funding nigerian infrastructure deficit- unleashing domestic private sources
TRANSCRIPT
Funding Nigerian Infrastructure Deficit–
Unleashing Domestic Private Sources
Deji Olatoye, LL.B (Lagos), BL (Abuja), MCL (Cantab)
Relevance of Infrastructure Development to Achievement of the SDGs
� “Infrastructure is an input to a wide range of industries and, as such, an important driver of long-term growth.” (Bank of International Settlement Working Papers No. 454, p.1).
� Therefore, infrastructure is crucial to the achievement
of all 17 Sustainable Development Goals (SDGs), whether directly or indirectly
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Relevance of Infrastructure Development to Achievement of the SDGs
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Infrastructure,
Industrialisation &
Innovation
Reducing Global
Inequality
Inclusive, Sustainable
Human habitat
Sustainable
Consumption &
Production
Combating Climate Change
Aquatic Biodiversi
ty
Terrestrial Biodiversi
ty
Social Justice
and Inclusive
Development
Global Partnershi
p for Implementation of Goals
Poverty Eradication
Food Security
Health & Wellbeing
Inclusive & Quality
Education
Gender Equality and
Women Empowerm
ent
Water & Sanitation
Access to Sustainable
Energy
Inclusive Economic
Growth
Direct Infrastructure Implication
Indirect Infrastructure Impact
Nigeria’s Infrastructure Deficit
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Nigeria Brazil India BRICS Average (minus Russia)
Global Average
South Africa
25 53 58 68.5 70 87
Infrastructure Stock as a Percentage of GDP
Source: MGI’s ‘Infrastructure productivity: How to save $1 trillion a year’, Jan 2013
Nigeria’s Infrastructure Deficit
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Amount Required to Maintain Current Global Infrastructure Stock Vs. Required to Get Nigeria to Current Global Average
Global Nigeria
3,400 10
57,000
186
Next 18years (US$ '000,000,000) Annual (US$ '000,000,000)
Source: Global figures from MGI’s ‘Infrastructure productivity: How to save $1 trillion a year’, Jan 2013; Nigerian extrapolated from the 30-year figures in the National Integrated Infrastructure Master Plan (NIIMP)
Current Policy Responses
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Initiatives Content
Study African Development Bank (AfDB) ‘The Infrastructure Action Plan for Nigeria: Closing the Infrastructure Gap and Accelerating Economic Transformation Report‘ (Commissioned by the Government of Nigeria).
• Detailed assessment state of infrastructure
• Achievable goals for infrastructure by 2020
• Action plan for achieving objectives. • Financing options including private
sector opportunities
Policies National Integrated Infrastructure Master Plan • A 30-year plan identifying needs, setting areas of priority, assessing financing requirements and setting out sources and basis of funding.
Legal/Institutional Framework
• Infrastructure Bank • Infrastructure Concession Regulatory
Commission • Nigerian Mortgage Refinance Company • Nigerian Sovereign Investment Authority
‘Infrastructure Fund’ • Capital Market rules on ‘Infrastructure Fund’
and ‘Asset-backed Securities’
• Laws, regulations and institutions providing technical and financing support for private sector involvement in various aspects of infrastructure financing
Recent/Current Policy responses to the challenges of financing the Deficit:
How will we fund the US$10 billion annual requirement?
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Why domestic private/commercial sources remain the SWEET SPOT
.
Foreign
Public: - Traditional donor countries have pledged only 0.7% of their GDP in support of development - Developed countries equally have qualitative infrastructure deficit due to pressure to convert to climate-compliant infrastructure - Nigeria’s access to ODA funding has reduced by ....% over the last 10years, about 90% of which goes to health and population support International Private: - The traditional source of international project finance – banks – is constricted by recent banking crises and consequence BASEL III risk regulations - New sources in Capital Market and Institutional Funding are at rudimentary phase of development. - Overall global competition for international finance is high due to quantitative and qualitative deficit of developing and developed countries respectively
Domestic
Public - Government is committed to increasing percentage for ‘Capital Expenditure’. Nonetheless, falling oil prices adversely affect traditional government procurement
Private - Growing Capital Market and rebound of domestic source of market deal flow - Growing, though shallow, insurance market - Establishment of Nigeria’s SWF - 10-years old pension reforms increasing savings available for institutional - Capital market rules on ‘Infrastructure’ and ‘Asset-backed’ instruments
How will we fund the US$10 billion annual requirement?
