Transcript INTERACTIVE SESSION ON 2008 FISCAL STRATEGY

FINANCING INFRASTRUCTURE THROUGH
THE CAPITAL MARKET
Presentation at the Infrastructure Roundtable Organised
by the Securities and Exchange Commission (SEC)
in collaboration with the
National Planning Commission (NPC)
By
Dr. Shamsuddeen Usman, CON
Hon. Minister/Deputy Chairman
National Planning Commission
The Presidency
Monday, August 5, 2013
National Planning Commission
Outline
1.0
Introduction
2.0
Nigeria’s Current State of Infrastructure
3.0
The Place of Infrastructure in Nigeria’s Strategic Planning
Framework
4.0
Overview of National Integrated Infrastructure Master Plan
(NIIMP)
- Key Objectives
- National Targets and Investment Requirements
- Sectoral Targets and Investment Needs
5.0
Financing Options for Infrastructure Development in Nigeria
- Lessons from other Countries
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National Planning Commission
Outline
6.0
7.0
8.0
the
Relevance of Capital Market to Infrastructure Development
Key Issues and Challenges
Strategies for Enhanced Infrastructure Financing through
Capital Market
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National Planning Commission
1.0 Introduction
• Infrastructure is a key driver of economic growth and
development
• Serves as an enabler of business competitiveness
• Despite huge oil revenues over the years, Nigeria’s infrastructure
stock remains grossly inadequate
• Serious constraint to socio-economic development
- Recent World Bank survey reveals that 53% of challenges faced
by the manufacturing sector is infrastructure-related
• Considerable progress made in recent times
- With increased spending on infrastructure development in
Nigeria
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National Planning Commission
1.0 Introduction (Cont’d)
• Purpose and theme of today’s Roundtable are appropriate
-
Assess the infrastructure needs of Nigeria
-
Explore the capital market as a source of financing
infrastructure
-
Deliberate on what will attract investors to invest in
infrastructure related instruments in Nigeria
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National Planning Commission
2.0
Nigeria’s Current State of Infrastructure
• The current state of infrastructure in Nigeria is
inadequate
- To drive the country’s development aspirations
• Stock of infrastructure remains below the
international benchmark of 70% of GDP
• Nigeria’s core infrastructure stock is 35-40% of
GDP
• Additionally, the lower infrastructure stock is not
properly integrated
- Thus the need for NIIMP to bridge the gap
1 Excludes Russia
SOURCE: ITF; GWI; IHS Global Insight; McKinsey Global Institute analysis
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National Planning Commission
2.0
Nigeria’s Current State of Infrastructure
87
76
80
70
Benchmark
~70%
58
47
35–40
Nigeria
Brazil
India
China
BRICS1
1 Excludes Russia
SOURCE: ITF; GWI; IHS Global Insight; McKinsey Global Institute analysis
South
Africa
Indonesia
Poland
Other emerging
markets
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2.0 Nigeria’s Current State of Infrastructure (Cont’d)
•A cross country comparison of infrastructure by sector is highlighted below:
- Huge financial resources required to move Nigeria’s position to be at par with
other emerging economies
Country
Roads
per sq.
