Infrastructure Financing and Project Delivery In Nigeria

Introduction

‘Society gains when men compete to better their position’, was the maxim advocated by Adam Smith (1727—1790), one of the fathers of economic philosophy. The implementation of this opinion was instrumental to the financial well-being of developed countries over the years.  The government of President Muhammadu Buhari, GCFR, will no doubt eagerly and keenly seek to advocates this ethos, particularly to procure rapid economic growth and transformative development across Nigeria’s six geo-economic zones.

The development of a nation does not happen overnight or by accident, nor does the development of a nation ever stop once the process has begun. Across the globe, there is demand for new and refurbished infrastructure which governments are increasingly unable to build. It is a widely held view that nation building is the result of intense efforts at building community a phenomenal task not undertaken lightly but shouldered by a nation’s government, its public and private sectors and its people.

Consequently, the real crisis of development in Nigeria is rather one of leadership, management and perennial egotism rather than creative, visionary and committed leadership. Mohammed bin Rashid Al Maktoum in his book titled “My Vision: Challenges In The Race For Excellence” stated – “Our distinctive experience in the UAE is a good example of what can be done when God blesses a country with an unselfish leadership that strives for the good of its people and not its own. Good leadership puts the interests of the community as a whole before those of any specific group”. This was corroborated by The prophet Mohammed (PBUH) “None of you will be a true believer, until he wishes for his brother whatever good he wishes for himself.”

A country’s whole sector of infrastructure: power, water supply, sewage, ports, railways, airports, roads, bridges, motorways, telecommunication, education, health systems, etc require massive investment and major regulatory changes. The Federal Government (FGN), however, faces severe limitations in terms of budgeted and available public financial resources and operational capacity that are inescapably required for the much desired transformational economic leap.

To effectively tackle these expansive infrastructure deficits and its associated “huge financing or funding gaps”, the government will have to sagaciously decide to explore various innovative infrastructure financing models that could unlock the necessary critical mass of capital flows to Nigeria. Indeed, FGN cannot possibly harness and efficiently deploy the huge financial, technical, administrative and human capital resources that are required to achieve the transformation of the country, all by itself.

Historically speaking, the Nigerian Government has largely stood alone as the sole provider of critical infrastructure and other essential public goods and services. A hold-over, resulting from Nigeria’s colonial and ‘military-rule’ past, this development model was characterized by the “all-powerful” state monopolistically controlling the allocation of all financial, economic or socio-political resources and responsibilities.

Despite Nigeria’s position as a major oil producer and exporter for over four decades, its stock of basic infrastructure falls far short of the minimum required for meeting the demands of a 21st-century global economy. The country’s infrastructure has remained grossly inadequate, obsolete, dilapidated and poorly maintained. Water supply, sewerage, sanitation, drainage, roads, electricity, waste disposal and most urban infrastructure, have not kept pace with population growth and rapid urbanization. Periodic and routine maintenance, arguably the most cost-effective infrastructure spending, is largely lacking.

The level of Failing and Poor infrastructure has long been a clog in the wheels of our development objectives despite heavy public expenditure on it over the years. The Global Competitiveness Index 2014-2015 places smaller and poorer African countries such as Ghana, Gabon, Cameroun, Namibia and Malawi above Nigeria on an infrastructure ranking of 144 economies surveyed. This is a sad narration requiring urgent reversal.

The impact of Nigeria’s infrastructure deficit has been enormous and quite devastating. The country’s challenge with the delivery of critical infrastructure continues to impact negatively on the cost of doing business, investment and capital inflow into the country. According to the Debt Management Office (DM0), Nigeria requires capital investments of over US$100 billion, excluding routine maintenance and operating costs to close this yawning infrastructure gap. The country is currently investing about 7% of Gross Domestic Product (GDP) in infrastructure development. While this figure is clearly above the sub-saharan Africa’s regional average, it however pales in comparison with such emerging economies as China with 12% of GDP investment in infrastructure and services.

1.1 Background

Nigeria has been faced with the need for an ambitious infrastructural growth since independence. However as the country is advancing in years, the infrastructural deficit is growing geometrically and experts have identified this deficit as a major constraint to the country’s development. The snail-speed growth in infrastructure has been grossly inadequate to meet the demands of national development. Need to mention, infrastructure is an enabler. It is a catalyst for human and economic development. Needless to say, the state of infrastructure in a country could be an indication of the country’s economic development and growth.

