The Nation Newspaper

Tag: infrastructure

  • Workers urge govt to vote more funds for infrastructure

    Workers in the construction sector have appealed to the Federal Government to allocate more funds for infrastructure development.

    National Union of Civil Engineering, Construction, Furniture and Wood Workers (NUCECFW) President Amechi Asugwuni  made the appeal when the Nigeria Labour Congress (NLC) leaders toured  some  affiliate unions.

    NLC leaders, led by its President, Comrade Ayuba Wabba, were on a tour of affiliate unions to partner and find solutions to their challenges.

    According to Asugwuni, infrastructure development is slow and any country that does not build its infrastructure, the growth and employment creation will be stagnated.

    He advised the government to ensure the establishment of a fund for infrastructure development and fast track the construction of roads and other infrastructure.

    He called on the government to pay employers in the sector money owed them.

    The NLC President, Mr Ayuba Wabba, said the construction sector was the pillar of every economy, adding that, no country could develop without adequate infrastructure in place.

    “How can we encourage small and medium scale enterprise if there is no steady power supply and good road network? The cost of doing business in Nigeria is higher than any other country.

    “The conditions of the roads are a nightmare, especially from Lagos to the Southsouth, and Southwest and the North. They are all in dire need of rehabilitation,” he said.

    Wabba said it was sad that the government did not prioritise development of infrastructure in spite of deficit in the budget.

    He said labour was focused on social justice in the system because without it, workers would not have decent lives.

    He said the NLC would ensure that the government committed enough resources to building important infrastructure in the country.

  • ‘Private capital can boost govt’s infrastructure expenses’

    ‘Private capital can boost govt’s infrastructure expenses’

    Adekunle Abdulrazak Oyinloye is the Managing Director/Chief Executive Officer, Infrastructure Bank Plc. In this interview with Fredrick Adegboye, the consummate banker gives useful insights into what the bank is set to achieve in its drive to bridge Nigeria’s growing infrastructural deficit. Excerpts: 

    Your bank provides financial provision to support key infrastructural projects. How have you been able to do this?

    Don’t forget the bank itself was set up in 1992 purposely to provide banking and financial services. But it didn’t do much in the first life within 1992 and 2007. That was majorly when it was called Urban Development Bank. But since 2007/2008 when the private sector took the majority of controlling shares and directs the affairs, we have also re-strategised on how better we too can provide those solutions. And if you measure our performance from then to now, I will say yes, we’ve done reasonably well. There is still a lot where we want to cover and we believe very well that now is the time you begin to feel the impact of the bank. In terms of national supports, for states and local governments, we’ve done reasonably well. In some local governments particularly in Adamawa, some local government infrastructure projects by way of providing solution to making those assets possible and active, and they have been able to generate revenue far in excess of what it takes to repay their loan. In fact, I give kudos to a local government, Yola South in particular. We did an international market for them and, interestingly, even while the Boko Haram insurgency was on, they were re-paying their loan and they finished paying even during that period. So they are one local government I doff my hat for. At inception, we first gave them the solution that provides funding, the solution that provided even the management and when funding the revenue to the extent that they’ve creditably done very well. So I’m very happy about that. Immediately almost after the private sector leadership from the bank, we also went into a conception and working with Lagos state in providing solution to mass transit in the state that culminated in the conception that we led imagine as the preferred leader for the red line. The red line is a 37-kilometer light road that is meant to carry passengers predominantly from Marina to Agbado. We all know the movement of people in Lagos is mostly from the north to the south. So Agbado, Agege, Ikeja and Mushin areas are highly densely populated commuter areas. And people commute from those areas to Lagos Island either to work in Victoria Island, Marina or Broad Street. Then people also commute from those places I mentioned to come to the market in Idumota and all that. If you know Lagos very well, you’ll know it takes an average of about four hours from those locations to shuttle to and fro.

    So providing a solution that might be 30 minutes to commute from end to end, a lot of challenges confronted us. Well, we are happy that at least the project in Lagos is making progress now and we believe that project would develop beyond just bank room planning, we’ll actually start development on that in the next couple of months. So we are very excited.

    On the sub national too, we’ve been working with a number of states on various projects ranging from providing/building bridges and roads to assist them in commercialising water distribution and articulation to various homes and also expanding the water distribution network in some cities which is another very exciting project for us.

    We are also, at the national level, we’ve been quite active in providing solutions to transport generally. Providing solution to major projects like Lagos/Ibadan and our own take is that we need to bring the private capital as much as possible to complement and augment government resources in building infrastructure. So sometimes we even dig deep into our thinking cap and come up with completely new solution. So both at the national and sub national level, I will say we still want to do more than what we are doing currently. And we wish we could do more with the support of government and people of Nigeria; we strongly believe we can do more.

    How can the massive gap in Nigeria’s infrastructural development be tackled effectively?

