In my last paper ‘Reconsidering the sequence for private investment in infrastructure development’, I noted the discrepancy between the yearly amount required to be invested in Nigeria’s infrastructure (NGN 4 trillion) as compared with current allocation to capital projects (under which lies infrastructure) in the 2014 budget (about NGN 1.1 trillion). I also acknowledged the need for private sector funding to supplement our infrastructure finances and proposed that we reconsider the sequence for seeking private sector investment. Finally, I maintained that we start the process by employing our own resources while we simultaneously strengthen the regulatory and accountability framework that will boost private sector participation. The Nigerian resources that must be employed in the first instance consists of government budgetary allocation and domestic investments funds (including pension funds and savings schemes). The active participation of domestic private investors in Nigeria’s infrastructure development projects will boost confidence in the Nigerian infrastructure sector and act as a catalyst for the participation of foreign private investors.
For reasons beyond the scope of this paper, it is unrealistic to seek a bigger allocation to infrastructure in the government’s budget. I do however believe that the government funds available can be used more creatively to achieve a greater impact, and in a way that not only fulfils the funding objective but also encourages the Nigerian public to invest in capital markets debt instruments. For instance, instead of lending directly to fund a project, have a special purpose project company raise the required funding by issuing bonds that are guaranteed by the government.
In addition to government funds, additional domestic private funding may be obtained from the private resources of Nigerian workers and savers. The local private funding we seek lies in the Nigerian pension funds and in the savings of average Nigerians who regularly save money for the education of their children, for health care, for retirement and more. If such savings could be channeled to infrastructure projects, we will go a long way to raising the catalyst capital we need to build and encourage foreign investors to join us in building our infrastructure.
In what circumstances would the average Nigerian invest his/her hard earned savings in a bond issue earmarked for an infrastructure project? Such investment will occur if the Nigerian public had confidence in the investment process and the sanctity of their contracts and were comfortable with the level of the return on the investment. To achieve this level of confidence, the investors must: (i) trust that the information provided about the economic forecast of the project, the company and individuals who own or manage the project and other relevant information about the project are true, accurate and not misleading, (ii) feel confident that those responsible for promoting the project are operating within regulatory guidelines that constrains them to behave properly towards the investors and (iii) feel confident that if the regulations governing the sale of the investment were to be broken, those responsible would be penalised and the investor’s position restored.
Therefore, to give our pension funds and other Nigerians the confidence to invest in our infrastructure projects we must: (i) build trust in our corporate affairs, (ii) strengthen our rules and regulations regulating the investment process and the enforcement of the same and (iii) strengthen our laws and procedures for enforcing contractual rights.
To build trust in our corporate affairs, our businesses must embrace transparency, accountability and good corporate governance. By doing so, Nigerian businesses will not only attract domestic investors but also foreign investors. Such investors recognise that the generation of long-term sustainable returns is dependent on stable, well-functioning and well-governed social, environmental and economic systems.
The financial dividend that may be generated by better corporate governance is demonstrated by the recent successful listing of SEPLAT Petroleum Development Company Plc to the Main Market of the London Stock Exchange (“LSE”). SEPLAT is one of the leading indigenous independent oil and gas companies operating in Nigeria and is the first Nigerian company to be dual listed on both the LSE and the Nigerian Stock Exchange. Listing on the Main Market of the LSE involves compliance with the most rigorous rules of the LSE and demonstrates compliance with higher regulatory and corporate governance standards. The success by SEPLAT in attracting funding from a range of international blue chip investors is a source of pride shared by many who wish to see a better profile for indigenous Nigerian companies in global markets.
Companies that demonstrate good governance, transparency and accountability are more attractive to savvy investors and attract better rates of funding. By improving our corporate accountability systems, we will take a giant leap towards attracting domestic and foreign investors whose capital may be applied to finance our infrastructure development.
In summary, to boost the private sector funding available for financing infrastructure projects (i) the government allocated funds must be employed in a manner that creatively stimulates lending by domestic capital markets investors and (ii) we must implement initiatives that build confidence in our domestic capital markets.