NIGERIA Invest in 2012-13 - Newsdesk Media

the economy and finance 67
Public resources and development banks will not be able
to cover the substantial costs involved in infrastructure
projects. Private capital is a potential financing outlet
sectors, including food, construction
and training and education have
shown interest, with many looking at
working with Nigerian agents or
distributors rather than open their own
business on the ground.”
Challenges to securing finance
Forming trade agreements usually
means establishing a line of credit.
It has been difficult to secure financing
for Nigerian investments because of
local risks. Efforts have been made to
stamp out corruption and violence, but
investors remain wary of issues such as
delayed or missing payments and
non-delivery of products. “Nigeria can
be a challenging place. As in any
overseas market, it is important to
undertake due diligence and ensure the
legality of contracts,” Fogden stresses.
A deregulated foreign exchange
system has helped to ease concerns, but
lenders still often require protection for
trade financings – for example, invoice
financing and export receivables-
backed financing where credit is secured
in advance, or e-payments. Banks can
also insist on risk guarantees, so that
borrowers carry the financial burden if
political or civil unrest disrupts
business, or they simply place a high
price on loans to mitigate that risk.
Nigeria’s biggest financing
challenge, however, remains its
infrastructure: public transport is
unreliable, schools and hospitals need
investment and power outages are
common. The cost to provide the country
with modern and stable transport, power
and communication systems is expected
to surpass $100 billion, according to
sources including the World Bank.
The government has made
investment a priority. The prime
initiative is Vision 20:20, a $5.5 billion
plan to achieve 16,000MW of capacity
to the grid by 2013. The World Bank,
meanwhile, claims that a further
$14 billion per year is required over the
next decade to deliver transport and
social infrastructure projects if the
country is to reach its growth targets.
Investment gap
The traditional source of funding for
such programmes – public resources and
development banks – will not be able to
cover the substantial costs involved.
Private capital, through privatisations
and public-private partnerships (PPPs),
is a potential financing outlet.
“The Nigerian Government simply
does not have the funds to provide
infrastructure,” observes Oluseyi
Bickersteth, the national senior partner
in Nigeria at KPMG Professional
Services. “The 2012 budget has only
28 per cent going to capital budget.
That is why PPPs are important. That is
why privatisation is important. In project
financing, the key has been government
realisation that private financing is
crucial and needed.”
Eleven distribution organisations
and six power stations have already been
offered for privatisation in a bid to open
up the energy market. Hundreds of
expressions of interest were lodged for
the assets following roadshows that
took place in Lagos, Dubai, New York,
London and Johannesburg.
The privatisations are likely to
attract asset financing, while
non-recourse debt will be required if
the PPP programme is to succeed. The
PPP model involves projects being
funded and maintained by a private
company, which assumes the financing
and operational risk, while the
authorities pay an availability fee for
the use of the project.
The pathfinder PPP is the
$450 million design, build, finance,
operate and maintain project for a new
terminal and air traffic systems at
Lekki-Epe International Airport in Lagos.
The tender opened in 2011 with 33
bidders, including divisions of Bouygues,
DSC Infrastructure, Grupo Isolux Corsán
and Samsung registering interest. Other
proposed PPPs include a second bridge
across the Niger, two national arenas in
Lagos and Abuja and the redevelopment
of the General Hospital in Lagos.
Focus on the banks
Key to this process will be Nigeria’s
banks, which have been able to increase
their liquidity after the government
provided a $4 billion rescue package
during the global economic crisis. This
came about after Central Bank of Nigeria
(CBN) reforms to recapitalise the banks
invest in niGeRia 2012-13