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Size (US$
‘000,000,000)
Significant Items of Portfolio
Growth over previous year (%)
Capital Market (2014 market capitalisation)
91 Federal Government Bond- 30%
-11.5
Pension Fund (2014 total invested asset)
25 Federal Government Bond- 50%
13 (from previous year)
Insurance (2014 gross total premium)
1.7 Stock of Bond- Circa 70% Real Estate & Mortgage-
13% (2010-2011 Naicom figures)
25% (annual growth since 2008)
Nigerian Sovereign Investment Authority
1 Infrastructure-specific fund- 40%
N/A
Sources: Capital market figures from Nigerian Stock Exchange Q4 2014 Fact Sheet; Pension figures from National Pension Commission (Pencom) December 2013 and 2014 Monthly Reports; Insurance figures from National Insurance Commission (Naicom); SWF figures from NSIA.
Why domestic private/commercial sources remain the SWEET SPOT
How will we fund the US$10 billion annual requirement?
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Why domestic private/commercial sources remain the SWEET SPOT
NSE Market Capitalisaation
FG Bonds
Pension-Insurance-SWF Assets
Annual Infrastructure Requirement
91
33.3
27.7
10
US$ '000,000,000
How will we fund the US$10 billion annual requirement?
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Current Initiatives & Challenges Suggested Action
Sovereign Wealth Fund (NSIA)
• Infrastructure Fund is one of the 3 strategic funds under management (40% of AUM).
• Unfortunately, NSIA’s only source of fund is hydrocarbon revenue, adversely affected by falling oil prices.
• Amend NSIA Act to tap into non-oil natural resources (Solid Minerals) and boost NSIA sources of investible funds (organs concerned include National Assembly; NSIA; Ministry of Solid Minerals).
• Leverage portions of 40% Infrastructure Fund to crowd in other private investments through the capital market
Insurance • Insurance market still shallow. • Insurance, like other investor
sectors, still shy of infrastructure funding.
• Stimulate shallow Insurance market. • Incentivize insurance investment in
infrastructure projects
Why current initiatives aimed at directing the significant domestic private finance towards Infrastructure is not working and what to do about it.
How will we fund the US$10 billion annual requirement?
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Current Initiatives & Challenges Suggested Action
Capital Market
• Securities & Exchange Commission rules on ‘Infrastructure Funds’ and ‘Asset-backed securities’.
• Permit listing of Funds (project/infrastructure bond), and private funds.
• Ironically, investors have not taken substantial advantage of the rules
• Leverage dominance of Government Securities in Capital Market (30%) and Pension Funds (50%) to crowd in private funds targeted at infrastructure.
• Strengthen the roles of Infrastructure Bank and Nigerian Mortgage Refinance Company for a similar purpose.
Current Institutional Investment Sector Initiatives
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The author, Deji Olatoye, is a Partner at The Lodt Law Offices, Lagos, Nigeria. He was a member of the Legal Implementation Committee of the Financial System Strategy (FSS) 2020 of Central Bank of Nigeria, wherein he served on the Credit & Mortgage as well as Financial Market sub-committees. He is on the Integrated Business Reporting Committee of International Corporate Governance Network (ICGN), UK and served on the work group that produced ICGN’s Integrated Business Reporting Guidelines, 2015. Deji holds a Master of Corporate Law of University of Cambridge This presentation is a digital artifact for World Bank’s Financing for Development programme.