Adequate urban infrastructure can be expensive, but the cost of not delivering adequate critical infrastructure is higher. Inadequate infrastructure slows and even reverses economic growth, driving unemployment, crime, and urban decay. It can fuel urban tensions by widening divisions among ethnic or income groups or between long-time residents and recent immigrants and also foster a general malaise that drains a city’s vitality and spirit. Adequate infrastructure is a necessity for growth and many other municipal economic and social objectives. It reduces costs, supports economic activity, increases ‘Total Factor Productivity’ in cities, and connects cities to domestic and international markets. It also creates jobs directly in construction and maintenance and indirectly by boosting economic activity generally.

Nigeria’s infrastructure deficit significantly constrains growth in the non-oil economy, frustrates poverty reduction efforts and exacerbates income inequalities and unemployment. Most usually it is the poor who are hit hardest by lack of access to infrastructure and deficient services, adding to vulnerabilities and deepening disenchantment with the effectiveness of government.

It is estimated that Nigeria will need $2.9 trillion to fund infrastructure projects for roads, rail, port, airports, water, ICT etc. According to a recent study by the National Planning Commission, 45% of the required amount will be funded by private capital including pension funds; the bulk of the balance will come from government-issued bonds e.g. Eurobonds. Infrastructure investments entail complex legal and financial arrangements, requiring a lot of expertise despite the unavailability of data to predict success or failures.

In Nigeria and indeed most African countries the only available instrument to make predictions on these infrastructure investments is human judgment. These primarily make investors shy away. This is in addition to the combinations of inadequate planning, poor project implementation and corruption unfortunately resulting in large misallocations of public resources, throttling infrastructure deliveries.

Six main identifiable challenges include:

1. Patchy political leadership for reform and challenges to the status quo within an environment where vested interests remain evident;
2. Poor alignment of ministries, departments and agencies (MDAs) around strategic plans and policies, compromising coherence on selected project;
3. Variable and often weak project appraisal and an absence of consistent means to screen projects for readiness for financing and implementation which frustrates project prioritization.
4. Poor budgetary control and project management with weak screening that results in over-commitment of resources and large numbers of uncompleted projects;
5. Variable adherence to procurement regulations, usually resulting in contracts being awarded to firms incapable of meeting project requirements.
6. A pervasive lack of relevant and reliable data, and little lateral communication among MDAs engaged in related programmes.
7. Executive bully, legislative impunity and judicial blackmail in allowing and selecting projects to entered in the budgets because of mere political and selfish financial interest rather than national, rational, technical, feasible costing, prioritization and planning.
8. Failures of government aside, poorly equipped and inexperienced public sector hasn’t done much better. They have failed to give honest and impartial advice and make all information relevant to successful project execution unachievable.

Improving infrastructure finance and management of public sector infrastructure development is essential but will not be easy or quick. Central to a comprehensive solution will be more transparency and accountability in the use of public resources.

Capacity development plays an important role in strengthening the institutional capabilities of key MDAs. This will require strong political leadership and innovative approach to leverage effectiveness, so that efforts by even a narrow reform team are broadened and made difficult to circumvent. In this regard modern ICT-based systems for managing infrastructure development may be effective in procurement processes.

Despite improved governance and management it is obvious public resources available for infrastructure development and maintenance are inadequate, and will remain so under even optimistic growth scenarios. Private financing has considerable potential to accelerate investment but project precedents in Nigeria to date mostly have been poor. Unfortunate lapses of respect for the sanctity of contracts continue to sap investor confidence. Challenges are exacerbated by generally weak understanding of alternative infrastructure financing requirements and procedures, and of the perspective of private investors. This leads to unrealistic expectations within federal and state government agencies, unclear and sometimes overlapping allocations of responsibilities among concerned MDAs and regulatory frameworks in many sectors that lack clarity and completeness.

Notwithstanding these challenges, substantial structured programs are essential to complement more effective public infrastructure financing if Nigeria is to accelerate infrastructure deliveries. For example, increasing support for Public/Private Partnership, PPP among some federal and state MDAs will provide hopeful foundations on which to build professional capacity and deliver a more persuasive track record of financings.

Main features of a successful infrastructure financing program should include:

1. Improved consistency of approach to public/private projects among federal MDAs, with better screening of project readiness and uniform adherence to government procurement regulations. 

2.  Reduced transaction costs for investors through standardised procurement documents, standardised government processes with improved transparency and completed regulatory frameworks. 