    I will tell you it’s a very daunting task and quite alarming. First is to look at ourselves when relating to other countries. We think our major competitors in Africa are South Africa and Egypt. In the world, based on our population and our experience, countries like Pakistan, India, Malaysia etc will come readily and we begin to look at ourselves, are we doing well? We should look at all the indices that we use in measuring peers in the infrastructure forensics. In terms of roads, how many kilometres of paved road do we have in Nigeria compared to those in countries like South Africa, Brazil or India? We are lagging very much behind. These are well documented and if you see all government has done for the first time in a number of years, we’ve documented our needed basic infrastructure that we need to put in place. And that is what led to that document and National Planning Commission did anchor by the Ministry of National Planning and Budget that led to the development of National Integrated Infrastructure Master plan. That Master plan is for the next 30 years. And what we need to do is well documented. So the gap is a bit daunting, but for me it’s identifying the need that we have a problem. If we know we have a problem, solving such problem becomes easier. But if we assume we don’t have a problem that could be more dangerous. So I’m not perturbed by that gap. The only thing there is how to finance that gap. Now a number of figures have been bandied that we need about $31billion on an annual basis as investment to infrastructure so that we bridge the gap. Yes, but don’t forget where you are today if you identify your need and you don’t solve it, by tomorrow that gap is wider particularly when you look at the population growth and you see what is happening in other countries. So once you recognise that you have a problem, you are dimensioning it or even identify critical infrastructure aspect that we need to invest on. So what then we need to do now is to move into action. And in moving into action is to access our own resources. Is government resource ever going to be enough? I doubt it. At the best of time, government resources can barely do 40 per cent of what we need. So that means that we are in deficit of 60 per cent hence there is need to device alternative financial mechanism. Even government itself must build a bridge that makes a proper handshake with private sector that will provide 60 per cent. So it means we need to be nice to the private sector. What do I say? As a nation, we need to be in that mood that we want support. Now if we want support and we demonstrate that we want support then we begin to tell ourselves that we need to be nice. They want a stable polity and environment that gives you a clear line. If you are dealing with government, this is how it begins and how it ends. And along that round, these are possible things that you’ll encounter and this is how government will help you make it easy. So we need to have what they call a legal framework that supports engagement with private sectors. We need to have institutions that private sector can go to or work with. I can tell you Nigeria is not short of legal frameworks; in fact, we build institutions for long time ago when we have public enterprises during privatisation and commercialisation commission of those days. And later we created ICRC which was basically an institution set aside for public, private sector partnership and they have rules; they have laws that are governing all that.

    The bank’s motto says Transforming Nigerian Infrastructure for Enhanced Productivity. Would you say you have satisfactorily been able to achieve this?

    It’s a lifelong statement so; we’ll be a bit unfair to stand at this point and say because that is what I want to be, I want to transform that infrastructure environment in a way that enhances productivity. If I am able to facilitate connectivity by way of road or railway in a manner that will improve commuting hours; take for instance, I want to be involved in a rail line and I say, if you are coming to work in the morning ordinarily it takes four hours. So if you are resuming at 8 0’clock, so it means that person has to be ready to resume work at 8 0’clock, what time does he have to set out if he uses four hours in travelling time for work? So the man that will set up by 4 am will probably have to wake up by 3 am. And if he’s closing at 5pm and in the crowd for four hours, so he’s getting home by 9 pm. Sometimes people get home by 12 midnight. So when there is skill, the productivity of that fellow is imperilled; it cannot be optimised. If the person is a woman who has a little kid who has to go to school before she goes to work, so it’s a big challenge. If we now construct and put the rail line into service and it takes that person 35 minutes from his house to his office or shop on the Island. And if the target is there at 8 0’clock, it means he only needs to set out at about may be 7/7:20. Now, if you now wake at 6 0’clock, you would have bathed for the children, get them ready for school, in fact drop them in school in the neighbourhood before coming back to the railway station and board vehicle and still get to office at stipulated time. Between that person and the commuter of four hours, whose productivity will be better? Definitely the person that boarded the train, so this is kind of thing I want to do and that is why am spending so much time to make that happen.

    What is the bank doing to develop rural areas, thus curtailing rural-urban migration?

    I don’t want to be involved in the controversy about rural urban drift; the factor for or factor against. But I tell you, you can’t stop migration, it’s inherent in our living. Anywhere you are, there will always be migration – either to in the city or back to the village; it will happen. Then there is always more to the city everywhere in the world. The only thing is that we should consciously try to improve the quality of lives in the rural areas. Now if you modernise farming, you need less hand in the rural areas. Except you also create value chain farming where you use mechanised farming method but that will relief others of their daily work that ordinarily should also be absorbed in the processing of the farm produce. If we do that, people will find where to eat because if we can cultivate, say before I was cultivating one hectare of land with my hoe and cutlass, then about 20-50 of us in the farm, that is 50 hectares and maybe you have 100 hectares. Then you bring a machine and that machine clears a 100 hectares at once and that machine can also do harrowing, planting and all that. So, 50 plus whatever of us will not have a job again on that farm. May be about 10 of us will assist the machine in doing this. Except you now have a processing plant that processes the produce and engages some of us and you have to retrain us who were farmers with our hoes and cutlasses. If you want me to work in the factory you need to give me training. Maybe out of us that left, additional 10 can easily adapt. So the rest of us will find space. It’s not the responsibility of the bank to deliberately say migration should stop.

  • $300b infrastructure gap: Fears over borrowing binge

    $300b infrastructure gap: Fears over borrowing binge

    Nigeria requires an estimated $300 billion to address her infrastructure deficit. This represents 25 per cent of her Gross Domestic Product (GDP). But attempts to mobilise the cash to execute key infrastructural projects through borrowing have not gone down well with some stakeholders. They argue that rather than plunge the country into a debt trap, the government should turn to other sources to fund infrastructure. Assistant Editor CHIKODI OKEREOCHA reports.

