Infrastructure Finance Mechanism and Challenges in Nigeria

Abstract

Infrastructure financing plays an important role in addressing chronic deficiency of infrastructural facilities in developing economies.Inadequate infrastructural facilities discourage investments and retards economic development. Traditional methods of financing infrastructure through budgetary provisions and execution by direct contract award has proven to be inadequate and most often unimplemented creating a financing gap for execution of infrastructure projects in developing countries. This paper assesses the nature of infrastructure financing in Nigeria and highlights the major models of PPP as well as some of the challenges encountered in the mobilizing this type of financing. The paper concludes with some suggestions on the policy measures to be adopted in addressing the identified challenges.

The challenges of access to local finance for PPP infrastructure project delivery in Nigeria

“…Specifically, low-income countries such as Bangladesh, Colombia, Pakistan, Peru, Philippines, Sri Lanka, Thailand, Venezuela, Indonesia and Nigeria have been characterized with setbacks because of risk perception, judicial inconsistencies, corruption and inadequate finance (World Bank, 2016). Socio-political environment (Badu et al, 2013) and project viability (Onwukwe, 2015) have also resulted in cost and time overrun for some PPP projects in these locations. In response to these challenges, several studies have suggested the review of the PPP bidding processes, implementation of more stringent regulatory requirements and innovative finance strategies that guarantee VFM (Li et al,2005;Chou and Pramudawardhani, 2015;Owolabi et al,2019).…”

“…Infrastructure shortfall in Nigeria cannot be conclusively addressed without the consideration of access to finance (Onwukwe, 2015). The Nigerian government, just like most countries in SSA, has been solely responsible for the provision of infrastructure amenities for its citizens over the years (Foster and Briceno-Garmendia, 2009).…”

“…Indeed, the current state of infrastructure shortfall in Nigeria is perhaps the utmost hindrance towards the realization of the country's vision of becoming one of the 20 largest economies in the world (Sanusi, 2012). Studies such as Onwukwe (2015), Babatunde and Perera (2017) and Owolabi et al (2019) have attributed the menace of infrastructure deficit in Nigeria to inadequate project finance arrangements. While the traditional practice, wherein the government (public sector) solely funds infrastructure directly from the fiscal budget still subsist as the primary infrastructure finance option in the country (Mudi et al, 2015), Ibrahim et al (2006) opined that this funding approach has failed to keep pace with rising demand for infrastructure facilities in Nigeria.…”

“…Among these challenges, inadequate access to funding is more pronounced (Aruomoaghe and Olugbenga, 2014;Ojo et al, 2015;Owolabi et al, 2019). Although there are existing partnership arrangements between the Nigerian Government and foreign organizations such as the World Bank (WB) and the International Monetary Fund (IMF) in funding infrastructure amenities in the country, overreliance on foreign financial institutions has been reported to exacerbate interest rates, exchange rates and inflation (Tenuche,2010;Onwukwe, 2015). Shendy et al (2011) report further that foreign organizations are becoming increasingly reluctant about long-term investment in Nigeria because of persistent civil unrest, currency instability, weak legal structure and project bankability issues, which ultimately threaten the feasibility of PPP project finance in the country.…”

“…Given the limitations above, scholars have highlighted the need to explore local financing options that could facilitate the efficient delivery of infrastructure projects in Nigeria (Oyedele, 2013;Onwukwe, 2015). Consequently, several studies on indigenous innovative financing options for PPP projects have suggested the use of pension funds, capital market funds, bonds and loans from local financial institutions (LFIs), i.e.…”