Infrastructure financing in Nigeria for both the public and private sectors is predominantly sourced from a mix of sources: the annual budget of the Federal Government of Nigeria (“FGN”), the private sector through traditional commercial bank loans, and from development finance institutions such as the Africa Finance Corporation (“AFC”) and the African Development Bank (“AfDB”), among others.
The local capital market, with domestic pension funds being the primary investors, through the issuance of bonds, has played a major role in funding the FGN budget. For example, the 2017 budget of N7.44 trillion included N2.18 trillion in infrastructure investment with N1.25 trillion being raised from the local Nigerian capital market. However, the capital market has not, until recently, been a primary source of direct infrastructure financing in the private sector.
InfraCredit was established in January 2017 by the Nigerian Sovereign Investment Authority (“NSIA”) and GuarantCo, a member of the Private Infrastructure Development Group (“PIDG”), to provide guarantees to enhance the credit quality of private sector local currency- denominated bonds used to finance infrastructure projects in Nigeria. InfraCredit has been specifically designed to encourage institutional investors, particularly pension funds operating in Nigeria, to invest in infrastructure-related bonds.
In 2018, PIDG and DFID engaged the Infrastructures and Cities for Economic Development (“ICED”) to develop a research instrument that can be used to evaluate the impact of the activities of InfraCredit on the Nigerian local currency bond market at any given point in time, and provide relevant information for the deployment of InfraCredit in other markets.
The purpose of this presentation is to highlight the results of the initial assessment, using the research instrument, of InfraCredit as of 30 June 2018. This presentation also covers recommendations for enhancing the research instrument, a strategy for ongoing use, and its limitations for use outside of Nigeria. It also includes recommendations on how to enhance and strengthen the activities of InfraCredit in Nigeria, and how the InfraCredit model can be strengthened and applied in other countries.