PROPERTY TRANSACTION GUIDE

Hurdles to infrastructure, real estate financing in Nigeria
By Samson Echenim

Punch, Monday 14th June 2010

Adequate financing of real estate and infrastructural projects by banks is indispensable for development. As banking sector reforms continue, experts say banks in Nigeria must encourage the real estate sector. Samson Echenim wrties.

As economies continue to tread the uneven path to recovery, stakeholders have again stressed the need for real estate and infrastructure financing in Nigeria.

According to the African Development Bank, infrastructure financing refers to the means of financing the establishment, maintenance, operation and improvement of a country‘s physical infrastructure systems such as transport, water and other facilities for ensuring clean environment, communications networks and power.

Due to the prevailing high poverty level, African countries have continued to experience peculiar hurdles in trying to bridge the infrastructure gap and provide homes for their growing population.

In April 2009, the Director-General, Infrastructure Concession Regulatory Commission, Mr. Mansur Ahmed, disclosed in Calabar at a one-day regional workshop on Public Private Partnership Policy and Infrastructure Financing, organised by ICRC in collaboration with the Cross River State Government, that Nigeria needed about $15bn annually over the next five to six years to finance its infrastructural deficit and meet up with its Vision 2020 development plans.

The foregoing may imply that the banks in the country at present can only make insignificant impact in financing infrastructural projects.

According to the Group Executive Director, Capital Management BGL Plc, Mr. Chibundun Edozie, if investment worth $15bn is needed annually for adequate infrastructure in the country, it follows that banks in the country do not have the capital to be able to play a major role in infrastructural development.

He, therefore, advised that there should be deregulation of the infrastructure environment.

"What happened in the telecoms sector has shown that privatising major infrastructure in the country is the way forward," he said.

The stakeholders said such projects needed long-term funds that could be provided by issuing bonds and through public-private partnerships.

Also on May 25, 2010, the Group Managing Director, HFP Engineering Nigeria Limited, an infrastructure and property development company, Mr. Dele Martins, said with reference to the national office of statistics, that the housing gap in Nigeria was between 15 and 20 million housing units.

He said,"The greater number of people in this country are low income earners and therefore one can say that they need about 20 or 25 years to be able to acquire their homes. If they have access to bank facilities at interest rates as low as two or three per cent, more people will have access to comfortable homes."

He also noted that failure of Nigerians to produce components needed for project works was responsible for high project costs obtainable in the country.

"For now, the prices are so high because of lack of access to reliable electricity infrastructure. If we get that right and suddenly, electricity becomes stable, I believe a lot of project costs will be less," he said.

Quoting a recent ADB report, the Governor of the Central Bank of Nigeria, Mr. Lamido Sanusi, at the Nigerian Institute of Quantity Surveyors‘ second Distinguished Lecture Series held in Lagos, recently, said the use of bonds for financing infrastructure had been limited in Africa, and that the global economic crisis had constrained financing from international capital markets, resulting in substantial delays or even cancellation of important infrastructure projects across the continent.

He further noted that some countries, such as South Africa and Kenya, had issued infrastructure bonds while others, such as Nigeria and Uganda, had either signalled their intentions to do so or started discussions with investors.

A few states in the country have also explored the bond option. While the Lagos State Government has sought to raise N50bn, the Ogun State Government recently indicated its intention to access the capital markets through the floatation of a two-tranched sub-national debt instrument as an infrastructure bond.

Public-Private Partnerships also offer an alternative means of infrastructure financing. Lagos for about three years now, has successfully raised its infrastructural development higher through PPP. The Lekki concession, the PPP on waste management and the hinterland transport system are some of the manifestations of PPP in Lagos.

According to the CBN governor, who was represented by the Executive Director, Banking Supervision, CBN, Mr Onyebuchi Ibedu, important pre-requisites for a successful PPP include a clear policy framework, a legal system that ensures contracts are effective and enforceable, a long-term investment plan and an operating framework within government to properly manage the process.

Sanusi said, "In order to improve financing of infrastructure development, the CBN plans in the next few years, to collaborate with stakeholders. Already, in concert with the banks, through the Bankers‘ Committee, we have established an Infrastructure Finance Office that will enhance a sustainable financing framework by giving fillip to the ability of the private sector to access long-term capital on concessionary terms. This, we hope, will address one of the major shortcomings of the PPP."

He said the CBN in its current reform was ensuring that the financial sector contributed to the real economy and served as the driving force for infrastructure financing.

To the Chief Executive Officer, Lekki Concession Company Limited, Mr. Opuiyo Oforiokuma, there must be a "change in culture." People coming in to invest in infrastructural projects and real estate must understand and work with the mindset that they are investing in a long-term venture and therefore, must be patient.

"Infrastructure is very expensive and infrastructural investment is a high risk investment. When you lose, you lose big," he said.

He described as "perverse" the current money market situation where despite the inter-bank borrowing rate of one or two per cent, banks‘ lending rate to people remained as high as 18-22 per cent.

He also faulted the establishment of the Asset Management Corporation of Nigeria, saying that it would only encourage bad lending."

"I see a big danger in the Asset Management Company of Nigeria because it will definitely encourage bad lending," he noted.

Oforikuma also feared that political uncertainty was seriously hampering infrastructural development and added that "we have to separate politics from commerce, but how we are going to go about that, I cannot say."

"Nigerians should not be too optimistic about things becoming rosy so soon, but I am not trying to be pessimistic either,"he noted.

Amid these challenges, experts and stakeholders believe that local banks should be made to give long-term facilities meant for real estate and infrastructure projects.