Presentation at the Infrastructure Roundtable Organised by the Securities
and Exchange Commission (SEC) in collaboration with the National Planning Commission
(NPC)
By
Dr. Shamsuddeen Usman, CONHon. Minister/Deputy ChairmanNational Planning Commission
The Presidency
Monday, August 5, 2013
FINANCING INFRASTRUCTURE THROUGH THE CAPITAL MARKET
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Outline
1.0 Introduction
2.0 Nigeria’s Current State of Infrastructure
3.0 The Place of Infrastructure in Nigeria’s Strategic Planning Framework
4.0 Overview of National Integrated Infrastructure
Master Plan (NIIMP)
- Key Objectives- National Targets and Investment
Requirements
- Sectoral Targets and Investment Needs
5.0 Financing Options for Infrastructure Development in Nigeria
- Lessons from other Countries
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Outline
6.0 Relevance of Capital Market to Infrastructure Development
7.0 Key Issues and Challenges8.0 Strategies for Enhanced Infrastructure
Financing through the Capital Market
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1.0 Introduction • Infrastructure is a key driver of economic growth and development
• Serves as an enabler of business competitiveness
• Despite huge oil revenues over the years, Nigeria’s infrastructure
stock remains grossly inadequate
• Serious constraint to socio-economic development - Recent World Bank survey reveals that 53% of
challenges faced by the manufacturing sector is infrastructure-
related • Considerable progress made in recent times - With increased spending on infrastructure
development in Nigeria
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1.0 Introduction (Cont’d)
• Purpose and theme of today’s Roundtable are appropriate
- Assess the infrastructure needs of Nigeria
- Explore the capital market as a source of financing
infrastructure
- Deliberate on what will attract investors to invest in infrastructure related instruments in Nigeria
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2.0 Nigeria’s Current State of Infrastructure• The current state of infrastructure in
Nigeria is inadequate - To drive the country’s development
aspirations• Stock of infrastructure remains below
the international benchmark of 70% of GDP
• Nigeria’s core infrastructure stock is 35-40% of GDP
• Additionally, the lower infrastructure stock is not properly integrated
- Thus the need for NIIMP to bridge the gap
SOURCE: ITF; GWI; IHS Global Insight; McKinsey Global Institute analysis
1 Excludes Russia
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2.0 Nigeria’s Current State of Infrastructure
80
70
87
76
58
47
Benchmark~70%
PolandIndonesiaSouthAfrica
ChinaIndiaBrazilNigeria
BRICS1Other emerging
markets
SOURCE: ITF; GWI; IHS Global Insight; McKinsey Global Institute analysis
1 Excludes Russia
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35–40
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2.0 Nigeria’s Current State of Infrastructure (Cont’d)
Country Roads per
sq. km
Quality of port
infra-structure
WEF index (1
to 7)
Power Consumpti
onkWh/capita
Access to
water(%)
Access to
sanitation (%)
Mobile subscripti
ons per 100
people
Japan 3.31 5.2 8,394 100 100 105
Brazil 0.21 2.7 2,384 98 79 124
Russia 0.06 3.7 6,452 97 70 179
Mexico 0.19 4.0 1,990 96 85 82
Indonesia
0.29 3.6 641 82 54 103
South Africa
0.30 4.7 4,803 91 79 127
Nigeria 0.21 3.3 136 59 31 56
Pakistan 0.34 4.1 457 92 48 62
Bangladesh
1.66 3.4 279 81 56 56
•A cross country comparison of infrastructure by sector is highlighted below: - Huge financial resources required to move Nigeria’s position to be at par with other emerging economies
Source: AfDB’s IAP for Nigeria 2013 8
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3.0 The Place of Infrastructure in Nigeria’s Strategic Planning Framework • NV20:2020 is Nigeria’s long term strategic plan - With overall objective of moving Nigeria into the
league of 20 largest economies by year 2020
• The Vision is anchored on 3 main pillars-Guaranteeing the productivity and well being of the people-Optimising the key sources of economic growth-Fostering sustainable social and economic development -Infrastructure is a key component
• The Transformation Agenda (TA) is the FG’s medium-term road-map on key polices, programmes and projects to be implemented, 2011-2015
- Has infrastructure as a major pillar
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3.0 The Place of Infrastructure in Nigeria’s Strategic Planning Framework • NIIMP is a framework that identifies
required investment to bring infrastructure in Nigeria to desirable state
• Close relationship exists between the NV20:2020, the TA and NIIMP
- As detailed in the chart below
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Nigeria Vision 20: 2020
First National Implementation
Plan(22010- 2 2013)
(2
Second National Implementation Plan
(22014- 2 2017)
Third National Implementation
Plan(22018- 2 2020)
FG Transformation Agenda (22011- 2 2015)
NIIMP (2014- 2043)
22010 2012 2014 2016 2018 2020 2030 2040 2045
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4.0 Overview of the National Integrated Infrastructure Master Plan (NIIMP)• The National Integrated Infrastructure Master Plan
has a 30 year horizon, 2014-2043- 3no 10-year strategic plans- 6no 5-year operational plans
• Key objective of NIIMP to ensure coordinated approach to infrastructure development in Nigeria- Help to integrate diverse infrastructure plans and projects across all sectors and regions in Nigeria
• Other objectives are to:- Strengthen linkage between infrastructure sector
components and the national economy- Review, upgrade and harmonise existing
subsector master plans
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4.0 Overview of the National Integrated Infrastructure Master Plan (NIIMP) (Cont’d)- Prioritise projects and programmes for
implementation in the medium to long-term
- Promote private sector participation in infrastructure development
- Enhance performance and efficiency of the economy
• NIIMP also to provide the capital allocation framework for the required investments- To bring infrastructure in Nigeria in line with the country’s growth aspirations.
