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Adekunle AbdulRazaq Oyinloye, Managing Director and Chief Executive Officer, The Infrastructure Bank Plc, spoke with the Editors of Financial Nigeria Magazine on the role of TIB in closing Nigeria's infrastructure deficit.

FN Editors: Nigeria has a staggering infrastructure deficit. This definitely compels prioritization. Therefore, as a country, what infrastructures should be high on our priorities, balancing available resources with needs?

Adekunle AbdulRazaq Oyinloye: The deficit is huge; it is quite staggering. But it is not a surprise because for a long time, we did not invest in infrastructure – by way of maintaining existing ones and developing new ones – and yet we were growing in population and sophistication with attendant demand for infrastructure. So the gap kept widening. What is important for us is to address the deficit more earnestly. The size shouldn't matter much, although it gives us some insight as to how much we need to invest.

But by way of prioritization, what is important is to select highly impactful sectors. If you ask me, power is one area that is impactful because it touches on the lives of people. It touches on industry, trade and commerce. It is therefore very important. Transport is another major impactful area because people need to commute from one place to another. Commerce has to be facilitated by transportation. So, we need good transportation network from roads to waterways, airports and railway services. It is important to also think of railways for moving wet goods and cargo, most of which land at our ports. We have spent so much money and time trying to re-modernize our railways, but maybe we need to change our strategy in that sector.

Water infrastructure is also an impactful area to prioritise. Investment in water has positive impacts on GDP growth and the quality of life of the people. We drink water; we bath with water; we use water in industrial activities; and in agriculture. In terms of prioritization, these areas will be my bet.  

FN Editors: What role is The Infrastructure Bank playing in the selection and provision of the high-priority infrastructures?

AAO: For The Infrastructure Bank, as the name suggests (it was deliberately chosen to replace the original name of Urban Development Bank of Nigeria), the remit is to facilitate the rapid development of infrastructure across the country. Given that particular remit, we situate ourselves within the development space. But we have to find out why we haven't achieved major development in infrastructure.

Despite the apparent demand for infrastructure and the availability of local and global finance, we are not seeing those monies going into infrastructure. So we realized that the main challenge is our inability to convert infrastructure needs and ideas into projects that are bankable. Once you don't make a project bankable, investors can't see exit opportunities. They can't see possible protection or security against risks that are inherent in infrastructure projects. The Infrastructure Bank has built the skills to help in project selection.

We also go further to help in dissecting projects in a manner that identifies the risks, allocates them to parties best suited to mitigate them, and proffers the framework for mitigating the risks. We also create exit paths or clear lines of return for all stakeholders including the grantor (which is often the government), the equity investors, and the lenders who have to put other people's money into the project. When we put all these together, people then begin to see the opportunity to invest in infrastructure.

FN Editors: Investment in infrastructure is long-term in nature. It can, therefore, better reflect the attitude of both local and foreign investors towards Nigeria risk. What has been your experience in raising financing for Nigerian infrastructure projects; what are the key concerns of financiers?

AAO: I'm happy you noted that infrastructure financing is long-term in nature. Everybody knows that, including the investors, the lenders and the operators. If you have a very good project that is properly put together, and adequately structured to be financeable and of investment grade, financiers and investors will line up to provide requisite funds for the project. And we have proven it in a number of projects that we have done. What then is the concern? Investors are looking for consistency in policymaking and investment protection.

What do we call infrastructure? They are enabling assets. A road is an enabling asset that allows people to move from point “A” to point “B” to facilitate trade, commerce and investment. But who owns the road? It's typically government that owns roads. The laws that permit private sector to work with government on an asset that government owns are also determined by government. But investors, by their engagement, can have the right to develop or own the asset for a timeframe. This is where we begin to see the issue of property rights. But do we respect the contracts that bind government and investors? There is also the relationship dimensions in infrastructure which, sometimes, generate disputes. Therefore, the frameworks for the resolution of investment disputes must be underpinned by legislative and judicial processes that are fair and expeditious.

Nigeria has a lot of laws and statutes that regulate how we play in the infrastructure space. But do we have a judicial system that supports it so that interpretations of the law are fairly predictable and fast? In the presidential system, there is separation of powers. But, as an investor, you see government as one and the same, including the judiciary.

