The managing director of Cowry Asset Management Limited, Mr. Johnson Chukwu has proposed concessioning of critical infrastructure by government than borrowing money for that purpose.
Chukwu in a paper presented at Finance Correspondents Association of Nigeria (FICAN) forum in Lagos sadly noted that government has already indicated intention to borrow about $4.5billion from the international market to fund the budget deficit, which is basically going into infrastructure development.
He said “News have it that the government may have already started exploratory talks with AfDB and World Bank for concessionary budget loans of $3.5billion”.
Chukwu said that while he supported the efforts, he is convinced that government does not and will not have the financial resources to fund the infrastructure gap in the country.
He also observed that without efficient infrastructure, the country would never become a competitive market for manufacturing.
He therefore suggested that the way to go is to concession some of the critical infrastructure that are commercially viable such as transport infrastructure, Rail lines, Highways, Seaports, Airports, among others and invite private sector capital to build these infrastructure under Build Operate and Transfer (BOT).
This, according to him will create a veritable channel for inflow of long-term capital into the country.
The Cowry Asset MD gave example with the 1,342 KM standard gauge rail line from Lagos to Kano which was awarded to a Chinese company by the Obasanjo government in 2006 at a cost of $8.3billion but was cancelled by the Yar’ Adua government in 2007.
“At present, the Federal government obviously does not have money to fund such ambitious project, which is critical to the economic development of the country.
Should this rail corridor be concessioned, the country will receive foreign direct investment of about $8.3billion (assuming that the cost is still the same) and still enjoy the catalytic benefit of the infrastructure to economic development.
Several projects of similar nature that are bankable can be left in the hands of the private sector to develop. A proof of concept – virtually all the shopping malls in Nigeria were funded with foreign private equity capital” he pointed out.
Speaking on how to reposition the oil and gas sector, Chukwu also put forward a proper deregulation of prices in the petroleum industry, which he said if done will trigger investment into that sector.
According to him, The current modulated pricing system has clearly not attracted investors and would not likely attract investors. A shift from a finished products importing nation to local refining will reduce Nigeria’s monthly import bills from $4billion to $2.4billion based on CBN statement that refined petroleum products importation account for 40% of the total demand at the official foreign exchange market.
Beyond that, the domestication of our downstream petroleum industry will create employment and possible earn the country foreign exchange from export.
He further advised government to adopt policies similar to the Cement industry policy to stimulate investment in specific sectors of the economy where Nigeria has comparative advantage.
The policies he urged should be such that will encourage value addition instead of production of raw materials, adding,” For instance, the government should renew the previous government’s drive towards the implementation of the Cassava policy, Sugar policy and Automobile policy. Similar policies should also be enacted for petroleum refining, palm oil/produce and vegetable oil refining, Sesame seeds, Cocoa, Cotton, Granite, furniture, leatherwears, etc. Should we grow these sectors to the point of producing globally competitive final products from the abundantly available raw materials, we would have succeeded in achieving the much desired import substitution, conserve our foreign reserve and possibly earn some foreign exchange”.
He also said that it may be good to adopt a more flexible exchange rate management, but devaluation alone will not address the problems of the economy.
“We need a cocktail of policies which will include exchange rate adjustment, creating windows of investment for long-term funds through concessioning of commercially viable infrastructure, full deregulation of the downstream petroleum industry and stimulating investment in sectors where Nigeria has comparative advantage, as well as investing heavily in social infrastructure such as health, education, security, etc. It is such holistic approach to economic management that will change the structure on Nigerian economy and wean it from dependence on Oil for export earnings.
The concerns of the government have been that these routes will inflict pains on the citizens; unfortunately, there is not easy route out. We however believe that it is better for the citizens to take this pain once and have the economy restructured so that we will not be exposed to another crude oil crises as we suffered in the 1980s, 1990s, 2008 and 2015/16” he observed.