Financial Institutions And The Challenges Of Infrastructure

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By Remi Babalola


The theme of the workshop, \"Financial Institutions and the Challenges of Infrastructure Financing\" is not only apt but timely in view of the present Administration\'s determination to build a vibrant and sustainable economy through the 7-point Agenda with focus on critical sectors especially infrastructure.


We recognise that limited access to quality infrastructure is a key constraint to the growth of the Nigerian economy. We also recognise that infrastructure and its related services are critical to the operation and efficiency of a modern economy. In addition, they constitute essential input in the provision of goods and services and significantly affect the productivity, cost, and competitiveness of any economy. Indeed, the adequacy of infrastructure helps to determine one country\'s success and another\'s failure in diversifying production, expanding trade, coping with population growth, reducing poverty, as well as improving environmental conditions. Consequently, policy decisions regarding infrastructure provision and deployment impact national growth and development.


Traditionally, infrastructure financing has been viewed as a natural monopoly under the management, control, and financial responsibility of governments - in recognition of the potential economies of scale, public nature of the service, and capital intensity of providing water, electricity, telecommunications, and transportation services., However, with economic decline, governments have been unable to keep up with adequate level of services and rapidly increasing new investment requirements. Characterised by lacking transparency, inefficiency of service: delivery, and financial insolvency, as well as the growing need for expansion, providing the basic infrastructure services has become a major constraint to economic revival. To confront the escalating costs of infrastructure development, most governments across the world (including Nigeria) have begun the process of internally reforming, and in many cases allowing the private sector to provide and finance infrastructures services.


Undoubtedly, you would agree with me that infrastructure financing, planning and development are some of the most critical and challenging issues in Nigeria today. Indeed, the challenges of infrastructure development in Nigeria are huge. Despite Nigeria\'s oil resources and potential, its focus over the years has been poor investment in new facilities and assets rather than on periodic and routine maintenance of basic infrastructure. The trend of rapid urbanisation is not helping the situation. In 1970, 20 percent of Nigeria\'s population lived in urban areas.
By 2010, it is estimated that more than 70 percent of the population will be urban-based. This means that the demands for urban infrastructure such as electricity, rail tracks, water, roads etc will be more than double in 2010 to cater for the teeming urban population. It is also estimated that the country would require about $510billion investment over the next 10 years in rail, power and energy, construction and other infrastructure in order to be considered a leading global player. Indeed, in June 2008, the Presidential Committee on Power Sector Reforms estimated that rehabilitating and upgrading the country\'s electricity sector by 2020 would require $85billion in investment.
Also, the Federal Government estimates indicate that in the next six years, Nigeria needs to invest over USD 100billion in just four infrastructure areas namely power (USD 18-20billion), rail track (USD 8 -17billion), roads (USD14billion) and oil and gas (USD 60billion). These infrastructure and related investments are critical to achieving and sustaining. a high double digit annual growth rate necessary for Nigeria to achieve its Vision 20.2020.


No doubt, infrastructure is capital intensive and the public sector alone can no longer provide them. Therefore, the government is intensifying efforts to attract and partner with the private sector in infrastructure development, through Public Private Partnerships (PPP). This is why this Administration has constituted the Infrastructure Concession Regulatory Commission (ICRC) under the chairmanship of Chief Ernest Shonekon to spearhead this initiative. Government recognises the need to ensure a level playing field, encourage private sector participation and attract capital to fund infrastructure and related services. PPP would supplement scarce public resources, create more competitive environment and help improve efficiencies and reduce costs. Indeed, public sector financing must be complemented by private sector financing in service delivery. Public and private financial models rely on the success of one another to achieve public purposes. In the PPP framework, public and private sectors should complement each other in the overall development effort.


The role of adequate physical and social infrastructure in achievement of our national aspiration cannot be over emphasised. In addition to ensuring adequate educational infrastructure, the present Administration is devoting policy attention and other required resources to ensure that our energy, transportation and communication infrastructure are adequately and efficiently provided to support our economic competitiveness and growth objectives. This is a special area where practical expression has been given to the framework of public-private partnership, and I am delighted to inform you that mechanisms have been put in place to mobilise non-government resources towards the upgrading, maintenance and expansion of our infrastructure network in the country.


There is no doubt that our nation is richly endowed with huge natural and human resources, but these resources remain largely untapped for the rapid transformation of the economy. One noticeable feature of the Nigerian economy is the continued dominance of the oil and gas sector, contributing over 70 percent of the nation\'s foreign exchange earnings at the expense of the non-oil sector. In this regard, government is fully committed to the diversification the economy, to reduce its over-dependence on a single, non-renewable commodity, Oil. A number of policy measures and appropriate reforms are being strengthened and deepened to achieve this objective in the interest of our economy.
The ongoing reform in the banking sector is part of the efforts to strengthen the economy, and reposition the financial institutions, especially banks, to meet the challenges of an emerging economy like Nigeria. Concerted efforts must be made in this regard through an integrated approach to overcome the challenges of infrastructure development. In addition, we must work together to unleash human productivity, reduce poverty, increase employment, promote healthy environment, and foster sustainable growth.
I therefore call on all financial institutions, especially banks to synergize efforts and pool resources together to upscale the transformation of our infrastructure facilities: I am delighted that some of our banks have taken up the challenge, and are currently funding some of our infrastructure needs across the country. Indeed, there is a growing investment appetite of both domestic and foreign investors, as well as a. renewed focus and interest from our financial institutions on longer term infrastructure investment opportunities. This must be encouraged and sustained in the interest of our economy.


I note with interest the rich programme of activities designed for this workshop and I cannot agree less that the issues lined up for discussion are critical for our match towards 2020. I, therefore, expect that the outcome of this workshop will greatly enrich government policy and place us in a better position to attain the much needed economic growth and transformation, especially in the area of infrastructure, at a faster pace. Be assured that my ministry will continuously pursue fiscal prudence and enthronement of sound fiscal policies towards realising the goals of the Seven-point Agenda and Vision 2020, of which infrastructure development is a key component. - Independent


Babalola, Minister of State for Finance, delivered this address at a workshop organised by the Finance Correspondents Association of Nigeria (FICAN).

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