To reduce the $300 billion infrastructure deficit and unlock the real sector’s potential to reflate the economy, Nigeria needs about $25billion yearly, according to experts. But the government’s attempts to find the cash to build infrastructure through external borrowing or the N6 trillion pension funds, among other options, are embroiled in controversies, provoking fears that some projects will either be delayed or abandoned them. This has cast doubts over the sector’s capacity to haul the economy out of recession. Assistant Editor CHIKODI OKEREOCHA reports.
Vice President Yemi Osinbajo has never stopped declaring his confidence that the economy would bounce back. At local and international fora, he spoke of the Buhari administration’s commitment to pulling the economy out of recession, hinging his optimism on massive investment in infrastructure.
For instance, at the World Economic Forum in Davos, Switzerland, Osinbajo said: ‘’The Muhammadu Buhari administration is committed to investing more in infrastructure than in previous times by ensuring that 30 per cent of the budget goes into capital expenditure”.
The vice-president, who chairs the Economic Management Team (EMT), said the government was working on how to tap into the N6 trillion pension fund to finance infrastructure development. He added that there was a need to de-risk such financing models for infrastructure.
However, his belief that the economy would rebound appears to vary with the anxiety among operators in various sectors, particularly the real sector.
Operators in the real sector, which comprises manufacturing and agriculture, are apprehensive of delays or abandonment of infrastructure projects planned for this year, following the controversies over various government’s infrastructure financing options.
Last December President Buhari presented this year budget of N7.3 trillion to a joint session of the National Assembly. Christened “Budget of Recovery and Growth”, he said on expenditure, the government proposed a budget of N7.298 trillion, a nominal 20.4 per cent increase over last year’s estimates.
According to him, 30.7 per cent of the expenditure will be capital in line with the government’s determination to reflate and get the economy out of the woods as quickly as possible.
The fiscal plan, he also said, would result in a deficit of N2.36 trillion for the year, which is about 2.18 per cent of GDP. The deficit, he said, would be financed mainly by borrowing, which is projected to be about N2.32 trillion.
However, despite the 30 per cent allocation to capital expenditure, the Federal Government appears to be at the crossroads on how to generate enough revenue to meet its obligations, especially capital projects.
This is so because its attempts to turn to international financial institutions for loans to finance critical projects have been rebuffed by those critical of the administration’s economic policies.
Last October, Buhari requested the National Assembly to okay a foreign loan of $29.9 billion to execute key projects across the country. But the request died on arrival. It was thrown out by the Senate for lacking a borrowing plan.
The move also did not go down well with experts and Nigerians. Many of them kicked, insisting that borrowing would do the country more harm than good. Renowned economist and industrialist Henry Boyo was one of them. He said the $29.9 billion loan would affect Nigeria.
Boyo noted that though there was nothing wrong in borrowing to improve social welfare and infrastructure, it was improper for the government to borrow when it owed so much that it was using about 40 per cent or more of its real income to service debts.
The economist also expressed concern over the government’s plan to borrow to build infrastructure given that the government-funded infrastructure had never been well managed.
He said with the sad record of poor performance of government agencies and institutions, it was worrisome for anybody to suggest borrowing to create more infrastructure that would be managed by government.
Human rights lawyer Mr. Femi Falana (SAN) cautioned the government against taking the loan. Rather than go aborrowing, he called on the government to adopt an “aggressive policy” to recover looted funds.
Insisting that the government’s request for loans would be detrimental to the country’s future, he said there was a need to fight those who stole Nigeria’s money.
The Chairman, Senate Committee on Land Transport, Gbenga Ashafa, agreed with him. While urging Buhari to fund the 2017 budget deficit with recovered fund by the anti-graft agency, he appealed to the government to ensure 100 per cent funding of infrastructure.
Such appositions may have put the government on the spot over how to close the nation’s huge infrastructure deficit, which, according to the African Development Bank (AfDB), is estimated at $300 billion. The Minister of Finance, Mrs. Kemi Adeosun, said about $25 billion is needed yearly to meet the country’s infrastructure deficit.
Row over use of pension funds
Apart from borrowing, the Federal Government is also considering turning to the nation’s pension funds to building infrastructure. The Nation learnt that as at last November, the fund had risen to a staggering N6.02 trillion.
With the National Pension Commission (PenCom) projecting that the country’s total pension asset may hit N20 trillion by 2020, it is surprising that the government, according to Osinbajo, was working on how to tap into this huge fund to finance infrastructure development.
Again, this option appears not to be enjoying a smooth sail. For instance, the Trade Union Congress of Nigeria (TUC) condemned comments by some federal lawmakers that the accumulated pension funds should be deployed for infrastructure development.
