Thread by @StearsBusiness

In today’s thread, we talk about a recent CBN announcement. Not the naira this time though: the CBN recently announced that it would set up a ₦15 trillion infrastructure company (Infra Co) in partnership with the @africa_finance (AFC) and @nsia_nigeria (NSIA).

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Why does #Nigeria need an #infrastructure fund?

We need infrastructure for our societies and economies to function. We drive on roads to go to school; we prepare our meals using electricity; we rely on telephone cables when we make mobile phone calls. 

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Infrastructure is conspicuous by its absence because our lives are built on it.  Every sudden dropped call, each hour you spend in traffic, all the power blackouts we face: these are just a few examples of when infrastructure doesn’t work.

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Infrastructure underpins all our business and social activities. When it fails, they fail too. Nigerians are often caught saying: “Nothing in this country works”. Well, when infrastructure does not work, nothing else works. 

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Let us walk you through some important examples in Nigeria. 

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Only about 18% of the roads in Nigeria are tarred. Trucks break down often and their journeys are notoriously slow. Those transporting goods also have to be wary of bandits and similar dangers. 

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All of these costs are passed down to you as a consumer. Five years ago, @TheEconomist found that cheap long-life imports sell for less than half the price of local milk, simply because of all the additional costs local producers pay to transport their goods to market

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The #Apapa port is another example. The port is the hub for Nigeria’s trade: two-thirds of goods going in and out of Nigeria in 2019 passed through the Apapa port. Yet the port is a logistical nightmare. Nigeria’s port infrastructure makes it more expensive to do business.

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In 2016, the Infrastructure Concession Regulatory Commission (ICRC) estimated we lost ₦2 trillion a year to infrastructure shortages while the African Centre for Supply Chain (ACSC) estimated that we lost around ₦ 3 trillion a year for the lack of maritime hubs in 2018.

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The precise impact of poor infrastructure is difficult to quantify, but that should fool no one. Think about situations in your life or business where you are affected by inadequate infrastructure. 

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The closure of the third mainland bridge? Dropped zoom calls? Road trips to the 10 or so states that do not have local airports? How much might all of this cost you directly or in terms of lost revenue?

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The other tricky thing with infrastructure is that a lot of them are social goods that everyone benefits from. The value of a bridge ultimately depends on how many people use it and the additional economic value it allows them to create.

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For Nigeria, that means that the larger our population grows and the economy expands, the greater the cost of inadequate infrastructure. Lagos’ creaking infrastructure will become even more evident when it houses 30+ million people. 

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People often ask: “Why are some countries more developed than others?” A lot of answers can be given but infrastructure is usually a good option. 

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Have you ever heard of the Marshall Plan in Europe or the New Deal in the United States? These were grand government plans aimed at (re)building infrastructure and transforming economies. 

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All of this means that building good infrastructure should always be a priority. The problem is that infrastructure is expensive. The @IMFNews recently estimated that Nigeria needs to invest $35 billion for ten years to plug the existing infrastructure deficit. 

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Needless to say, Nigeria does not have that type of money. In the recent Medium Term Expenditure Framework, the government allocated just over $5 billion for capital expenditure in the next three years. 

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To bridge our infrastructure gap, Nigeria needs private funding. The CBN hopes this new Infra Co can help deliver that. Will it work?

As always, the devil is in the detail. Unfortunately, there is not much detail about this yet.

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Here is what we know so far: the initial ₦15 trillion capital will be a mix of debt and equity from the CBN, AFC and NSIA. The @africa_finance has lots of experience funding infrastructure projects in Africa. For example, they were an early investor in Main One Cable. 

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The NSIA is Nigeria’s sovereign wealth fund charged with using excess oil revenues to make long-term investments for Nigeria. The NSIA has a good reputation for making savvy investments. Most recently, it invested in Ingressive Capital, a local venture capital firm. 

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And of course, the CBN, Nigeria’s central bank which has gradually extended its economic role over the last half-decade. The CBN also highlighted agriculture and machinery-related projects as top priorities for the fund.

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Beyond that though, little else is known. How much capital is each organisation providing? How exactly will the funds be used? And, most importantly, why would this work when other attempts at raising finance for infrastructure have not?

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There are many questions to answer before you should get excited. The spirit of the fund is laudable and the potential is there. But it is one thing to announce a ₦15 trillion fund. Successfully implementing that fund is a different kettle of fish. 

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