km
Quality of
port infrastructure
WEF index
(1 to 7)
Power
Consumption
kWh/capita
Access
to water
(%)
Access to
sanitation
(%)
Mobile
subscriptions
per 100
people
Japan
3.31
5.2
8,394
100
100
105
Brazil
0.21
2.7
2,384
98
79
124
Russia
0.06
3.7
6,452
97
70
179
Mexico
0.19
4.0
1,990
96
85
82
Indonesia
0.29
3.6
641
82
54
103
South
Africa
0.30
4.7
4,803
91
79
127
Nigeria
0.21
3.3
136
59
31
56
Pakistan
0.34
4.1
457
92
48
62
Bangladesh
1.66
3.4
279
81
56
56
Source: AfDB’s IAP for Nigeria 2013
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3.0 The Place of Infrastructure in Nigeria’s Strategic
Planning Framework
• NV20:2020 is Nigeria’s long term strategic plan
- With overall objective of moving Nigeria into the league of 20
largest economies by year 2020
• The Vision is anchored on 3 main pillars
-Guaranteeing the productivity and well being of the people
-Optimising the key sources of economic growth
-Fostering sustainable social and economic development
-Infrastructure is a key component
• The Transformation Agenda (TA) is the FG’s medium-term roadmap on key polices, programmes and projects to be implemented,
2011-2015
- Has infrastructure as a major pillar
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National Planning Commission
3.0 The Place of Infrastructure in Nigeria’s Strategic
Planning Framework
• NIIMP is a framework that identifies required
investment to bring infrastructure in Nigeria to desirable
state
• Close relationship exists between the NV20:2020, the
TA and NIIMP
- As detailed in the chart below
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Nigeria Vision 20: 2020
First National
Implementation
Plan
(2010- 2013)
Second National
Implementation Plan
(2014- 2017)
FG Transformation
Agenda
(2011- 2015)
(2
2010
2012
2014
Third National
Implementation
Plan
(2018- 2020)
NIIMP (2014- 2043)
2016
2018
2020
2030
2040
2045
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Key Outcomes
Jobs, Jobs,
Jobs
Poverty
Alleviation
Priority Areas
Good
Governance
Better
Resource
Management
Human Capital
Development
Developing
Institutions
Infrastructure
Sustained
Economic
Development
Real Sector
Objectives
Job
Creation
Strong &
Inclusive
Growth
Well-being
of Nigerians
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POLITY
Peaceful, harmonious and
a stable polity
MACRO-ECONOMY
A sound, stable and globally
competitive economy with a
GDP of not less than $900
billion and a per capita
income of not less than $4000
per annum
EDUCATION
Modern and vibrant
education system which
provides the opportunity for
maximum potential,
adequate, and competent
manpower
INFRASTRUCTURE
Adequate infrastructure
services that support the
full mobilisation of all
economic sectors
MANUFACTURING
A vibrant and globally
competitive manufacturing
sector that contributes
significantly to GDP with a
manufacturing value added
of not less than 40%
NATIONAL
ASPIRATIONS
AGRICULTURE
A modern technologically
enabled agricultural sector
that fully exploits the vast
agricultural resources of the
country, ensures national
food security and contributes
to foreign exchange earnings
HEALTH
A health sector that supports
and sustains life expectancy of
not less than 70 years and
reduces to the barest minimum
the burden of infectious and
other debilitating diseases
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National Planning Commission
4.0
Overview of the National Integrated
Infrastructure Master Plan (NIIMP)
• The National Integrated Infrastructure Master Plan has a 30
year horizon, 2014-2043
3no 10-year strategic plans
6no 5-year operational plans
• Key objective of NIIMP to ensure coordinated approach to
infrastructure development in Nigeria
Help to integrate diverse infrastructure plans and projects
across all sectors and regions in Nigeria
• Other objectives are to:
- Strengthen
linkage between infrastructure sector
components and the national economy
- Review, upgrade and harmonise existing subsector master
plans
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National Planning Commission
4.0
Overview of the National Integrated
Infrastructure Master Plan (NIIMP) (Cont’d)
- Prioritise projects and programmes for implementation in
the medium to long-term
- Promote private sector participation in infrastructure
development
- Enhance performance and efficiency of the economy
• NIIMP also to provide the capital allocation framework for the
required investments
To bring infrastructure in Nigeria in line with the
country’s growth aspirations.
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4.1National Targets and Investment Requirements
•
To close current infrastructure gap and reach desired optimal investment
- Nigeria must aggressively increase core infrastructure stock

From 35-40% of GDP in 2012 to 70% by 2043
• Consequent need to increase investment spending in infrastructure
- Target investment requirement is approximately $2.9 trillion over next
30 years
- Projected debt/GDP at 2043 - 25%
Infrastructure stock share of
GDP
Total spend 2014–43
USD trillions
70
2.3
2.9
0.6
 Investment over the next 30 years total US$2.9 trillion (constant 2010 prices)
35–40
Current
spending
% of GDP
Core
Current
Target
Average
annual
spend
required
% of GDP
Core
Other
Total
2–3
1–2
3–5
7
2
9
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4.2 Required Investment to close Nigeria’s X% Share of GDP,
total
Infrastructure gap on average annual basis
• Average annual infrastructure spending required by Nigeria is highlighted below:
Average annual spending, USD billions
Required investments to close infrastructure gap
7
9
10
9
9
9
203
140
98
70
46
25
2014–18
19–23
SOURCE: NIIMP development team
24–28
29–33
34–38
2039–43
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4.3 Sectoral Targets and Investment Needs
• Sectoral targets, and investment needs for 30 year period are highlighted below:
Transportation $800bn
•
•
•
•
•
Road $350 billion
Rail $75 billion
Aviation $50 billion
Maritime $50 billion
Urban Transport $275 billion
Agric, Water & Mining
$350 billion
• Water $180 billion
• Agric $121 billion
• Mining $49 billion
Energy $900 billion
Housing $300 billion
• Electric Power
• Oil and gas
• Housing
ICT $300 billion
Social Infrastructure
$150 billion
• access
• quality
• Education
• Healthcare
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4.3 Sectoral Targets and Investment Needs (Cont’d)
Vital Registration and
Security $50 billion
• Police
• Fire service
• Prisons
• FRSC
• Vital Registration
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5.0
Financing Options for Infrastructure
Development in Nigeria (Cont’d)
• An estimated USD 2,900 billion is required for Nigeria’s infrastructure
development, over the next 30 years.
