‘Infrastructure sector grossly underdeveloped’
Requires properly-regulated market to bridge gap
Nigeria’s infrastructure sector is grossly underdeveloped and has limited access to social services and significantly increased cost of production and trade.
This was the submission of the Former Chief Executive Officer of The Infrastructure Bank Plc, Adekunle Oyinloye, at the 2020 stockbrokers’ conference in Lagos.
According to him, the value of Nigeria’s infrastructure, which is about 35% of the nation’s gross domestic product (GDP), is low when compared to 70% contributions from peers in other emerging economies, with public infrastructure expenditure valued at 3.5% of total GDP.
He argued that the infrastructure deficit in Nigeria cannot be bridged through public resources alone as it will cripple the economy amid current fiscal constraints.
“Nigeria needs $15 billion annually over the next five to six years to finance its infrastructural deficits. With the estimate that the country needs to fund about 18% of its GDP on infrastructural development, it is important to start to look for alternative sources of financing to bridge the deficit.”
However, he noted that with the current political situation and declining government revenues propelled by the crash in crude oil prices, government’s ability to finance infrastructure is constrained.
He added that the Nigerian capital market presents the best platform for financing infrastructure, but decried that the bourse is bedevilled with problems that render it largely unpredictable for investors.
Oyinloye argued that Nigeria as an emerging economy needs a sound and effective capital market that is properly regulated to bridge the huge infrastructure-financing gap that exists.
“The Nigerian capital market is currently unstable characterized by price fluctuations. There are regulatory problems, as well as a market size problem and over concentration and influence of certain sectors in the economy. The connection between the monetary sector and the real sector is the capital market. The capital market needs to be deepened more than it is to provide an opportunity for growth in the economy.”
He said the market capitalisation as a percentage of GDP is just 9.8 per cent, the lowest when compared to other African peers. He said the figure denotes a relatively shallow and illiquid market, adding that given the capital-intensive nature of infrastructure finance, and the large size of such financing instruments, the current capital market is unable to accommodate infrastructure-financing instruments.
“Just in 2020, foreign portfolio investment has declined by 19.92% between June and September 2020, indicating foreign investors’ lack of appetite on current instruments in the market. The lack of diverse investment instruments has led to such capital outflows.”
He stressed the need for government to ensure a consistent policy regime and framework that promotes deregulation of infrastructure financing and project management in a transparent manner under the tenets of good governance principles.
He also emphasised that knowledge gap in the areas of deal structuring; project management, and legal advisory should be bridged by providing training, consultant and multilateral agency technical support.
“We must have a clear and comprehensive framework for all infrastructure projects broken down into component parts based on need, financing vehicle and mode of execution and innovative approaches to risks around demand, disposable income and FX to attract private investments for infrastructure projects,” he said.