3. Prototype projects of high international visibility at both federal and state level demonstrating high standards of MDA financial governance in structures which are replicable and scalable.
4. The Infrastructure Concession Regulatory Commission, ICRC needs to engage in a massive collation of the basic primary infrastructure needs across every local government area in Nigeria.
5. Discourage the erroneous impression in Nigeria that PPP is a ‘killer punch’ and applicable for implementation of all infrastructure projects; a wide gap exist in terms of meeting the quantity and quality of basic infrastructure, that will not meet economic and financial modeling requirements. An alternative procurement strategy to help address the challenges to basic infrastructure provision needs consideration.

1.1.2 Transport-Specific Infrastructure

The Federal Ministry of Works, FMW estimates Nigeria’s total road network at 193,200 kilometers, of which FGN is responsible for 17% while States and Local Governments have 16% and 68% respectively. A mere 19% of this 193,200km road network is paved. As of 2007, barely 35% of the federal roads were considered to be in good, motor-able condition; and even this abysmal state deteriorated to 26.5%, as reported by FERMA 2011. For these federal roads, the deteriorating trend lines “due to inadequate funding of programmed maintenance” are absolutely clear. The ever-exploding traffic volumes further compound this chronic degenerative condition.

FGN faces very serious challenges in terms of meeting critical needs for the construction, rehabilitation and maintenance of national and regional roads, highways and bridges. Certainly, FGN alone cannot possibly accommodate the escalating infrastructure deficits in terms of the essential cross-country and regional highways and bridges that are needed to support Nigeria’s aspiration to sustainably grow its economy and join the enviable club of the top 20 economies in the world. Therefore, there is need to proactively drive foreign investments into the highways, roads and bridges sector to marry the seamless convergences between the plentiful commercial opportunities in infrastructure development with the requisite technical skills, experience and financial resources that abound in the global capital marketplace.

Many other specific infrastructures has not escaped criticism from governments, agencies and academics and this includes energy (power, oil and gas), transport (roads, rail, ports and airports), housing, water, information and communication technology (ICT).

1.3   Infrastructure Funding Challenges and the Way Forward

Economic Prioritization

It is clearly desirable to justify any expenditure in the infrastructure developmental projects in economic terms, to ensure that the country is getting “value for money”.  It is clear that, in the past, the concerned and related Ministry had undertaken contractual commitments without any regard to the availability of budgetary resources or to the economic feasibility of the investments. Decisions on road planning have been unduly influenced by political considerations and the unpredictability of annual budgets has made long-term planning very difficult.  There is an urgent need to re-introduce economic and fiscal rationality into road sector planning. 

It is necessary to decide which roads should be funded in this new political dispensation as quickly as possible, to enable roads to be prioritized in an economically rational manner. These solution will need to be administrative and more importantly economically determined.  Therefore, there is need to collect and collate all substantial body of information on road condition and traffic volumes in recent years that would be sufficient to make it possible to carry out a simplified analysis and to use first year rates of return as the basis for a rough prioritization of the projects. 

There is no gain saying the fact that the following have contributed to the decrease in Infrastructure financing and delivery in Nigeria:

• There is apparent lack of Budget funding consistency which was applied to projects at the start of a project and during a project;
• Failure of the Ministry for Works, Urban Development and Housing to give Advance Payments on time to contractors, failure to certify and pay contractors on time, withholding money for months from contractors on various projects;
• A mismatch between budget management, payment authorisation and project management of the Road Contracts, including apparent lack of co-ordination between Ministry officials and State wide roads bodies;
• An irresponsible attitude to project prioritization which led to budgetary allocations to construction of roads with no apparent important economic relevance, for example, lack of Design Options Analysis and structured application to site issues ahead of time e.g. bridge designs
• A slowness in the development of roads design at the time of tender
• Lack of interconnectivity between government bodies instructed to tender and local agencies connected to the project
• Lack of analysis at tender stage in choosing right contractor based on expertise rather than just cost;
• Dearth of  database on contractors working in Nigeria and their track record
• Outdated Contract Agreement Clauses, e.t.c.

From the foregoing The Federal Government needs to propose a major initiative focused on improving; (i) the selection and prioritisation of public infrastructure projects to be taken forwards, to be wholly funded through public-private partnership (PPP) or other innovative arrangements aimed at harnessing private finance and; (ii) the way available funds are allocated to projects and the protection of funding for projects of key importance to national economic and social development, particularly the economy and efficiency with which projects are implemented by the responsible public agencies.