    The situation is dicey. Price of oil, Nigeria’s main revenue earner, is yet to rebound. With Brent crude hovering around $48.46 per barrel, as at last week, the economy is yet to recover from the global slump in oil prices. The crisis, which started mid-June, 2014, forced a sharp drop in oil price from over $115 per barrel to the current $48.46.

    The reduction in revenue made it extremely difficult for the Federal Government to meet its financial obligations. This left it with no choice than to turn to international financial institutions for loans to finance critical infrastructure projects.

    According to experts, Nigeria requires about $300 billion to fix her infrastructure. This represents 25 per cent of her Gross Domestic Product (GDP), implying that an investment of about $25 billion is required annually to close the yawning infrastructure gap.

    Experts in diverse sectors argue that without massive investment in infrastructure, particularly electricity supply, road and rail network, among others, the economic development and growth goals, articulated in the Federal Government’s Economic Growth and Recovery Plan (EGRP), will not be achieved.

    But with the sharp drop in oil prices, getting cash to build infrastructure became a challenge for the Federal Government. This was why the government turned to borrowing to fix infrastructure.

    “So, when we started the argument, should we borrow, should we not? The truth is that we have no choice,” Minister of Finance Mrs. Kemi Adeosun said, at a recent forum in Abuja with the theme “Beyond Recession: Towards a Resilient Economy.”

    She continued: “If you are waiting for oil price to recover, the prognosis is that it’s not going to go back to $110 per barrel any time soon. So, to get the economy growing, we have no choice but to look for low-cost funds and put that infrastructure in place, because it is the infrastructure that will unlock the economy’’.

    While experts and operators in various sectors agreed with the Finance Minister that infrastructure deficit remained one of the stumbling blocks on Nigeria’s road to economic growth, they however, expressed fears over the spate of borrowings by government. They were apprehensive that the nation’s increasing debt profile was becoming unsustainable.

    Nigeria’s total public debt – foreign and local – stood at N19.16 trillion as at March 31, 2017, according to the Debt Management Office (DMO). It increased from the N17. 36 trillion recorded at the end of December 2016, representing an increase of N1.8 trillion.

    The DMO said at the end of March 2015, Nigeria’s total indebtedness was N12.06 trillion. This implied that the  debt level increased by N7.1 trillion within two years.

    DMO, which coordinates the management of Nigeria’s debt, said of the total debt stock, domestic debt stood at N11.97 trillion, against N8.51 trillion recorded in 2015. This represents a domestic borrowing record of N3.46 trillion, representing 40.71 per cent.

    On the other hand, external debt for federal and state governments rose from $9.46 billion to $13.81 billion in two years, representing an increase of $4.35 billion, put at 45.98 per cent.

    According to the DMO, the country’s external debt for March 31, 2017, was calculated using the official exchange rate of N306.35 to $1, while the official exchange rate of N197 to $ 1 was deployed in determining the foreign debt for March 31, 2015.

    Meanwhile, the domestic debt profile of the states stood at N 2 .96 trillion as at March 31, 2017, rising from N1.69 trillion at the same time in 2015, representing an increase of N1.27 trillion.

     

    No cause for alarm, says Fed Govt

    Obviously aware that the debt figures sent jitters down the spines of not a few stakeholders, the Director-General, Budget Office of the Federation, Mr. Ben Akabueze, sought albeit successfully to allay fears that at N19 trillion, Nigeria’s debt stock was becoming unsustainable.

    He said there was no cause for alarm as the country’s total indebtedness of N19.16 trillion was sustainable, and still within the globally accepted threshold.He said rather than worry about the level of borrowing, the priority should be on how to shore up revenue that would enable the government finance its programmes.

    As the DG of Budget Office noted, “Our revenues are way too low for the size and potential of this economy and that is why we have the lowest tax to GDP ratio in the whole continent. We are right there at the bottom globally simply because people are not paying taxes and we also have to ensure that even what people pay does not leak and it is properly accounted for.

    Mrs. Adeosun also advanced the same argument. She said that Nigeria’s debt was not too high, but that her revenue was too low. According to her, the country’s debt to GDP ratio remained low.

    Listen to Adeosun: “The problem is not that our debt is too high, but that our revenue is too low. It is revenue you use to pay debt and our revenue in Nigeria right now is very low. Most of our debt matures between two years. That means that the actual amount of interest we are paying is significant.

    “What we are doing right now is refinancing most of that debt, especially those maturing within the next two years. We are also working on improving government revenue through tax.

    “Our tax to GDP is six per cent; we are one of the lowest in the world. Ghana is 15 per cent, South Africa, 24 per cent. So, what we are doing is working very hard to see how we can get more people into the tax net and how to get those who are already in the tax net to pay the right taxes.”

     

    Stakeholders disagree

    However, some economic and financial experts refused to be swayed by government’s explanations.  Some of them warned that government should be wary of plunging the country into another debt trap.

    For instance, the Chairman, Petroleum and Natural Gas Senior Staff Association of Nigeria and National Union of Petroleum and Natural Gas Workers (PENGASSAN & NUPENG) National Petroleum Industry Bill (PIB) Committee, Comrade Hyginus Onuegbu, lamented that at N19.16 trillion, Nigeria’s level of borrowing was on the high side.

