Necessity, it is said, is the mother invention. This seems to be the situation in the country which has seen the Central Bank of Nigerian, CBN, rolling out some major fiscal policy measures to address the emerging challenges from the rampaging Covid 19 pandemic that is threatening to bring the global economy to its knees. Already projections for the rest of the year indicate almost half of the initial forecasts of about four per cent driven by the expected impressive performance of the China and U.S. economies.

China, the main driver of the global economy for decades, and Nigeria’s major oil importer, was the epicentre of the disease outbreak in January, suffered enormous industrial capacity losses as a  result of the lockdown to stem the raging spread of the virus and has practically abandoned oil import from Nigeria. It is this loss of oil revenue more than the actual threat from the virus that has prompted the stimulus interventions by the CBN.

By the last count, the CBN will be pumping a total of N5 trillion into the economy to off-set the damage in revenue losses and restart the economy. This will be a significant lifeline to avert the expected slump into recession already being predicted deriving from the impact of the impending lockdown. This will comprise N1.5 trillion infrastructure fund for the government in collaboration with money deposit banks, DMO, in the country which is being flooded by liquidity to finance critical projects, such as power, rail, road etc that had failed in the past five years to attract adequate funding.

The other package is the N3.5 trillion direct stimulus for the industrial sector, again in collaboration with commercial banks under the aegis of Bankers’ Committee, to intervene in critical sectors that may be worst affected by the economic lockdown. Some of the sectors include the small and medium scale enterprises, SMEs, which are the engine of growth and employment in any economy; aviation and hospitality, pharmaceuticals etc.

Already all domestic airlines have suspended operations and there is the fear that their staff will lose their jobs; also the hotels and travel agencies had been hit by massive cancellations. Checks by the newspaper revealed that most hotels had recorded over 60 per cent drop in occupancy rate before the shut down imposed by the government last week. The situation would have worsened by now demanding intervention to save jobs.

Experts are warning that Nigeria may experience major shortages of critical prescription drugs by August 2020, which are normally imported from India, another of our major trading partner, badly hit by the Covid 19 scourge. Without such drugs for the treatment of such ailments as cancer, diabetic, stroke, blood pressure etc, the health situation in the country may deteriorate further, thus endangering more lives.

Countries all over the world are also embarking on similar stimulus packages; the U.S. has adopted a $2 trillion package, that will involve cash payments to individuals who lost their jobs and are unable to perform them on account of the disease. Although Nigerians are not anticipating any cash disbursement from the government which is already reeling under poor revenue profile, they commend the action of the apex bank to salvage the industrial sector to remain afloat.

Meanwhile, CBN is also coordinating commercial banks, pension funds and other financial institutions to raise N1.5trillion to fund road, power and port facilities through a special purpose vehicle in collaboration with the federal government and key development finance agencies.

Governor of Central Bank of Nigeria, Mr Godwin Emefiele, said at a presidential dinner to round off the Going for Growth 2.0 Roundtable organised by the bank in Abuja. Emefiele had told his host, President Muhammadu Buhari, that the private sector had made commitments to ensure the implementation of resolutions at the round table session, if the government provides a conducive environment.

According to him, participants at the event have canvassed for the necessity for greater synergy between the private and public sectors as a veritable platform to address the challenges militating against growth. The CBN governor said participants had promised to raise the N1.5 trillion to fund critical infrastructure in the country, adding that six key roads and seaport projects would later be identified for funding.

According to him, the special purpose vehicle (SPV) conceived by the participants to fund the projects is currently being designed and would be presented for implementation in October. He listed the benefits of the SPV to include the reduction in the cost of transporting goods and improvement in the efforts to attain a double-digit growth rate.

The CBN boss also highlighted suggestions made by the session to improve broadband penetration, agricultural production and manufacturing. Participants at the event included the President of Dangote Group, Alhaji Aliko Dangote; Chairman of Zenith Bank, Mr Jim Ovia, and notable captains of industry.

“Participants stressed the need for greater collaboration between the public and private sector in addressing some of the emerging challenges to growth. One key highlight was the need to ensure that the Nigerian economy is self-sufficient in the production of key goods and services, as this would strengthen our buffers and insulate our economy from external headwinds.

“Participants from the financial sector agreed to create a special purpose vehicle working with the federal government, and key development finance agencies. The well-structured SPV will be used to mobilise close to N1.2 trillion in funds from banks, pension funds and other financial institutions, to fund road, power, and port infrastructure. Six key road projects and the seaport projects would be identified for funding.

“The framework for this SPV is currently being worked on and will be ready for implementation by October 2020. When implemented the SPV will help to reduce the burden of government financing of infrastructure projects and enable the government to focus on funding other priority areas. It will also reduce the cost of transporting goods across the country for farmers, SMEs and manufacturers. More importantly, it will help improve our ability to attain double-digit growth rates.”

The event was also graced by top government functionaries such as the Vice President, Professor Yemi Osinbajo (SAN); Secretary to the Government of the Federation, Mr Boss Mustapha, and the Minister of Trade and Investment, Chief Adeniyi Adebayo.