USD 127 billion required over next 5 years
An average of USD 25 billion per annum from 2014-2018,(
compared to USD 9-10 billion currently )
• Budgetary resources alone will be inadequate to meet the infrastructure
requirements
At the Federal and States level
• Financing of infrastructure will also require private sector participation
• Recent privatisation trends (e.g.p ower) indicate private sector can take
about 48% share
• Need to explore other options of financing
Including the capital market
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National Planning Commission
5.0
Financing Options for Infrastructure
Development in Nigeria (Cont’d)
• Private sector investment requirement is projected to increase
from 46% to 48% during the 1st operational plan, 2014-2018
• Public Sector investment projected at 52%
- Only about 15% of public sector funding is projected to be
from the Treasury
- 85% to be sourced through:
 Bond market
 Other Borrowing – internal and external; etc.
Public and private sector need to borrow to finance infrastructure
• Banking sector limitations
- Nature of infrastructure finance – long-term, high initial
capital requirements
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National Planning Commission
5.0
Financing Options for Infrastructure
Development in Nigeria (Cont’d)
Estimated Financing 2014-2018: Potentials
Public Sector
Financing Options
Private Sector
• To contribute 52% of
the total infrastructure
investment during the
first five years
• Amounting to about $66
billion
• Four primary options
available for this
investment
• Public current account
– about $36 billion
• Public debt – about
$29 billion
• Other public sources
(SWF & Pensions) –
$8 million and $5
million respectively
• PPPs – $10-20 billion
• Private sector currently
accounts for about 46%
of the infrastructure
investment in Nigeria
• This is envisaged to
increase to 48% by
2018
• Due to increased
private sector
participation, both
through PPPs &
privatisation
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S/N
Strategy
Purpose
Best Practice Example
1
Various Intervention
funds
i.Land Fund
ii.Viability Gap Fund
(VGF)
iii.Guarantee Fund
iv.Nigerian
Infrastructure
Development Fund
i.
Accelerate Land acquisition for PPP
projects
Construction cost contribution –
enhance financial viability of PPP
projects
Provide guarantee for infrastructure
risks
Offer long-term, mainly local currency
financing for infrastructure
i.
ii.
Project Bond Initiatives
i.
To increase debt financing availability
for large-scale infrastructure projects
Target sectors like Energy, Transport
and ICT
European Investment
Bank supporting
project companies in
credit enhancement
2
ii.
iii.
iv.
ii.
3
Loan Guarantee
Instruments
To support nationally significant
infrastructure projects which are financially
viable with equity finance but dependent on
guarantee and otherwise not financeable
within reasonable timeframe
i.
ii.
Indonesia
Cyprus
United Kingdom and
Italy
Nigeria to pass a
guarantee law or be
embed in the NIIMP
Act.
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S/N
Strategy
Purpose
Best Practice Example
4.
Crude for
infrastructure swaps
i.
To ensure expeditious delivery of key
infrastructure whose financing is
challenged
i.
ii.
Cyprus
Indonesia
5.
World Bank Partial
Risk Guarantee
(PRG)
i.
To protect private lenders or private
sector investors against the risk of
government or a government-owned
entity failing to perform its contractual
obligation in respect of a private
project
i.
This is a
Government
accepted measure
as of 2010
Used in Nigeria
electricity sector
privatisation
ii.
6.
Pension funds and
insurance companies
i.
To augment public sector financing
shortfalls
7.
Private Equity
i.
For medium level investments in
infrastructure
8.
Export Credit
Agencies
i.
To reduce cost of capital and reduce
user charges
9.
