Financing Nigeria Infrastructure Deficit: Would Infra-Co Do?

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Wednesday, July 14, 2021 / 11:55 AM / By CSL Research / Header Image Credit: Wanted In Africa

 

Earlier in the year, the Federal Government approved the establishment of a Public-Private Partnership Styled Infrastructure company named Infra-Co with an initial seed capital of N1tn expected to grow to N15tn in assets and capital over time. The proposed establishment will attract private sector participation in the nation's quest to bridge its infrastructure deficit necessary for growth across all sectors of the economy. Yesterday, the FG announced the firm will commence operations in the third quarter of 2021 and named the fund managers as Chapel Hill Denham, Triple A (consortium comprising Africa Plus partners, Arc Asset Management, and Afrinvest), Sanlam Infraworks and AIIM, a unit of South Africa's Old Mutual Group while KPMG was appointed as the transaction advisers for the corporation.

 

Over the years, Nigeria has sustained a meagre allocation to funding infrastructure in its annual budget despite its pronounced infrastructural gap that has become a clog in the wheel of economic growth and development. Nigeria's growing infrastructure deficit remains a major concern among economic experts and stakeholders as poor infrastructure is one of the biggest impediments to smooth business operations and capital inflows into the country. The paucity of investment in physical and social infrastructure over the years has continued to limit the growth potential of Africa's largest economy, restricting its ability to exploit its vast amount of natural and human resources towards achieving a broad-based, sustainable and inclusive growth. According to Moody's, Nigeria would need more than US$3.00trn over the next 30 years to finance its infrastructural deficit.

 

In our view, the idea of Infra-Co is laudable as it conforms with our highly-touted model of infrastructure financing in Nigeria, that minimizes bureaucracy and maximizes efficiency. Collaborating with the private sector to bridge the widening infrastructure deficit appears the only viable option given Nigeria's current weak fiscal position and elevated borrowings. However, a lot of effort must be put into ensuring that the implementation does not suffer from the usual bottlenecks associated with state promoted projects. In particular, the use of funds and monitoring of approved projects to completion is critical for success.

 

Looking forward, we see this paving way for an eventual improvement in Foreign Direct Investment flow into the Nigerian economy. The current infrastructural deficit raises the cost of doing business, forcing many businesses to relocate to other favourable climes or wind up. The CBN governor, Godwin Emefiele, noted that many local and international private fund managers have shown interest in being part of the project.


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Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

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