Failing Infrastructure Stifle Business Growth | Independent Newspapers Limited
Newsletter subscribe


Failing Infrastructure Stifle Business Growth

Posted: Jun 6, 2015 at 12:36 am   /   by   /   comments (0)

By Andrew Airahuobhor and Abel Orukpe  –  Lagos


Despite having a viable business environment given the high population, Nigerian businesses are having a hard time staying afloat with failing infrastructure posing huge challenge. Many see Muhammadu Buhari’s emergence as president-elect as a good enough reason for business owners to be upbeat.

Near absence of basic public infrastructure -epileptic power supply, bad road network, inadequate water supply, archaic railway system etc- combines to make cost of investment in Nigeria very high amidst challenge to maintain quality. Failing infrastructure precipitated the collapse of a number of businesses and industries. Volkswagen, Peugeot Automobiles Nigeria, several textile companies, Tyre manufacturers, and many others either collapsed or relocated to neighbouring Ghana.

Although current administration has made some efforts to revive some infrastructure, particularly the railways, but it is still a far cry from what is required to boost businesses in the country. Roads network, railway tracks, power, water dams, hangars in case of aviation and refineries to refine petroleum products have either failed or not in existence at all.

Patrick Aighemie, a business and project management consultant said the emergence of President-elect Muhammadu Buhari offers hope to investors. It is expected that Buhari will address inadequate infrastructure to boost local manufacturing with a multiplier effect on employment generation.

He said government can encourage local fabrication of agric equipment and conserve foreign exchange as well as revive steel industries by fixing electricity supply, providing good roads, improving rail system, and waterways transport.

Aviation infrastructure such as hangar for example is one of the essential ingredient of a thriving aviation sector. The absence of hangar facilities in the country, where aircraft major maintenance such as C and D are done, experts and stakeholders in the sector have said this has negatively impacted the aviation sector and the national economy.

Just because of the non existence of this facility in the country, domestic and foreign airlines take their airplanes to South Africa, Ethiopia, Brazil, Turkey and other countries where the facility is available for maintenance that could have been done within Nigeria and save foreign exchange on cost of the checks.

Executive Director, Centre for Aviation Safety and Research, Engr Shery Kyari said there is huge capital flight when domestic airlines take their aircraft to do major checks such as C and D abroad. That fund could have remained in Nigeria if hangars were available in view of the fact that the country is seen as the leading aviation power house  in West and Central Africa sub region.

Kyari, an Aircraft Maintenance Engineer, said lack of hangars makes cost of operation high for airlines.

The Chief Executive Officer, Infrastructure Bank  Plc Mr Adekunle Abdulrazaq Oyinloye,  said that in the face of a rapidly growing population, increasing demand for air travel, dwindling oil revenues, exchange rate volatility and other fiscal constraints such as escalating rehabilitation and maintenance costs, it is imperative to transit from the traditional model of infrastructure delivery where government is the dominant player in infrastructure delivery as financier, operator and regulator.

It should move to private sector driven approach, in line with the National Integrated Infrastructure Master Plan and the National Policy on Public Private Partnership (PPP), he said, while advocating increased private investment in aviation infrastructure.

Talking specifically of the aviation industry, he stated that a commercially driven model is the desired structure for the aviation sector, whereby private investors take on financing, development and operating risks, whilst the government maintains regulatory oversight of the sector.

Under this model, the private sector plays the crucial role of plugging funding gaps, as well as instituting efficient operation and maintenance regimes post-construction to ensure return on investments in a sustainable manner, he said, noting that if successfully adopted, the aviation sector would be efficiently run and attain self-sustainability, under private sector financiers and operators, duly regulated and monitored by government.

The Infrastructure Bank boss noted that with adroit financial structuring and engineering, innovative leasing structures for aircraft acquisition funding from the private sector

He said that to ensure that there is sustainable infrastructure in all the sectors of the economy, there must be comprehensive legal, institutional and regulatory framework

He also said that there is the need to institutionalise policy frameworks, underpinned by constitutionally approved laws and regulations to mitigate factors such as: arbitrary policy changes, change in public office holders; non-enforceability of contracts, termination of administrations through democratic and undemocratic means, bureaucratic hurdles among others. These factors could derail project transaction cycles and put private capital at risk.

Oyinloye added that although the Infrastructure Concession Regulatory Commission provides the legal framework for private investment in public infrastructure, there is a need for sector-specific regulations that would complement the ICRC Act in attracting private investors to the aviation sector and improve attractiveness of the sector for private investments.

He said that a sustainable infrastructure project must demonstrate that it will generate sufficient cash inflows to cover cost regime for operations and maintenance of the asset, offset loan repayments to lenders, and provide financial returns to equity investors, commensurate with their expected return on investment and risk borne by the investors.

He said that position of infrastructure in the life of any nation’s economy makes it important for financial viability to be ascertained by conducting comprehensive feasibility studies to assess the veracity of the project’s financial indices, prior to making an investment decision.

He pointed out that it is as a result of the failing infrastructure in the country that Infrastructure Bank was established to play a multi-faceted role in the development of bankable infrastructure projects.