The purpose of the above is to: (i) produce a prioritised list of projects in each sector which are affordable within the likely budgetary allocation from the Federal budget, and (ii) identify projects to be funded by Public Private Partnership (PPP).

This will include projects that are on-going, projects that are in procurement, and planned projects.  The criteria adopted are applicable for on-going projects only. However projects in procurement and planned projects should be screened but produced low mark, they reflect the need for further feasibility studies and the development of sub-criteria to suit those projects.  It will then be necessary to consider whether some of these projects should be terminated, or whether the planned additional projects should be deferred. This exercise might only concerned the most significant projects at this stage.

Project Budgetary cuts

At least two thirds of on-going projects are affected by the recent 2015 budget cuts. For example, recently, the former Minister of Works expressed concerns that in 2015 budgetary allocation “only 33 out of the 210 ongoing road projects had been provided for in view of the lean allocation to the ministry.” These cuts add to the contractors’ already existing problems on site. Many have given up on the project, take away all mobile equipment, and demobilise the site staff or part of it. Once demobilised, it is very difficult to get contractors back to site without due consideration for compensations.

There are several ongoing Roads projects which have suffered huge budget cuts such as the Construction of Kaduna Eastern bypass which took 33 months to get Advance payment; and construction of Loko Oweto Bridge and Access Roads.

After poor budgetary allocation, delays in payment and certification, the Contractor loses confidence and gives up on the project. Due to the inability to re-negotiate monetary value or conditions of project delivery, the project becomes valueless to the contractor while the employer loses value for money.

This may occur early on, midterm or sadly towards the end of a project. For example on the Rehabilitation of Hadeja – Nguru Road Phase I in Jigawa State (Contract no. 5927/PPAC no 5355) the project progressed well to completion, on target and perhaps ahead of schedule but budgetary provision in 2010 was cut by N1 Billion, this had a dramatic effect on the contractors performance thereby causing lateness in completion. Consequently, the contractor removed site materials and plant, and demobilized.

Indigenous Capacity of Contractors

The construction industry is much too important for national development, to be dominated by foreign firms. Construction accounts for a significant part of the capital budget and is a major source of employment. Local firms tend to use more local materials and labour which is good for the economy and development. There should be a national scheme for improving the capacity of local contractors to enable them to secure a larger market share in the construction business and to enable them to compete effectively with large foreign firms. These types of arrangements are also effective for promoting skills transfer. Other immediate steps could include a policy directive that certain categories of work in large contracts should be sub-contracted to local firms, or that a percentage of all contracts exceeding a prescribed sum should be sub-contracted to local contractors.  The Bureau of Public Procurement (BPP) is classifying contractors and consultants according to their capacity to execute works and goods for the government. This commendable step will, as a way of streamlining public procurement in the country  with a view to improve efficiency, also creates, over time, national capacities that are robust enough to compete with the large firms that currently dominate the sector.   

Mobilization Sum

One of the major constraints in project implementation is the time it takes to release funds for project activities. Even when the project funds are available, many  projects experienced delays between contract signing and the payment of the mobilization sum.  Procurement regulations permit advance payment of 15% of the contract budget for “works”, as mobilization sum to service providers on their presentation of a Bank Guarantee for the full amount.

The purpose of the advance payment for works is to assist service providers to quickly mobilize to start their assignment. The arrangement is not operating smoothly, as some service providers have experienced enormous difficulties in accessing the funds due to the stringent controls that are imposed by the banks. Without any operating guidelines, banks have resorted to making their own rules, holding on to the funds, which are kept in a non-interest bearing account, while they demand proof from contractors of the percentage of work done, before releasing funds.

Therefore banks should not be allowed to hold on, unreasonably, to project funds on the guise that they require proof of work done by contractors. The conditions for issuing guarantees for the mobilization sum paid to contractors should be spelled out by banks before the guarantees are issued and these terms should not be varied after the guarantees are issued.

1.   Financing Strategy

Infrastructure development plays a critical role in promoting economic growth through enhancing productivity, improving competitiveness, reducing poverty, unemployment, job creation, skills acquisition, linking people and organizations together through telecommunications and contributing to environmental sustainability. Recent studies have located the major challenge to infrastructure development as Project Funding.

Concessional funding by multilateral and bilateral development institutions are perhaps the most viable sources of funding for infrastructure development. Not only do they meet the requirements of fiscal responsibility, they do not exert undue fiscal pressure on the budget.

