mortgage lending. By 2007, total assets under management or on deposit with building societies across the United Kingdom stood at nearly five hundred billion British Pound Sterling and their depositors included members and non-members.

By the 1980s, several Building Societies in the United Kingdom were demutualized and member subscriptions to the Society became share interests in the firms and some went on to become publicly traded companies quoted on the London Stock Exchange. These Building Societies made homeownership in the United Kingdom affordable and turned the country into a home ownership society.

Several other countries followed the United Kingdom example and permitted the emergence of building societies in attempt to set up permanent responsible home ownership structures. Notable among these countries are Australia, New Zealand, Germany, Ireland, Austria, etc. The Savings and Loans institutions in the United States had similar focus and had stellar success rates before their eventual roll over as commercial banking institutions and eventual regulation as commercial banks.

The Building Societies of the United Kingdom also helped shape the common law legal history. In the land mark case of 1812, Pratt v. Hutchinson, the Court held that the Greenwich Union Building Society, established under the Friendly Societies Act of 1793, was entitled to collect arrears owed by its member borrowers, who were in default of their obligation to the Society.

This ruling laid the foundation of what eventually became the right of creditors to pursue collection of arrears and interests on principals owed by creditors in default of their debt obligations to creditors.

In the United States, government involvement in infrastructure built up is multifaceted and cuts across all levels of the government (local, state, and federal). The Farmers Home Administrations (FmHA), set up in 1946 to replace the Farm Security Administration, which in itself superseded the Resettlement Administration, perhaps is the classic example of how best to use public institutions to set up permanent infrastructural development that cut across various layers of society.

The FmHA, a US Federal Agency within the United States Department of Agriculture, had as its primary mission to extend credit for agriculture and rural development. Direct and guaranteed credit went to individual farmers, low-income families, and senior citizens who reside in rural areas. Loans were given for housing, farm improvement, water systems and emergency relief. It also gave loans and grants for rural development. The reach and size of the FmHA was boundless as long as rural American was concerned.

Even cosmopolitan States such as New Jersey bounded on the northern part by New York City and the southern part by Philadelphia had rural areas. In reaching out to rural American for development of infrastructure, the FmHA took a market approach. It made financial commitments, supervised the establishment of infrastructures, serviced the loan and asset portfolios, and made the portfolios functional.

For example, a loan portfolio for a single family home could be committed at six percent annual interest rate over the next 30 years. In servicing the portfolio, the FmHA took into consideration the family’s annual income. If there is a drop in household income, the FmHA had the power to lower the mortgage interest rate over the next one year, to enable the family pay a lower mortgage. This is in an attempt to prevent default. It is not uncommon to go from a monthly mortgage payment of $900.00 per month to $450.00 once the interest rate is lowered to one percent over the review period.

The mechanism is geared towards keeping the home owner in the house. It is also important to note the national economic rationale behind the whole concept. It is this home owners’ that buy refrigerators, washing machines, cars, patronize the local hardware stores, send their children to private and public schools, etc. Where a home owner have witnessed sustained growth in household income, such loan portfolio is either sold in the secondary mortgage market, or the home owner encouraged to graduate into the private mortgage markets from the program.

In 1988, the FmHA, pursuant to the US Agricultural Credit Act of 1987, initiated one of the boldest rural development schemes in the history of the country. In attempts to assist farmers stricken by what was then described as the worst drought since the 1929 Great Depression, responded with a full package of farm credit assistance and low interest emergency farm loans. It designated nearly 1,500 local government areas in the country as eligible for emergency loans.

It made and or guaranteed nearly 40,000 loans totaling US$2.3 billion to farmers, who would not have obtained such loans from commercial lenders. It provided nearly 52,000 borrowers with additional assistance, accompanied with various grant assistances. The Agency in a bold move recruited nearly 500 full time Economists and Engineers with advanced degrees from America’s leading land grant universities (Universities of Science and Technologies), to complement its 11,500 permanent employees, marshalling them across 46 State offices, 266 District Offices, and 1,910 Local Government offices, plus the National Office in Washington, D.C., to provide services in every rural community across the 50 States and all the Territories  American Samoa, Guam, Puerto Rico, and the US Virgin Islands) in the Union.

This network of offices and permanent staff enabled the Agency to maintain a close one on one relationship with its borrowers and guaranteed absolute coverage of the entire country. As Congress created additional nonfarm programs to benefit families and rural dwellers, the FmHA was the go to Agency to provide such services as rural electrification, safe modest housing, modern sanitary water and sewer systems, essential community facilities, job and economy boosting businesses and industries. The agency also served as a source of supervised credit to millions of borrowers. FmHA funding were a combination of debt instruments, repayment from borrowers, and federal appropriations.

The FmHA approach to rural infrastructure establishment represented an unparalleled approach to solving infrastructural deficiencies in a multi-jurisdictional country. As a market participant in most of the markets, it was able to engender confidence in private sector participants in the markets basically from the understanding that if the US government was participating in these markets, it may not be that bad for private operatives to be involved. Further, most of the government portfolios, were eventually sold to private operatives, usually at the same terms that the government made those loans.