‘How infrastructure fund will boost President Buhari’s change agenda’

Following the recent disclosure by government to set up a $25 billion dedicated fund to develop infrastructure and a charge on the Securities and Exchange Commission (SEC) to ensure that the rules on securitization are released as soon as possible, The Guardian sought the opinion of an expert to shed light on the fund and its benefits. Mr. Olu Abayomi Sanya, Managing Director and Chief Executive Officer of Lagos=based Goldbanc Assets Management (GMA) (a member of the Nigerian Stock Exchange), spoke to GODFREY OKPUGIE. Excerpts:

On infrastructure fund:
The Infrastructure Fund, which is new in Nigeria, provides the opportunity to invest in public assets such as power, bridges, roads, water corporations, railway, hospitals, etc.
Infrastructure funds are managed by specialist fund managers, who make investment decisions on behalf of investors (those who owned the funds that are being invested in infrastructural projects.)
Individuals and institutions can invest in infrastructure through infrastructure funds.

The need to develop infrastructure has given rise to huge infrastructure investments all over the world. Currently, there are constraints to traditional sources of public/private financing. So, institutional investors are being sought to finance the development and maintenance of infrastructural projects by governments all over the world, whose sources of getting money to finance developmental projects are being adversely affected by the global financial crisis.

Infrastructure fund investors that readily come to mind are pension funds, insurance companies, but there are many others in overseas that have huge money to invest in infrastructure.

In Nigeria, infrastructure fund, if introduced, is what we need now to develop our poor state of roads, power, airports etc. The government of President Mohammed Buhari, if it’s serious about bringing the change that it promised the people, the only way it can actualize that vision in the face of the current dwindling revenues from crude oil, is to introduce alternative sources of financing infrastructure through the private sector.

Securitization and infrastructure funds and why the SEC is being urged to release the rules and regulations soon:
Investments in infrastructure are done in units called securities. To enable an investor to invest in an asset like a house, for example, the total cost of the house must be ascertained. The total amount spent to build the house would be divided by 50 kobo, one naira or more. Each unit of such division is known as security and the process of splitting the total amount of the asset into units of securities is known as securitization.
When an investor wants to invest in the asset, his investment is calculated on the basis of quantity or number of units of securities his money acquires.

Does the country have the capacity now to manage an infrastructure fund?
We do. I, for example, am an infrastructure finance expert. However, what may likely happen if we have the infrastructure fund now is that the operator of the project must be in good partnership or harmony with the fund manager that will provide the funds. The operator must understand the way and manner the infrastructure finance manager has structured the infrastructural project to make it attractive to investors so that they can invest in the project.

In the country currently, the operators of infrastructural projects are not available, that is why there are no such projects at the moment in the country.
From my experience and from what I have done so far within Nigeria, it is very difficult to get the person who understands the operation of the infrastructure fund from beginning to the end. It is not that they are not available but the people that have ideas on how to do it are currently concentrating on contracts, more or less.

There are rules and regulations of infrastructural funding and the operator, for example, Julius Berger, understands how to construct bridges, but the operation and maintenance of the infrastructure to ensure that the infrastructure continues to generate money that the fund manager will use to pay back the investors who invested in the development of the asset is what is lacking in the country. So, you must have an agreement. There cannot be an infrastructure fund without the operator and knowledgeable fund manager, who will fund it and structure it for the secondary level where the securities will be traded.

For Ibadan Expressway, as an example, the infrastructure fund packaging will involve the liquidity of the project, the availability of the project, the structure of the project in phases, how the structure will be like from the beginning to the end. It will also involve the continuity and how it will continue to produce money, the institutions that will be put together, the rating of the structure and those involved in it, and their credibility and track records.

Who packages the infrastructure fund?
It is the asset manager. People like us, who are financial advisers. The structure finance experts bring the assets manager. He tells asset managers: This is what the project is all about. He will evaluate the whole thing. He understands what the project is all about. He understands what to look out for. The kind of projections that will give him the people that will invest in the project. He must understand the project and say the project can do this or cannot do that. He will be able to evaluate the asset manager whether he has done that type of job before and he will be able to evaluate the operation manager whether he will also be able to carry out the operation to satisfy the various stakeholders.

Is government going to provide $25 billion for the infrastructure fund being proposed?
Sometimes, some of these pronouncements or plans are political. In setting up an infrastructure fund, conceptualization and the workability of it are critical. First, you need to assemble the local experts who understand what is involved.
The $25 billion announced by the government must have been government’s estimated amount that is needed to execute some vital infrastructure in the country, which the government planned to develop and then transfer to the private sector for securitization and floating in the nation’s capital market.

But before packaging such projects and before floating them for people to subscribe, you must do a thorough feasibility to ascertain whether the projects are doable. You need to work it out from the beginning to the end.
The profile and track records of those packaging the project is vital. That is what will attract investors to the project.

The life value and the market value also need to be considered.
The packager is the financial adviser and the issuing house.
The people you will put in the structure must be credible and have track records. They will form the goodwill. They will form what will guide the market.
Benefits of infrastructure funding:
Enormous. It will create so many jobs. Money will be released into circulation through the execution of lnfrastructure projects. The economy will be vibrant.

“Studies have shown that infrastructure, or the lack thereof, is deeply interconnected with both economic growth and social progress. Indeed the links between infrastructure and development are well established. Infrastructure can drive growth through higher employment—a USD 100 million investment can generate up to 50,000 annualized direct and indirect jobs; improved infrastructure can lead to better health outcomes. A study by Calderon (2009) found that if all African countries had the same stock and quality of infrastructure as Mauritius (the region’s leader in infrastructure), their GDP could grow by an average of 2.2 per cent more per year.”

Studies have shown that infrastructure, or the lack thereof, is deeply interconnected with both economic growth and social progress. Indeed the links between infrastructure and development are well established.
Infrastructure funding can drive growth through higher employment—a USD 100 million investment can generate up to 50,000 annualized direct and indirect jobs; improved infrastructure can lead to better health outcomes. A study by Calderon (2009) found that if all African countries had the same stock and quality of infrastructure as Mauritius (the region’s leader in infrastructure), their GDP could grow by an average of 2.2 per cent more per year.
Weak infrastructure can slow a country’s growth and competitiveness; it can also cause loss of lives, disease, and diminish the overall quality of life.

The introduction of infrastructure fund will enable the capital market to attract the huge idle funds out there in the country. It will reduce, if not totally eliminate, abandoned projects. It will help the government to spend less money directly in developing infrastructure. More investors will be brought into the country from overseas. It is a goldmine yet untapped.

Pitfalls:
Some infrastructural projects have inherent challenges like interest rate; expert management and governance, regulatory challenges, political challenges like changes in government or infrastructural policies.
Foreign investors are particularly concerned about poor governance standards. To prevent the mistake of investing in a poorly packaged infrastructure, discerning investors look out for investment grade rating, the credibility of those packaging the infrastructure and their track records, transparency, etc.

Any infrastructure that has been packaged and accepted for listing at the Nigerian Stock Exchange will definitely attract both local and foreign investors because of the strict adherence to rules and regulations by the various regulators of our capital market.