Given Nigeria’s huge infrastructure deficit and the fiscal authorities’ inability to address the problem, the Central Bank of Nigeria (CBN)’s recent announcement that the N15 trillion infrastructure fund will be launched next month has boosted prospects for economic growth in the country, writes TONY CHUKWUNYEM
Clearly, apart from his announcement that the apex bank, will, in the next 12 months, establish the Nigerian International Financial Centre (NIFC), no other issue that the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, spoke about in his address at the annual banking and finance conference organised by the Chartered Institute of Bankers of Nigeria (CIBN}, last Tuesday, attracted as much attention as his announcement that InfraCorp Plc, the N15 trillion Infrastructure Fund, will be launched in October.
According to Emefiele, the project, which was conceptualised by CBN alongside the African Finance Corporation (AFC) and the Nigerian Sovereign Investment Authority (NSIA), will help to address the challenge of the huge infrastructure deficit in the country.
He said: “I am pleased to announce that InfraCorp, the infrastructure company being created by CBN, African Finance Corporation and the Nigerian Sovereign Investment Authority to raise N15 trillion, will be unveiled in October, 2021.
“InfraCorp would enable the use of mostly private capital to support infrastructure investment that will have a multiplier effect on growth across critical sectors.
The purpose of the N15 trillion being raised is to address some of our infrastructure needs, while providing reasonable returns to investors. “We believe this well-structured Fund can act as a catalyst for growth in the medium and the long run. The support of the banking community will be important in achieving this objective.”
Origin of InfraCorp
In fact, CBN and its collaborators had conceived the idea of an infrastructure company in the first half of last year when fiscal and monetary authorities in most parts of the world were churning out various policies to help mitigate the impact of the COVID-19 crisis on their economies.
Announcing the InfraCorp initiative at the time, Emefiele said the proposed company, which will be managed by an independent infrastructure fund manager, will play a key role in boosting economic diversification, thereby helping to insulate the country from external shocks such as the COVID-19 crisis.
The CBN governor also gave an update on the InfraCorp, while briefing journalists on the outcome of the Monetary Policy Committee (MPC) meeting in July last year. He stated that the Federal Government had approved the establishment of the company, thus earning it commendation from members of MPC.
Specifically, Emefiele stated that “this entity, which will be wholly focused on Nigeria and Nigerians alone, will be co-owned by the CBN, the Africa Finance Corporation (AFC) and the Nigeria Sovereign Investment Authority (NSIA), but exclusively managed by an Independent Infrastructure Fund Manager (IIFM) that will mobilise local and foreign capital to support the Federal Government in building the transport infrastructure required to move agriculture and other products to processors, raw materials to factories and finished goods to markets.
“The sum of N15 trillion is projected over five years for the initial run.
The committee (MPC) noted with satisfaction CBN’s immediate work on the updates and timelines for the establishment of this much-needed entity.”
Search for asset managers
New Telegraph reports that having obtained the Federal Government’s approval for the establishment of the company, CBN and its partners embarked on a search for asset managers that would run it.
The search ended earlier this year when government announced that it had hired Netherlands– based Sanlam Infraworks, AIIM, a unit of South Africa’s Old Mutual Group,
Chapel Hill Denham, Tripple A consortium, comprising AfricaPlus Partners and Arc Asset Management as well as Afrinvest West Africa as the four asset managers to run Infraco.
Aside from hiring the four firms, government also approved KPMG as the financial adviser to the company.
Generally, analysts reacted positively to the plan to establish the infrastructure company with most of them pointing out that poor infrastructure had for too long hindered economic growth in the country.
For instance, in their reaction, analysts at CSL Research predicted that the take-off of InfraCo will result in an improvement in Foreign Direct Investment (FDI) flow into the country’s economy.
They, however, stressed that “a lot of effort must be put into ensuring that the implementation does not suffer from the usual bottlenecks associated with state promoted projects.
In particular, the use of funds and monitoring of approved projects to completion is critical for success.”
Expressing support for the initiative, the CSL Research analysts stated: “In our view, the idea of InfraCo is laudable as it conforms with our highly-touted model of infrastructure financing in Nigeria that minimises bureaucracy and maximises efficiency.
“Collaborating with the private sector to bridge the widening infrastructure deficit appears the only viable option given Nigeria’s current weak fiscal position and elevated borrowings.
“However, a lot of effort must be put into ensuring that the implementation does not suffer from the usual bottlenecks associated with state promoted projects. In particular, the use of funds and monitoring of approved projects to completion is critical for success.
“Looking forward, we see this paving the way for an eventual improvement in foreign direct investment flow into the Nigerian economy. The current infrastructural deficit raises the cost of doing business, forcing many businesses to relocate to other favourable climes or wind up.”
The CBN governor, Emefiele, noted that “many local and international private fund managers have shown interest in being part of the project.
Citing the projection by Moody’s that Nigeria would need over $3.00 trillion over the next 30 years to finance its infrastructural deficit, the analysts noted that Nigeria’s growing infrastructure deficit continues to be a major concern among economic experts and stakeholders “as poor infrastructure is one of the biggest impediments to smooth business operations and capital inflows into the country.
“The paucity of investment in physical and social infrastructure over the years has continued to limit the growth potential of Africa’s largest economy, restricting its ability to exploit its vast amount of natural and human resources towards achieving a broad-based, sustainable and inclusive growth,” the analysts added.
According to the communiqué issued at the end of the MPC meeting last Friday, members of the committee welcomed the news of the impending launch of the InfraCo fund and reiterated their support for the project.
The statement partly reads: “Members applauded the relentless effort by the bank and other collaborators in ensuring the eventual take off of the Nigerian Infrastructure Corporation (InfraCorp), as this will improve the business environment, attract new investment and create new jobs in the Nigerian economy.
“The MPC further emphasised the importance of investment in transportation networks, power supply and telecommunication as these have a multiplier effect on other sectors of the economy.
In addition to the InfraCorp initiative, members urged the fiscal authority not to relent on other complementary infrastructure initiatives such as public-privatepartnerships and engagement of Nigeria’s huge diaspora through the issuance of diaspora bonds to fund specific projects.
“Available data and forecasts for key macro-economic variables for the Nigerian economy suggest further rebound in output growth for the rest of the year. This will however be hinged on the continued stability in oil price and robust vaccination in Nigeria and across other countries.
Foreign exchange market stability, further reduction in inflationary pressure in the economy and continued interventions by the monetary and fiscal authorities are very important factors to sustain the recovery momentum.
“Consequently, the Nigerian economy is forecast to grow in 2021 by 2.86 per cent (CBN), 3.0 per cent (FGN) and 2.5 per cent (IMF).”
As the countdown to the takeoff of the InfraCorp begins, the consensus in industry circles is that if as widely predicted, the project significantly helps to facilitate the development of critical infrastructure across the country, the nation’s economy growth could exceed expectations.