November 3, 2021/CSL Research
Building on the brewing momentum that has seen improved road networks, the Federal Government of Nigeria (FGN), on Monday communicated its intention to issue another round of Sukuk Bond. The issuance follows three (3) previous issuances in 2017, 2018, and 2020 when the FGN raised N100.0bn, N100.obn, and N162.56bn respectively. For the new issuance, the FGN is expected to raise between N200.obn to N250bn. Noteworthy is that the ethical nature of the instrument has helped drive traction towards it over time, considering the paucity of such asset classes in Nigeria. According to the Debt Management Office, the money raised through the issuance of previous Sukuk Bonds has enabled timely completion of the designated projects while also delivering the multiplier effects associated with construction of capital projects such as roads.
Overall infrastructure deficit has widened over the years due to neglect of public infrastructure. The power, transportation, health, and education sectors are important segments of the economy that are currently burdened with dilapidated infrastructure. Over the years, Nigeria has sustained a meagre allocation to funding infrastructure in its annual budget despite its pronounced infrastructural gap that has become a clog in the wheel of economic growth and development. Nigeria’s growing infrastructure deficit remains a major concern among economic experts and stakeholders as poor infrastructure is one of the biggest impediments to smooth business operations and capital inflows into the country. The paucity of investment in physical and social infrastructure over the years has continued to limit the growth potential of Africa’s largest economy, restricting its ability to exploit its vast amount of natural and human resources towards achieving a broad based, sustainable and inclusive growth.
Despite the FGN’s commitment in recent times to local productivity, the poor road network in the country remains a major bottleneck to the actualization of the objective. For context, bad road portions are a national phenomenon that contributes greatly to increased cost of production in the country. While there are arguments for cargo trains to be used for the movement of merchandise and food items from one part of the country to another, the predominant medium of transportation remains road. Efforts are however currently ongoing for the rescucitation of the moribund rail networks.
We laud the recent move towards infrastructure development in Nigeria, as we see it as a precursor to sustainable growth and development. The tilt towards Public-Private-Partnership in infrastructure investment is also a good idea that we believe will improve accountability and transparency in Infrastructure spending. Earlier in the year, the Federal Government approved the establishment of a Public Private Partnership Styled Infrastructure company named Infra-Co with an initial seed capital of N1tn expected to grow to N15tn in assets and capital over time. The proposed establishment will attract private sector participation in the nation’s quest to bridge its infrastructure deficit necessary for growth across all sectors of the economy.
