30% British investment will address digital infrastructure, clean energy in Nigeria

Benson Adenuga is the Head of Office and Coverage Director, Nigeria, British International Investment (BII). In this interview with JOSEPH ONYEKWERE, he spoke on how the Federal Government can ensure the right enabling environment and policies to facilitate investors to develop critical large-scale infrastructure projects.

What is your assessment of the ease of doing business in Nigeria?
In recent years, Nigeria was named among the top 10 most improved economies in the world in terms of ease of doing business. The country was ranked 131 globally in the 2020 edition of the now defunct World Bank Ease of Doing business report, having improved its position, climbing by 15 places. This is a testament to our country’s vast entrepreneurial spirit and leading position as a critical hub for business, trade, and investment in Africa.

However, robust macroeconomic reforms in the near term to address inflation and fiscal pressures at the federal and sub-national levels that boost investor confidence are critical and can support the onward growth of export-enabling industries. More can be done to help private sector businesses contend with increased costs of operation due to unstable power supply, fuel scarcity and price hike, poor logistics infrastructure and the foreign exchange crisis, which is severely constraining trade and increasing the cost of Nigeria-manufactured products. These issues can affect productivity and confine output.

So far, President Muhammadu Buhari has established the Presidential Enabling Business Environment Council (PEBEC), which aims to remove the bureaucratic constraints of doing business in Nigeria. The council implemented the new Companies and Allied Matters Act, to execute reforms that seek to improve the ease of business.

More recently, the Nigerian Senate, on July 20, passed the Nigerian start-up bill, which will launch the National Council for Digital Innovation and Entrepreneurship, creating a much-needed enabling environment for tech-empowered businesses across the country. As a result, Nigeria – one of the most prominent Venture Capital (VC) markets on the continent– stands to gain from the motivation to progress in digital transformation and tech-inspired innovation in years to come.

What policies and legal frameworks do you think the government should put in place to attract foreign direct investment?
We believe that in Nigeria, the private sector has a fundamental contribution to creating sustainable economic transformation, accelerating human development, and improving livelihoods. This is, however, contingent on the government creating the right enabling environment and policies to facilitate the private sector to deliver this mission.

Foreign Direct Investment contributes to patient finance to help develop the private sector and accelerate economic opportunities for populations, and the government would benefit from creating policies that offer transparency to international investors to help identify any potential risks before and during the deployment of funds.

Strong and effective institutions, reliable infrastructure and well-targeted interventions in the country will help drive FDI interest. Prioritising negotiating existing contracts in the country into renewable energy solutions and infrastructure will support the development of the economies that need it most.

Creating an administrative system that facilitates FDI will also be essential to removing additional barriers to investment. Additionally, reform of the foreign exchange policy will eliminate multiple currency rates and encourage transparency and the inflow of foreign exchange into the economy.

Development Financial Institutions (DFI), like British International Investment, will continue to play a vital role by taking on additional risk, which will help encourage more commercial investors into the country as a critical way to develop critical large-scale infrastructure projects, expand productive, sustainable and inclusive growth while helping to tackle urgent development challenges – partnering together to assure a prosperous future for the population.

How much has BII invested in Nigeria so far and for how long?
British International Investment is a long-term development partner with a strong commitment to Nigeria. We have been investing to stimulate success, scale, and innovation in local businesses since 1948. Our early investments supported the growth of the agriculture sector, and over the years, we have expanded our scope to invest in a range of strategic sectors, including manufacturing, climate-smart infrastructure, financial services and beyond.

The value of our portfolio of investments across the country is over $570million. British International Investment’s flexible and long-term capital supports 103 companies and over 44,952 jobs.

Which areas of the economy are you more interested in investing into?
There is an urgent need to maintain, improve and develop critical infrastructures such as roads and public transport and upgrade water and waste solutions in the country.