Use of regulated
Assets-Based Model
to finance water
utilities
i.
To guarantee steady yield to
i.
investors and affordable user charges
United Kingdom
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6.0
Relevance of Capital Market to Infrastructure
Development
• Capital market critical in mobilising and channeling medium to longterm investment funds;
Critical to any country’s growth and development
• Suitable for infrastructure financing
• Major studies have identified that viable projects collapsed due to the
mismatch of funds utilised
• Capital market enables projects with long gestation period to raise
long term funds
Through equities and bonds
• Facilitates the bringing together of suppliers and users of
-
medium to long term capital for investment in socio-economic
developmental projects
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National Planning Commission
6.0
Relevance of Capital Market to Infrastructure
Development (Cont’d)
• Plays a key role in the privatisation programmes
Including bank capitalisation and consolidation
• Provides opportunity for companies to borrow funds needed for
long-term investment purposes
• Platform for the marketing of shares and other securities
In order to raise fresh funds for expansion
Vehicle for allocating the nations real and financial
resources between various industries and companies
•
Encourages the inflow of foreign capital when foreign
companies or investors invest in domestic securities
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•
•
Depth of Nigerian capital market
- High potential for growth
On-going Reforms in NSE
- Steps being taken to enhance regulatory function of SEC
- Other capital market reforms
- All expected to translate into further improvement in the capital market in the near term
Post Crisis
Crisis
Pre-Crisis
(June 2013)
(Dec. 2011)
(June 2008)
ASI
62,711.56
ASI
20,773.98
ASI
36,164.31
Total Mar. Cap
N15.3 trillion
Total Mar. Cap
N10.28 Trillion
Total Mar. Cap
N15.78 trillion
Mar. Cap
N11.8 Trillion
Equity Mar. Cap
N6.54 Trillion
Equity Mar. Cap
N11.43 Trillion
Bond Mar. Cap
N3.5 Trillion
Bond Mar. Cap
N3.74 Trillion
Equity
Bond Mar. Cap
N4.35 trillion
Source: NSE
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7.0
Key Isssues and Challenges
• Deficiency in bond and equity market
− Low liquidity and depth
− Market Cap/GDP Bonds ( Public Private) / GDP
− Bonds ( public & private ) / GDP
June 2008 Dec 2011 June 2013
62.97%
27.56% 35%
14.41%
10.41%
9.73%
− Low investor and issuer base;
− Remaining issues in corporate governance; etc
• Low fiscal space for government
• Slower pace of financial reform in pension and insurance sectors
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National Planning Commission
7.0
Key Isssues and Challenges
• Poor regional alliance
• Global financial contagion – risk of external shocks
• Low level of credit provision to the private sector:
crowding out by government debt
• Lack of non-government, longer-term debt instruments
• Inadequate competence and capacity
• Inadequate vehicles for infrastructure financing
- Inadequate public sector capacity for PPP projects
• All the challenges above, represent opportunities, however.
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8.0
Strategies for Enhanced Infrastructure Financing
through the Capital Market
• Task of enhancing infrastructure financing is not responsibility of
Government alone.
Capital market operators, regulators and private sector have
major roles to play
• On the part of Government, effort is being made to ensure effective
implementation of the TA and NV20:2020
Ensuring maintenance of strong and stable macroeconomic
environment
Better legal and regulatory environment
• On going reforms in the petroleum and power sectors
• Effort being made to finalise the NIIMP and ensure its effective
implementation through:
Instutionalising M&E system in the public service
Initiating the process for enacting the NIIMP Act
Establishment of infrastructure delivery units in the MDAs
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National Planning Commission
8.0
Strategies for Enhanced Infrastructure Financing
through the Capital Market (Cont’d)
Role for private sector
• Develop long-term infrastructure finance capabilities
- Issue bonds by tapping pension funds, insurance
companies & investment trusts
- PPP, Privatisation programme
• Imbibe corporate governance culture;
- Abiding by the market rules;
- Pay taxes; etc
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National Planning Commission
8.0
Strategies for Enhanced Infrastructure Financing
through the Capital Market (Cont’d)
• Cooperate with Government to attract global funds and
global infrastructure providers by:
− Intensifying cross-listing and trading linkages
− Globally;
• Harmonise practices and standards among market
operators
• Forthcoming Nigeria – World Economic Forum
Roundtable on Infrastructure – Oct 2013, Abuja
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National Planning Commission
Thank You
Thank You
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