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4.1National Targets and Investment Requirements• To close current infrastructure gap and reach desired optimal
investment- Nigeria must aggressively increase core infrastructure stock
From 35-40% of GDP in 2012 to 70% by 2043• Consequent need to increase investment spending in infrastructure - Target investment requirement is approximately $2.9 trillion
over next 30 years
- Projected debt/GDP at 2043 - 25%
70
Infrastructure stock share of GDP
Core
35–40
Current Target
0.62.3
2.9
Total spend 2014–43USD trillions
TotalOtherCoreCurrentspending% of GDP
Average annual spend required% of GDP
2–3 1–2 3–5
7 2 9
Investment over the next 30 years total US$2.9 trillion (constant 2010 prices)
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4.2 Required Investment to close Nigeria’s Infrastructure gap on average annual basis
203
140
98
70
4625
34–3829–3324–2819–232014–18 2039–43
7 9 10 9 9 9
X% Share of GDP,total
Average annual spending, USD billions
SOURCE: NIIMP development team
Required investments to close infrastructure gap
• Average annual infrastructure spending required by Nigeria is highlighted below:
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4.3 Sectoral Targets and Investment Needs• Sectoral targets, and investment needs for 30 year period are highlighted below:
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4.3 Sectoral Targets and Investment Needs (Cont’d)
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5.0 Financing Options for Infrastructure Development in Nigeria (Cont’d) • An estimated USD 2,900 billion is required for
Nigeria’s infrastructure development, over the next 30 years. - USD 127 billion required over next 5 years- An average of USD 25 billion per annum from 2014-2018,( compared to USD 9-10 billion currently )
• Budgetary resources alone will be inadequate to meet the infrastructure requirements- At the Federal and States level
• Financing of infrastructure will also require private sector participation
• Recent privatisation trends (e.g.p ower) indicate private sector can take about 48% share
• Need to explore other options of financing- Including the capital market
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5.0 Financing Options for Infrastructure Development in Nigeria (Cont’d)• Private sector investment requirement is projected
to increase from 46% to 48% during the 1st operational plan, 2014-2018
• Public Sector investment projected at 52%- Only about 15% of public sector funding is
projected to be from the Treasury - 85% to be sourced through:
Bond market Other Borrowing – internal and external; etc.
Public and private sector need to borrow to finance infrastructure
• Banking sector limitations- Nature of infrastructure finance – long-term, high
initial capital requirements21
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5.0 Financing Options for Infrastructure Development in
Nigeria (Cont’d)
Estimated Financing 2014-2018: Potentials
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S/N Strategy Purpose Best Practice Example
1 Various Intervention fundsi.Land Fundii.Viability Gap Fund (VGF)iii.Guarantee Fundiv.Nigerian Infrastructure Development Fund
i. Accelerate Land acquisition for PPP projects
ii. Construction cost contribution – enhance financial viability of PPP projects
iii. Provide guarantee for infrastructure risks
iv. Offer long-term, mainly local currency financing for infrastructure
i. Indonesia ii. Cyprus
2 Project Bond Initiatives i. To increase debt financing availability for large-scale infrastructure projects
ii. Target sectors like Energy, Transport and ICT
European Investment Bank supporting project companies in credit enhancement
3 Loan Guarantee Instruments
To support nationally significant infrastructure projects which are financially viable with equity finance but dependent on guarantee and otherwise not financeable within reasonable timeframe
i. United Kingdom and Italy
ii. Nigeria to pass a guarantee law or be embed in the NIIMP Act.
