Nigeria needs $15 billion annually over the next five to six years to finance its infrastructural deficits, Managing Director of Sifax Shipping Company, Mr Adekunle Oyinloye, said today.
He noted that because about 80 per cent of infrastructure development in Nigeria is funded by the government, and given the current political situation, declining government revenues due to the crash of crude oil prices, the government’s ability to finance infrastructure is constrained.
Oyinloye made this assertion in a paper on ‘Infrastructure Financing: Bridging the Gap via the Capital Market’ he presented at the 24th stockbrokers’ conference organized by the Chartered Institute of Stockbrokers in Lagos and tagged:. ”Navigating Through the Storms: Re-energizing the Economy through the Capital Market”.
In addition, he said, Nigeria’s infrastructure sector is grossly underdeveloped and this has limited access to social services and significantly increased cost of production and trade.
“Just in 2020, foreign portfolio investment declined by 19.92 per cent between June and September 2020, indicating foreign investors’ lack of appetite on current instruments in the market. The lack of diverse investment instruments has led to such capital outflows.
“At present, the value of Nigeria’s infrastructure is about 35 per cent of GDP, very low in comparison with 70 per cent for economies of the same size, and public infrastructure expenditure as a percentage of GDP is just 3.5 per cent, he said.
Oyinloye stressed that infrastructure financing cannot be met through public resources alone as it will be crippling to the economy in this era of fiscal constraints.
“With the estimate that the country needs to fund about 18 per cent of its GDP on infrastructural development, it is important to start to look for alternative sources of financing to bridge the deficit,” he said.
He was of the view that Nigeria’s capital market does not offer a viable option for infrastructure financing.
“Given the capital intensive nature of infrastructure finance and the large size of such financing instruments, the current capital market is unable to accommodate infrastructure financing instruments,
“The market capitalization of the Nigerian stock market as a percentage of Gross Domestic Products (GDP) is just 9.8 per cent, the lowest when compared to its African peers. This denotes a relatively shallow and illiquid market.
Oyinloye, therefore, said financing would have to be sourced from local project sponsors, International project sponsors, local banks, international banks, local institutional investors, international institutional investors and multilateral finance organizations.
Mr Nandini Sukumar, Chief Executive Officer, World Federation of Exchanges (WFE) said in his paper entitled: ‘The NSE Demutualization: Demystifying the Big Picture’ that demutualization of Nigeria’s capital market would enhance quality of market activities and liquidity in line with global trends in the equities trading as well as improve organizational effectiveness.
Sukumar said: “To improve organizational effectiveness, market quality and liquidity, corporate governance, transparency and accountability in a way that listed companies demonstrate would require an improvement of the performance of the exchange, including its ability to compete globally.
Demutualization is the process by which an exchange limited by guarantees as a member-owned company, or owned by the State, is converted to a shareholder-owned company limited or unlimited by shares.
“Starting in the early 1990s, stock exchanges around the world began to demutualize, starting with the process of converting exchanges from non-profit, member-owned organizations to for-profit, investor-owned corporations,” he said.
“Demutualization separates the ownership of the exchange from the use of the exchange. Though users, who benefit financially from the listing are free to then buy stock in the listed exchange thereby returning them as shareholder owners in addition to users.
“In a subsequent step, the demutualized exchange or company can list, often via an initial public offering which realizes great monetary value for the members of the exchange or occasionally by listing directly and then allowing members of the public to buy shares that are tradable”, he added
Participants at the conference submitted that
Mr Bola Ajomale, Managing Director, NASD, OTC Securities Exchange, in his own paper, “Alternative Investments in any Economy”, said that about 84 per cent of capital market investors plan to increase their alternative investments in the next five years.
Ajomale said that the categories of alternative investments included; private equity, hedge funds, venture and growth capital, buyouts, equity crowdfunding; private debt: peer-to-peer lending, distressed debt, mezzanine debt, distressed debt; real estate: mineral rights, private mortgages, private company equity, structured settlements, timberland, farmland.
He cited commodities to include agricultural products, oil, natural gas, precious and industrial metals, energy; collectibles: art, rare wines, vintage cards Jewelry, whilst structured products are entertainment and film; franchise and Cryptocurrencies.
Ajomale identified the benefits of these alternative investments as investment portfolio diversification, low stock market correlation, hedges against Inflation, may generate above-average returns, direct tax benefits, offers direct project ownership, issuer interacts directly with investor, issuer spreads risk.
He called for an urgent need to address the drawbacks halting the development of alternative investments such as high fees, complex valuation models, obscure pricing, often illiquid, unregulated market and high risk of loss.
The institute inaugurated seven Fellows and inducted 59 Associate Members as part of its 2020 Conference which ended today.