Nigeria’s infrastructure challenges are well known. For decades now, we have struggled with infrastructure problems arising from gross underfunding. These challenges include poor road networks, inadequate power supply, bad transportation system, and poor healthcare, amongst others. “Nigeria, like most African countries, is bedevilled with infrastructure deficits,” says Dolu Olugbenjo, Chief Investment Officer at Stanbic IBTC Asset Management.
According to a report by Deloitte in 2018, the value of Nigeria’s total infrastructure stock was a paltry 35% of GDP, far short of the 70% average for emerging economies. In comparison, South Africa’s infrastructure stock was worth 87% of the country’s GDP. The situation in Nigeria has not improved since then.
Expectedly, the country continues to lag in development. The much-desired manufacturing base remains elusive as the infrastructure on which to build the sector is decayed. It is no surprise that despite being the largest economy in Africa, with a GDP of around N154 trillion (National Bureau of Statistics), the country has the unenviable distinction as one of the poorest countries.
Therefore, it is clear that the country’s future and its ability to attract foreign investment in the manufacturing and real sectors will largely depend on its ability to build and upgrade its infrastructure. “Sound infrastructure development policy setting is a key ingredient for sustainable long-term growth,” a report by the World Bank highlights.
However, decades of neglect have led to the near complete collapse of Nigeria’s infrastructure that it would require substantial yearly capital expenditure to upgrade to modern standards. A rating agency, Moody’s, estimated the country’s infrastructure gap at three trillion dollars, which is several times the size of the annual GDP. However, current fiscal imbalances mean funding will be a huge challenge. For instance, over a quarter of the budget is utilised for debt servicing yearly, and recurrent expenditure takes another large chunk, with barely enough left to tackle other pressing issues such as infrastructure renewal.
The Federal Government is determined to address the infrastructure challenge because the success of its diversification programme is hinged on functional infrastructure. In 2015, the government created a 30-year plan, the National Integrated Infrastructure Master Plan (NIIMP). It followed this up by increasing the spending on infrastructure to six billion dollars yearly. In 2019, the then Minister for Trade and Development, Okechukwu Enelamah, revealed the government’s plans to “seek to increase infrastructure spending to reach the 10 billion – 20-billion-dollar range over the next five to 10 years.”
However, considering the available resources, the planned yearly budgetary spending on infrastructure is ambitious. The Federal Government realised this, hence the creation of the Nigeria Infrastructure Fund (NIF) managed by the Nigeria Sovereign Investment Authority (NSIA) as well as the establishment of Infrastructure Corporation of Nigeria (Infra-Corp) to help pool and harness funding from the local market. With an initial funding of about one trillion naira from the NSIA, the Central Bank of Nigeria (CBN) and the Africa Finance Corporation (AFC), Infra-Corp is established to operate as a public-private partnership.
Infra-Corp is tasked with the responsibility of mobilising about N15 trillion to deliver the infrastructure of the 21st Century for the nation and relieve the government of having to source for foreign investments for infrastructure development, a model that is not sustainable. “Most, if not all, our external borrowing and fundraising are really to finance the deficit created by our commitment to infrastructure expansion,” says Minister of Works Babatunde Fashola. With Infra-Corp on board, the vast deficit financing by the government is expected to abate.
It was clear that the government’s efforts alone cannot deliver the goods, hence adopting a public-private partnership model for Infra-Corp as selected Fund Managers will manage the investments on behalf of the promoters. There is a sense that the government has taken the proper steps. This has given private sector players the confidence to begin exploiting the opportunities the infrastructure gap presents.
This confidence, undoubtedly, underpinned Stanbic IBTC’s recent launch of a N100 billion infrastructure fund that the company hopes would help Nigeria close its infrastructure gap by linking investors with long-term capital while enabling them to achieve their investment goals. Stanbic IBTC said its infrastructure fund was borne out of the need to bring to the fore the many opportunities for investments beyond the conventional investment propositions while boosting confidence in the Nigerian capital market. “The Fund will be issued in tranches, with the first tranche being N20billion with a 10-year term which may be extended by a further two years. The Fund is geared at addressing investors’ appetite for infrastructure-dedicated opportunities,” says Olugbenjo, Head Stanbic IBTC Infrastructure Fund.
Stanbic IBTC’s launch of an infrastructure fund coupled with the involvement of other institutional investors such as Pension Fund Administrators through different investment schemes appears to signal the full participation of the private sector to finally address the country’s infrastructure gap.
The Stanbic IBTC Infrastructure Fund has shown how institutional and high net worth investors can tap into and benefit from the government’s infrastructure drive. It has equally shown the kind of opportunities inherent in the infrastructure deficit.
Management of the Stanbic IBTC Infrastructure Fund will undoubtedly be critical in energising the envisaged participation in the government’s infrastructure drive. Considering Stanbic IBTC’s pedigree in funds management and its network across Africa under the Standard Bank franchise, the Fund is expected to deliver investors’ expectations while contributing to the efforts to rebuild Nigeria’s infrastructure. Stanbic IBTC Asset Management Limited, the Fund Manager, is the leading Asset Manager in Nigeria, with AA ratings assigned to it by Agusto & Co and GCR Ratings. The company has total assets under management in excess of N780 billion with a suite of funds that cater to diverse investment objectives and risk appetites.
Prior to this, the government had primarily relied on facilities from China and grants from bodies such as the United Nations, the World Bank, and USAID, among others, to finance its infrastructure projects. Private sector participation has traditionally been negligible, despite boasting significant potential for infrastructure investment.
The government may finally have turned the corner, though, in convincing the private sector of its seriousness with the particular purpose vehicle, Infra-Corp, to manage infrastructure development. Through its infrastructure fund, Stanbic IBTC is also being seen to take the lead to show investors a unique and relatively less volatile way to tap into the latent infrastructure opportunities.
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