Pro-Market Experts Task FG On Market-Friendly PPP Arrangement

As a key alternative to ramping up debt profile, crowding out private sector in the debt market, experts have advised Federal Government to use market-friendly Public-Private Partnership (PPP) to solve the nation’s infrastructural deficit.

Public-Private Partnership arrangement still remain an option for capital formation, Economic Strategists said at the MarketForces meeting on Friday.

Discussants at the roundtable session said all pro-market leaders in the global space often adopt PPP model to meet desire capital formation level per period.

In their discussions, experts said as a matter of strategic initiative to stimulate the real sector growth, it is important for government to raise demand and supply side at the same time.

According to them, shifting productivity would afford private sector to contribute significantly to gross domestic product (GDP) growth.

In a chat with business and strategy consultants at LSintelligence Associates, it was gathered that the best way to stimulate sustainable growth in the economy is to deploy private sector investment capabilities and technicalities.

“Use Nigerians for home base projects. There is no need to follow an untested assumption that Nigerian companies lack capacity to deliver quality output”, LSintelligence team said.

The consultant said government only need to set the standard for best practice, be square in enforcing it.

“Unfortunately, contracts slacks come from government agencies. At this age, Nigeria should open up a portal for projects the nation wants to execute and allow companies that meet criteria to apply and seamlessly chose contractors”, experts said.

Experts that attend the forum held in Lagos said when government policies shift demand and supply up, there will be increasing business activities and jobs would be created.

They however argue that government efforts must be deliberate.

“There is trouble with the current structure where Banks and Government and perhaps few bellwether companies in the manufacturing and construction companies are the largest spenders”, LSintelligence team said.

“Imagine what would happen to the economy if government embarks on projects that only Nigerian owned companies are to deliver using their private capital but with government guarantee base on assessed performance.

“Banks would get to work, syndicate loans with key corporate actors in the private sector and unemployment rate would reduce. This is the only way is to open up the economy”, the firm said.

Afrinvest in its outlook held that providing the right incentives, enforcing contracts, reducing red tape in seeking permits and approval, and establishing a market-friendly Public-Private Partnership (PPP) framework would be vital.

The investment banking firm recalled that the recent decision of the FG to raise about $30 billion for capital projects across the nation was greeted by criticisms.

Investment bankers asked FG to rather court private investment to meet the infrastructure programme than using expensive debt facilities.

The CBN has shown to be bearish on the size of the nation’s debt stock in the light of developments in the economy.

The Monetary Policy Committee of the Central Bank of Nigeria recently took a swap slap at wrist on government borrowing activities.

The apex bank caution FG on sustainability, cost and potential risk to the economy. The performance of the economy has not been impressive lately. GDP growth has for 5 years failed to buck average trend of 2%.

Meanwhile, there is stakeholders’ consensus about poor infrastructure base, which pundits tagged as worrisome despite the humongous amount allocated and expended so far for projects under Muhammadu Buhari leadership since 2015.

A Professor of Economics with specialty in development said: “We are not close to infrastructure development reality. Nigeria is still playing at the surface”.

On this, there is separate school of thoughts, MarketForces gather from interactions.

While many are of the view that there is less to show for the amount expended on capital expenditure, there are other segments that faulted the process for determining the execution.

Many Nigerians argue that capital formation in the country has improved significantly.

“FG should tow the path of using public private partnership; domesticate supply side investment to achieve certain capital formation goals”, experts said.

Critics said the proposal that was submitted to the National Assembly and under deliberation is scanty in terms of openness.

Political analyst who spoke with MarketForces said FG need to agree to open document initiative as a way to be accountable for use of the nation’s resources.

Nigerians should have access to projects documents as there is tendency for inflating contracts prices by unscrupulous leaders.

In their words, analysts at Afrinvest held that the details of debt plan are scanty; hence the timeline of issuance and the type of borrowing to be done is unclear.

The infrastructure programme contains projects that cut across several sectors and include water resources, agriculture, social investment, power, transportation, works and ICT.

The big-ticket projects are unsurprisingly in the power, transportation and work sectors given the wide deficits”, analysts listed.

Analysts said the implication of this debt raise would be a significant jump in FG’s external and total debts by 130.5% and 48.4% respectively to ₦16.2 trillion and ₦30.3 trillion. “

Afrinvest estimated this would raise the FG’s debt to GDP ratio to 19.4% from 14.5% while public debt to GDP is estimated to rise to 23.0% from 19.0% but remain within the 55.0% recommended threshold of the World Bank/IMF.

“However, the challenge would come in the form of the higher cost of servicing the debt”, the firm stated.

Assuming the current average cost of debt, debt service could easily surge to ₦3.0 trillion, with the debt service to revenue ratio racing to even more unsustainable levels of 64.1% from our estimated 51.9% in 2020.

“It is on the basis of the above that we believe raising such financing would be tough, especially given the stringent conditions that are likely to accompany concessional loans”, the firm’s analysts held.

Afrinvest said if FG opts for commercial loans, this would be costly given the recent downgrade to Nigeria’s credit rating, weak revenues and the bleak prospects for a significant boost to revenues considering lower-for-longer oil prices.

Although the intentions are positive, execution may pose a challenge if the FG manages to raise such an amount, analysts consented.

In their opinion, projects which improve value chains and drive economic activities often give way to politically expedient ones widely distributed across the country.

As such, the returns on such projects might not justify the sizable investments. We believe the government should look to the private sector to bridge the infrastructure deficit in Nigeria given the shortage of resources.

“In this regard, providing the right incentives, enforcing contracts, reducing red tape in seeking permits and approval, and establishing a market-friendly Public-Private Partnership (PPP) framework would be vital”, Afrinvest said.

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Pro-Market Experts Task FG On Market-friendly PPP arrangement by Julius Alagbe