Chinwendu Obienyi
Two leading Brics countries namely China and India have witnessed experienced unprecedented growth which has lifted millions of their citizens out of poverty. This was largely because the implementation of both countries economic reforms propelled them into the ranks of the world’s major economic powers.
One of the reforms taken to grow their economy centered round the development of infrastructure which was factored towards sectors like Agriculture, Transportation, Power, Manufacturing industry and markets.
The result of these reforms birthed strong Gross Domestic Product (GDP) performance as China’s economy grew by 6.6 per cent in 2018 while the Indian economy expanded 7.7 percent year-on-year in the first three months of 2018, higher than a downwardly revised 7 per cent advance in the previous quarter and beating market forecasts of a 7.3 per cent growth.
Indeed, infrastructure is one of the tools for economic development as it can directly or indirectly affect social-economic activities and other regional capacity, as well as factors of production. It is evaluated by the services provided by the physical infrastructure including services, such as energy, transport, telecommunications, provision of water, sanitation and safe disposal of waste which are fundamental to all kinds of household activities and economic production.
Though, infrastructure remains a major challenge to the African region especially Nigeria, it is still yearning to achieve its full development potential.
There is a general consensus that the banking sector has traditionally played a major role in a financing infrastructure projects, however, bank dominant system increases the risk of an overexposed banking system through maturity and currency mismatches.
While the Nigerian Capital market have suffered monumental losses due to sustainable decline in stock prices resulting in huge decline in investment value occasioned by the financial crisis, the capital can still be leveraged on to reduce the pressure on the banking system while also making available fresh equity to finance or refinance infrastructure projects.
Furthermore, many capital market products and mechanisms can be used to stimulate economic development and these include bonds which are issued by corporates, sub-nationals, national and super-national institutions to raise funds for their expenditures and investments.
For instance, at the end of 2018, the bond market of the Nigerian Stock Exchange (NSE) stood at N10.16 trillion and recently, the Nigerian government issued N100 billion sukuk to finance 25 road projects with a total subscription of 132.20 billion, representing subscription rate of 132.2 per cent.
This shows the appetite of investors towards these instruments. Similar opportunities also exist to issue revenue bonds to finance revenue-generated projects which will exert less pressure on government budget and allocation.
Speaking during an interactive session between stockbrokers and Federal Government’s economic team in Lagos, recently Acting Director General, Securities and Exchange Commission (SEC), Mary Uduk noted that Nigeria was endowed with agricultural resources but pricing, storage and transportation has continued to pose problems and these problems can be addressed by a vibrant commodity exchange system which the Commission is working towards achieving.
Uduk stated that although a double digit growth is not envisaged in the medium term focus of the Economic Recovery and Growth Plan (ERGP), there are many areas where the capital market can improve on this growth forecast through its contribution to the different aspect of the plan.
Her words, “In restoring macro-economic stability, the capital market should take advantage of the privatization effort by the government to implement through the sale of its assets and enterprises. Government enterprises can be privatized by listing on the stock exchange as this would serve the purpose of generating funds for the government and allow the Nigerian public to participate in the ownership of privatized government’s assets and deepen the capital market.
“Towards building a competitive economy, the capital market can source funding for the FG by issuing bonds like infrastructure bonds for financing the building of the Mambilla Hydropower plant as well other major infrastructures. In addition, the privatization of the Nigerian National Integrated Power Project (NIPP) generating asset could be done through the stock market for efficient pricing, wealth distribution and liquidity”.
Also speaking, President and Chairman of Council, Chartered Institute of Stockbrokers (CIS), Adedapo Adekoje, explained that the federal government needed to utilize the capital market to fund the 2019 fiscal budget with ease.
According to him, government’s investment through Savings Bond and similar asset classes could not fully finance infrastructural deficit, hence, the urgent need to float revenue bonds in addition to general purpose bonds.
Speaking to Daily Sun via telephone, Chief Executive Officer, Cowry Asset Management Limited, Johnson Chukwu, explained that there is need to identify commercially viable assets, develop a strong legal or regulatory framework and prepare regulations that will steer both private and public investment towards infrastructure development.
“The first thing to do is identify some assets or infrastructure that are commercially viable and develop a legal and commercial framework for private sector to invest in those assets. Then invite private capital to invest fully in the bidding process and also define what one might call an exit strategy in a high default clause so that incoming administrations will not come and cancel such contracts. Once you have those assets that are openly bidded for, then the promoters of the enterprise can now go the capital market and collect funds in the form of initial public offers to invest in infrastructure. These are