SEC tackles nation’s infrastructure deficit

SEC tackles nation’s infrastructure deficit

The Securities and Exchange Commission (SEC) in conjunction with the Ministry of National Planning last week organized a two-day round table conference in order to tackle the nation’s infrastructure deficit, considering the importance of immediate unlocking and accessing cheaper funds through the capital market to finance infrastructure projects.

Director-General of SEC, Ms. Arunma Oteh disclosed that the key role of the capital market is to deepen the capacity of the market that would enhance the important of infrastructure finance and orderly engenders investors’ confidence.

The DG of SEC stressed that Infrastructure is the lifeblood of any economy as no economy can grow and develop without a reasonable stock of critical infrastructure in transportation, energy, water, sanitation and communication.

Ms Oteh explains that, “The World Economic Forum (WEF) ranks Nigeria 130th out of 144 countries on infrastructure in its 2013 global competitiveness index report. While this ranking underscores the size of the challenge we are faced with, it should strengthen our determination to tackle the problem within the shortest possible time so as to improve Nigeria’s competitiveness.

“The WEF 2012 report noted that investment in infrastructure boosts a country’s competitiveness while the World Bank’s Africa Infrastructure Country Diagnostics (AICD) affirms that raising Nigeria’s infrastructure investments to current levels of middle-income countries in sub-Saharan Africa could raise Gross Domestic Growth (GDP) by as much as four percentage points.”

She disclosed that the National Integrated Infrastructure Master Plan (NIIMP) estimated that Nigeria’s infrastructure needs is at $2.9 trillion over the next 30 years, beginning from 2014, the African Development Bank’s Infrastructure Action Plan (IAP) for Nigeria estimated $350 billion of investment in infrastructure for the next 10 years implying yearly investment of $35 billion in infrastructure equivalent to 13 per cent of Nigeria’s GDP.

The SEC boss noted that the existing source from the federal government cannot cover half of this requirement, looking at the 2011 and 2013 allocation from the government budget that covers third per cent of the budget on capital expenditure and 35 per cent on infrastructure projects.

“Using the $30 billion 2013 budget as an example implies that Federal Government budgets can only cover 10 per cent of the annual requirement. Infrastructure projects are typically long term requiring low interest rates whereas the Nigerian banking system currently offers high rates and short tenures.

“While low interest rates are currently available from developed markets, we must be careful not to overly depend on foreign loans to guard against exposure to foreign exchange risk especially given that revenues from infrastructure are predominantly in local currency,” Oteh explains.

 She explained further by saying, “Challenges posed by traditional funding sources make capital markets increasingly the preferred way to finance infrastructure in Nigeria. We have seen this preference in the number of state governments that raised monies for infrastructure in the domestic bond market in recent years

Oteh disclosed that the federal government has been an active participant in both the domestic and international bond markets.

She said, “FGN bonds dominate the bond market accounting for over N4 trillion of the market capitalization of about N5.64 trillion, while the addition of Nigeria’s sovereign bonds to the JP Morgan Government Bond Index – Emerging Markets (GBI-EM) and Barclay’s Bank Emerging Markets – Local Currency Index (EM-LCI) has made our sovereign bonds more attractive to global investors.

“Nigeria has also successfully raised funds from the international capital markets at reasonable levels. Yield on the Nigerian $500m 10-year Eurobond at issue on January 28, 2011 was about seven per cent. Earlier this month, Nigeria’s $1 billion was oversubscribed four times and the proceeds will be used to finance power and gas infrastructure projects.

 Oteh however said the regulatory body success stories can be attributed to the measures the SEC has put in place which include enhancing the framework for bond issuance, developing rules on book building and shelf registration as well as simplifying disclosure rules for fixed income.

“We also pushed for revision of the tax regime to eliminate tax discrimination among different types of investors. SEC also recently approved Nigeria’s first infrastructure fund, the Nigerian Infrastructure Investment Fund worth about $100 million. We expect this product to be a major attraction for our $20 billion pension fund industry.

“A major objective of this roundtable is to steer the conversation towards ways to build capacity within the capital market in structuring appropriate products for the variety of Nigeria’s infrastructure needs,” She added.