    Recall that Acting President Yemi Osinbajo had last month signed the N7.44 trillion 2017 budget into law. The budget had a revenue projection of N5.08 trillion and an aggregate expenditure of N7.44 trillion. The projected fiscal deficit of N2.36 trillion, according to Osinbajo, is to be financed largely by borrowing.

    The budget, the Vice President said, set aside N1.84 trillion for debt servicing, N177.4 billion for sinking fund, N2.97 trillion for recurrent expenditure (non-debt) and N2.177 trillion for capital expenditure.

    But Onuegbu observed that, “Nigeria’s debt service obligation was too high. It’s a big challenge as far as the budget is concerned. As a matter of fact, one third of the budget is to be financed by borrowing. When you borrow money, the reason for which you borrow money must be economically viable to be able to repay the loan otherwise that loan will become a big burden on you.”

    Similarly, a Lagos-based lawyer and public affairs analyst, Mr. Akabogu Obiora, lamented that Nigeria’s rising debt profile was worrisome. “It’s worrisome. I don’t see any reason why Nigeria should go a borrowing again, whether it is from a benevolent creditor or not.

    “The fact that Nigeria passed through a lot under the previous debt bondage should have been enough reason for government to be wary of borrowing and going back into the debt trap,” he said.

    Akabogu argued that the rising debt stock would plunge the country into another debt trap, which is an aspect of colonialism, because “he who pays the piper dictates the tune.” He said rather than do so, government should explore other viable sources to raise the required fund to build infrastructure.

    To drive home his point, Akabogu asked, “What is the use for Excess Crude Account (ECA)?” noting, “The external reserves is there. I am aware that it has not been completely depleted. There is Sovereign Wealth Fund, Value Added Tax (VAT) as well as money accruable from Customs and Excise.”

    The legal practitioner pointed out, for instance, that the Nigerian Customs Service (NCS) is the only organisation in Nigeria that continues to declare surplus all the time.

    Indeed, Adeosun had said that apart from borrowing, part of government’s survival strategies was to make sure that revenue generating agencies remitted their operating surpluses to the coffers of the government.

    Akabogu also said there is a lot of money from the private sector to build infrastructure. “There is capital inflow into the country from foreign investors. Nigeria continues to be number one investment destination,” he stated.

    Apart from the nation’s rising debt burden, government’s alleged propensity to borrow to finance recurrent rather than capital expenditure has also not gone down well with Akabogu and indeed, other economic and financial analysts.

    For instance, as far as the Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, is concerned, it was wrong for the government to be mainly borrowing to support recurrent expenditure. Hear him: “We need to move away from debts for recurrent expenditure to debts for capital expenditure, which is projects-specific. The debt level itself is not dangerous, but the debt service level – the debt burden – is very high.

    “We are using 66 per cent of our independent revenue to pay interest. So, interest rates must come down substantially, or else, we are in trouble.”

    Similarly, a Professor of Political Economy and management expert, Pat Utomi, said, although, there are times that a country needs to spend its way, literally out of the challenge of output such as a recession, there is need for caution to avoid getting into an unsustainable debt scenario.

    Indeed, Adeosun and other renowned experts had, at various times, argued that Nigeria needed to spend her way out of recession; that a better way to do it was for government to borrow to finance infrastructure projects.

    Another renowned industrialist, Mr. Henry Boyo, noted that although, there is nothing wrong to borrow to improve on social welfare and infrastructure, it is worrisome for government to borrow at the same time that it already owes so much money to the extent that it is using a huge percentage of its real income to service debts.

    The economist also expressed concern over government’s plan to borrow to build infrastructure especially in view of the rampant evidence that government-funded infrastructure had never been properly managed.

    He said that with the sad record of poor performance of government agencies and institutions, it is worrisome for anybody to suggest borrowing to create more infrastructures that would be government managed.

    This may have prompted calls for Public Private Partnership (PPP) model for designing, building, financing and operating new and existing infrastructure. Yet, others want the Federal Government to turn to its pool of pension funds put at N6.02 trillion as at November 2016. With the National Pension Commission (PenCom) projecting that Nigeria’s total pension asset may hit N20 trillion by 2020, it is hardly surprising that government, according to Osinbajo, was working on how to tap into this huge fund to finance infrastructure development.

    Will government pull the breaks on borrowing and explore other options?

  • Institute seeks financing option for infrastructure deficit

    With N3 trillion required yearly to meet Nigeria’s infrastructural deficit, the Nigerian Institute of Quantity Surveyors (NIQS) has called for project financing as an option to develop  infrastructural projects.

    This option was mulled at the just-concluded two-day specialised workshop organised by the body in Lagos, with the theme: “Finance and development of capital projects-emerging solutions”.

    The institute’s President, Mrs. Mercy Iyortyer, condemned the tradition of government financing capital projects from allocations from fiscal budgets alone, without the contribution of finance from other sources like the private sector, as unsustainable especially in view of the present economic situation of the country, which she traced to falling oil prices, high exchange rate, double digit inflation rate, unstable foreign exchange rate, low budget performance and liquidity constraints on the fiscal budget.

    The situation, she further noted, has been compounded by commercial banks, who have made themselves short-term lenders- a development that is not suitable for long term investment projects. This is why it has become crucial that alternative sources of investments with larger and more patient pools of capital are incentivised to participate in infrastructure financing.

