1 / 33

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

kirra
Download Presentation

FINANCING INFRASTRUCTURE THROUGH THE CAPITAL MARKET

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. 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 FINANCING INFRASTRUCTURE THROUGH THE CAPITAL MARKET

  2. 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

  3. Outline 6.0 Relevance of Capital Market to Infrastructure Development 7.0 Key Issues and Challenges 8.0 Strategies for Enhanced Infrastructure Financing through the Capital Market

  4. 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

  5. 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

  6. 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

  7. 2.0 Nigeria’s Current State of Infrastructure Benchmark ~70% 35–40 Nigeria South Africa Indonesia Brazil India China Poland BRICS1 Other emerging markets 1 Excludes Russia SOURCE: ITF; GWI; IHS Global Insight; McKinsey Global Institute analysis

  8. 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 Source: AfDB’s IAP for Nigeria 2013

  9. 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 road-map on key polices, programmes and projects to be implemented, 2011-2015 - Has infrastructure as a major pillar

  10. 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

  11. 3.0 The Place of Infrastructure in Nigeria’s Strategic Planning Framework (Cont’d) Nigeria Vision 20: 2020 First National Implementation Plan (2010- 2013) (2 Second National Implementation Plan (2014- 2017) Third National Implementation Plan (2018- 2020) NIIMP (2014- 2043) FG Transformation Agenda (2011- 2015) 2010 2012 2014 2016 2018 2020 2030 2040 2045

  12. 3.1 The Place of Infrastructure in the Transformation Agenda (TA)

  13. 3.2 The Place of Infrastructure in the NV 20:2020

  14. 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

  15. 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.

  16. 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% Total spend 2014–43 USD trillions Infrastructure stock share of GDP • Investment over the next 30 years total US$2.9 trillion (constant 2010 prices) 35–40 Core Other Total Current spending % of GDP 2–3 1–2 3–5 Average annual spend required % of GDP Core 7 2 • 9 Current Target

  17. 4.2 Required Investment to close Nigeria’s Infrastructure gap on average annual basis • X% Share of GDP,total • 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 2014–18 19–23 24–28 29–33 34–38 2039–43 SOURCE: NIIMP development team

  18. 4.3 Sectoral Targets and Investment Needs • Sectoral targets, and investment needs for 30 year period are highlighted below:

  19. 4.3 Sectoral Targets and Investment Needs (Cont’d)

  20. 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

  21. 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

  22. 5.0 Financing Options for Infrastructure Development in Nigeria (Cont’d)Estimated Financing 2014-2018: Potentials

  23. 5.1 Financing Options: Lessons from other Countries

  24. 5.1 Financing Options: Lessons from other Countries (Cont’d)

  25. 6.0 Relevance of Capital Market to Infrastructure Development • Capital market critical in mobilising and channeling medium to long-term 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

  26. 6.0 Relevance of Capital Market to Infrastructure Development (Cont’d) • Plays a key role in the privatisationprogrammes - 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

  27. 6.1 Current Potential of the Nigerian Capital Market • 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 (June 2013) Crisis (Dec. 2011) Pre-Crisis (June 2008) ASI 36,164.31 ASI 20,773.98 ASI 62,711.56 Total Mar. Cap N15.78 trillion Total Mar. Cap N10.28 Trillion Total Mar. Cap N15.3 trillion Equity 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 Bond Mar. Cap N4.35 trillion Source: NSE

  28. 7.0 Key Isssues and Challenges • Deficiency in bond and equity market • Low liquidity and depth June 2008Dec 2011June 2013 • Market Cap/GDP Bonds ( Public Private) / GDP 62.97% 27.56% 35% • Bonds ( public & private ) / GDP 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

  29. 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.

  30. 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

  31. 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, Privatisationprogramme • Imbibe corporate governance culture; - Abiding by the market rules; - Pay taxes; etc

  32. 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

  33. Thank You Thank You

More Related