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Emefiele’s call on the infrastructure challenge

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CBN, USSD, banks
CBN Governor, Godwin Emefiele

By Arize Nwobu

THE Governor of Central Bank of Nigeria, CBN, Godwin Emefiele, recently called on investors to take advantage of the Executive Order 7 (EO7) of 2019 and invest in infrastructure towards overcoming the infrastructure challenge in the country.

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He commended Africa’s richest man, Alhaji Aliko Dangote, for taking advantage of the EO7 to repair the Apapa Port road and urged other investors to follow suit.

President Muhammadu Buhari signed the EO7 to foster partnership between the private sector and government in infrastructural development. The EO7 provides for “Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme” which entails the involvement of private sector investors to develop such roads for sustainable engagement and be reimbursed through a tax credit system.

It aims at facilitating accelerated development and delivery of road infrastructure in the country through a public-private partnership, PPP, and is expected to close the infrastructure gap in the country.

Central Bank of Nigeria had noted that infrastructural development remain grossly inadequate relative to the national requirement due to lack of funds. Nigeria’s infrastructure deficit has been estimated at US$300 billion representing about 25 per cent of GDP.

The deficit demands workable and effective policies, strategies and political will to overcome. According to Mckinsey, a global management consulting firm, Nigeria needs investment of over US$31 billion annually over a 10- year period to bridge the infrastructure deficit.

To address the challenge, CBN on its part had established the Infrastructure office in 2010 to evolve a sustainable financing framework to stimulate long-term financing for infrastructure development. The apex bank provided N300 billion facility for investment in debentures to be issued by Bank of Industry, BOI, in accordance with Section 31 of the CBN Act 2007 for investment in Power and Aviation projects.

The funds are to be channeled through BOI for on-lending to Deposit Money Banks at maximum interest rate of 1.0 per cent for disbursement at concessionary interest rate of not more than 7.0 per cent and a tenor of 10-15 years with the African Finance Corporation serving as the Technical Adviser to the Fund.

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The Federal Government had also established the Infrastructure Development Bank, IDB, formerly known as Urban Development Bank of Nigeria in 1992 to provide financial solutions to support key long-term infrastructure projects.

Though IDB is government sponsored, it is a private-sector led development finance institution. It is majority owned by the private sector but has the Federal Government, state governments, local governments and Nigeria Labour Congress, NLC, participation.

Still on the infrastructure challenge, the Minister of Works and Housing, Babatunde Fashola, recently proposed the floating of N10 trillion national infrastructure bond to be secured by the Federal Government to ameliorate the infrastructure challenge. Fashola’s proposal points to the importance of the mechanism of the capital market in addressing the infrastructure challenge which is taking a toll on the economy.

The predominance of bank-based financing has not helped the economy to grow maximally. As noted by former Director General, Securities and Exchange Commision, SEC, Ms Arummah Oteh, “the capital market is the one big idea that one needs to focus on today to help us move to the next level.

You can create wealth through the capital market because companies are listed and business environment is easier because infrastructure is funded with medium to long-term finance.”

In an article entitled, “Promoting the Capital Market for Inclusive Growth” which was published in Businessday newspaper of April 26, 2015, I noted the importance of the capital market in driving economic growth and development, thus: “The capital market is one of the most important factors of economic development suitable for driving growth and development in developing countries.”

Furthermore, I noted a research report by Benn Stil which states that “countries with more liquid stock markets enjoy faster growth rates of real per capita GDP over subsequent decades as they increase economy wide mobility of productive resources.”

The United States of America financed its development by selling bonds to nations across the world and the capital market remains the lifeblood of capitalism in the US as corporations resort to the market to finance building of airplanes, ship, trains, factories, conduct research and other such capital intensive projects. The International Finance Corporation, IFC, had noted that the capital market can help Africa to bridge her financing gap on infrastructure.

Infrastructure is defined as the fundamental facilities and systems serving a country, the physical components of interrelated systems providing commodities and services essential to enable, sustain or enhance societal conditions.

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Types of economic infrastructure include roads, bridges, tunnels, airports, rail, cycle highway, energy and water. Others include health and education, technology, telecommunication, sewage systems, standards and rules, safety and resilience, environment, public space and culture (institutions and museums that attract tourists).

Emefiele had noted the importance of infrastructure in the Ease of Doing Business even as other experts have noted a positive correlation between poverty reduction and infrastructure investment.

Vanguard

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