    “There is need for us as a people, especially as professionals, to consider emerging solutions to these challenges and to benchmark with other countries such as China and Dubai which have had success stories in this area. The private sector is expected to become increasingly involved in the creation of financing solutions to develop Nigeria’s frail infrastructure,” she said.

    Although Iyortyer noted that project finance in the country is still in its infancy, coupled with the attendant pressing challenges in this regard, positive trends, she said, are beginning to emerge. Notwithstanding, the NIQS boss observed that the progress made so far in this direction has provided a strong foundation for hope.

    Quantity surveyors, she explained, have an understanding of the measurement of cost and value, including the necessary combination of financial analytical skills and market knowledge to rise to the occasion required for capital project finance and development.

    In a communiqué signed by Iyortyer at the end of the workshop, the body said the approach of project financing is unsustainable given the present economic pressures, which was listed to include falling oil prices, high exchange rate, double digit inflation rate, unstable foreign exchange rate, low budget performance and liquidity constraints on the fiscal budget.

    The communiqué said there was the need for professionals to consider emerging solutions to these challenges and to benchmark other countries, such as China and Dubai who have had success stories in this area. It also urged the private sector to become increasingly involved in the creation of financing solutions to develop Nigeria’s frail infrastructure.

    The communiqué also noted that with the understanding of the measurement of cost and value among others, quantity surveyors would lead the way in the quest to ensure private sector financing of capital projects.

  • Alumni to improve school’s security, infrastructure

    Alumni of Federal Government Girl’s College (FEGGICOLLA) at Akure, Ondo State capital, have pledged to provide security and infrastructure, among other things, to reinforce the school.

    They  spoke at a media briefing at the weekend as part of activities marking the association’s 40th anniversary.

    Its President Mong Vann said the projects became necessary, following the recent kidnapping in schools in Lagos, Ogun and Borno states.

    She said: “We are concerned about the threat of insecurity to the girl-child. This is why we have decided to embark on the projects, which include illumination of the school premises, such as the classrooms, dormitory, as well as street lights, using solar energy.”

    Vann said the alumni also planned to reinforce the school’s fence and provide solar energy to power the classrooms, dormitories, laboratories, street lights and bore hole.

    The alumni president pledged that the projects would be handled and managed by the association before handing it over to the school.

    She said: “A maintenance committee of the association, in conjunction with the school management, will also be set up to monitor the project.”

    Vann said the association would hold a fundraiser/reunion dinner to raise N100 million on July 15, while the 40th anniversary celebration will hold in Akure from October 27 to 29.

    She urged the association’s members and other well-meaning Nigerians to support the projects.

    Chairperson of the 40th anniversary committee, Oseyemi Fagbamigbe, noted that the school’s projects were in progress, adding that the association would continually maintain the facilities.

    She said the association would carry out more projects, besides those listed to celebrate its 40th anniversary.

    According to her, members will use upcoming events to reconnect and network.

    Fagbamigbe said: “Our aim as an association is to carry out philanthropic and other socio-cultural activities in service to mankind. We also aim to promote unity, love and encouragement among our members, while encouraging the overall development of the school.”

     

  • Fed Govt needs N3tr annually to bridge infrastructure gap, say quantity surveyors

    The Nigerian Institute of Quantity Surveyors has said the Federal Government needs N3 trillion annually to cover up the huge infrastructure deficit in the country.

    The position of the Institute is contained in a communiqué signed by its President, Mrs. Mercy Iyortyer, at the end of a two- day workshop on Finance and Development of capital projects held in Lagos.

    Iyortyer noted that while the demand for construction is high, the money to fund the demand is dwindling because of the fall in oil prices and other macro economic factors, stressing that the ability of the country to deal with this challenge will no doubt define her future economic trajectory.

    According to her, it is imperative to turn the attention of the Federal Government to Project Finance Options as a way to develop Nigeria’s Infrastructure Projects.

    “The National Executive Council of the NIQS, in keeping with our Institutes constitutional mandate to organize continuing education and professional development and with the quest to continuously develop capacities of our members in emerging competencies felt compelled to organize this specialized workshop” the communiqué said in part.

    She said the traditional approach where governments at all levels finance the construction of infrastructure projects such as roads, bridges, power plants, airports, railways,  ports and the like from their fiscal budgets, with little or no support from the private sector was unsustainable.

    “This approach of project financing is unsustainable given the present economic pressures (i.e. falling oil prices, high exchange rate, double digit inflation rate, unstable foreign exchange rate, low budget performance and liquidity constraints) on the fiscal

    budget,” she said.

    The communiqué said there was the need for professionals to consider Emerging Solutions to these challenges and to benchmark other countries, such as China and Dubai who have had success stories in this area.

    She explained that there is the need for the private sector to become increasingly involved in the creation of financing solutions to develop Nigeria’s frail infrastructure.

    The communiqué noted that with the understanding of the measurement of cost and value among others, quantity surveyors would lead the way in the quest to ensure private sector financing of capital projects.

  • Financing infrastructure: Islamic Bond to the rescue

    Financing infrastructure: Islamic Bond to the rescue

    The Federal Government has an ambitious plan to fix the deficit in infrastructure, especially in roads, power and railways, with the N7.44 trillion 2017 Budget.  It hopes to finance the budget largely with borrowed funds. COLLINS NWEZE reports that the  government is eyeing a  N100 billion (about $300 million) Sukuk (Islamic Bond) to fix targeted developmental projects. 

