InfraCredit, in collaboration with GuarantCo, Private Infrastructure Development Group (PIDG), and the International Finance Corporation (IFC), have initiated an investor capacity building, and knowledge sharing in the Nigerian infrastructure finance sector.
At the first investor workshop under the capacity building programme held in Lagos, last Friday, themed: “Unlocking Pension Fund and Insurance Investment in Infrastructure Debt Issues,” the organisers noted that investments in infrastructure-related corporate bonds in Nigeria are currently limited due to low-risk appetite, and limited asset classes to invest.
The workshop was to enable participants have an interactive conversation with regulators and other stakeholders to discuss and critically evaluate, among other points, how Nigeria can leverage experiences in other markets to overcome prevailing constraints, and unlock financing for its infrastructure particularly through the use of credit enhancement tools.
“This workshop is a capacity building programme aimed at further empowering, and informing the key potential institutional investors in the country’s infrastructure market in order to stimulate capital formation for infrastructure development,” said the Chief Executive Officer, InfraCredit, Chinua Azubike, on the sidelines of the workshop.
He noted that “developing our domestic debt capital markets and strengthening the capacity of domestic institutional investors is the sustainable path to connecting the infrastructure finance market to long-term local currency financing.”
According to the Nigeria Integrated Infrastructure Master Plan (NIIMP), the country needs to invest $3trillion to deliver quality infrastructure across different asset classes, including energy, transport, ICT, housing, water, agriculture, mining, social infrastructure, vital registration and security over a 30-year period.
To bridge the current infrastructure gap, and reach the desired optimal investment, NIIMP said Nigeria must increase core infrastructure stock from 35-40 per cent of the gross domestic product (GDP) in 2012, to 70 per cent by 2043 (prior to GDP rebasing).
Most developed countries typically have ‘core infrastructure’ stock (roads, rail, ports, airports, power, water, ICT) equal in value to about 70 per cent of GDP, with power and transportation infrastructure usually accounting for at least half of the total value.
According to NIIMP projection (2014-2018), an investment of $127 billion is required over the next five years (“the 1st Operational Plan Period”) translating to an average of $25 billion per annually.
Nigeria’s infrastructure deficit is very large and will require multiple and interrelated market functions to work effectively. Therefore, one of the key reasoning behind the creation of InfraCredit is to attract significant new capacity to the infrastructure finance market from the domestic pension funds, insurance companies, and other long-term investors.
Participants at the workshop included regulators such as the Nigerian Securities and Exchange Commission (SEC), other participants were the AFC, Nigerian Sovereign Investment Authority (NSIA), FMDQ OTC Exchange, chief executive officers, chief investment officers, risk managers, and board members of domestic pension fund managers and life insurance firms.
“Our belief is that investor capacity building can play a critical role in unlocking the potential for sustainable long-term infrastructure finance by strengthening investors’ analytical skills in understanding infrastructure as an asset class, and pricing the risk rating of credit enhancement tools. This is expected to deepen the participation of pension and insurance firms as natural investors in infrastructure assets” said Chinua Azubike in his opening remarks at the workshop.
InfraCredit was established by the NSIA in collaboration with GuarantCo, with the key mandate of issuing guarantees to enhance the credit quality of local currency debt instruments issued to finance eligible infrastructure related assets in Nigeria, thereby acting as a catalyst to attract the investment interest from pension funds, insurance firms and other long-term investors.