Why Foreign Investors Shun Nigeria

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Last week aviation industry stakeholders and captains of industries, brainstormed on government’s plan to concession airport facilities. They concluded that Nigeria is a high-risk country for investors, Chinedu Eze writes.

The frenzy about federal government’s plan to concession airport facilities was taking a high note until economics, entrepreneurs, aviators and politicians thawed at government’s intentions, the vacuity of its plan and how unprepared it is to really actualise the ideals of Public, Private Partnership (PPP) in the transportation industry and possibly other areas of the economy.

The government wants to concession first the four major airports in the country, and later the remaining 18 airports. It is also considering giving out the railways on concession. In fact, there is an indication that t3he government may give out the narrow gauge rails on concession to General Electric (GE).

Government is also looking at PPP on roads. Some of the roads may be given out to investors who would build them and recover their money through tolls. This plan is in addition to the deal already signed by government and Chinese government to construct the Calabar to Lagos rail line.

Obsolete Airport Facilities

Stakeholders, business moguls, top public servants, serving and retired and political office holders were among those who attended the conference on Privatisation and Concession of Nigerian Airports, organised by Checkin Nigeria, held at Sheraton Hotel, Lagos last weekend.

Speakers at the event justified the need for public, private partnership for the development of aviation infrastructure and noted that there is urgent need to rehabilitate the nation’s airports. While they supported concession, they noted that government has not put the right things in place, which would make the concession plan to work, looking at the fundamental issues that should be done before successful concession could be carried out.

It was the organiser of the conference; Michael Chikeka that first pointed out in his opening speech that there was no definition of the concession programme government wanted to carry out, what is to be given in concession and remarked that government does not honour its agreements. From hind site, Chikeka noted that it would be pertinent for government to have legal and administrative framework that would serve as guide and make agreement of such nature binding among players involved.

Through videoconference the political economist, Professor Pat Utomi lamented the decay of the nation’s airport infrastructure and noted that Nigeria is not maximising the opportunity offered to it by its sheer size, population, the hard work of her citizens and its location, which naturally should have made it a hub.

“As a country we continue to be challenged in our quest for progress because we missed the soft issues that are key to development. Unless our institutions are strong and our values are consistent, we cannot attract investors to invest in our country,” Utomi said.

He urged Nigeria to first grow a culture of institution building in order to attract investors.

“There is tendency not to realise that people calculate the risk involved in investing in Nigeria and other countries. The problem with Nigeria is that anybody that is in authority believes in arbitrariness and this creates uncertainty in investing in the country. There is regulatory risk in investing in Nigeria,” Utomi said.

He acknowledged that the airports are in deplorable states and therefore need urgent rehabilitation and now that government does not have the funds and is disposed to concession them, the investors ought to come and partner with government. But the impediment is that government did not create enabling environment for private sector investment in government owned facilities under the PPP arrangement.

Identification of Challenge

The Chairman of Airline Operators of Nigeria (AON), Captain Nogie Meggison observed in his presentation that government, despite its seeming preparedness to concession has not defined what should be given out in concession. Past experience showed that government concessioned airport terminals, but in the current case industry experts believe that to turn things around, government must have to define whether it would give out both the landside, which is the terminal and the airside of the airport, which harbours the runways, the landing aids, the airfield lighting, the ramp and taxiways.

Meggison noted that this is critical because if government gives only the terminal in concession, the industry may not move from where it was because one of the major challenges of airlines is not that there is no terminal through which the passengers would go through before boarding their flights, but that safety critical facilities are not at the airports for airlines to maximise daily operations.

For example, many airports in Nigeria do not have runway lights and this hinders airline operation.

“What are we concessioning? Nigeria at this stage needs airports that are of high standard so that the country can take its rightful place as a hub for West and Central Africa. We can take advantage of our population, location, oil and skilled manpower to become a hub. We need to privatise, concession or arrange a build, operate and transfer (BOT) or whatever forms because Nigeria does not have the funds.

