Financing Nigeria’s ambitious $840b investment plan: Can guarantees be the silver bullet?

President Muhammadu Buhari’s administration recently launched an ambitious economic growth plan, aiming to return the economy to annual output growth of five percent by targeting N349 trillion or $840billion in infrastructure investment over the next five years, 85.7% of which is expected to be financed by the private sector.

Perhaps answering the private sector call for more relevance in national development policies, as succinctly echoed at the country’s 27th national economic summit, the elevating role of the private sector in financing over three-quarters of the planned spending in Africa’s largest economic blueprint is exciting.

Although, like many of Nigeria’s grandiose economic plans, many economists think this may just be another compendium of wishful thinking but inexecutable whitepaper. Besides the ineptitude of the government in pushing through economic reforms relevant for a disciplined implementation of economic plan, the paucity of capital relevant for financing the huge infrastructure requirement is widely noted to be a show-stopper.

At barely 14.3% financing expectation from the government, the public sector is projected to invest N10 trillion or $24 billion annually, approximately 4 times the central government’s budget on infrastructure spending in 2021. Analysts say if the State Governments are sincere about developing infrastructure, they can complement the central government’s effort to deliver at least half of the planned public sector infrastructure spending. However, the private sector seems to have been set to fail in its role of financing a whopping N59.8 trillion or $124 billion in annual investment, several multiples of current capital formation in the country.

In fact, the biggest pool of investable funds in the country is the pension monies, which is estimated to be over N12.8trillion, over three-quarters of which is already borrowed by the government in the form of investments in government securities. Incidentally, Nigeria has not been as attractive to foreign capital over the past decade, with foreign direct investment waning to barely $870milion in the second quarter of the year.

  So, something drastic needs to be done to prove wrong the doubting Thomases, especially as a GDP growth of 5% is the least expected of the country if it must lift the over 90million people or some 42% of its population living below USD2 per day out of poverty. Incidentally, the Public-Private-Partnership (PPP) model, which was well canvassed in Nigeria a decade ago, seems to have proven a less viable option for the country, as it has been fraught with many failure stories.

One supposed silver bullet that may potentially attract domestic and foreign private capital to Nigeria is the “Guarantee” model, as recently being advocated by many development finance institutions, including the Private Infrastructure Development Group (PIDG) as a novel but compelling approach to unlocking private capital for infrastructure development. The pertinent question to ask is: while many crystals have failed in Nigeria, can this work for Africa’s most populous nation?

 Interestingly, the Central Bank of Nigeria, working with the country’s sovereign wealth fund and the Africa Finance Corporation recently announced the establishment of an Infrastructure Credit Guarantee Company, christened “InfraCorp”, with a seed capital of $ 2.4billion. More so, PIDG, through its operating entities GuarantCo and InfraCo Africa has partnered with the Nigeria Sovereign Investment Authority, KfW Development Bank, Africa Finance Corporation, and African Development Bank to launch InfraCredit in 2017, a specialised infrastructure credit guarantee aimed at unlocking domestic local currency, private long-term capital for infrastructure development.