Harnessing global capital for Nigeria’s infrastructure recovery

Nigeria, Africa’s largest economy, is suffering birth pangs. Since its new president, Bola Tinubu, assumed office six months ago, the sweeping multi-sectoral reforms have attracted the praise of the global community who say the country is finally taking “painful but necessary steps” to rise out of decades-old rut.  Notably among those is the removal of decades-long subsidies on petroleum and the unification of the Investors and Exporters FX window.

The former was meant to clog the leakages of government funds to corrupt elements, while the latter closed the doors on arbitrage.

However, consequences abound. The short-term economic distress has reflected in rising costs and potential liquidity challenges. Removing petroleum subsidies and unifying the exchange window exposed the struggling economy to unintended consequences: sky-high inflation, a falling currency, a labour crisis and a rising crime rate from a survival-of-the-fittest ecosystem.

Nonetheless, perhaps the only way to restore economic stability is through heavy investments in infrastructure systems that would buoy recovery, growth and long-term development. But where will the funds for these investments come from for a country already in need of money?

Since removing petroleum subsidies, the Nigerian government has saved almost $1.84billion. This is according to allocation papers of the Federal Account Allocation Committee retrieved from the National Bureau of Statistics and the Nigeria Governors’ Forum. In August, President Tinubu announced that the country saved over $1.32billionin less than two months post-subsidy.

Investigations also revealed that the government collected N696.93 billion in June, N389.7 billion in July, N71 billion in August, and N289 billion in September as monthly contributions to the Non-Oil Revenue (Savings) account. The pile-up appears humongous but only amounts to a hill of beans compared to Nigeria’s yawning infrastructure gap.

The Reviewed National Integrated Infrastructure Master Plan puts Nigeria’s infrastructural needs at $2.3 trillion over the next three decades. It says the country must spend $150bn annually to close its infrastructure gap. However, findings by Agusto & Co, a pan-African credit ratings agency, projected a higher figure. “Nigeria has a huge infrastructural deficit and requires up to $3 trillion over the next 30 years to bridge this gap,” the credit ratings agency revealed in a news letter titled ‘Rethinking Nigeria’s Models for Infrastructure Development.’

In the wake of these realities, there are three strategies the Nigerian government might consider or double down on to finance its ambitious infrastructure growth plans.

Public-Private Partnerships (PPPs):
Given the constraints on public finances, the good old PPPs can be a viable strategy for Nigeria’s infrastructure development. By leveraging private sector efficiencies, innovation and capital, federal and state governments can deliver infrastructure projects cost-effectively. A viable implementation strategy would be to:

Identify Viable Projects: Projects with clear revenue streams, such as toll roads or ports, are more attractive to private investors. The government should prioritise these for PPPs.

Establish a robust legal framework: A transparent and stable legal framework can reduce risks for private investors, thus attracting more investment.

Create an enabling environment: Offer incentives such as tax breaks or guarantees to de-risk investments further and attract international finance.

Strengthen institutions: Empower bodies like the Infrastructure Concession Regulatory Commission to structure and negotiate PPP deals effectively.

Diaspora Bonds:
From 2015 to 2023, the Nigerian Diaspora community remitted $168.33 billion to the country, according to World Bank reports. Nigeria’s large diaspora can be a source of investment capital for infrastructure. Diaspora bonds are a form of government debt that targets members of the national community abroad, offering them a reliable investment opportunity. Implementation Strategy:

Diaspora engagement: Proactively engage with the diaspora community through Nigerian embassies and cultural associations to build trust and interest.

Offer competitive returns: Bonds should offer attractive interest rates compared to other investment opportunities in the countries where they reside.

Dedicated projects: Link the bonds to specific projects that have a social impact or promote economic development, which can appeal to the diaspora’s sense of patriotism.

Transparent Management: Establish precise mechanisms for reporting on fund use and project progress to maintain credibility and trust.

Green Bonds:
Green bonds are designated bonds intended to finance or re-finance projects that benefit the environment, such as renewable energy, sustainable waste management, or public transportation. The Nigerian government can tap into the growing global interest in sustainable investment. However, they must keep the following in mind to maximise this initiative.

Establish clear standards: Adopt international standards for green projects to ensure the bonds are credible in the eyes of investors.

Independent verification: Utilise third-party verification from recognised agencies to certify that projects meet environmental benefits criteria.

Market the bonds globally: Target institutional investors worldwide who are mandated to hold green assets, including pension funds, insurance companies, and sovereign wealth funds.

Regular reporting: Provide investors with regular updates on the environmental impact of their investments, enhancing transparency and accountability.

In executing these strategies, the Tinubu-led administration must maintain fiscal discipline to avoid exacerbating debts. Each initiative should be part of a larger, cohesive economic plan that includes measures to boost productivity, improve tax collection and reduce wasteful spending. By balancing fiscal responsibility with innovative financing, Nigeria can aim to bridge its infrastructure gap while laying the groundwork for sustainable economic growth.

Ajia is a Project Management Consultant and Strategy Advisor and has been involved in the delivery of complex major projects across diverse sectors of industry. He is also a PhD candidate at Cranfield University, studying the complexity of megaprojects.