Infrastructure financing: Distilling Soludo’s take on Nigeria’s imperatives

By Christian ABURIME

The importance of infrastructure is quite profound in its multidimensional impact on the social and economic activities across nations of the world.

It is a fundamental imperative that no society can do without in order to make progress. Today, the world’s infrastructural landscape is undergoing significant transformation.

As populations expand, urbanization accelerates and economic growth surges, the need for robust and sustainable infrastructure becomes increasingly evident.

However, many emerging economies like Nigeria continue to face a daunting infrastructure deficit that hinders their development potential.

And conversations around this critical subject usually end up in experts proffering solutions by way of sustainable financing options.

In the light of the foregoing background, a recent presentation made by the Governor of Anambra State, Prof. Chukwuma Charles Soludo, CFR, makes a compelling relevant contribution that further amplifies the issue of financing at stake.

On Thursday, June 22, 2023, Prof. Soludo was the guest speaker at the 2023 Annual Lecture of The Nigerian Academy of Engineering held at the University of Lagos, Akoka, Lagos.

Speaking on the theme of ‘Financing Engineering Infrastructure’, the Anambra State governor, an erudite professor of Economics and former CBN governor, delved into global infrastructure needs and trends, sundry infrastructure financing options and the imperatives for Nigeria.

The kernels of Prof. Soludo’s presentation are distilled in this discourse. Putting the issues in context, he reinforced a well-known fact that infrastructure is a major driver of economic development across the globe.

Be it roads and bridges, power plants, telecoms, airports, railways, seaports, pipelines, dams, water systems, sewage systems, canals, housing or any other facility, infrastructure enhances the quality of life and fosters the productivity and growth of an economy.

As the growing population demand for basic social facilities continues to drive the need for infrastructural facilities. Yet, the gap between infrastructure capital demand and supply keeps widening. In Soludo’s well-thought out presentation, he asserted that according to a PwC report on World Bank institutional reforms in Sub-Saharan Africa, $7.0 trillion is required per year to bridge the total global infrastructure gap while $6.3 trillion is needed per year till 2030 to meet global development goals. Overall, close to $78 trillion is expected to be spent globally from 2014 to 2025.

Now, the key factors driving this voluminous infrastructure appetite warranting such projected massive spending globally include an explosive growing global population, rising urbanization rate and economic expansion.

In a world where infrastructure development is increasingly shaped by the emergence of technology to improve safety, accelerate decarbonization and optimize operations; increasing focus on sustainability; as well as improving social outcomes and environmental and governance outcomes, the needed financing options are diverse and expanding more than ever.

Consequently, according to Soludo, globally, infrastructure projects are being financed through a mix of budgetary allocations and other external sources such as Public-Private Partnerships, capital markets, project finance through a mix of equity and debt, climate/green finance, development finance institutions (DFIs), infrastructure funds, sovereign wealth funds, pension funds, Sukuk, and Infrastructure Tax Credit, among others.

Now, bringing his focus closer to Nigeria’s peculiar situation and imperatives for greater infrastructure investments, Prof. Soludo identifies the fact that the gap between infrastructure needs and provision in Nigeria continues to widen despite ‘alternative financing’ initiatives. This, as it obtains in similar Sub-Saharan African economies, limits Nigeria’s efforts towards achieving inclusive growth, sustainable development and poverty reduction.

According to statistics, Nigeria infrastructure stock is estimated at 20-25% of GDP, which is less than international benchmark of 70% of GDP.

What is more, the 2014 National Integrated Infrastructure Master Plan (NIMP) estimates that a total of US$3 trillion of investments, or US$100 billion annually, is required over the next 30 years to bridge Nigeria’s infrastructure gap.

The implication here is that Nigeria needs to double its spend from 2-3% of GDP to over 10%. Amid exponential population growth and increasing urbanization rate, it is estimated that about 440 Million Nigerians will by 2050 need transportation, sewage, clean water, housing, electricity, telecommunications and so on in a world that will be largely green and digital. And with poor maintenance of existing infrastructure, inability to cope with rapid obsolescence of installed technology, climate change and perennial damages to infrastructure by flooding and erosion, most State Governments in huge debt and contingent liabilities, and the Federal Government itself nearly insolvent, unsustainable borrowing and printing of money cannot guarantee sustainable infrastructure financing!

