DataPro Charts Options For Sub-National Infrastructure Development

Developing countries such as Nigeria are in dire need of critical infrastructure development. The various options open to sovereign states and sub-nationals when it comes to raising the needed capital for infrastructure development were therefore the focal point of the 2023 International Rating Webinar hosted recently by DataPro Nigeria’s technology-driven credit rating agency.

The digital event, attended by Capital Market Operators, State Governments and other key stakeholders from all over the world with the theme “The Role of subnationals and Credit Rating Agencies in Infrastructure Development,” centred on unlocking financing options for sub-national entities in infrastructure development and leveraging the value proposition of Credit Rating Agencies (CRAs) to boost economic prosperity.

During the panel discussion moderated by DataPro’s Chief Operating Officer, Prince Oladele Adeoye, financial experts included: Mr. Peter Onyango, Chief Investment Officer, African Development Bank, Mr. Adeniran Ajakaiye, Managing Director, Africa Plus Partners, Mr. Egie Akpata, Director and Co-owner UCML Capitals Limited.

All deliberated on the topic “Subnational Finance for Infrastructure Issues for Consideration.” The panellists unanimously agreed that securing suitable infrastructure financing is closely tied to the sustainability of such projects. They highlighted challenges faced by the capital market, such as political interference and the limited investment grade ratings for Nigerian states. To address these issues, the panellists proposed private sector investment in subnational infrastructure development, starting with smaller projects to showcase profitability and successful private sector participation before embarking on larger ventures.

The panellists also discussed various financing options available to subnational entities for infrastructure development. These options encompass borrowing from banks, financial institutions, and raising debt instruments. However, they acknowledged that the viability of most subnationals limits the funding potential from this avenue. Other financing options discussed included Public-Private

Partnerships, leveraging grants from international organisations, innovative financing through Special Purpose Vehicles (SPVs), and enhancing revenue collections.

The panellists emphasised that while banks are a viable source of funding for infrastructure projects, they are often unable to finance the long-term projects required for comprehensive infrastructure development. Consequently, capital markets play a crucial role in adopting equity financing for long-term infrastructure projects.

The discussion also focused on the African Development Bank’s (AFDB) role in closing the infrastructure gap in Africa. AFDB’s contributions include creating an enabling environment and supportive policy framework, partnering with national and subnational governments, the private sector, and providing equity investment, loans, grants, guarantees, and technical assistance. This strengthens infrastructure development across member countries and mobilises resources for infrastructure financing.

The panellists stressed the importance of evaluating a project’s bankability, considering factors like the state’s financial viability, legal framework, political stability, security, economic situation, and alignment with the subnational’s core expertise.

Notably, bankable projects are limited at the state level in Nigeria due to their relatively short governance term of eight years. The panellists reiterated the crucial role of rating agencies in project financing, especially in assessing bankable projects.

CRAs conduct annual reassessments, contributing to fiscal management and governance capacity enhancement, fostering effective asset management, and benchmarking infrastructure financing performance.

The panellists underscored the prerequisites for evaluating funding opportunities for subnational entities and emphasised a gradual, step-by-step approach to building investor confidence.

The panel discussants concluded that, given the financial constraints facing Nigerian subnational entities, embracing alternatives such as Public-Private Partnerships (PPPs) is not a choice but a necessity for infrastructure development.

At the event, the Managing Director/CEO of Nigeria Mortgage Refinance Company Plc, Mr. Kehinde Ogundinmu, delivering the keynote address, emphasised that the development of infrastructure in cities and regions across the world is critical to economic growth and social well-being. He highlighted that securing the funding needed to support infrastructure development is a major issue for governments and policymakers around the world, and successful infrastructure delivery demands close alignment and collaboration between a wide range of participants, each with its own agenda and interest.

In the welcome address, the DataPro founder, Mr. Abimbola Adeseyoju remarked that the event is to provide an annual platform for all stakeholders within the Capital Market and others in affiliated sectors of the economy to brainstorm on how the African continent, and by extension, the West African countries and Nigeria can utilise the value proposition of the Credit Rating Industry as an enabler of economic development and prosperity.

He stated that the issue of infrastructure development is closely tied to quality of life. In a quote, he said, “The truth is that the faster we accelerate infrastructure development on our continent, the quicker we can stop the brain drain and lift our people out of poverty.”

In his goodwill message, Mr. Lamido Yuguda, the Director General of the Securities and Exchange Commission (SEC), represented by Mr. Abdulkabir Abass, Director, Registration and Exchange, commended DataPro Limited for its commitment to organising another webinar aimed at developing Nigeria’s debt capital market, as this platform makes available a timely exchange of ideas and knowledge capable of leading to the development of a roadmap for sustainable infrastructure financing at the subnational level.

He further emphasised the role of credit rating agencies in Infrastructure development by providing independent assessments of the credit worthiness of subnational governments and other borrowers. He further affirmed that the SEC is putting in place new initiatives to reposition the Nigerian capital market to better support infrastructural development, protect investors, and promote confidence in the Debt and Capital market.

Among others, he mentioned the Ten-Year Capital Market Master Plan, which was launched in 2014 and revised in November 2022. It outlines a number of initiatives aimed at deepening the debt capital market through innovations that could unlock private capital for various infrastructural projects which the subnationals can leverage.

Concluding, he said that he believes that the synergy between the subnational governments and credit rating agencies will potentially play a major role in promoting sustainable infrastructural developments, creating a favourable investment climate, and advancing the country’s quest for rapid transformation.