However, Dr Vincent Nwani, economist and financial consultant, while commending the move by the CBN and organized private sector, regretted that government has remained indifferent to the challenges facing the economy and pretended it could handle it alone; stressing that the policy of Public-Private Partnership is not new in the world or Nigeria because it is the initiative of the World Bank and previous governments before this had adopted it with varying degrees of success.

“We have lost a whole lot of time talking, especially under this administration. Can you show me any major capital project that has been completed under this government after five years? It is government and not the place of the CBN to initiate such policy; that is the fiscal policy which the government is responsible for; CBN is only concerned with monetary policies. So why do we have the CBN pushing for it? It shows that this government has no direction and the private sector is looking for a way to provide leadership; it is sad.

He said that even the stimulus package is still a fiscal policy requiring legislative approval as is being done in other democracies. Instead, it is the CBN again that is pushing it which suggests that this government has lost it.

“Look, it is not the Central banks that are intervening in the economies of other countries to cushion the effects of Covid 19; it is not, so why is the CBN intervening here? The CBN may provide the money, which is expected as the banker of government, but it is not its function to intervene in the economy. Remember the money has to go through appropriation as in other places, otherwise, it is an illegal act; under which law is it being released?”

According to Nwani, what the economy badly needs is reform to attract the necessary funding from private and multilateral institutions. He said that without the necessary reforms there would be little progress even with the CBN initiatives.

“What the economy needs is reform and not money; once you reform the money will come because the money is looking for a safe and suitable climate to go; you are not the one to seek it. Without reform, it is a waste of time.

“What can N1.5 trillion do to the infrastructure challenges facing the country; it is a big joke; how much is it in dollars to gloat over? We need hundreds of billions of dollars to rebuild and modernize this economy. We are not serious yet, because that amount cannot fix the power problem alone, and it has not even started. It is really sad for Nigerians.”

A key motivation for governments considering public-private partnerships (PPPs) is the possibility of bringing in new sources of financing for funding public infrastructure and service needs. The Government may choose to fund some or all of the capital investment in a project and look to the private sector to bring in expertise and efficiency.

This is generally the case in a so-called Design-Build-Operate project where the operator is paid a lump sum for completed stages of construction and will then receive an operating fee to cover operation and maintenance of the project. Another example would be where the Government chooses to source out the civil works for the project through traditional procurement and then brings in a private operator to operate and maintain the facilities or provide the service.

Even where governments prefer that financing is raised by the private sector, increasingly governments are recognizing that there are some aspects of the project or some risks in a project that may be easier or more sensible for the Government to take. This is discussed in Government Support in financing PPPs.

He said there are several financing models available which the government could adopt with appropriate reform policy to accelerate project development. However, only a serious reform policy can make such possible.

One of the most common – and often most efficient – financing arrangements for PPP projects is “project financing”, also known as “limited recourse” or “non-recourse” financing. Project financing normally takes the form of limited recourse lending to a specially created project vehicle (special purpose vehicle or “SPV”) which has the right to carry out the construction and operation of the project.

It is typically used in a new build or extensive refurbishment situation and so the SPV has no existing business. The SPV will be dependent on revenue streams from the contractual arrangements and/or from tariffs from end-users which will only commence once construction has been completed and the project is in operation.

It is, therefore, a risky enterprise and before they agree to provide financing to the project the lenders will want to carry out extensive due diligence on the potential viability of the project and a detailed review of whether the project risk allocation protects the project company sufficiently. This is known commonly as verifying the project’s “bankability”.

An export credit agency (ECA) is a private or quasi-governmental institution that acts as an intermediary between national governments and exporters to issue export financing. The financing can take the form of credits (financial support) or credit insurance and guarantees (pure cover) or both. ECAs are active in several developing countries and are increasingly investing in infrastructure. ECAs provide three main forms of support to an importing entity:

Development Finance Institutions (DFIs) are bilateral, regional or multilateral institutions that are supported by states with developed economies. DFIs generally have a mandate to provide finance to the private sector for investments that promote development. The purpose of DFIs is to ensure investments where otherwise the commercial markets would not invest.

DFIs aim to be catalysts, helping companies get funding in countries where there is restricted access to domestic and foreign capital markets and provide risk mitigation products that enable investors to proceed with plans they might otherwise abandon.

DFIs provide loans with longer maturities and other financial products. Examples of DFIs are International Finance Corporation (IFC), European Bank for Reconstruction and Development (EBRD), CDC Group (UK’s development finance institution), DEG (the German development finance institution), Proparco (the French DFI) and European Investment Bank (EIB).

Some of these agencies include The World Bank, African Development Bank, Asian Development Bank, European Bank for Reconstruction and Development, Inter-American Development Bank Group. The Chinese Exim Bank is financing the $2.5 billion rail project, as well as the $17 billion of the $22.3 billion proposed loan already approved by the senate.


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