Over the years, the public infrastructure deficit in Nigeria has become an issue of major concern and it is estimated that the country will require between $1001 to $150 billion2 per annum for at least the next ten years to close the gap. The gap includes lack of good roads and a railway network that can drive economic activities, poor and in some instances non-existent power generation, transmission and distribution systems, decaying public educational facilities, dilapidated government owned hospitals (including tertiary healthcare facilities) and even airports amongst others.
Generally, infrastructure is the foundation on which economic activities thrive, as poor infrastructure impacts on economic growth. According to the Africa Infrastructure Country Diagnostic Report released in 2011 titled "Nigeria Infrastructure: A Continental Perspective", about 40 percent of the productivity handicap faced by African firms are caused by infrastructure constraints. There is therefore no doubt that the dearth of key infrastructure in several sectors of the economy has continued to limit Nigeria's growth potentials and its competitive abilities globally.
In a bid to tackle this infrastructure challenge, the Central Bank of Nigeria (CBN) announced the creation of the Infrastructure Corporation (InfraCorp) in October 2021 (after it was approved by the President in February 2021) to boost funding for capital projects in the country. The InfraCorp was established by the CBN in partnership with African Finance Corporation (AFC) and the Nigerian Sovereign Investment Authority (NSIA) with a seed investment of ?1 trillion. Funding is expected to grow to N15 trillion over the next few years and will be deployed to tackle critical infrastructural projects.
Given the significant role that the InfraCorp is expected to play within the Nigerian economy, this article provides a general overview of the InfraCorp, its prospects and likely challenges as well as outlook for the future.
The Need for an Infrastructure Corporation in Nigeria
The approach adopted by the government in tackling infrastructure challenges over the years have largely been through a combination of budgetary allocation financed by government revenue and augmented by foreign and domestic debts to fund capital projects. This approach partly accounts for the continued rise in Nigeria's debt profile resulting in increased cost of debt servicing to the country. In this regard, there are serious concerns that project finance mainly through debt is not sustainable in the long run. This has necessitated the introduction of a number of other strategies to fund infrastructural projects. For example, President Muhammadu Buhari in 2019 signed the Executive Order 007 on Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme to encourage private participation in building critical infrastructure.
Furthermore, the Nigerian Government created the revised National Integrated Infrastructure Master Plan (NIIMP) in 2020 to be implemented across 23 years (i.e till 2043). The NIIMP projects an estimated infrastructure investment of $2.3 trillion over the 23-year period at $150 billion annually by both the private and public sectors between 2021 and 2025 with the energy and transportation sectors requiring the largest investments of more than fifty percent over the planned period. The private sector is expected to contribute 56% of the investment requirement while the public sector is expected to finance 44%.
The creation of the InfraCorp is therefore crucial to the realization of the NIIMP as a means of bridging the infrastructure investment deficit in the country.
InfraCorp as a Corporate Entity: Prospects, Likely Challenges and Future Outlook
The idea of an infrastructure focused entity backed by a sovereign is not peculiar to Nigeria. In the United Kingdom (UK), for example, the Infrastructure and Projects Authority (IPA) is a government agency with its own charter which was set up to manage the UK government's delivery of infrastructure and major projects. The delivery of these projects is however outsourced to private companies such as Serco UK which generates about 40% of its revenue from UK government contracts.3 Unlike the UK approach, the InfraCorp was set up as a limited liability company pursuant to the Companies and Allied Matters Act,2020 (CAMA) rather than as an agency of the Federal Government with statutory flavour.
Setting up the InfraCorp as a corporate entity creates exciting prospects/opportunities for capital funding and proper management of infrastructural funds and projects, amongst others. Additionally, the appointment of Dr. Lazarus Angbazo, a seasoned industrialist with over 25 years' experience in infrastructure project development, investments and raising capital as the pioneer Chief Executive Officer (CEO) is a major boost for Nigeria's infrastructure ambitions and has been well received by stakeholders.
Beyond the prospects, there are however some potential downsides to establishing the InfraCorp as a limited liability company, especially as it will be required to fulfil various compliance obligations under extant laws, which may impact its overall effectiveness and may also be an avoidable cost for an entity of its expected size and coverage. We have thus discussed in detail below the prospects and likely challenges of setting up the InfraCorp as a company below.
The activities of InfraCorp is expected to result in increased Foreign Direct Investment (FDI) to the Nigerian economy and an improved business environment. InfraCorp intends to undertake projects across the energy, transportation, agricultural, industrial, telecommunications and technology sectors of the economy. A direct consequence of infrastructural growth across various sectors at once is increased job opportunities, quicker industrial development and increased economic activities.
