Mr. President has approved the establishment of an Infrastructure Company -a wholly focused vehicle designed to deepen critical infrastructure investments in Nigeria. The playbook would be Public-Private Partnership and the government is dropping N1 trillion (about $2.6 billion). While we can hail this move, the fact remains that Nigeria’s banking sector is underperforming in this domain.
This hail mary pass (as in American football) of scaling bureaucracy here and there is a sign that our banking sector is seriously lacking in this space. But you cannot blame the banks – no person will put money for decades-long risks when inflation and forex are out of control. So, the banks stay with their trade services, funding importers with a risk tenor of 6 months while Abuja looks for playbooks to build infrastructure.
What this does is that it makes infrastructure investment challenging for Nigeria. Watch this Infra-co, its numbers will over time experience pressure. It is fundamental: in 2020, 83% of Nigeria’s revenue was spent on servicing debts. So, there needs to be a redesign since more debts will mean more pressure on the meagre national revenue.
At the end, building our infrastructure is connected to the stability of our currency since long-term investments are perceived from the angles of currency & inflation stability, among others.
Yes, we hit a new milestone in 2020: 83% of revenue was spent on servicing debts: “total revenue earned in 2020 was N3.93 trillion representing a 27% drop from the target revenues of N5.365 trillion. However, debt service for the year was a sum of N3.26 trillion or 82.9% of revenue. Nigeria’s debt service cost of N3.26 trillion has now dwarfed the N1.7 trillion spent on capital expenditure of N1.7 trillion incurred in 2020.”
President @MBuhari has approved the establishment of a Public Private Partnership styled Infrastructure company named Infra-Co with an initial seed capital of N1 Trillion. Envisaged the entity will grow to N15 Trillion in assets and capital, over time, a statement from VP Office. pic.twitter.com/AituzT5YmO
— Bashir Ahmad (@BashirAhmaad) February 12, 2021
Comment #1: Why don’t we still have a government backed public listed infrastructure company that focuses on road construction? The company raises construction capital from an IPO and revenue is generated from tolls or is there something I’m missing out?
My Response: These things are really hard. Look at NBET Plc, etc. Investors are not stupid. When maturity moves in decades, the stability of Naira becomes an issue. So, you do not want to get in and hold a zoombie in your hand. Nigeria’s best investment is stabilizing the exchange rate of Naira. That is the real infrastructure. If that happens, what you just noted will become possible. Without it, our playbook runs in months, not years.
Comment #2: I would look towards hashtag#india for some of their ideas that got put into play decades ago. Infra, farm sector, industrial projects…..are typical areas that need either special vehicles and agencies, or they need a serious policy push. Check IDBI, NABARD, PFC.
For policy push, look at the rural banking and Agri banking push for the public sector banks in those decades.
Happily, times have changed and the world of finance, lending, and even policies has moved on. Nigerian market, Nigerian banking sector, and Aso Rock……carry enough capacity to make some big impact in the desired economic development spaces.
And yes, enough opportunity to partner with experienced global institutions in respective fields.
The 2.6bn and the Infra-co are good steps.
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