The Nigerian Bar Association’s 2017 Annual General Conference, provided Jim Ovia, Chairman, Zenith Bank and Keynote Speaker at the event, an avid opportunity to address what arguably touched on the very kernel of what the nation needs to focus on to develop the economy – Infrastructure. If implemented, it may well be the elixir required to turn the nation’s fortune around, reports, Group Business Editor, SIMEON EBULU.
Jim Ovia’s keynote address at the just concluded NBA Annual General Conference in Lagos, no doubt serves, not only as an agenda setting, but a schematic order of what should be government’s priority in its quest to improve, or better still, raise Nigerians’ standard of living. Ovia, the Chairman of Zenith Bank, in that presentation, brought to the fore the place of infrastructure, and how its provision can literarily transform the economy of a nation, given its overwhelming impact and multi-plier effect on other segments of the economy.
For a start, following from Ovia’s presentation, he said “every one per cent of government funds spent on infrastructure leads to an equivalent one per cent increase in Gross Domestic Product (GDP), underscoring the correlation between funding infrastructure and economic development of nations.’’ If this holds true for Nigeria, as it should, then this nation can as well determine from the onset, by how much it wants to grow her economy, by simply varying its quantum of infrastructural investment.
And it is common knowledge how much infrastructural deficit Nigeria suffers. If it is roads, we have several thousand kilometres, across the six-geopolitical zones to attend to. If it is health infrastructure, there are countless number of hospitals, primary health centres and several other health related facilities calling for attention. Is it in power, or water, rail transportation, just name it, they are everywhere. It’s regretable that the nation is struggling with recession when there’s an exit window in infrastructure development.
Attendant Pain in infrastructure deficit
In drawing attention to this critical element in nations’ growth and development, Nigeria, not being an exception, Jim Ovia pointed out that poor infrastructure currently costs Nigeria N2.03trillion, or two per cent of GDP yearly, adding that insufficient infrastructure also represents a major cause of loss of quality of life, illness and death.” Ovia didn’t mince words in his advocacy for the provision of adequate infrastructure, saying the lack of it impedes a nation’s economic growth and international competitiveness. He said infrastructure should be ranked above mere provision of services, “to a moral and economic imperative,” stating that in developing economies, where pointedly Nigeria belongs, “lack of infrastructure is a far more serious barrier to trade than tariffs.
Given the scope and magnitude of the infrastructure deficit, the nation’s annual budgets will not be adequate to address the issue, Ovia stated. He posited that the Capital allocation in the 2017 Budget, (even when fully utilised), can address only 52 per cent of the annual requirement. He however listed other sources of funding available to include, Development Finance Institutions (DFIs), Multilateral and Bilateral Organisations, such as the World Bank, Department For International Development (DFID), United States Agency For International Development (USAID), China and the United States. He said the Nigerian integrated infrastructure master plan (NIIMP) provides a roadmap to raise the country’s stock of infrastructure from the current 20-25 per cent of the GDP to an ideal benchmark of 70 per cent by the year 2043.
Financial Requirement
Ovia said bridging the infrastructure gap and implementing the Nigeria integrated infrastructure master plan (NIIMP), will require an investment quotient of about $3trillion and will propably take about 26years from now up to 1943, to accomplish. He listed the salient areas to be addressed and the projected financial commitment as follows; Energy: $1trillion, Transport: $775billion, Agriculture, Water and Mining: $400billion, Housing: $350billion, ICT: $325billion, Social Infrastructure: $150billion and Vital Registration and Security: $50billion To achieve this, Ovia pointed out, Nigeria would need to increase investments in infrastructure to seven per cent of GDP annually until 2043
ICT Infrastructure
On the Information Communication Technology front, Ovia, drawing from the Nigerian Communication Commission data base, said the estimated number of Nigeria’s mobile subscribers was 143,064,490, as at June this year, saying that tele-density remained at 102.19 per cent, based on the 2006 official population census that put the Nigeria’s population figure at 140 million..
He said: “There is a huge need and a huge opportunity to get everyone in the world connected, to give everyone a voice and to help transform society for the future. The scale of the technology and infrastructure that must be built is unprecedented, and we believe this is the most important problem we can focus on,” pointing out that the successful companies of the next decade will be the ones that use digital tools to reinvent the way they work.