As Africa’s most populous nation, Nigeria faces the severe risk of a triple threat of climate crisis as the desert encroaches on northern territories; rainfall causes erosion across farmlands in the eastern Niger Delta, and the Atlantic Ocean surges, exacerbating floods in the southern coast. For instance, Lagos’ proximity to the ocean increases its risk of flooding; this poses a significant threat to homes and livelihoods, with the potential to disrupt more than 20 million people’s lives.

Under our new five-year strategy, BII has pledged that at least 30 per cent of our investments will be ring-fenced for climate finance as we see the great need to devote capital to combat climate change, which is one of the most urgent crises already being faced in countries like Nigeria.

From a sectoral focus, we are prioritising investments into key sectors that drive economic growth with specific focus on infrastructure in its broadest sense, financial services and SMART Industries, which include business and consumer services, manufacturing, agriculture, real estate and construction, technology and telecommunications.

British International Investment will continue to explore ways to partner on developing infrastructure that connects people, places, jobs, and services that help communities continue to thrive – this includes digital infrastructure and clean energy structures that can mitigate the escalating risks posed by the climate threat.

We want to help keep trade flowing in and out of the country and increase financial inclusion across all of society, and we are doing so by backing financial institutions such as Absa and First Bank of Nigeria, that can help increase funding to promising entrepreneurs and businesses.

British International Investment also continues to look at ways to scale food and agriculture outputs efficiently and sustainably to promote nutrition and improve food security – an especially important investment focus as African nations continue to grapple with soaring food prices.

Additionally, we are investing in expanding manufacturing, including backward integration to counter the impact of the global supply chain disruptions. We are also excited to partner with technology-backed Venture Capital (VC) firms and businesses that are developing market-disrupting solutions, which have the potential to scale impact, improve quality of life, stimulate progressive industries, and help overcome complex challenges across a spectrum of sectors in countries such as Nigeria.

Nigeria has serious energy challenges, which hinder SMEs from surviving. Are you doing anything in the area of support for the country’s power sector?
Access to clean, reliable, and affordable energy is essential to lifting communities out of poverty. As part of our objective to improve resilience, we are firmly focused on increasing supply and access to clean power, energy systems and resource efficiency. We have been investing through BII-backed energy platforms in hydropower, solar off-grid electricity infrastructure, to support climate-smart solutions that can help meet the country and continent’s energy demand in a sustainable way.

Last year, BII supported the first close of the $80 million Energy Access Relief Fund, a first-of-its-kind fund to protect energy access for at least 20 million people in sub-Saharan Africa and Asia. We also back pay-as-you-go solar energy providers, such as PEG solar, Lumos, and Greenlight Planet, to help millions of households in West Africa access affordable, safe and clean energy supporting the move away from polluting fuels sources such as kerosene, diesel and candles. These solutions help boost energy access to millions of people in Nigeria and beyond, particularly lower-income segments of society and SMEs: the lifeblood of Nigeria’s growing economy.

We are one of the investors in Azura-Edo power plant in Edo State, the first greenfield power plant in Nigeria since the country’s reform of the power sector in 2013. The 450-megawatt (MW) power station significantly boosts the supply of power in Nigeria and raises industrial productivity.

Furthermore, we focus on solutions to accelerate power generation and transmission to address Africa’s need for energy investment. According to the World Bank, between 2010 and 2020, just 7.5 per cent of electricity infrastructure investment went to sub-Saharan Africa. Of that amount, 98.2 per cent was for electricity generation projects and less than 0.3 per cent for transmission. Gridworks, a BII-established platform that is mandated to address the under-investment in African transmission and distribution infrastructure, is not only helping improve the ability to transport power to where it’s needed, improving the supply, access and affordability of off-grid energy. Without a considerable increase in capital deployed for transmission, many Nigerians and Africans will remain deprived of energy access.

What criteria do you apply to select for investment, start-up companies and small businesses that are believed to have long-term growth potential?
Our experience and local presence in Nigeria enable us to identify emerging trends that can stimulate market-shaping impact. By aligning our investment choices with each country’s specific development priorities, we focus our investment programmes on the businesses with the greatest potential to effect tangible impact and create economic opportunities for as many segments of society as possible.