    The stage is set for the Federal Government to sell a N100 billion (about $300 million) sovereign Sukuk (also known as Islamic Bond) this month. The target is the local market.

    The government, which is relying on loans to fund this year’s N7.44 trillion Appropriation, is taking advantage of the friendly terms to approach the Islamic finance market.

    The Islamic finance market is growing globally. This phenomenal growth is despite the poor recovery in other segments within the world’s financial markets.

    The International Monetary Fund (IMF) has linked the rapid growth of Islamic banking in developing countries to its relative resilience to financial crises, contrary to the developments in conventional banking. Thus in the next two to three years, Shariah-compliant assets are expected to sustain a double-digit growth.

    The government plans to inject the funds into road projects and to fund the Budget of Economic Recovery & Growth which was signed last week by Acting President, Yemi Osinbajo.

    According to the budget details, the Federal Government plans to borrow about $10 billion from the debt markets, with about 50 per cent of the fund coming from foreign sources. It is to fund a budget deficit worsened by lower oil prices at the international market, a development that has weakened the Naira and forced the government to readjust spending. The government’s plan is to fund more than half of its budget deficit of N2.36 trillion from local borrowing and to tap concessionary sources to fill its funding needs. It has opened talks with the World Bank since last year.

    The Sukuk is based on an Ijara structure. Ijara is a common leasing arrangement in Islamic finance, which bans payment of interest. Sukuk have become an increasingly popular investment globally, particularly among cash-rich funds in the Gulf Region and Southeast Asia.

    The Islamic bond with a seven-year tenor will go on sale on June 28 for three days via book building. It will be tradable on the Nigerian Stock Exchange (NSE) and on FMDQ over-the-counter platform. The bond issuance will be guided by the Debt Management Office (DMO) under Abraham Nwankwo as Director-General.

    Nigeria is home to the largest Islamic population in sub-Saharan Africa, with a reasonable percent of its N180 million people as Muslims. It is also home to one of Africa’s fastest-growing consumer and corporate banking sectors.

    Islamic finance means a situation in which corporations, including banks and other lending institutions, raise capital in accordance with the Sharia, or Islamic law.

    The bond issuance remains part of government’s plan to fast-track the development of infrastructure and engage in project-tied capital raising, given that Nigeria has challenges with road, railway and power infrastructures.

    Nigeria is not new to Sukuk. In 2013, Osun State issued N10 billion worth of Sukuk, but no other Sukuk transaction followed.

    The latest issuance is part of plans to develop alternative funding sources for government and to establish a benchmark curve for the corporate world to follow. The target of the offer are retail and institutional investors, with First Bank and Islamic wealth manager Lotus Capital managing the sale.

     

    The Osun example

    In October 2013, the Osun State government issued a N10 billion Sukuk yielding 14.75 per cent, bankers said. The Osun State bond was the first Islamic bond from a major economy in sub-Saharan Africa.

    The cocoa-producing southwestern state of Osun got N11.4 billion in total subscriptions for its seven-year paper, from asset managers and Islamic funds, bankers said.

    Sukuk has become an increasingly popular investment globally, particularly among cash-rich funds in the Gulf and southeast Asia. The Sukuk bond was issued in accordance with enactment of the Osun State Bonds, Notes and Other Securities Law 2012 and setting up the Osun Sukuk Company Plc. Though Islamic in nomenclature, Sukuk bond, is a conventional bond and coordinated by the regular investors in the nation’s capital and money market. The bond was issued in accordance with the Security and Exchange Commission’s (SEC’s) rules and regulations.

    The redemption of the bond being used to finance roads and school constructions across the state will be due in 2020.

    Authorising and approving the offer at a board meeting for the Sukuk Company, Osun State Governor, Ogbeni Rauf Aregbesola explained why his administration opted for Sukuk bond. He described it as an opportunity to develop the state. He appealed to the people to see the bond as an avenue to attract development to the state for the benefit of all and sundry.

    Other African countries including South Africa, Kenya and Senegal also plan to issue Sukuk. The Gambia has been selling small amounts of Islamic Bond for several years.

    Local credit rating agency Agusto & Co gave an ‘A’ rating to the Sukuk, suggesting it will attract ample investor demand. Bankers have also said that Osun hoped the issue, would be bought by both local pension funds and international investors.

    Speaking on the bond issuance, Currencies Analyst at Ecobank Nigeria, Olakunle Ezun said the Sukuk allows government to raise funds for specific targeted developmental projects that will add value to the lives of the people.

    He explained that Islamic bond has the potential of improving liquidity in the capital market and creating wealth for more investors even as the bond offers investors collectable returns in the form of profit from sale, rental or combination of both.

    The Sukuk, he added, also serves as tool for risk management as the bond has relatively low risk profile, as the investors are always confident of recouping their investments without fears of losing their funds.

    It has strong appeal to ethical investors, who are able to benefit from the investment opportunities that Sukuk offers to institutional investors. Besides, bond holders can trade their investment for cash anytime they so desire to bring more people into the financial system in line with the financial inclusion project approved by the Central Bank of Nigeria (CBN). He said the Sukuk appeals to Islamic faithful and other investors interested in reaping good returns from their investments.

    The Managing Director of Cowry Assets Management limited, Johnson Chukwu, said the Sukuk allows the people who do not want to invest in interest-bearing instruments to participate.

