By Obinna Chima
Nigerian banks in 2016 had piled up unpaid overdue trade obligations to correspondent banks, a report by Ecobank Nigeria Limited has revealed. Although the report did not specify the affected banks, it further pointed out that over $14 billion in foreign investment was lost within a year, a big issue which it said affected all deposit money banks in Nigeria.
Research analyst at Ecobank Nigeria Limited, Mr. Kunle Ezun, stated this in a report titled: “Strategic Business Review…with insight into 2017,” obtained at the weekend.
It attributed the development to “the scarcity of foreign exchange and the fixed pegged exchange rate policy of the Central Bank of Nigeria (CBN).
According to the report, the situation also led to trade credit evaporation; shrinking suppliers’ credit and bill of collections; cold feet by export credit agencies; and infrastructural challenges.
“Infrastructure continues to be a major challenge constraining,” it added.
But in other to develop and maintain Nigeria’s infrastructure in the next 30 years, the country would require an estimated $3 trillion. The report listed the sector that requires funding in the country over this 30-year period to include social infrastructure – five per cent, ICT – 11 per cent; vital registeration and security -two per cent; energy – 33 per cent; transport – 25 per cent, agriculture, water and mining – 13 per cent; and housing and regional development – 11 per cent. It estimated that the funding structure would be 30 per cent equity and 70 per cent debt.
It noted that investment in infrastructure had been neglected in the past, but pointed out that, however, there is a lot more appetite and willingness presently, given the potential sources of domestic finance are becoming available.
Nigeria’s diaspora is a pool of funds that can potentially be tapped into as the World Bank estimates that Nigerian diasporas sent back some $21 billion in remittances alone since 2013.
“The new administration has identified infrastructure (both hard and soft) as its main area to tackle and are looking toward mobilising funds for infrastructure development. The Nigerian Debt Capital Markets is beginning to see a revival as OTC companies such as FMDQ continue to improve transparency and processes within the market,” it added.
According to the report, provision of long-term capital will trigger the development of new long term instruments (REITs, Infrastructural Bonds, etc) as well as to provide local counterpart funding for financing developments of real assets and hard infrastructure in the economy.
The report pointed out that the Nigerian economy is already diversified by Gross Domestic Production (GDP) contributions, but stated that over-dependence on hydrocarbons for foreign earnings and government revenue remains the bane of the economy. This has continued to threaten the country’s source of foreign earnings and government revenue since the drop in crude oil prices.
This has also manifested in OPEC members defending market share; competing African producers; sanction- free Iran; Shale oil; alternative and clean energy; low level of external reserves; high unemployment rate, largely youth dominated (13.9% new rate and trending up); high cost of doing business; and high cost of living (Inflation at 18.48% in November 2016)
The Ecobank report argued that some factors that impacted negatively the growth of theth onomy last year included the exclusion of 41 items from accessing foreign exchange in the official foreign exchange market; drop in power supply by 1.200 megawatt to 3,455 megawatt; the treasury single account (TSA) implementation which withdrew local and foreign currency government deposits from commercial banks, hereby tightening market liquidity.
“The federal government has identified electric power as the country’s main and foremost priority. Nigeria’s current available generation capacity is estimated to be 4,000 megawatts, far less than the estimated demand of 10,000-12,000 megawatts. Roughly 55 per cent of the population live without access to electricity. Significant number of residential consumers own power generators. Federal roads, 70 per cent of state roads and 90 per cent of local government roads are in poor or failed condition,” it added.
According to the World Bank, Nigeria currently has the fifth highest Aggregate Technical, Commercial and Collection Losses (ATC&C) losses in Africa. At 126Kwh per capita, Ghana’s grid based electricity consumption per capita is 2.9x more and South Africa is about 31 times higher (3,926 kWh);
“Parallel to Nigeria’s power woes, an overworked transport grid continues to hinder further economic growth and employment – adds as high as 20 per cent to the cost of doing business; telecommunications is one of the fastest growing sectors in Nigeria, however the quality of service remains low due to inadequate infrastructure
“Given the size of the population, telecommunication infrastructure is also inadequate and unreliable, which rules out Nigeria as a leading call centre location. Nigeria has a housing deficit of 17 million units and 700,000 required annually to meet the growing population, driving up rent and high cost of living in urban areas,” it added.