It is now indisputably clear that FGN cannot possibly mobilize, productively deploy and efficiently manage the large volume of capital required to meet the daunting challenges of building and maintaining connective highways, roads and bridges across the country. Thus it behooves all relevant stakeholders, particularly the MDAs to support and facilitate the innovative endeavor to overcome these funding gaps and its attendant infrastructure deficits.

The domestic private sector also faces serious and debilitating structural and financial constraints that preclude it from being able to step into the breach. Thus the “Organized Private Sector” (OPS) in Nigeria cannot on its own capitalize on the plentiful investment opportunities presented by viable infrastructure projects.

The volume of domestic investment capital available for infrastructure development has remained very shallow and domestic financing terms continue to be exorbitant. Most domestic firms are severely handicapped in terms of their ability to efficiently assemble the entrepreneurial, technical and managerial capabilities that are required to successfully execute commercially viable infrastructure projects.

Even local construction giants like Julius Berger, Setraco and Dantata & Sawoe have not escaped these structural limitations. Most of these firms are still very reluctant to entertain the kind of investment partnership that is here available. They remain wedded to the emergency model of full contract cash-down commitments for various infrastructure projects.

Thus it is imperative that the country needs creative and innovative mechanisms that will help to overcome critical deficits in the level of available financial, technical and managerial resources.

The funding options that have the potential to provide adequate, reliable and timely financing from the foregoing and to bridge these asphyxiating deficits fall into three categories. They are relatively the way forward for transcending the chronic resource and capacity deficits for financing infrastructure:

1. On-budget Public Funding;
   1. Off-budget Public Funding; and
   1. Private Sector Resources. 


The figure below summarizes these funding sources and the funding mechanism associated with them. 


This option has been the traditional method of funding capital projects in Nigeria, but its efficacy has been rather limited. Funding capital projects through regular budgetary allocation has been volatile and rarely meet crucial project expenditure requirements in a timely and adequate manner. For instance, a priority road project designed for completion within three years, could take up to 10 years to complete and ultimately cost multiples of the original estimate, as a result of the ‘drip-fed’ funding from the annual budget. Prevailing budget constraints, which may mean that critical projects will only be partially funded or outrightly sidelined, exacerbates this. With current funding stream, it will take an unacceptably long period of time, with significant hike in cost, before some of the ongoing construction and rehabilitation projects would be completed, thus depriving the nation of corresponding expected economic and social benefits.

1.4.2  Off-Budget Funding

Excess Crude Account/Sovereign Wealth Fund

The Excess Crude Account (ECA) is for revenue derived from Crude Oil Sales, Petroleum Profit Tax (PPT) and Royalties over and above the budgeted benchmark of the Federal Government of Nigeria for each year. The ECA acts as a stabilization fund, mitigating the effect of boom-bust cycle of crude oil revenue on the budget, and potentially could be a funding source for domestic capital investments.

Arrangements are currently underway to replace the ECA with a sovereign wealth fund, for example the recently established Nigeria Sovereign Investment Authority (NSIA) as the manager of Nigeria’s Sovereign Wealth Fund (NSWF). It was established as independent agency in Nigeria, as the ECA has no legal backing.

The NSWF will henceforth manage Nigeria’s excess earnings from crude oil. While the ECA provides a viable option for funding critical projects that would impact on the economy. That account has dwindled in the recent past, from as high as USD20 billion in May 2007 to about USD4 billion in July 2010.

The summary of the inflows and outflows from the ECA shows that the opening balance was $4.56billion in 2011 and reached a peak the following year at $8.7 billion before declining to $2.3 billion in 2013. The balance as at May 2015 is $2.07 billion.

Special Intervention Funds

The FGN, through the CBN has already taken steps to provide access to funding at concessional rates and to galvanize private sector interest in the Power and Agriculture sectors.

Under the N500 billion Real Sector Intervention Fund, the CBN has invested N500 billion in debentures issued by the Bank of Industry (BOI), the proceeds of which are for ‘on-lending’ through Deposit Money Banks (DMBs) to qualified borrowers at concessional interest rate of not more than 7%, and for tenors of 10-15 years.

The target borrowers are those from power, small-scale manufacturing and airline sectors that meet well-defined eligibility criteria, Power projects of the state and federal governments are covered under this facility subject to their structuring as commercially viable projects on which banks are willing to take credit risk. There is also the N200 billion Agriculture Fund established for promoting commercial agricultural enterprises. The scheme managed by the CBN and Federal Ministry of Agriculture created the Commercial Agriculture Credit Scheme (CACS) to be financed from the proceeds of the N200 billion in 7-year bonds raised by the DMO which are being lent to DMBs for on-lending to agricultural projects.