Challenges
Ovia identified Limited access to funding, poor project preparation and planning, as well as weak procurement processes as being partly responsible for inadequate provision of infrastructure. In addition, he said, reconciling relatively shorter ‘political life cycles’ with often longer ‘infrastructure life cycles, has been an issue, given that successive political leadership will more often than not, tinker with projects inherited from their predecessors, either by delaying their execution, or in most cases abandoning them out rightly. He also listed inadequate governance frameworks and lack of capacity, such as competence and experience, as some other hurdles militating against the provision of adequate infrastructure.
Funding Sources
Reminiscent of government programmes, the Annual budgets, Ovia stated, remain the main source of government funding. Although silent about the adequacy of the 31 per cent provision for Capital expenditure to total spending in the N7.44trillion 2017 budget, he nevertheless acknowledged that it was the highest in four years. He said Government’s Debt – such as Treasury Bills and Bonds, as well as other Government Controlled Sources, like the Sovereign Wealth Fund, Pension Funds and Public-Private Partnerships (PPPs), are additional sources of capital to fund infrastructure projects.
Potential Sources of Infrastructure Financing
The Zenith Bank chair also identified Pension funds, currently standing at over N6.5 trillion, Mutual funds of over N260 billion and International Development Association (IDA) grants of close to US$57billion, as potential sources of infrastructure financing. Additionally, he said the government can leverage on the Insurance sector, Non- interest banking funds like ‘Sukuk’, the Sovereign wealth funds, Public-Private-Partnership (PPP) schemes and Exchange-Traded Fund (ETF) as other funding sources that can be tapped to drive infrastructure provision and funding.
Financing Mechanisms for Infrastructure
The Organisation for Economic Cooperation and Development (OECD), Ovia said, has listed other available Infrastructure financial instruments to include Bonds. These incorporate Project Bonds, Corporate bonds, Municipal/Sub-Sovereign and Green Bonds. Also listed are Loans-Direct/Co-Investment Lending to Infrastructure Project and Syndicated Project Loans. Inclusive are Hybrid (mixed), Subordinated Bonds, Convertible Bonds, Preferred Stock and Equity, Listed or Unlisted Infrastructure Equity Fund.
Key Infrastructure Risks
Ovia drew attention to what he tagged Legal Risks, such as agreements, saying that they must be taken into consideration in infrastructure provision transactions. He listed Contract Negotiations and Renegotiations, Enforceability of Contracts and Project Governance, as necessary ends that must be closed.
Operational Risk
Given his knack for details, the Zenith Bank chief said these underlying operational risks; Lack of Technical Expertise, Inadequate Project Planning, Construction Delays and Cost Overruns, Default of Counterparty, Political and Regulatory Risks, Changes in Policies or Regulations, the Rule Of Law, Transparency/ Accountability, Sovereign Risk, as well as other exogenous, or Macroeconomic Risk, like inflation, Real Interest Rates and Exchange Rate Fluctuations and Currency Volatility should be given adequate attention.
De-Risking Infrastructure
To give comfort to those engaging in infrastructure provision and funding, Ovia offered the underlying reliefs, pointing out that there’s need to mobilise what he termed “the ‘Right’ Vehicle For Infrastructure Projects,” including strengthening the Judicial System to deal with Infrastructure Related Matters.
He called for enabling streamlined, Transparent Processes For Better Project Selection and Planning. He also stressed the need for Building Capacity through Stronger Technical Partnerships and Commitment to Knowledge Transfer, Developing and Implementing a Robust Long-Term Plan for Infrastructure Development, institutionalising and providing enabling Legal and Regulatory Frameworks.
He said there’s need for provision of Legislative Clarity, especially as it relates to Public Procurement, Permits, Expropriation, Taxation, Litigation and Tariff Definition, in addition to establishing a creative Innovative Financing Instruments and Arrangements, including Exit options.
Ovia said for Nigeria to de-risk various infrastructure projects, Government as initiator, must think as public sector on one hand, and have the mindset of a private sector entrepreneur in execution, so as to align with the profit motive of the private sector entrepreneur. Both parties, the public sector agent and private sector entrepreneur, he stressed, must think NIGERIA FIRST.