So, what is the way forward and what needs to change?

In Prof. Soludo’s considered opinion, the Federal Government must target a minimum 8-15% of GDP in public infrastructure investment per annum for 10 years. This will require a disruptive ‘big bang’ approach with an uncommon sense of urgency towards a timeline.

Just like the Marshall Plan of Europe after the World War II, the Tinubu Infrastructure Plan should unleash the fastest infrastructure transformation in Nigeria’s history! It must be big in size to be meaningful and disruptive in delivery mechanism to be impactful.

But all that transformation needs to be done with smart strategies and synergies, not as business as usual, to succeed. In smart financing, the FG must off-load deadweight assets that gulp miniscule cash flow by privatizing and concession (e.g. refineries); rationalizing and streamlining public finance (including massively improved IGR) to return to path of fiscal sustainability (PMS subsidy removal and move towards sensible foreign exchange regime are part of this ‘smart strategies’); and deploying at least 90% of the ‘fiscal savings’ from PMS subsidy removal and forex pricing to infrastructure and social investment, rather than consumption.

Meanwhile, the government should continue with the Infrastructure Tax Credit Scheme just as reforms in the ‘other two prices’ towards market-reflective electricity tariffs and gas pricing will also unleash further private investment in those critical infrastructures.

In regulation and delivery mechanism, the FG can coordinate and synergize with states as key points of delivery of critical infrastructure while separating financing/supervision from execution.

The same FG should also appropriate, procure, and execute multi-state highway projects or railways or similar infrastructure that crisscross the federation; appropriate and supervise the procurement/execution of intra-state federal infrastructure, including repairs/maintenance while states procure/execute; and collaborate with other states in multi-year infrastructure planning to ensure synergy and maximum impacts.

What’s more, budgetary appropriations for infrastructure financing should be severed from the annual budgets and the government should ensure multi-year fund allocations for the expected execution life of the projects. The current practice of peripatetic annual ad-hocry is chaotic and painfully wasteful.

Imagine that Abuja-Lokoja highway still under “construction” since 2000! Annual ‘uncertain’ budgeting at the federal leads to ‘risk-adjusted forward-pricing’ of contracts, with hundreds of abandoned projects estimated at over $50 billion. Massive corruption and inefficiency in procurement can only lead to marginal product of infrastructure investment less than cost of capital, with negative impact on the economy!

In fact, Infrastructure Regulatory Framework should be a Federation body rather than a federal government affair, in order to unleash private participation through big bang concessioning, privatization, and market-priced infrastructure funding.

With the right regulatory/legal framework that makes infrastructure investment attractive, the FG can aggressively pursue project and other off-balance sheet financing through consortium syndication of long-term financing. Here, the Africa Finance Corporation (AFC), African Infrastructure financing, Bank of Industry, Infrastructure Bank, Nigeria Sovereign Investment Authority, Deposit Money Banks, PENCOM and Nigerian Stock Exchange will be of great help.

The CBN can coordinate such financing syndications that provide at least $30 – 50 billion per annum for infrastructure investment. By and large, DFIs need to design new instruments for financing regional (multi-country) infrastructure projects, just as the FG and States should also creatively tap into the global Green Fund, especially following the recent Paris summit of new global financing pact.

Finally, Prof. Soludo concludes that although Nigeria, as Africa’s most populous nation and largest economy, faces significant infrastructure challenges, there seems to be a new dawn now, a vista of opportunity to do something big and different.

With smart strategies and synergies to unlock the dormant growth reserves in infrastructure financing, Nigeria can now crucially turn the hand of history. The Governments (FG and States), domestic and foreign private sector and DFIs can synergize and get it done. And of course, the Nigerian Academy of Engineering can also be the pivot of the much needed synergy by professionally leading the way, at least in designing and enforcing professional national standards.

After all, if Nigeria’s standards align with global best practices, international financing will follow!