In line with the above intervention measures, the FGN could set up a special intervention fund for major capital development programmes particularly in the domain of infrastructure.

FGN Bonds (through the Debt Management Office, DMO)

As an additional source of short term and medium term response to the development challenge in Nigeria, the Federal Government through DMO could raise funds in the domestic capital market through the issuance of FGN bonds, and apply the proceeds to fund critical capital projects. The potential limitation of FGN bonds is that it relies solely on the Federal Government for funding.

Low-Interest Concessional Loans

These are funding sources, which could be accessed by the public and private sectors for capital project execution. Bilateral/multilateral development institutions such as the World Bank Group, African Development Bank (AfDB), Islamic Development Bank and Agence Française de Dévelopment (AFD), the French Development Agency, and the European Investment Bank usually provide them. These funds are long tenured and have both concessionary and market determined terms, depending on the sponsors and the projects fulfilling certain eligibility criteria.

A number of private and government-supported development finance institutions (DFIs) have at various fora, offered to help raise the requisite special supplemental funding in the international markets at concessionary interest rates of between 1-3%, inclusive of agency fees. In support of this initiative, the DFIs will require the CBN or FMF to provide a Sovereign Guarantee that will permit these institutions source and provide the funds on competitive terms. Under this scheme, the DFIs will take project risks that will ensure that the proposed projects are completed and on time, while the Federal Government will only take the credit risk of the DFIs and foreign exchange risk for the duration of the loan.

Monetary and non-Monetary Grants

Financing for preparing feasibility studies, business plans and in some cases pilot projects, have largely been provided through loans and grants directly from government or bilateral and multilateral agencies. Agencies such as USAID, DFID, EC, JICA and the World Bank have been in the forefront of these types of assistance. On the other hand, a project could receive non-monetary finance through the FGN, as in the case of a highway or railway. These come as tax breaks, pioneer status and other incentives for private sector participation. A land grant, for example, could be used to incentivize the private sector to build a rail line.

1.4.3    Private Sector Resources

Pension Fund

Long term financing is attractive to pension funds owing to long maturity, stable earnings and diversification. At present, investment can only be in structured and regulated instruments that are rated and possibly listed in a recognized Exchange to mitigate risks. In addition, the securities should have clear maturity dates, and periodic/terminal payouts.

The National Pension Commission (PenCom) is currently reviewing its regulations with a view to making capital projects in the area of infrastructure development a separate asset class with specific asset allocation. However, the instruments should be hedged against inflation where the tenors exceed seven years in order to make them attractive, in view of the inflationary trend in Nigeria. This is a viable source of infrastructure funding.

Long-term Corporate/Commercial Bonds

Corporate entity issues bond in its name and apply proceeds to fund capital projects. The issue could be by a local entity for the local market (denominated in Naira) or USD denominated bond for offshore markets. It could also be a Naira denominated bond listed offshore with Principal plus Interest serviced in naira. As will be expected, these instruments require credit enhancements like risk rating, FGN guarantee, insurance, FDI backing, etc.

Commercial banking groups have expressed desire to raise long-term (10-15 year) commercial bonds in the domestic or foreign market on commercial terms to provide relatively longer term financing for infrastructure development. In support of this initiative, commercial banks will require the CBN to provide credit enhancement in the form of credit guarantees that will permit the banks to issue long-term infrastructure bonds at competitive interest rates for the benefit of the FGN, similar to the United Kingdom Government’s 2008 Credit Guarantee Scheme.

Under this plan, commercial banks will take project risks that will ensure that the proposed project are completed and on time, while the Federal Government will only take on the credit risk of the commercial banks. As with local bond issue, there is very limited local absorptive capacity. However, this option is usually very attractive to foreign investors who have unlimited absorptive capacity and should be pursued.

Export Credit Finance

Export Credit Agencies or Investment Insurance Agencies are perhaps the world’s largest financers of big capital projects in developing countries. All industrialized nations have these national agencies that provide financing for projects and programmes in poorer developing countries. They are public institutions, operating in a discrete fashion, that subsidize foreign exports and investments of wealthy nations by providing government backed loans, guarantees and insurance to their oil companies, engineering firms and other domestic corporations that want to do business in developing countries.