The macroeconomic stability is also very important. Suppose you had entered into a dollar-denominated contract – typically offshore credit transaction – last year around May. Look at the exchange rate today, especially in the parallel market. Also, interest rates have gone down since then.

Through policies that enhance growth sectors, government can influence long-term macroeconomic stability. However, some macroeconomic challenges are externally imposed, like the currency crisis precipitated by the fall in oil prices. Although government seems to be doing its best to manage the crisis, investors in long-term assets like infrastructure worry a lot about instability; and how the people in charge are managing the issues in a transparent and sustainable manner.

FN Editors: There has been this concern over the trend whereby capital expenditures in the yearly budgets averaged about 25% in the last few years. Short of headcount cuts in the civil service, and given the lower prices of crude oil, it appears we would not be able to make a headway in closing the infrastructure gap. Where do we have the opportunities for government to be able to complement private sector funding for infrastructure in extraordinary times like this?

AAO: In infrastructure development, it's actually the private sector that will complement government, not the other way round. It is the responsibility of government to make infrastructure available. The private sector can complement government; it doesn't mean private investors would not put in more funding than government if the environment is favourable.

As for the trend in capital allocation, you would have to go back and check what has been achieved, even with the 25 percent capex. At best, we implemented 50% of the budgetary allocations to capital projects in the last ten years. This happened even when the 25% budget allocation for capital expenditure was not enough.

On the average, between government and private sector, we spend about $10 billion annually for infrastructure. But we require about $33 billion annually, meaning there is a gap of $23 billion.

The question is whether we have identified the critical infrastructure that will get us to where we want to be. The National Planning Commission and the African Development Bank have said we need about US$2.9 trillion over the next 30 years for infrastructure. They even broke it down to how much we require every six years in funding for critical infrastructure. In that context, the 30% budget allocation the current government is proposing is not enough to bridge the infrastructure gap.

The National Integrated Infrastructure Master Plan anticipated a strong participation from the private sector. That is the only way we can address the gap. Even if all the N6 trillion budget in 2016 is allocated to infrastructure, you'll still have a problem because the projects have to be prepared before they're executed. And meaningful projects cannot be prepared in one year.

How disposed is government in encouraging the private sector to complement its efforts, particularly in critical and commercially viable infrastructure? Fortunately, the government doesn't need to bother about its resources for commercially-viable infrastructure investments. It can allocate such infrastructure to the private sector because the return on investment is high. This will allow government to focus on the critical but less commercially-viable infrastructures such as schools, universities, colleges, hospitals, etc.

In some countries, airports are areas government does not put money into any longer. Government invites the private sector to invest and simply puts in place an O&M (operations and maintenance) regime. Government regulates, while the private sector operates. A Nigerian actually heads a private sector group that owns the Gatwick Airport in London, and the British government is happy, passengers are happy, and the investors are happy. We can replicate this in Nigeria. Major roads in the U.S. – and even in China – are under private management.

FN Editors: What have been the high points of the institutional transition from Urban Development Bank of Nigeria Plc to The Infrastructure Bank Plc under your leadership?  

AAO: I think if you want to change any place or any situation, the first thing is to look back. What was this place like yesterday? What is it today? Then check among your peers, what are they doing? Then build a plan. In terms of real action, the first thing I did when I came in was to draw up a five-year strategic business plan. That enabled me to look into the past and ask: What were the dreams of the founders and what have they done? Year-on-year, how best can we do things going forward? Where do we want to be in five years time? Who do we want to compare ourselves with?

We did everything without taking our eyes off the remit of facilitating rapid infrastructure development in Nigeria. We then crafted a strategy of implementing that five-year strategic business plan. And we stayed the course.

Part of the challenges is that the infrastructure space requires certain set of skills that are not commonly available. You could have spent 30 years in commercial banking without being able to do infrastructure banking. You could have been a good financial analyst without being able to do infrastructure banking. You have to be a good project person to be able to understand what infrastructure development is all about. So we had to build up the skills; at some point we had to bring people from abroad who are already trained. We also had to recruit people and send them abroad to acquire the skills and come back. That is part of the success story.

