A rough idea on funding infrastructure….

In addition to all the reasons espoused by Dr Nonso as to why this $30b loan request by the FG is a no-no and that the senate was right to say no, my personal grouse is that this government suffers from trust deficiency when it comes to economic management. In addition, Nigeria’s governments at all levels have proven to be inefficient allocators of capital. There have been little instances where the government has successfully intervened in sectors and have been prone to interference. Finally, the election cycle of governments incentivises short-term decision making which, if our history is anything to go by, near guarantees that the infrastructure projects that this loan will be spent on are likely to be influenced by political considerations rather than economic productivity expediency.

Given the above, I have this rough idea on how we could potentially navigate these Achilles heels. The idea is centred on exploring the ‘off balance sheet’ concept. Nigeria’s government finances are in dire straits, our debt to revenue ratio is atrocious so adding more debt to an already overburdened revenue profile doesn’t seem smart to me.

We can avoid all of the inefficiency, debt burden and potential politicisation of the selection of infrastructure projects if we turn the Nigerian Infrastructure Fund into a Special Purpose Vehicle (SPV) that is listed on the Nigerian Stock Exchange (NSE) but with the same vision and mandate. The government’s current holding in the Fund can be turned into equity. The NASS can legislate that the government must not hold more than 15% of the equity of the Fund. Given the strategic nature of the SPV, government can through the NSIA have a non-executive director on the Board of the SPV. The management of the SPV can then source for capital, raise debt from the financial markets as it deems fit to finance its projects. So rather than the FG looking for $30b to invest in infrastructure, it’s the SPV that will do this. The SPV could source for funding or enter into strategic partnerships with multilateral organisations like the IMF, AFC, IFC, World Bank, China EXIM etc.

NSE’s listing rules will apply to the SPV. Nigerians will be able to buy shares in the SPV directly, Pension Fund Managers (better than Fashola’s plan to raid pension assets)will also be able to buy shares or debts issued by the SPV. Foreign investors will be able to do likewise too. The SPV will pay dividends and interest on issued debts like a normal company would. Whilst Nigerians may be charged tolls or some other fees for using the infrastructure projects owned by the SPV, they can get this back through dividends or coupon payments.

Of course the initial executive management of the SPV will be influenced by NSIA but can be done in an open and transparent manner. Over time this will change as the broad shareholder base vote for subsequent management changes. As per normal listing rules, the SPV will need to publish audited accounts, release regular trading statements and provide guidance on the company’s financial performance. The current opacity of getting project details from government will be avoided as transparency will be inherent. The management of the SPV can have an endowment type mentality where its focus will be on generating healthy and steady long term returns. This will provide steady long term strategic vision with aligned implementation and efficient allocation of capital. The SPV can issue debts with long maturities say 25 years+ which should also help deepen our local corporate debt market.

The NSIA lacks real funding to make any meaningful impact, going down this SPV route can potentially unlock this.

The above is a rough idea I think has leg to run.

Written hurriedly, errors regretted.