    Chukwu said: “The Sukuk bond will meet the investment need of large population of Nigerian that do not want to invest in interest-bearing instruments. It will attract funds from people that have refused to invest in other debt instruments because of their values. It will bring more people into the financial system.”

    According to him, Sukuk can play an important role in the development of an Islamic market and banking system.

    An Islamic scholar, Abiodun Rasaq, said prospects for Islamic finance are very bright, adding that the finance system has become necessary given a very significant proportion of Nigeria population strongly believe that based on the nature of the capital market and the dictates of their religion, they cannot invest in the market.

    He called for the development of products that is attractive to these set of investors to allow easy flow of their funds into the market.

    Chukwu said that just as some Christians also do not like certain things like alcohol, or invest their money in companies producing arms and ammunitions or gambling firms, some Muslims also prefer Islamic finance that is interest-free.

    He disclosed that Nigeria’s profile as Africa’s most liquid debt market after South Africa has been rising since JP Morgan and Barclays, included its bonds in their sovereign bond indices, encouraging greater foreign participation in its debt market.

    He said the use of Islamic finance in Africa could grow further as several north and sub-Saharan African countries including Morocco, Tunisia, South Africa and Kenya are laying the legal groundwork to be able to issue Sukuk.

    Other stakeholders believe that Sukuk provides an ideal way of financing large projects for the public good. “There are many economic activities or projects that are out of reach of individuals, companies, or, in the case of various developing Islamic economies, governments. In these cases, sukuk are perfect for financing these projects without falling into interest-based debt,” he said.

    Also, investors on the secondary market that are looking for investments that can be liquidated easily will find that Sukuk are ideal.

     

    How Islamic finance works

    Islamic finance is an interest-free banking plan. When Muslim cleric Abubakar Usman told his entrepreneur friend Ahmad Yusuf that sharia law forbids paying interest on borrowed funds, it surprised the later. Yusuf, an Osun State cocoa merchant quickly returned N1 million loan he got from a commercial bank to the lender and approached the fast-growing industry of Islamic banking.

    Islamic banking is a market that has doubled in size in the past five years. Its worth has been estimated above $2 trillion, with a demand forecast that it will soar to new heights in the coming months.

    After repaying the loan a week after securing it from a commercial bank, Yusuf said: “A cleric told me it is not permissible under Islam to take loans from a non-Islamic bank because they charge interest.”

    A few days later, he arranged for a loan from an Islamic bank after paying a $100 service charge. Islamic banking customers, aside being mainly Muslims, are attracted to Islamic finance by its flexibility, link to real economic activity and its ban on transactions involving speculation or uncertainty.

    Islamic finance is gaining ground in the country. Besides Nigeria, global acceptance for Islamic finance is increasing by the day despite initial hitches to its survival. According to Standard & Poor’s (S&P), Islamic finance remained a demand-driven market, with scarce supply, still hampered by a limited range of Islamic financial centers and their various regulatory frameworks.

    The rating agency said it believed that regulatory efforts to accommodate Islamic finance and the establishment of additional industry bodies at national levels will take center-stage beginning from 2014.

    The newcomers in the industry — such as Oman, Turkey, and Nigeria, for instance — have been tracing the footsteps of fast-growing pioneers, such as Malaysia.

    “Right behind the newcomers, a long line of countries is aspiring to enter the market, with the continent of Africa in the forefront,” it said.

     

    CBN’s regulation

    With local commercial banks facing cash crunch over dwindling oil revenue and increasing need to shore up their capital bases, the time to promote Islamic finance, analysts said, is now.

    Hence, many people saw it coming when the apex bank in 2015, issued guidelines for an advisory body that will oversee Islamic banking in the country.

    An essential governance structure and element of regulatory oversight for institutions offering non-interest (Islamic) financial services is the establishment of an advisory body at the level of the apex bank. The bank is to provide assurance that the strategic direction and conduct of financial transactions of Non-Interest (Islamic) Financial Institutions (NIFIs) are in compliance with the rules and principles underpinning their operations.

    Also, section 9.1 of the CBN Guidelines for the Regulation and Supervision of Institutions Offering Non-Interest Financial Services in Nigeria provides for the establishment of an advisory body at the CBN on Islamic banking and finance.

    The body shall be called the Financial Regulation Advisory Council of Experts (FRACE). The Council shall advise the CBN on matters relating to Islamic commercial jurisprudence for the effective e regulation and supervision of NIFIs in the country.

    With the policy guidelines, the CBN has become the latest regulator to opt for a centralised approach to the Islamic banking industry.

    Traditionally, Islamic banks have practiced self-regulation when ensuring that their products follow religious principles. But a centralised model of supervision is increasingly being favoured across the world.

    Financial institutions that offer Islamic banking products are required to have their own boards of Sharia finance experts, who are limited to serving in one institution at a time. The advisory body will be guided by the principles of sharia governance issued by the Malaysia-based Islamic Financial Services Board.

    Capital base

    The CBN guidelines on non-interest banking peg the minimum capital base at N10 billion for National Islamic Banks and N5 billion for regional Islamic banks. However, the regulator allows deposit money banks to offer non-interest banking products, using existing structure such as the branches, even manpower.

    The CBN has so far registered Jaiz Bank and it has given a licence to Stanbic IBTC Bank to operate Islamic banking window. Sterling Bank also has approval to operate an Islamic window. This is in addition to the work being done by National Insurance Commission to promote Takaful, an Islamic insurance product.