Export Credit Agencies currently finance or underwrite about $430 billion of business activity abroad – about $55 billion of which goes to project finance in developing countries – and provide $14 billion of insurance for new foreign direct investment, dwarfing all other official sources combined (such as the World Bank and Regional Development Banks, bilateral and multilateral aid, etc.). As a result of the claims against developing countries that have resulted from ECA transactions, ECAs hold over 25% of these developing countries’ US$2.2 trillion debt.

Private Equity and Infrastructure Funds

Start-up funds are usually available from venture capital (VC) groups and special purpose international investment funds. Venture capital companies such as Actis and African Capital Alliance specialize in providing funding for new enterprises and infrastructure projects. Financing from traditional VCs for new projects is not usually available for international infrastructure projects, due to the high cost of due diligence and limited exit options for these firms. Typically high rates of return, often 25-50%, are also required.

Large pensions and insurance firms have created a number of special purpose international investment funds for infrastructure projects, a number of which operate in Africa including Pan-African Infrastructure Development Fund (PAIDF) and EU-Africa Infrastructure Partnership Trust Fund. Discussions have been ongoing for the activation of Gulf of Guinea Infrastructure Fund (GoGiFund). Pension Funds from the 23 nations of the Gulf of Guinea, including PENCOM, will be investing in this Fund. Indications are that these institutions collectively hold in excess of US$12 billion.

Public Private Partnerships (PPP)

Across the globe exciting ideas are evolving to address the ever increasing demand for new and refurbished infrastructure which government are increasingly unable to build as a result of dwindling resources and increasing demand of resources from competing  needs viz. security, social, political, education, health  physical infrastructure, unemployment lows product.

The basic criteria of private infrastructure funding and development are however the same in that governments, funders and builders must have a transparent formula which ensures that the project risk involved are placed with these best able to carry them, and thought to price them. The concept require three constituents: a willing and committed visionary government a viable project and funders willing to take the risk of bank rolling the project.

The win-win solution of PPP projects. What could be better than to acquire expensive new infrastructure or upgraded facilities at little or no cost to the state. Build Operate and Transfer a form of PPP takes spending off infrastructure of the governments balance sheet; but brings in the commercial skill of the private sector both in identifying visible project and in the running them efficiently when built.

Who can further fault the following benefits to public government project collaboration and partnership?

1. Relief of financial burden
2. Relief of administrative burden
3. Reduction in size of (inefficient) bureaucracy.
4. Better service to the public
5. Encouragement of growth.
6. Government can better face social and security issues such as health, education, pension, armed rubbing kidnapping, public mobilization, food security etc.

The Public-Private Partnership is collaboration between the public and private sectors aimed at the implementation of projects or the provision of services traditionally provided by the public sector. Although its popularity grew exponentially in the past couple of decades, the concept is not entirely new.

The private sector, both locally and internationally, has a large pool of resources from which they can fund projects, which governments may not have access to, or have the capacity to access.

Public-Private Partnerships (PPPs) offer a promising way forward: they can accelerate infrastructure development by tapping the private sector’s financial resources and skills in designing, building and operating infrastructure effectively and efficiently on a whole life-cycle cost basis.

For this reason, there has been a marked increase in recent times, in cooperation between the public and private sectors (often referred to as Public Private Partnership – PPP) in the development and operation of projects covering a wide range of economic activities. Besides bridging the resource gap in project delivery and operation, governments all over the world have come to recognize that the collaboration between public and private sectors is crucial to securing dependable and sustainable funding for capital projects and reducing the pressure on fiscal budgets.

Early PPP experiences have been both promising and sobering: some projects have proven to be financially viable, with social and economic benefits, while other projects have been plagued by delays, cost overruns or renegotiations.

However, with a learning process well underway, PPP arrangements have engendered acceleration of capital project provision, faster implementation of projects and reduced whole life costs of project.

Besides, it offers better risk allocation between public and private sectors, better and sustainable incentive to perform, engender accountability in fund utilization, and improve the overall quality of service. Evidence also abound that it leads to the generation of additional revenue and overall value for money for the entire economy.

An appropriate framework for Public Private Partnerships (PPP) in Nigeria is already in place and activated, and is expected to contribute to addressing the capital project challenge and operational constraints.

However, the urgency of the need to re-build some critical but rapidly deteriorating projects makes PPP inappropriate, at least in the near term. While advocacy for the use of PPP mechanisms as part of the solution for funding commercially viable projects continues, there is a pressing need to develop other sources particularly of short and medium term funding to respond to the challenge, as the PPP mechanism can only augment FGN’s resources.

