Infrastructure Development in Nigeria: The PPP Approach

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Friday, December 11, 2020 / 3:16 PM /by FDC Ltd / Header Image Credit: Today Newspaper


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Infrastructure development is crucial for Nigeria's economic growth, particularly for the realization of the federal government's economic diversification agenda. The lack of adequate fiscal revenue to finance infrastructural development has however left the Nigerian economy grossly in deficit in this area. Nigeria's infrastructure deficit is estimated at $100 billion annually, which is 189.77% above the 2021 federal budget, projected at $34.51bn.2,3 With such a gap, the Nigerian government is incapable of addressing the country's infrastructure needs on its own. This has necessitated a shift towards public-private partnerships (PPP). The PPP approach is a concession arrangement. It allows the private sector to finance infrastructure development in the country, with specified agreements on the management of the infrastructure to recoup investment.4 Although the Nigerian government has used the PPP approach since 2008, it has been unable to attract the needed interest and confidence from private investors to help meet its infrastructure deficit.

 

Regulatory framework for PPP infrastructure development in Nigeria

The Infrastructure Concession Regulatory Commission (ICRC) is the regulatory body for the implementation of the PPP framework for infrastructure development in Nigeria. It was established in 2008 and has supervised the development of a number of PPPs in the country.

 

The ICRC currently has about 76 PPP projects under implementation, including the recently approved Bonny Deep Water Port Project, the Nigerian Correctional Service's (NCS) Shoe and Garment Factories Projects, and the Port Harcourt Industrial Park Project.7,8 However, some of these projects have failed and about six were suspended as investors were unable to follow through with the contracts.9 Failed projects have undermined the Nigerian government's infrastructure development drive and constituted a deterrence to private investors to participate in PPPs.

 

Challenges of PPP infrastructure development in Nigeria

Private investors are faced with a number of challenges which have reduced the desirability of PPPs in Nigeria. A critical issue is the poor regulatory framework and inability of the public sec-tor to keep the contractual agreements.10 Although the private sector is charged with the responsibility to execute the project, the public sector has an obligation to properly monitor the implementation process. A lack of thorough review and understanding of the contracts and their inherent implications make it difficult for the public sector to follow through with the contract.11 For instance, the Lagos state government was compelled to take over the Lekki Toll PPP after the public resentment against toll fees by the private sector.

 

This brings to fore another challenge, which is the disconnect between the target users and the public and private sector regarding the planned infrastructure development. Private investors will typically seek to recover disbursed funds, along with expected returns on investment, upon completion of the project. These usually come in the form of levies, toll fees and payment for the us-age of the provided infrastructure. Meanwhile users mostly see infrastructure as social amenities that should be provided for free.

 

Some projects end up as terminated contracts due to the lack of thorough feasibility studies and cost assessments. As a result, the contract is grounded in unrealistic assumptions and thus doomed for failure from inception. Delayed financial closure on proposed projects is also a challenge.

 

Financial institutions are sometimes reluctant to disburse funds for proposed projects due to the high level of risk associated with most PPPs. Instability in the political landscape and increased vulnerability of the nation to social violence and terrorism has also continued to deter investors and constrain infrastructure development in Nigeria.

 

The Way Forward

The Nigerian PPP regulatory framework needs to be revamped to make it attractive for investors to invest in infrastructural developments in Nigeria. Although the private sector is responsible for the implementation of PPP projects, the public sector needs to be more involved especially in the preliminary studies and evaluations of the projects to have a good grasp of the requirements. Other issues to address include improved commitment to the terms of the contracts, more detailed preliminary assessments and feasibility studies, which highlight the need to involve well trained and experienced professionals in the PPP contract development, and proper handling of social unrest and security issues.

 

When it comes to social unrest and security issues, community consent and participation is critical to proactively engage the users and mitigate negative reception of the PPP project. Stakeholder engagement helps garner social permission, get a sense of the level of need for infrastructure, and allows both the private and public sector partners to better estimate the expected usage of the infrastructure. Protests against toll fees or decreased usage can be addressed from the onset with proper stakeholder engagement. This in turn reduces the level of risk and provides some certain-ties for investors as regards recouping their investment.

 

Considering the huge infrastructure gap in Nigeria and the country's currently strained public finances, private participation is indispensable to adequately finance infrastructure projects in Nige-ria. Infrastructure development through PPP will also enhance a better allocation of risks between public and private sectors and facilitate efficiency in the provision and management of these pro-jects. This will impact positively on the country's economic growth trajectory and support job creation and the industrialization of the Nigerian economy.


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