All over the world, infrastructure helps to fast-track economic development by increasing productivity and providing amenities, which enhance the quality of life. The services generated as a result of an adequate infrastructure base will translate to an increase in aggregate output.
However, investment in infrastructure services, such as transportation (roads), electricity and water are intermediate inputs to production. This is because infrastructure services tend to raise productivity of other factors, as it is often described as the ‘unpaid factor of production’
Although, Nigerian Capital market have suffered monumental losses due to sustainable decline in stock prices resulting in huge decline in investment value occasioned by the financial crisis, the country’s huge infrastructural deficit in power, housing, roads, healthcare, port services among others, have contributed to a large extent in retarding the overall growth and development of the sector, which is center for capital formation.
However, the operators also believe that since the banking sources are unable to meet the growing financing need in Nigeria’s infrastructure, there is need to bridge the infrastructural gap through the nation’s debt capital market to achieve the desired growth.
Debt Capital Market
Debt Capital Market is a market for trading debt securities where business enterprises (companies) and governments can raise long-term funds. This includes private placement as well as organized markets and exchanges.
The debt capital market trades in such financial instruments, which pays interest. There are the bonds and several loans, which act as the prime financial instrument of this market. Because of this interest factor, the debt capital market is also known as fixed income market.
Debt capital market and equity market jointly makes the capital market. These markets are used by the governments and several companies for raising funds for long and short term. The trade in these markets is executed through several financial instruments.
Debt capital usually refers to long-term capital, specifically bonds, rather than short-term loans to be paid off within one year. If the short-term debt is continually rolled over, however, it can be considered relatively permanent and thus debt capital.
Need for FG to utilise capital market
Stockbrokers have called on the federal government to take advantage of investment opportunities in the capital market to mobilize funds to execute development projects.
They also identified communication gap between the government and the market as one of the reasons for government’s inability to put the capital market on the front burner of Nigeria’s economic revival strategy, urging to place the market on the same pedestal with money market without further delay.
At an interactive session between stockbrokers and federal government’s economic team in Lagos, the President and Chairman of Council, Chartered Institute of Stockbrokers (CIS), Mr.Adedapo.Adekoje, explained that the federal government needed to utilize the capital market to fund the 2019 fiscal budget with ease.
According to him, government’s investment through Savings Bond and similar asset classes could not fully finance infrastructural deficit, hence, the urgent need to float revenue bonds in addition to general purpose bonds.
Adekoje reiterated the need to re-constitute the board of the Securities and Exchange Commission (SEC) and accord the Commission a status of independence like the Central Bank of Nigeria (CBN) in line with the global best practices.
The representative of Vice President and Minister of Industry, Trade and Investment, Dr Okechukwu Enelamah, who assured stockbrokers of government’s willingness to partner with the market operators to ensure double digit growth, presented various efforts of the government to ensure sustainable growth of the economy.
In his presentation titled ‘Re-Building An Economy’, Enelamah explained the status report of the programmes such as ease of doing business in Nigeria, industrial policy and competitiveness, special economic zones, targeted sector policy reforms and trade agreements among others.
Responding to questions during an interactive session moderated by the Chairman, Capital Bancorp Plc, Mr Tola Mobolurin, Enelamah advised stockbrokers to make their specific needs known to the government, assuring them of prompt response.
Corroborating him, the Executive Secretary.and Chief Executive Officer, Nigeria Investment Promotion Commission (NIPC), Ms Yewande Sadiku explained the efforts being made by the Commission to attract investors across the globe into Nigeria through an array of incentives. Sadiku advised stockbrokers to visit the website of NIPC regularly and make input on how to attract investors.
In his earlier presentation titled: “ Strategies To Achieve Double-Digit Growth For Nigeria: The Capital Market Option”, the Institute’s Past President, Mr.Mike Itegboje, explained that developed economies leveraged on the capital market for economic growth. and development.
He urged government to borrow a leaf from countries such as the United States of America and China, which deliberately place premium on utilization of their capital markets for developmental purposes.
“The U.S. capital markets are the bedrock of the nation’s economy and the deepest and most liquid in the world,” he said.
“That depth and efficiency is evidenced by the size of the gross domestic product, the strength of the U.S. commercial sector, the level of home ownership and the vast national infrastructure across the fifty states in comparison to the rest of the world.”
Acting Director General, Securities and Exchange Commission (SEC), Ms Mary Uduk advocated privatization of moribund government enterprises by using the capital market as a platform. According to her, this will not only ensure revival of the companies but also deepen the market after listing.
Uduk underscored the essence of the Commission’s Ten-Year Development Plan designed to make Nigeria’s capital market competitive.
The Managing Director/ Chief Executive Officer, Chapel Hill Denham Group, Mr. Bolaji Balogun, had said that banking sources are unable to meet the growing financing need in Nigeria’s infrastructure, as banks would have to grow loans at circa 20 per cent per annum to meet this requirement, compared to circa 9 per cent 2009-14 CAGR.
He noted that tighter regulatory requirements under Basel III rules will increase the pricing and reduction in supply of long term bank debt, restricting long-dated bank lending in the absence of long term deposits.
Balogun said using domestic capital sources as an alternative source financing was necessary to make infrastructure sustainable and viable.
He listed options for sustainable DCM structure to include project bonds and infrastructure debt funds.
Balogun noted that infrastructure equity is more suitable to private equity, SWFs and large family offices with greater exposure to the asset class and expertise in infrastructure financing.
He said given the relatively early stage of infrastructure financing in Nigeria, infrastructure debt funds perhaps represent the best near term approach for pension funds and other institutions to invest in infrastructure debt.
Need to attract, retain investments
Stakeholders in the capital market have also been urged to continue to take positive steps to attract and retain both local and foreign investments to stimulate economic growth and developed critical infrastructure necessary for the country’s development.
Uduk stated this recently at the formal launch of the book ‘Riding the Eagle’ written by Mrs Toyin Sanni in Lagos.
She noted that during the decision-making process, investors want to be sure of the rational basis of their investment decisions before transferring resources, and this is why quality information is needed.
She said: “Providing information to investors will enhance transparency in the Nigerian markets and improve our global reputation in the investment community.
“Riding the Eagle meets this imperative by providing comprehensive and up-to-date information on investing in the Nigerian markets via a roadmap and guide for foreign, domestic, institutional and individual investors alike. It also examines the challenges faced by the Nigerian economy across sectors, past and recent success stories and solutions to some of the nation’s economic and development challenges.
She said the book goes into details on the key sectors that drive the performance of the Nigerian economy and what investment opportunities are available for interested investors and motivated entrepreneurs.
“The book serves investor interests through this comprehensive and authoritative work on investment opportunities in the Nigerian economy.
“It is imperative therefore that we all as stakeholders continue to take positive steps to attract and retain both local and foreign investments to stimulate economic growth and develop critical infrastructure necessary for our country’s development,” she added.
Government needs to focus strongly on institutional policy changes and sector reforms. This is essential towards improving the investment climate capable of attracting private investors at the level that can meaningfully aim at financing the nation’s infrastructure deficit and meeting her strategic programme over a more attainable time line.