Furthermore, in determining a project’s suitability for PPP funding, the following criteria are hereby recommended:

1. Existence of appropriate policy, legal, and frameworks for PPP for infrastructure sectors;
2. Ability to establish captive revenue stream from infrastructure projects;
3. Ability to deliver a positive rate of return for investors on infrastructure projects;
4. Ability to appropriately allocate project risks to infrastructure projects. 


1.    Infrastructure Financing

Public infrastructure such as bridges, highways, streets, jails, and airports are usually large sunk investments. Therefore, it is critical to make good decisions about what is to be built, both in terms of which projects are built and in terms of those projects’ design and characteristics.

Once built, these facilities require resources for maintenance and operation. Literature has shown that in creating new systems or upgrading existing capacity, four fundamental questions that should be at the forefront are often overlooked in infrastructure development planning:

1. Are we building the right infrastructure?
2. Are we using existing infrastructure most effectively?
3. How can we deliver infrastructure more efficiently?
4. How can we benefit from working with private partners?

Finding the right answers to these questions will help meet the growing infrastructure needs effectively. Ignoring these questions can lead to costly and wasteful mistakes.

To this end, 10 main goals of infrastructure financing have been identified as follows:

1. National strategies for growth and economic diversification explicitly factor in the role of infrastructure to unlock comparative advantage and combat vulnerability.
2. Federal MDAs and focused states should adjust infrastructure plans.
3. Federal MDAs and focused states should implement consistent and improved standards of project appraisal. Investment proposals should be subjected to rigorous screening to rank priorities and assess readiness for financing and implementation.
4. Federal government and focused states should operate a performance monitoring system for capital and maintenance spending, linked (in the screening process) with budget allocation.
5. Federal MDAs and focused states should operate better procurement procedures and arrangements for project management with improved transparency.
6. Proposed spending on new projects should be examined explicitly in relation to maintenance spending on existing assets.
7. Federal PPP projects should be prepared to the highest possible standards, through consistent application of standardized processes and documentation with rigorous screening of proposals.
8. Focused states should develop and implement standardized high quality processes and documentation for PPP projects with rigorous screening of proposals.
9. Federal government and focused states should partner in launching a long-term debt pool/risk instruments to leverage PPP projects.
10. New financing structures should successfully demonstrate PPP opportunities for scalable local and community infrastructure programmes. 


1.6  Conclusion

Infrastructure financing in Nigeria is dominated by express equity investments and bank loans. It is my view that there is clear economic benefits resulting from reducing the demands on Federal Budgets and renewed commitment  for improving infrastructure finance will require further and in-depth exploitation of potential group of investors and the vast financial resources of capital markets.

Both infrastructure funds and bonds have great potential. Therefore, to achieve significant progress in infrastructure financing, national financial market development, dependable legal frameworks and policy, and a long-term expansion of investor base internationally are necessary. I also recommend that an appropriate and functional institutional arrangement for Nigerian MDAs in terms of minimizing conflict of interest regarding the policy-making, regulatory, contracting and operator functions be set up.

There is also the need to disregard the infamous low level participation of indigenous contractors as characterized by low capitalization, limited resource utilization understaffing, and managerially inefficiency. It is thus recommended that the classification and categorization of contractors and consultants according to their capacity to execute works and goods will ensure projects are realize within pre-planned cost, time and quality, reduce the incidences of project abandonment and improve their overall participation.

The needful is a significant increase to the flow and volume of foreign direct investments, while helping to build local private equity investment combined with management, technical and operational capabilities across the six geo-economic zones.

Nigeria, as a matter of urgency now has to make infrastructure development a policy priority. This will help raise income levels and reduce income inequality while offering a powerful tool for poverty reduction and better positioning the nation in the global economic map. Therefore, if we must achieve the Vision 20: 2020, the time to rise and act is now.

The government of President Muhammadu Buhari, GCFR recognize the importance of investment in infrastructure to help our economies grow, and he has promised to serve and work good for the country, running the country with the fear of God. However, there is need to implore ourselves to shed the heavy burden of our past infrastructure decay. We should not be incapacitated by the past transient economic hardships. Like me, we should find inspiration in this noble and heroic pronouncement by John Fitzgerald Kennedy (JFK) in January 9, 1961 that “When at some future date the High Court of History sits in judgment on each one of us, our success or failure in whatever office we hold will be measured by the answers to four questions:

Were we truly men of courage?

Were we truly men of integrity?

Were we truly men of judgment?

Were we truly men of Dedication?