Poor implementation threatens government’s credit ratings, investors’ trust

As experts explain investors’ appeal for private sector lending
The long years of misappropriation of public finance and non-transparent implementation of borrowed funds in Nigeria are now threatening sovereign credit rating and trust of institutional investors.

The development has made the regional financial and development institutions to show preference for private sector lending, even when the Federal Government scampers for funds.

Besides, while a paltry sum, compared to huge lending to the private sector operators would be lent to government, such facility would also be subject to private sector participation and monitoring, rather than entirely a support for public good.

Just last weekend, the region’s largest trade bank, Africa Export-Import Bank (AfreximBank) approved a facility worth $1 billion to Dangote Industries Limited, and also extended $100 million Heirs Holdings.

The facilities, which are tied to boosting intra-African trade volumes, enhance continental value chains, and increasing production and export of goods and services across Africa, are presumably at far cheaper rates, as the bank recently brokered cheap loans targeted at reducing cost of finance for African businesses.

However, AfreximBank is currently financing an industrial park in Cote D’Ivoire, as well as supporting the cocoa value chains there, raising posers over the choice of the country for such huge intervention and not Nigeria.

Granted, in April, the bank selected Nigeria as Africa’s first centre of excellence for healthcare services, but the funds would go through the private sector for the development of first class healthcare facilities.

The move was in realisation that Nigeria needed to reduce the outflow of patients seeking medical treatment abroad, and help conserve the huge foreign currency spent on medical tourism.

In a simple and straight forward response, the Head of Communications, Afreximbank, Obi Emekekwue, said: “Afreximbank lends for intra-African trade to any entity, private sector or public sector that is able to meet the necessary requirements.”

The requirements include perception of government’s responsiveness to governance principles like transparency, which is also linked to sovereign credit rating.

For the Chief Executive Officer of Financial Derivatives Limited, Bismarck Rewane, these institutions have set limits for lending to governments and private entities, based on their assessment of the political and entities’ risks.

“They are also not charitable organisations, but are there to make money, by lending at concessionary rates and countries that meet their requirements benefit from it. Besides, the entities they support create jobs too, which is for the good of all,” he said.

An Economist and Investment Banker, Bayo Rotimi, who is also the Chief Executive Officer of Quest Advisory Services Limited, noted that funds are being targeted at corporate entities whose investments have capacity to generate high impact rather than individuals.

“Afrexim and most multilateral DFIs typically will lend to businesses, and this intervention should not be seen as one to individuals rather to businesses that have invested across African countries. These DFIs are core interventionist agencies and will support businesses that have high impact in terms of tax revenues and jobs.

“Even AfDB has approved $1 billion for the Nigerian Government out of which $400 million has been accessed. But there are conditions that the Federal Government must meet before the balance is released. I do not think there is a preference or discrimination between either supporting private sector businesses or public sector entities. Out of the $400 million accessed by government, a chunk of it went to the Bank of Agriculture to support businesses in the sector. The DFIs are equal opportunity supporter of both sectors,” he added.

The Chief Executive Officer, Cowry Asset Management Limited, Johnson Chukwu, pointed out that some of the institutions are sector specific, hence would not fit into government’s borrowing plans.

“I think if government has projects that are specific like the private sector, they may likely fund them. They are moved by viability and economic specifics, not necessarily social. But government’s borrowing plan is always open ended, and as such, may not attract their attention easily,” he said.

For the Director-General, Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, what matters is the quality of the project and how sustainable the project will be.

“Also, the chances the project will also pay back the funds are equally assessed. Although it is a development bank, they have to look at other parameters, particularly in the context of paying back the funds. The quality of project has a lot to do with the kind of preferences development institutions will have. That is what has been affecting the balance of the choice of project to finance.

“If you have a good government project where the parameters are sound and returns on investment are good, the DFIs have their parameters and will not support any project that does not meet those parameters,” he added.