“The International Air Transport Association (IATA) says in view of economic realities Nigeria needs to concession its airports. We need to get the airports and terminals going. The Nigerian economy has taken a plunge so we need to concession,” Meggison emphasised.

He expressed the regret that safety critical equipment, which could be found at various airports of the world, including that of the very poor nations are lacking at Nigeria’s airports. He remarked that in Nigeria poor visibility hamper air operation and recalled that at 2000 meters visibility that airplanes cannot land at some airports in the country, while in other countries, planes could land at extremely very low visibility of one-meter visibility.

“The benefits of concession include increase in efficiency, people will not lose their jobs and they will also earn bigger salaries. Once the facilities are running efficiently they will be paid commensurate salaries. Concession will help Nigeria to grow GDP in aviation sector, it will boost tourism and activities will be done more transparently.
“But what mode is the concession going to take? Will the concession include navigational aids, security, runways etc.? I hope government has taken into consideration the entire airport system and did a robust work on the concession programme,” Meggison said.

Lack of Government Support

Business mogul and the Chairman, Senate Committee on Privatisation, Senator Ben Bruce, in his presentation at the conference urged government “to take more than a cursory look at the aviation sector”, noting that the current recession Nigeria has been plunged into would be worse if people cannot travel fast from one destination to another and called on government officials to patronise domestic airlines when travelling outside the country.

He stressed that one of the setbacks that discourage private sector investment in Nigeria is government’s inability to honour its agreements and promised that the Senate will carry out a legislation that would make it obligatory for government to honour its agreements.

“Recession will be worse if people don’t move fast from place to place. In Nigeria 180 million people are services by 56 planes, but few people in government are serviced by 10 aircraft in the Presidential fleet. Government should lease aircraft to the airlines from the Presidential fleet, even if on temporary basis. To save these airlines government should reduce their taxes, work on their insurance. Ghana’s aviation sector is expanding at the mercy of Nigeria. Ghana is the new aviation hub in West Africa. This is because Ghana separated the critical sector of its economy from politics.

“Government does not have the managerial ability to run airports. Nigeria recruits people that run critical institutions on primordial sentiments. Government should fast track the process of the privatisation of airports,” the Chairman, Senate Committee on Privatisation said.

Confusion over Agreements

A former Director General, the Nigeria Civil Aviation Authority (NCAA) and presently with Flight Safety Foundation, Dr. Harold Demuren said in his presentation that government should keep to agreements adding, “when you don’t keep to agreements you destroy the industry.”

Demuren wanted to know which part of the facilities government wanted to concession, noting that there is the landside and the airside of an airport and government has not made it clear what it wants to concession.

“We don’t honour agreements. There is high risk in investing in aviation, which means the value of the assets will be low. To attract investors, the government must have to resolve all litigations on agreements before you go into another one. The airside of the airport needs huge capital investment,” Demuren said.

He noted that there are a lot of things to concession at the airports so government must have to define what it wants to concession and wanted to know what will happen to the rest of the airports after the four major ones were given out in concession.

He suggested that government should partner the state governments that have airports in their states to see how the other airports could be maintained.

Demuren also spoke on debts owed by the Federal Airports Authority of Nigeria (FAAN) to contractors, noting that some organisations also owe FAAN. He suggested that the government must dialogue to resolve most of these problems.

Concerning how to deal with FAAN workers when the airports are given out in concession, the former Director-General of NCAA said government should not be afraid to negotiate with labour unions but it has to be honest and urged government not to default on agreements, adding, “you have to be honest.”

“There are other questions that have to be asked. What will be the relationship between the concessionaires and other aviation agencies? How do you handle the nation’s security? In all these there should be good corporate governance. Presently there is undue political interference and this must stop. There is no good corporate governance in FAAN. I usually say that FAAN tries to use basket to fetch water. Government must also ensure that airlines are given the support they deserve because all these revolve around the airlines. You can’t be wrong supporting your own,” Demuren said.

In x-raying these issues, it is expected that government should review the observations of these experts in the industry and then review its concession programme with a mind to institute corporate governance, which would be the bedrock for the success of the programme.