We are the oldest development finance institution operating in Africa, and we have developed a radically different business model. Every penny we spend must generate positive economic, social, and environmental outcomes, as well as a financial return for the UK taxpayer; hence we invest in companies with not only ambition but also scalable growth potential, paired with the capacity to transform industries and economies for the public good.

As part of our new five-year strategy, we have set three clear strategic objectives to ensure that we respond to the opportunities that drive impact and more effectively respond to challenges arising in the countries we serve: to make productive, sustainable, and inclusive investments. We use this framework when identifying investment opportunities. In addition, we look to invest in entrepreneurs with impeccable integrity and good reputation that align with BII’s values on environmental, social and corporate governance practices and show commitment to improving these standards to maximise impact.

Since it is an investment, what does the RoI look like and the tenure of your investment?
BII offers patient and flexible capital and takes a unique toolkit approach, which allows us to use a wide array of financial products including direct debt, equity and mezzanine to provide long-term financing that meets business needs. As an experienced DFI, we have seen from several examples across our portfolio that there is a direct positive correlation between high financial returns and high impact, and there need not be a trade-off between both.

Our $20 million investment in Moove, a four-year structured credit investment, is an example of how we see impact and returns. The funding strengthens the company’s ability to purchase and import fuel-efficient vehicles directly into Lagos, which will be leased to drivers who can earn their way to asset ownership over three to four years. We anticipate this will create more jobs, increase self-sufficiency, and improve financial inclusion.

Provisionally, we expect a strong return on investment due to the business’s ability to meet the imbalance between the limited access to car supply and onerous and inflexible auto leasing products against the rising demand for affordable car ownership among aspiring drivers.

We are on a mission to unlock inclusive growth, BII targets socioeconomic returns that deliver broader impact as well as financial outcomes, and we see the company’s ability to foster economic opportunities for women, both within the company’s workforce and among its drivers, as a favourable return on our investment.

How does climate change affect your choice of investment and ultimately, Nigeria’s economy?
Despite its urgency, competing societal issues and challenges have meant that climate change hasn’t been given the focus required in Nigeria and across the continent. The magnitude of the challenge is great and multifaceted with sharp increases in extreme heat, severe flooding in key commercial hubs like Lagos, and changing weather patterns decimating agriculture output, all of which significantly affect a population already struggling to access energy, finance, and other necessary resources. If left unchecked, climate change will have devastating implications for the development prospect of Nigeria.

Addressing climate change is a core priority for BII, and we have set a £3 billion climate finance target over the next five years. Our priority markets across Africa are typically the most vulnerable and least prepared for climate change. Our ambition is to help address these challenges by increasing capital to back climate qualified projects and businesses across sectors from infrastructure, clean energy, manufacturing, sustainable agriculture, and low-carbon real estate development, which will in turn help to create much-needed jobs and future-proof the economy.

Acting on our climate strategy, we look for investments that support the transformation to net-zero economies by 2050 by either investing in activities that are already low carbon or which indirectly enable emissions reductions in other activities. Our objective will also aim to align and bolster the government of Nigeria’s net-zero targets.

Our recent $200 million investment in a hydropower joint venture that will boost electricity supply in Rwanda, Burundi and the DRC, along with our $135 million commitment to increase solar and battery power capacity in South Africa, demonstrate our grand ambitions for forging partnerships that can help scale clean energy infrastructure in action.

We have also twice backed Greenlight Planet, the largest provider of solar-powered home energy products in sub-Saharan Africa, including Nigeria. The company is providing affordable off-grid solar power on a pay-as-you-go basis to low-income customers – by the end of 2020, over 11 million people benefited from, the solar home systems and the business is also creating employment opportunities.

We are also committed to investing over $1 billion per annum in Africa over the next five years and exploring novel ways and opportunities to support African communities to adapt and become more resilient to the impacts of the climate emergency that are being felt today.