When you have a pool of talented people, versatile and ready to roll, then it becomes easier as you focus on your objective. You then have a governance structure that helps galvanize support and constantly check to ensure that you are not straying from that bigger picture. This also helped. We have a very robust governance structure and I'm happy to have the calibre of people we have on the Board of Directors of the Bank. They constitute committees and interact with the various regulators – Central Bank of Nigeria, Securities and Exchange Commission, Corporate Affairs Commission – to ensure that we stay on course. We also have very reliable shareholders.

FN Editors: Is The Infrastructure Bank profitable?

AAO: Urban Development Bank was created in 1992 and I can't recall when it ever made profit before the private sector took majority shareholding in 2007 through a balance sheet restructuring arrangement. You can see the gap between 1992 and 2007 – that's 15 years. It was set up as a public limited liability company and not a parastatal under any ministry. It was meant to be a profit-oriented Infrastructure Development Bank and the shareholding was between the three tiers of government, Labour movement and private sector. It was meant to be a profitable enterprise and it was capitalized accordingly.

But the bank didn't deliver on its mandate and couldn't make profits. By all parameters, it wasn't delivering on its mandate. But in 2007, something major happened. The government decided to open the shareholding to admit more private sector, and the Bank would be governed more by the spirit of private entrepreneurship. So we became a government-sponsored but private-led enterprise. There are examples around the world where success has been made of this model.

From 2008, we began the real work of repositioning through staff right-sizing and interfacing with the market. By 2011, we began to see signs of profitability. I can tell you, in our last three years’ audited accounts, we made profits – 2015 results are yet to be published. We did our last AGM (Annual General Meeting) in Calabar and we declared profit. The previous year, the AGM was in Lagos and we declared profit. If not for accumulated losses of the past, our shareholders would have been smiling to the bank with dividends. We believe that by the end of 2016, they will begin to see cash returns coming to them.

But we have been building returns for them in terms of value. The value of the Bank has been growing up; we have been ploughing back undistributed profits to build up the institution.  We have proven the concept right. A private sector-led enterprise, though initially created with public sector investment, and with focus on infrastructure, can indeed make money.

FN Editors: Praiseworthy as the determination of President Muhammadu Buhari to fight corruption is, many commentators believe anti-corruption is not enough to lift Nigeria's economy from the present doldrums. What complementary policies do you believe would help improve Nigeria's country and investment outlook?

AAO: It is very important that I commend the President and his resolve to tackle corruption. The very fabric of our existence has been badly dented by corruption. You can see it by the image we portray out there and by the unaccountable way we use our resources. But like you said, anti-corruption alone is never going to be enough. Overall, our eyes should be on development. The child born today would need food; the one of school-age needs school fees, good teachers, and good schools. Those who are getting out of schools need jobs and assurances for the future. Their parents need regular, good incomes. Those of retirement age need social benefits or their pension to be able to pay for electricity, water, etc.

It is imperative that we create the right balance, to ensure that developmental needs do not suffer as we right the wrongs of our past. Nevertheless, the resolve to fight corruption is very important; it can, and will reshape our future.

However, what are those complementary policies? You need a combination of monetary and fiscal policies to assure that the business environment is creatively engendering growth. We must create employment. We have a huge population that is also growing quite fast, so we need to constantly create more opportunities. We must have industrial policies that support growth in the job-growth sectors.

FN Editors: What would be your last remarks?

AAO: I want the Nigerian public to believe that our challenges in the infrastructure space, though very huge, are not insurmountable. If you went to India 15 years ago, they were probably in a worse situation, considering the population, size and infrastructure. But today, India has substantially closed its infrastructure gap. The country has embraced public private partnerships and has developed capacities in project finance value chain.

Ditto China. In China, public spending was deliberately skewed in favour of infrastructure. China became the world's foremost export-manufacturing hub, lifted millions of its people out of poverty, and China is now in transition to higher economic value delivery. The same economic miracle can happen here. We at TIB, want to catalyse the process in infrastructure investment. And our message to investors and the government is that infrastructure investment is profitable and it has higher multiplier effects than any other investment.