TUC President Comrade Bobboi Kaigama said the pension scheme was informed by the need to tackle the difficulties being faced by retirees and not to raise money for any infrastructure or investment being pushed by the rich.
He argued that infrastructural development remains the duty of the government and that it is a key driver and a critical enabler of sustainable growth all over the world. According to him, it provides a unique avenue for the public and private sectors of the economy to thrive. It is also critical in attracting foreign investors.
Kaigama said rather than appropriating the monies saved from workers’ contributions to perform the government’s responsibility to fix roads, provide electricity and other social infrastructure, the funds should be utilised in projects that are of direct benefit to the retirees and other workers, such as fixing the housing deficit.
He said this must be done with rules for proper accountability in place.
Perhaps, to douse the tension over whether or not the government should fall back on the pension fund, PenCom Director-General Mrs. Chinelo Anohu-Amazu clarified that there was need for the government to provide adequate guarantees to secure investment of the fund in infrastructure.
Speaking at the African Pension Awards, organised as part of activities marking the 2016 World Pension Summit, she said while the Commission was not opposed to the idea of deploying the pension fund for infrastructure, adequate mechanism must be put in place to ensure its safety.
Mrs Anohu-Amazu, however, explained that pension funds alone would not address the infrastructure needs of the country, adding that other sources of funding, such as Public-Private Partnership (PPP) arrangements, should be explored.
Govt sticks to its gun, despite opposition
Despite the opposition against taking the loan, the Federal Government has refused to budge, insisting that it has no choice, but to borrow.
The Minister of Finance, Mrs. Kemi Adeosun, said the government’s inability to generate enough revenue to meet its obligations had left it with no choice than to turn to international financial institutions for loans to finance critical infrastructure projects.
According to her, the government has a huge monthly personnel expenditure of about N210 billion, with more debt service burden of N120 billion. This, she said, translates to a total of N330 billion monthly.
Adeosun said it had, therefore, become difficult with the low receipts from oil to generate enough revenue to meet these obligations as well as fund capital projects. She insisted that realities on the ground made it imperative for the country to get the loan, if it must survive the economic crisis.
While pointing out that it would be futile to wait for oil price to rebound, as the prediction is that it will not go back to $110 per barrel soon, the Minister said Nigeria has no choice but to look for low-cost funds and put infrastructure in place, “because it is the infrastructure that will unlock the economy”.
The Minister has an ally in Dr. Alaba Olusemore, an economist, who said the $29.9 billion external loan being sought by Buhari would help stimulate the economy and also create jobs. Olusemore, a Managing Consultant, Nesbet Consulting, a Lagos-based firm of management and finance consultancy, said he expects the Green Chamber to okay the loan once the executive furnishes it with the loan’s breakdown.
“I expect the Senators to approve the loan request as soon as President Buhari resubmits it with the necessary documents and borrowing plan, because at a time like this when the economy is in a recession, there is need for a stimulus to execute capital projects and create employments,” Olusemore told The Nation,
The loan management expert and Fellow, Chartered Institute of Bankers of Nigeria (CIBN), said: “Capital projects are not divisible. You need a bulk sum to finance capital projects”. Besides, capital projects, he said, are easier to monitor than recurrent expenditures since the multilateral development agency advancing the loan do on-sight and off-sight monitoring to ensure such loan is applied for intended purposes.’’
Pointing out that multilateral development agencies have affiliates in the country to monitor the deployment of loans for capital projects, Olusemore said there was no cause for alarm over perceived fear that the loan may not be properly applied or misapplied.
He said because of its anti-corruption drive, the Buhari administration has put itself on self-censorship, which ensures that funds, whether corporate credit or sovereign loans are not diverted but deployed for intended purposes.
Real sector operators fret
The vice president’s confidence over prospects of salvaging the economy through aggressive investment in infrastructure gladdened many real sector operators. Their hope was that their productivity, competitiveness and profitability, which have been eroded by dearth of infrastructure, would receive a major boost this year.
However, with the stalemate over how to fund infrastructure projects, operators are at a loss over how the expected boost in their productivity would come. Some of them who spoke with The Nation, said the hope of riding on the sector’s back to pull the economy out of recession might not be realised, if infrastructure projects are delayed or abandoned.
For instance, the former Director-General, Nigeria Textile Manufacturers Association (NTMAN), Mr. Jayeola Olarenwaju, said infrastructure deficit,particularly poor electricity supply remained one of the stumbling blocks to the country’s road to economic growth and development.
He said improving power supply and addressing other infrastructure challenges was holding the sector down. He lsited these problems as poor road and rail network, lack of portable drinking water, and affordable housing.
He said funding options remained the only way to unlock the sector’s productivity, improve business competitiveness and create employments.