As a private company owned by reputable organizations such as the CBN, NSIA and AFC, InfraCorp will be better able to raise equity and debt (if required) than a statutory corporation. The company is projected to raise an additional ?14 trillion from the equity and debt market in the coming years. Being a company creates opportunities for potential equity investors such as International Finance Corporation (IFC), African Development Bank (AfDB) amongst other credible investors to part-own the InfraCorp and get returns for their investment.
Since InfraCorp is private sector driven and will be co-funded by the private sector, it is expected that leakages, inefficiencies, bureaucracy, waste and corruption etc. which usually bedevil government owned institutions will be non-existent or at the very least minimized. Hence, InfraCorp should be efficient in its operations and become profitable in a short while. A case in point is the Nigeria Liquefied Natural Gas (NLNG) Limited, which has been able to sustain impressive performances over the years for its shareholders. The NLNG Limited was established as a limited company solely for the LNG project and is owned by the Federal Government and a consortium of private investors.
As an incorporated entity, rather than an agency backed by statute such as the NSIA, InfraCorp will be required to comply with a number of compliance obligations/ requirements under extant laws in Nigeria. The InfraCorp may also experience some administrative bottlenecks with regulators in respect of its operations, which are not common with a statutory corporation. Similarly, a change in political leadership coupled with a possible lack of interest of a new government in the company can result in continuity challenges with the company unable to discharge its functions or even being wound up. A statutory entity having perpetual succession under an enabling Act would not face such risks, as winding it up, will require that the Act be repealed, which may be significantly difficult to achieve.
Corporate governance and other boardroom issues (for example appointment and number of directors, voting on key decisions, approval of projects etc.) may be easier to manage in government owned entities than in private organizations. Given the high correlation between corporate governance and investor decisions, there will be increased scrutiny on corporate governance issues within InfraCorp.
"InfraCorp is an excellent idea, especially in an infrastructure challenged country such as Nigeria, where Government alone is unable to find the type of funding that is required to provide infrastructure. However, the company needs to undertake proper feasibility on the viability of projects and how they can be funded and delivered to provide appreciable return on investments. "
InfraCorp will also be required to comply with tax obligations in Nigeria. This will involve filing of annual companies income tax (CIT) returns, monthly value added tax (VAT) and withholding tax (WHT) returns etc. In addition, dividends paid to investors will attract WHT. Comparatively, public corporations established by statute are generally exempt from taxes. The NSIA, for example, is exempt from all tax obligations in Nigeria pursuant to Section 57 of its enabling Act (along with its wholly owned subsidiaries). Since the investment vehicle/structure adopted for the InfraCorp is similar to that of NLNG Limited, the InfraCorp can take a cue from the NLNG example by seeking for exemption from all taxes through an Act of the National Assembly of Nigeria. Specifically, the NLNG through the Nigeria LNG (Fiscal Incentives, Guarantees and Assurances) Act was exempt from taxes for a certain number of years.
On the whole, there are positive expectations from this initiative from both the government and private sector stakeholders. It is therefore important that projects are adequately funded and profitable enough to provide returns on investments to investors. However, the viability of projects undertaken by the company will be dependent on a number of internal and external factors within the Nigerian business environment, which may sometimes be out of control of the company. Some questions include, will public roads built by InfraCorp be subject to tolls, will rail infrastructure and services be managed by government or wholly by the private sector, can health facilities which will be built, charge fees that will pay off any debts and also return a profit to investors, will our laws be amended to allow complete private ownership of power infrastructure (especially transmission). The answers to these and other questions will determine the long term prospects of InfraCorp and whether ultimately the company will crawl, walk, run or even fly. For commentators at this stage, there is hope that the caliber of shareholders and leadership should enable the company innovatively create lasting solutions to the infrastructural deficit that has bedeviled Nigeria for decades.
InfraCorp is an excellent idea, especially in an infrastructure challenged country such as Nigeria, where Government alone is unable to find the type of funding that is required to provide infrastructure. However, the company needs to undertake proper feasibility on the viability of projects and how they can be funded and delivered to provide appreciable return on investments. InfraCorp should also quickly explore the possibility of obtaining tax holidays and incentives so as to minimize tax burden on the company in its infancy and enhance its ability to provide quick returns to investors and funders in order to gain their trust and confidence. Lastly, investors may reconsider the nature of the vehicle and if possible, it should be converted to a quasi-government owned entity with private sector participation, with an enabling law that provides safeguards against political interference in the long term.
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