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Alternative lenders: An opportunity for power and infrastructure development in Nigeria

Going by general consensus, there is a positive relationship between the growth of the power/infrastructure sector of an economy and its overall development. The importance of these sectors cannot be overlooked as they directly affect the well-being and productivity of any country. Very few sectors have a bigger impact in the world today compared to power and infrastructure as it provides light, mobility, heat, and it makes our lives better.  It enables us to commute through roads, railway transport system, ports, power, and airports, study and learn, use our smartphones, PCs, etc.

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Research has however shown that only approximately a third of people have access to electricity and quality infrastructure in Sub-Saharan Africa. Nations that have quality infrastructure and electricity are more likely to exceed the forecasts of development analysts. In the face of this evidence, it is imperative for Sub-Sahara African nations to raise various means for power and infrastructure development.

There is the need to purposefully and methodically build reservoir of funding as regards the development of electricity and infrastructure with the critical stakeholders. Nigeria remains at the centre of Sub Saharan Africa’s growth story with a constantly increasing population rate and abundant natural resources. Strong demographic growth, increased technological innovation and fast urbanisation also continue to shape the future of Nigeria. However, her huge infrastructure and power deficit has constrained economic growth and development, thus inhibiting her ability to improve the quality of life as envisaged by her governments at several levels. The need and opportunity for power and infrastructure development in Nigeria is enormous. However, one of the major challenge faced in this regard is funding as the Nigerian economy is dominated by short-term financing of three to five years terms, traditionally provided by domestic commercial banks and the infrastructure sector is long term finance based. The infrastructure and power sector is long-term finance based and requires seven to ten year loan tenure usually with participation from international banks and development finance institutions and in some cases with risk guarantees from multilateral organisations like the World Bank. The question that arises therefore is, how can the power and infrastructure sector be funded to induce development? During the Hogan Lovells 5th annual Africa forum themed ‘Africa Fit for the Future’, one of the key sector sessions was led by Shalini Bhuchar, an asset finance partner, who chaired a panel of leading industry experts in African banking and finance. The panel included Adesuwa Okunbo, Partner and Managing Director of Syntaxis Capital Africa and the Forum’s keynote speaker, Mrs Ibukun Awosika, Chairwoman of First Bank Nigeria who proffered insights to the financing of Africa’s future. They represented views from across the banking and finance mix, which, as an industry, is critical for stimulating economic growth, especially in Africa.

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So when challenged with the task of deciding ‘Who is taking the Lead in Lending?’ there was sure to be some healthy discussions on the subject. There is demand in these sectors but the challenge is the bankability of start-ups due to, among other things, the risk of failure and bankruptcy. Ibukun Awosika echoed this sentiment and also cited the reluctance of certain banks to invest in oil and gas, especially given that there have been notable instances where banks have been unable to recoup returns on their investment. As part of its discussions, the panel was of the opinion that this need for power across Africa has opened up specific opportunities for SMEs in the energy sector and for alternative lenders to fund power producers, fuel traders and other energy infrastructure. Often, with this initial backing, an SME can feed into large established corporates and global traders to build a solid credit record. Asides the conventional commercial bank debt, alternative lenders include DFI lending, debt capital markets solutions and private credit all have a role to play. Commercial banks will however continue to take the lead at a local and regional level and, together with DFIs, act as catalysts to facilitate sustained growth in liquidity in the loan and debt capital markets. Whilst the volumes of private credit deals may not be at par with the USA or Asia, private credit is a much needed alternative lending class in Africa and is indeed on an upward trajectory.

Nigeria will not be able to sustain her current levels of population and economic growth without enhancing her infrastructure. Investing in infrastructure will drive economic growth, provide jobs, and deliver vital services to the country and the majority of its citizens. As Nigeria continues to grow and its cities seek to become more competitive, sustainable, smart, and resilient (given demographic and social changes, climate change, resource scarcity, and rapid urbanisation rates), the opportunities to invest in both core and social infrastructure will continue to grow. Funding African SMEs can by its nature have a positive impact growing businesses and increasing employment, allowing SMEs to step up their business to compete internationally and in accordance with best practice from a social and environmental perspective. There are many great stories, and this is an exciting space to be in.

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