Nigeria: Emefiele Throws More Light On CBN’s Involvement in Infraco

Few months after the commencement of operations, Governor of Central Bank of Nigeria, CBN, Godwin Emefiele, has given further insight into the purpose and operations of the Infrastructure Company Limited (InfraCo).

Speaking to financial journalists at the just concluded 32nd edition of the Finance Correspondents and Business Editors Seminar in Akure, Ondo State, Emefiele stated: “To our conviction that the banking sector must pay attention to providing long-term finance for infrastructure development in the country, InfraCorp has been established by the Central Bank of Nigeria in partnership with African Finance Corporation and the Nigerian Sovereign Investment Authority.

“InfraCorp would enable the use of mostly private capital to support infrastructure investment that will have a multiplier effect on growth across critical sectors.”

Emefiele has always been enthusiastic about InfraCo, Infrastructure Company Limited (InfraCo) citing that the strategic projects it would fund would speedily foster economic activities and inclusive growth.

Speaking on InfraCo at the 56th Chartered Institute of Bankers (CIBN) Annual Bankers dinner in Lagos, he said: “With the decline in revenues due to Federal and State Governments as a result of reduced receipts from the sale of crude oil, alternative ways of funding infrastructure are critical if we are to ensure sustained growth of our economy.

“In recognition of the role improved infrastructure could play in the development of our economy, along with the need to leverage private sector capital in funding the over N35 trillion deficit, which is the estimated amount required to build an efficient infrastructure ecosystem in Nigeria, the Central Bank of Nigeria (CBN) working in partnership with critical stakeholders set up Infracorp.

“Infracorp is expected to set the standard template that will help in enabling greater private sector funding for public infrastructure projects in Nigeria.”

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 limiting capital inflows into the country.

There is no gainsaying that the paucity of investment in physical and social infrastructure over the years has continued to limit the growth potential of Nigeria, 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.

Nigeria’s infrastructure stock of 25% of GDP remains far below the 70% international benchmark, underscoring the need for government to consider unconventional methods of financing to bridge this huge infrastructural deficit.

In past times, several actions had been taken by the government in tackling infrastructure challenges with a combination of domestic and external borrowings to finance capital projects. But many economy analysts think this strategy appears unsustainable in the long run.

They believe the continuous underperformance in revenue targets evidenced by weak fiscal purse, elevated recurrent expenditure and high debt servicing costs have further contributed to the government’s inability to self finance infrastructure projects.

Prior to this, similar policies had been signed in previous years under the current administration but seem not to have achieved the desired impact.

For instance, the Road Trust Fund (RTF) that was signed in 2017. The RTF allowed several companies to pull resources into a standalone Collective Infrastructure Fund (CIF).

Although, this scheme did not bear much fruit as private sector participation was relatively muted due to restriction on the percentage of cost that could be recovered.

President Muhammadu Buhari also signed the Executive Order 007 in 2019 on Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme.

Some analysts believe that tapping into private sector financing in bridging the widening infrastructure deficit is a step in the right direction.

However, as with previous innovative ideas from past governments that have not yielded positive results due largely to poor implementation, they believe effective implementation and continuous monitoring of the arrangement are critical factors that should not be neglected if government is to realize the full benefits associated with the scheme.

With the recent operationalization of the African Continental Free Trade Area (AfCFTA) agreement, building its derelict infrastructural base puts the country to a better position in expanding its terrain in other African markets.

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.

Analysts at CSL Research, an arm of FCMB Group, are of the view that the idea of InfraCo is laudable as it conforms with their highly-touted model of infrastructure financing in Nigeria, that minimizes bureaucracy and maximizes efficiency.

They stated: “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,” they added, “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,” they stated, “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 Vice President, Yemi Osinbajo, at the Bureau of Public Enterprises (BPE) and the Nigerian Export Promotion Council organised webinar recently, said upon its take-off, with the credibility of the listed promoters and the quantum of funds, the InfraCo will meet the infrastructural needs of the economy through Public Private Partnership (PPP).

He said: “The Federal Government through the Central Bank of Nigeria (CBN) through the NSIA and the African Finance Corporation among others are collaborating to establish a N15 trillion Infrastructure fund under the auspices of InfraCo.

“We believe that with the credibility of the actors that rally the CBN, NSIA, AFC and the quantum of resources that would be deployed, the InfraCo will make a major contribution to meeting the infrastructrural needs of the Nigerian economy while promoting public-private partnership”.

He assured the over 850 participants at the conference that the Federal Government of Nigeria is strongly committed to this approach for national economic development.

He considered it an important measure to create enabling an environment for the required and much needed investment.

Many observers believe that through partnership with the private sector, InfraCo will be able to leverage N15 trillion over the years which will help to close gap on Nigeria’s infrastructure funding needs and help to catalyse growth in key sectors of the economy.

Osinbajo noted that some analyists had estimated that over N350trillion was needed to support Infrastructure improvement in Nigeria over the next 10 years.

Emiefele said if these investments were made, Nigeria is to achieve a Gross Domestic Product (GDP) growth by 10% yearly.

According to him, it will be difficult to support these investments using government resources alone, which has necessitated a viable PPP.

Vanguard News

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