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S/N Strategy Purpose Best Practice Example
4. Crude for infrastructure swaps
i. To ensure expeditious delivery of key infrastructure whose financing is challenged
i. Cyprus ii. Indonesia
5. World Bank Partial Risk Guarantee (PRG)
i. To protect private lenders or private sector investors against the risk of government or a government-owned entity failing to perform its contractual obligation in respect of a private project
i. This is a Government accepted measure as of 2010
ii. Used in Nigeria electricity sector privatisation
6. Pension funds and insurance companies
i. To augment public sector financing shortfalls
7. Private Equity i. For medium level investments in infrastructure
8. Export Credit Agencies
i. To reduce cost of capital and reduce user charges
9. Use of regulated Assets-Based Model to finance water utilities
i. To guarantee steady yield to investors and affordable user charges
i. United Kingdom
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6.0 Relevance of Capital Market to Infrastructure Development
• Capital market critical in mobilising and channeling medium to long-term investment funds;- Critical to any country’s growth and development
• Suitable for infrastructure financing
• Major studies have identified that viable projects collapsed due to the mismatch of funds utilised
• Capital market enables projects with long gestation period to raise long term funds - Through equities and bonds
• Facilitates the bringing together of suppliers and users of - medium to long term capital for investment in socio-economic
developmental projects25
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6.0 Relevance of Capital Market to Infrastructure Development (Cont’d)
• Plays a key role in the privatisation programmes- Including bank capitalisation and consolidation
• Provides opportunity for companies to borrow funds needed for long-term investment purposes
• Platform for the marketing of shares and other securities- In order to raise fresh funds for expansion
- Vehicle for allocating the nations real and financial resources between various industries and companies
• Encourages the inflow of foreign capital when foreign companies or investors invest in domestic securities
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Pre-Crisis(June 2008)
Crisis (Dec. 2011)
Post Crisis(June 2013)
ASI62,711.56
ASI20,773.98
ASI36,164.31
• Depth of Nigerian capital market - High potential for growth• On-going Reforms in NSE - Steps being taken to enhance regulatory function of SEC - Other capital market reforms - All expected to translate into further improvement in the capital market in the near term
Source: NSE
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7.0 Key Isssues and Challenges • Deficiency in bond and equity market
− Low liquidity and depth June 2008 Dec 2011 June 2013
− Market Cap/GDP Bonds ( Public Private) / GDP 62.97% 27.56% 35%
− Bonds ( public & private ) / GDP 14.41% 10.41% 9.73%
− Low investor and issuer base; − Remaining issues in corporate governance; etc
• Low fiscal space for government
• Slower pace of financial reform in pension and insurance sectors
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7.0 Key Isssues and Challenges
• Poor regional alliance
• Global financial contagion – risk of external shocks• Low level of credit provision to the private sector:
crowding out by government debt • Lack of non-government, longer-term debt
instruments• Inadequate competence and capacity• Inadequate vehicles for infrastructure financing
- Inadequate public sector capacity for PPP projects
• All the challenges above, represent opportunities, however.
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8.0 Strategies for Enhanced Infrastructure Financing through the Capital Market
• Task of enhancing infrastructure financing is not responsibility of Government alone.- Capital market operators, regulators and private sector have major roles to play
• On the part of Government, effort is being made to ensure effective implementation of the TA and NV20:2020- Ensuring maintenance of strong and stable macroeconomic environment - Better legal and regulatory environment
• On going reforms in the petroleum and power sectors• Effort being made to finalise the NIIMP and ensure its
effective implementation through:- Instutionalising M&E system in the public service- Initiating the process for enacting the NIIMP Act- Establishment of infrastructure delivery units in the MDAs 30
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8.0 Strategies for Enhanced Infrastructure Financing through the Capital Market (Cont’d) Role for private sector• Develop long-term infrastructure finance
capabilities - Issue bonds by tapping pension funds, insurance companies & investment trusts- PPP, Privatisation programme
• Imbibe corporate governance culture;- Abiding by the market rules;- Pay taxes; etc
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8.0 Strategies for Enhanced Infrastructure Financing through the Capital Market (Cont’d) • Cooperate with Government to attract
global funds and global infrastructure providers by:
− Intensifying cross-listing and trading linkages
− Globally;• Harmonise practices and standards among
market operators• Forthcoming Nigeria – World Economic
Forum Roundtable on Infrastructure – Oct 2013, Abuja
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Thank YouThank You
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