By Obinna Chima
The federal government needs to emphasise the need for private sector investment by increasing Public-Private Partnership (PPP) in key capital projects.
The Financial Derivatives Company Limited (FDC), which stated this in its monthly economic bulletin for March 2017, released yesterday, pointed out that PPPs would be essential in areas such as the railway projects, privatisation of government owned refineries, airport concessions, among others.
“Examples are railway concessions with GE (Lagos-Kano and Port Harcourt- Maiduguri). These will free up some cash for the government that has a fiscal deficit treading close to the three per cent of GDP threshold,” it added.
According to the report, there is empirical evidence to show that investment plays an important role in a nationâ€™s economic growth. It stated that due to Nigeriaâ€™s huge dependence on oil, following the oil boom era of the 1970s, the economy has been more of a public sector led government.
But it noted that between 1986 and 2014, private sector investment in Nigeria started growing as market forces started playing a more prominent role, adding that efforts to privatise the public sector led to the reformation of key sectors such as the telecoms and power (although still saddled with funding constraints) sectors.
“It also opened Nigeria to more foreign trade activities, resulting in an influx of gross fixed investments that reached a peak of $85.7 billion in 2014. Nonetheless, growth of private sector investment in Nigeria has been constrained by a difficult business operating environment (169th out of 190 countries in the ease of doing report for 2016); more recently by weak confidence in the policy implementation and the general economic environment, and a distorted foreign exchange market.”
Over the years, countries especially developing economies have witnessed a gradual increase in private sector investment. With the increased pace of globalisation and technological development, the role of private sector has intensified. This is because governments of nations have identified the benefits of private investment and PPP which include but are not limited to market discipline and efficiency, an economic strategy for boosting GDP growth, job and income creation, efficient resource allocation, provision of infrastructure and social benefits.
“The Japanese economy is a good example of an economy with an investment led growth story. Domestic investment in industries and infrastructure were the bane of the Japanese governmentâ€™s strategy in boosting its output and economic growth. In the early 90s, Japan was poised to overthrow the US to become the largest economy globally. Gross fixed capital formation in the private sector was as high as 21 per cent of GDP in Japan in 1996. GDP growth rate was approximately four per cent in that year.
“Private sector investment in China accounts for 60 per cent of the countryâ€™s total fixed asset investment. A total of $3.62 trillion was recorded as private investment in China in the first two months of 2017. Private sector investment is projected to increase to 10 per cent in 2017 from 3.2 per cent in 2016. This is after an annual average growth rate of 30 per cent in the last 10 years,” it added.
Furthermore, the report added that the role of private sector investment and its efficient utilisation varies from region to region, nation to nation and depends on several factors: macroeconomic policies, economic incentives, well defined property rights, as sound judicial system, sound financial system, policy certainty and clarity, etc.â€