Experts urges Nigeria to patronize foreign loans for infrastructure

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Following the infrastructure deficit that experts have pointed out as the bane on Nigeria economic woe, the former Director General, Debt Management Office (DMO), Dr. Abraham Nwokwo, has urged the Federal Government to opt for foreign loans to bridge the gap.

He warned against domestic borrowing, which he said, are difficult to service because of their shortness of terms and interest rates.

According to him, the government agencies that should have churned out an attractive borrowing plans are yet to craft it to the extent of explaining the feasibility of the funding by international lenders.

He spoke as a Guest Speaker at the 3rd Annual Lecture of Just Friends Club of Nigeria in Abuja. The topic was “Resolving the Infrastructure Deficit in Nigeria-A Pragmatic Approach.”

 The former DMO chief pointed out that according to the estimates of the National Integrated Infrastructure Master Plan (NIPP), Nigeria needs to invest, on the average, about USD100 billion per annum for 30 successive years to sufficiently address its infrastructure deficit.

He insisted that this is the total amount to be provided from a variety of public and private sector sources since developing infrastructure from annual budgetary allocation is grossly inadequate to bridge the gap.

Nwokwo said that : “In addition, the business model for investment in infrastructure should be such that, as much as possible, infrastructure services are provided on fee-paying and cost-recovering bases and there should be no illusion of heaping the entire funding burden on the public treasury.

“It is important to emphasize that Nigeria’s strategy of external borrowing would be to prioritize in favour of cheaper sources with sufficient moratorium period and long tenors of 10 years and above. Given that Nigeria is currently a “blend” credit country in the classification of multilateral financial institutions particularly, the World Bank Group and the AfDB, the main source of external borrowing will be from the commercial windows of the multilaterals – the World Bank Group, the African Development Bank, the International Fund for Agricultural Development, the European Investment Bank, the Islamic Development Bank, the Asian Development Bank, as well as bilateral sources – Agence Francaise de Development (AFD), KFW of Germany, Japan International Cooperation Agency (JICA), China Eximbank, etc.  These sources are still affordable because interest rate charged on their credits range from 3% to 5% per annum.

“Besides, since the approach is to make as many as possible of the infrastructure projects bankable, the loans would be further softened by attracting  co-investments from sovereign wealth funds, fund managers, ethical and green funds, among other global investors.

“There are also possibilities of attracting grants from foundations and charities, particularly for infrastructure related to clean water and sanitation, and education funding.

“In addition, creative funding models such as land capture value (LCV) can be introduced. For example, applying LCV to rail-line and waterways infrastructure would mean that part of the resulting enhancement of property value (capital gains) in the geographical space adjoining those infrastructures could accrue to the government while part would accrue to the private owners of the properties; that is, it is feasible to monetize, securitize and fiscalize land capture value as a funding option.

“In the last analysis, therefore, debt-financed infrastructure investment could be significantly sweetened, softened and de-risked with financing founded on a broad-based funding model.”

He condemned the International Monetary Fund (IMF) that has always drawn attention to Nigerian past historical profile (Paris Club debt exit) and its refusal to project into the future of Nigeria possibly being a changed nation in terms of attitude to debt management.

He raised concerns about the IMF refusal to proffer a solution to the nation’s economic challenge.

Nwokwo also however attributed the infrastructure gap to the lack of political will to operate  true federalism, stressing that whereas the Nigerian system is politically federal, it is economically a unitary form system.  He insisted that government’s diversification of the economy from oil will inspire infrastructure development.

According to the economist, it is plausible to reason that infrastructure development is key to achieving a viable federation because it would make feasible the development of the resources in each geographical area and make the regions more economically viable.

He said that “by enhancing the internal revenue generating capacity of constituent units of the federation, infrastructure development will make them less apprehensive of a future where dependence on oil revenue is not the basis for fiscal viability. They would, therefore be better disposed to prosperity-friendly political restructuring.

“Nigeria operates a federal system with three tiers of government: it has the Federal Government, 36 State Governments and the Federal Capital Territory and, 774 Local Governments.

“The total area of the country covers a diversity of climatic, soil and vegetation types which provide the basis for diversified economic activities. In such a federal system, States or regions should be fiscally autonomous and each would be creating a diversified range of economic activities based on the natural resources in its territory. 

“From such economic activities, including exploitation of solid minerals, a sub-national entity would generate revenue to finance its development projects and programmes while contributing to the federal treasury for the running of the country’s common services.

“In essence revenue generation and utilization would be decentralized and the revenue base of the entire economy would be highly diversified because it would be a combination of a diversified range of revenue sources from the various sub-nationals based on their varied natural resources.

“A country that is practising federalism should, therefore, naturally incline towards economic diversification but the subsisting arrangement in Nigeria works against that expectation and renders the system a sharing one rather than a producing one; a contractionary one, rather than an expansionary one.

“Oil revenue which accounts for between 75 and 80% of public revenue over the past four decades is adjudged owned by the federation and not the sub-national territories where they occur.”Following the unitary approach to administration entrenched by military governments for about 30 years starting in 1966, the 1999 Federal Constitution requires that such revenue be moved to the federal treasury, from where it is shared to all the governments according to the prevailing revenue allocation formula.’’