    Analysts believe that many Islamic financial markets had established their presence in all the major financial centres and were playing key roles in deepening the financial markets with products across the globe.

    They insist that in the face of the growing network  in  the global financial system and its integration, it is unrealistic for any existing or aspiring financial centre to be oblivious of this development.

  • Kwara needs N215b for infrastructure

    Kwara needs N215b for infrastructure

    Kwara State Governor AbdulFatah Ahmed has said the government needs N215 billion to develop the state’s infrastructure.

    He added that all inclusiveness in governance would take the state to greater heights of development.

    Ahmed spoke in Ilorin at a lecture to mark the state’s 50th creation anniversary.

    His words: “This money cannot be gotten overnight; it can be modulated. We are picking out those aspects that are doable within the current financial capacity we have found ourselves.

    “Another critical issue to development in any part of the world is human capital development. Our problem in Africa is education; we must put our acts together and take education as everybody’s business. Stakeholders must recognise the deficit we are facing on our low level of human capital development. We need an effective and impactful educational system.

    “That is why health and education sectors must be supported by the government and private sector. That is why we are expanding our health insurance scheme to ensure that people in the nooks and crannies of the state have access to healthcare, with as low as N500 all year round.’’

    Country Director for the United Nations Development Programme (UNDP), Southern Sudan, Prof. Kamil Kayode Kamaldeen said more attention should be paid to infrastructural development by both state and federal governments in areas of construction and maintenance of existing ones.

    In his lecture, titled: ‘Governance and Development in Kwara State: The Past, Present and Past’’, Prof Kamaldeen harped on key factors needed for a greater Kwara – vision, strategic choices to make better and secured future, and institutions with support roles to play in development.

    Prof. Kamaldeen said the inclusion of people was essential to drive development goals, adding that resilience of the people at sustaining peace and harmony in the state would take it to the Promised Land.

  • FEC approves N2. 6bn for Karu road infrastructure

    FEC approves N2. 6bn for Karu road infrastructure

    The Federal Capital Territory Administration (FCTA) is set to begin massive provision of road infrastructure within its satellite town of Karu Phase 2, Abuja.

    This is coming on the hills of the recent approval by the Federal Executive Council (FEC) of the sum of N2.6bn for the provision of road infrastructure within the area.

    The project, which is expected to be completed within 15 months, will among other benefits open up the area for the development of affordable housing for low income earners, maintain clean and healthy environment and ensure slum upgrade schemes in the indigenous settlements of the area.

    Other expected benefits include enhancement of economic activities among residents and also creating job opportunities for teeming inhabitants of the FCT.

    Speaking to State House Correspondents at the end of the Federal Executive Council (FEC) meeting, the Minister listed the scope of works for the road project to include site clearance and earthworks; road pavement, consisting of laterite sub-based, crush stone base and laying of asphaltic concrete finishing; storm water drainage; construction of concrete box culvert; precast concrete pipe culvert and stone pitching and greasing.

    According to a statement issued by the Chief Press Secretary to the FCT Minister, Cosmas Uzodinma, the project brings to five recent approvals secured so far by FCT Administration within three months.

  • Minister, NCC boss seek investment in ICT infrastructure

    Minister, NCC boss seek investment in ICT infrastructure

    Minister of Foreign Affairs Geoffrey Onyeama and Executive Vice Chairman of the Nigerian Communications Commission (NCC) Prof. Umar Dambatta have urged private sector operators to invest in Information and Communication Technology (ICT) to bridge the country’s infrastructure deficit.

    Onyeama and Dambatta said unless the huge infrastructure deficit in Nigeria and Africa was addressed, achieving the Smart Africa Initiative would be difficult.

    They spoke on the sideline of Transform Africa Summit 2017, in Kigali, Rwanda.

    The focus of the summit was developing “smart cities”.

    The initiative, aims at leveraging technology solutions to improve efficiency of cities, has seen Rwanda rolling out a number of them such as WiFi in public areas, public transport vehicles as well as cashless payment systems in public transport.

    The initiative is backed by 11 African countries and more nations are expected to join.

    Onyeama maintained that lack of infrastructure was one of the impediments that must be addressed for Nigeria and Africa to develop smart cities.

    The minister, who stressed the need for investment in the ICT infrastructure to achieve the goal, said the Public Private Partnership (PPP) was essential to driving technology in Nigeria.

    He said: “As it was said, there is no one technology that is necessarily going to overcome some of these challenges of infrastructure.

    “What it just requires and, I think this is what came out clearly, is partnership among government, the private sector and the academia.

    “And together, these three can begin to put in place all the building blocks to have smart cities, including in Nigeria.”

    Onyeama said Nigeria succeeded in the communication sector as a result of PPP.

    He said Nigeria in the last 20 years was able to engage the private sector into providing phone lines to about 100 million people as against the 400,000 telephone lines that were there to serve 150 million people.

    Dambatta stated that inadequate infrastructure was the problem facing Nigeria’s ICT development.

    He was concerned that the Smart Africa initiative would not be realised without necessary infrastructure, such as sufficient electricity supply.

    “As a regulator, I experience some challenges of how we can drive the smart initiative. One major challenge is that of infrastructure.

    “Nigeria has about a population of 180 million, equals to the population of all the countries in the sub-Saharan Africa.

    “Without adequate electricity supply, Africa would remain a dark continent,” he said.