Capital Market Can Finance Nigeria’s Infrastructure, Says SEC - THISDAY
Goody Egene and Dike Onwuamaeze
There is no better time than now for the federal and state governments to leverage opportunities provided by the capital market for sourcing infrastructure financing, the Acting Director General of the Securities and Exchange Commission (SEC), Ms. Mary Uduk, said at the weekend. According to her, the capital market has the depth to revamp the nation’s poor state of infrastructure.
Uduk, in a keynote address at the Capital Market Correspondents Association of Nigeria (CAMCAN) 2019 Annual Workshop with the theme: “Bridging Nigeria’s Infrastructure Gap: The Capital Market Option,” quoted a report by the African Development Bank on Nigeria’s Infrastructure Plan in 2013 as estimating that the country needs to invest about $350 billion in its infrastructure sector in 10 years to be at par with its peers. She stated that there were other estimates that have put the figure at slightly higher.
Uduk, who was represented by the Head of Department, External Relations, SEC, Mr. Sufian Abdulkarim, noted that the government, in recognition of this, has been doing its best to close the infrastructure gap as outlined in the Economic Recovery and Growth Plan (ERGP) for 2017-2020. “However, the government cannot be the sole provider/promoter of infrastructure projects, private sector investment in infrastructure sector is also required,” she said.
She noted that the capital market “provides an enabling environment for private investments in infrastructure projects and the SEC is doing its part to foster this through the implementation of the Capital Market Master Plan (2015-2025). The plan’s major objective is to transform the Nigerian capital market, making it competitive, while contributing towards the nation’s development through funds mobilisation.” According to her, the Nigerian capital market has been used by the government since 1946 as a source of raising funds when the colonial government floated the first loan stock worth £300,000 to fund its local administration.
“We believe that the establishment of an active infrastructure fund via the capital market as being pursued by capital market stakeholders would be immensely beneficial in closing the infrastructure gaps in the country. “The international capital markets are the largest and deepest pool of financing in the world and in conjunction with local capital markets, which represent an essentially untapped source of funds for infrastructure projects, they can make a huge contribution to economic development, if effective transaction structures are developed,” Uduk said.
An investment banker and Head, Debt Capital Markets, FBNQuest Merchant Bank Limited, Mr. Oluseun Olatidoye, who was the guest speaker at the workshop, supported Uduk’s declaration, saying that the capital market represented a very good platform for raising funding for development going by some landmark transactions in recent years. He added that the capital market has “funded over portions of 26 roads across the six geopolitical zones in the country with the sum of N200 billion on the FGN Sukuk I and II.”
“We have raised N11.4 billion for the development of primary, middle and secondary school facilities in Osun State; we have funded the development of affordable housing on the Mixta Real Estate Plc Bond Issues and we have developed a number of roads, bridges, health facilities using the opportunity presented by the capital markets.” Oladitoye, however, said to successfully tap into the capital market for infrastructural financing, the existence of sound macroeconomic and policy frameworks were pre-conditions.
“As much as the government has its role, political interference must be limited. This insures investors against any form of political risk and most importantly corruption, which has the potential of crippling the entire endeavour.” He also urged investors to be wary of rating characteristics of the issue before committing their funds as they seek the highest form of safety and confidence for their investments.
“We should be reminded that PenCom requires a minimum of an ‘A’ rating from two rating agencies for infrastructure funds. Ultimately, if infrastructure funds are the preferred options for issuers, the ingenuity of financial advisers would be put to test in coming up with structures that protect investors from currency fears (assuming the status quo remains) and also meeting the rating criteria,” he said. He stated that regulators had the responsibility to educate the investing public and other capital market participants as the starting point of extracting the most benefit from an efficient capital market in funding infrastructure.
“Also, adequate market infrastructure should be in place to promote transparency and address potential cogs from the issuance process to trading, settlement or rollovers. As an incentive, the overall cost related to pre-issuance, issuance and post-issuance activities should be revised downwards. Specifically, favourable tax regime should be instituted for infrastructural investments,” he said. In his goodwill message, the Chief Executive Officer of the Nigerian Stock Exchange (NSE), Mr. Oscar Onyema, said a recent study by McKinsey showed that Nigeria would need to attract $31 billion investment annually over 10 years for the country to bridge its infrastructure gap. However, the 2019 capital expenditure was about $5 billion, which is clearly insufficient in meeting the infrastructure deficit.
“The investment required is near impossible relative to government resources. Nigeria would require different sources of financing both from traditional and new sources, including wider participation of private sector and institutional investors, pension, insurance and leveraging the capital market initiatives. It has therefore become necessary to develop innovative financing solution facilitated by the capital market to bridge,” Onyema, who was represented by the Head, Trading Division, NSE, Mr. Jude Chiemeka said.
According to him, the exchange has been working with capital market operators to help the Nigerian government to create the required atmosphere that would promote investment confidence in the Nigerian capital market.
“We have made giant strides in improving the Sukuk, green bonds and infrastructural bonds and securitisation of investments in Nigeria. These financial instruments present investment channels for the government to tap into the domestic and foreign capital in addressing the infrastructural deficit,” Onyema said.
Similarly, the Associate Executive Director Corporate Development of FMDQ Securities Exchange Plc, Kaodi Ugoji, noted that infrastructure is one thing Nigeria needs to shore up quickly to achieve its desired economic development.
“We have a debt capital market development project which was set up three years ago and made up of market participants. We have provision for housing finance to provide affordable housing. We have set up the housing development initiative that is working with the Office of the Vice President to put a blue print on how to have affordable housing, mortgage that are affordable and government assistance,” he stated. Also, the Head, Internal Control Central Securities Clearing System Plc, Isioma Lawal, said the need for infrastructure in Nigeria could not be over flogged.
“It is the major reason we are having brain drain. If we can only fix the power it will help a lot. We all agree that we need money and the capital market is where you can get that money to do this. But those that will invest in the capital market must be assured of adequate returns, safety of their investments and transparency in the market processes before they will invest. CSCS ensure that there is transparency in the capital market process by allowing people to see the movement of their investments and track them by logging in,” he added.