Amidst anxiety over debt overhang, the federal government has intensified efforts to involve the private sector to bridge the estimated N350 trillion infrastructure gaps across the country.
The move is part of the five-year Medium-Term National Development Plan (MTNDP), 2021-2025, which is part of the innovative financing options.
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Nigeria faces a critical infrastructure deficit projected at over $3 trillion in the next 26 years, with an average annual budget of approximately $29 billion in the last 10 years, of which figure only about 30 per cent was allocated to capital expenditure.
The Minister of State for Finance, Budget and National Planning, Prince Clem I. Agba disclosed the funding plan yesterday at a media briefing ahead of the 27th Nigerian Economic Summit (#NES27) holding from October 25-26, 2021 in Abuja.
The proposed amount is the equivalent of 18 years national budget of the federal government based on the 2022 budget estimate of N16.4 trillion.
If the private sector agreed and keyed into the plan, companies would execute capital projects in various sectors and therefore help reduce the preponderance of borrowings by the government to implement such projects.
Conversely, the companies would recoup their monies from the taxes they were supposed to pay the government over a certain period agreed by the two parties.
Experts believed that when the arrangement works out well, Nigerians would be the ultimate beneficiaries because the construction of roads, bridges, railways, hospitals, dams and other social amenities would be faster.
Recall that recently, President Muhammadu Buhari requested the Senate to consider and approve an external borrowing plan amounting to about N2.5 trillion to fund projects captured under the 2018-2021 borrowing projections.
In September, the Debt Management Office (DMO) said Nigeria’s total public debt (federal and state governments) climbed to N35.46 trillion at the end of the second quarter of 2021.
Speaking at a two-day mid-term ministerial performance review retreat in Abuja, President of the African Development Bank (AfDB), Akinwumi Adesina, said Nigeria’s debt service to revenue ratio was high.
Adesina said Nigeria must “decisively” resolve its debt challenges to ignite economic growth.
How govt plans to work with investors
Giving further details on the N350trn funding, Mr Agba said the bulk of the N350 trillion funds will go into infrastructure development and perhaps leverage the proposed N10trn National Infrastructure Fund.
Giving a breakdown, he said the private sector will contribute a total of N300trn between 2021 and 2025, adding that the states and the federal government will contribute N50trn, with FG bringing N30trn, while states will contribute N20trn.
Agba revealed that the 2021 National Development Plan implementation will be co-chaired by the founder of Stanbic IBTC Bank Plc. and Anap Business Jets Limited, Atedo Peterside and the Minister of Finance, Zainab Ahmed.
Recent moves to fund infrastructure outside debt
On January 25, 2019, President Buhari, relying on the powers conferred on him by Section 23(2) of the Companies Income Tax, signed Executive Order No. 007 on “Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme 2019”.
The scheme focuses on leveraging private sector funding for the construction and refurbishment of eligible road infrastructure projects. The eligible roads are to be approved by the president, on the recommendation of the minister of finance and published in the Official Gazette of the Federal Republic of Nigeria.
‘Good move by government but…’
A Professor of the capital market, Uche Uwalake, said the government was deploying innovative financing tools to attract both local and foreign funding.
He, however, said not all infrastructures were suitable for this kind of funds as it will only be channelled towards hard infrastructures like roads and railways.
Uwalake said, “This is certainly not a new borrowing so the debt service burden will not worsen. Growth in infrastructure should result in improved commercial activities, improved taxes, and revenue to the government.
“The major challenge to the move will be what happens in 2023. The major risk is continuity even if the same government return after the next election.”
He said the judiciary and the National Assembly should play a role by coming up with legislation around these plans.
An economist, Umar Shehu Sani, said the government did well by trying to explore the private sector window. “It is a good move because countries the world over are looking at the direction of wealthy private companies to bridge development gaps.
“While borrowing is not wrong if judiciously used, the option of giving private companies to execute projects is equally good because they would reduce the burden on the government.
“However, the government at the national and state levels should be careful not to overshoot the runway. They would be in trouble if they allow the companies to convert all collectible taxes to investment,” he said.
Also commenting, the Lead Economist and Enterprise Partner at SPM Professionals, Mr Paul Alaje, said it was doubtful for the government to raise N350trn in five years on infrastructure.
He said “This is because even in the 2022 budget proposal, the FG is only looking at N5trn for capital expenditure. So even if you multiply that by 5, you will be looking at N25trn. That may even include borrowing.
“The amount is not feasible. Already, local investors are losing the value of their money to inflation and exchange rate disparity…so by all means the government should look more to a public-private partnership, which is what the government is trying to do, but the funding mechanism has to be smarter than what we are talking about before the private sector can invest.”
He also predicted that the states would not meet the target set for them. “Talking about states contributing N20trn, I also have a lot of concern on that. States are already struggling with most of them unable to pay salaries, so where will they get N20trn? The authorities should compare the numbers before making up any projections.”
He noted that it was because projections were not properly done that the Economic Recovery and Growth Plan failed, thus the government should think through its projections for the 5-years development plan to work.
Companies that so far indicated interest in the tax credit scheme
A tax credit certificate worth N22.3 billion was awarded to Dangote to construct the Apapa-Oworonshoki-Ojota Road in Lagos and the Lokoja-Obajana-Kabba Road connecting Kogi and Kwara states.
The MTN also got the 110km Enugu-Onitsha road in Anambra State in exchange for tax credits.
Also, Transcorp Group expressed interest in the Oyinbo-Izuoma-Mirinwayi-Oklama-Afam Road.
Access Bank is to construct the Oniru axis of VI-Lekki circulation Road in Lagos State while GZI Industries got the Umueme village Road, Abia State.
Similarly, Mainstreet Energy indicated interest to construct the Malando-Garin Baka-Ngwaski Road, while the BUA group went for the Bode-Saadu-Lafiagi Road as well Eyinkorin Road and bridge.
The Nigerian Liquefied Natural Gas (NLNG) earmarked the Bodo-Bonny Bridges and Road and the Dangote Group went for the Obajana-Kabba Road.