1. INFRASTRUCTURE FINANCING IN A PERIOD OF RECESSION
DEBT MANAGEMENT OFFICE
NIGERIA
INFRASTRUCTURE FINANCING IN A PERIOD OF RECESSION by
Abraham . E. Nwankwo
Director-General
Debt Management Office, Nigeria
Paper presented at the Bonds, Loans & Sukkuk Nigeria Briefing Day, organized by GFC Media Group, at Sheraton, Lagos,
21st November, 2016

2. * Sectorally, adequately diversified
DEBT MANAGEMENT OFFICE
NIGERIA
I. Introduction to Crisis and Recession
Dependence on Crude Oil (& Gas)
Contribution to GDP: 14%
Contribution to Export Earnings: > 90%
Contribution to Public Revenue: > 80%
Contribution to Employment : 0.01% (2013, NBS Q4, Survey)
Structure of GDP 2015*
Table of Contents
i. Introduction to Crisis & Recession
ii. The Need Chain
iii. Size of Funding Requirement
iv. Responsibility for Financing
v. Sources of Finance
vi. Risk of Exchange Rate Exposure?
vii. Conclusion
* Sectorally, adequately diversified

3. DEBT MANAGEMENT OFFICE
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Introduction to Crisis and Recession cont’d
Collapse of Oil Price (basket price)
Average price for 2014: USD96.29 p/b
Average price for 2015: USD49.49 p/b
Average price for first 9 months of 2016: USD39.18 p/b
Impact
Reduction in revenue available to governments of the federation; estimated at USD20 billion per annum
Drastic drop in aggregate expenditure and economic activity
Exacerbation of unemployment

4. DEBT MANAGEMENT OFFICE
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Introduction to Crisis and Recession cont’d
Associated bumpy monetary sector developments:
Inflation:
8% at end-December 2014
17.9% at end-September 2016
MPR
11% before March 201 6
Changed to 12% from March 2016
Further changed to 14% from July 2016
Exchange rate
N168/USD at official window as at December 2014
Floated on June 15, 2016
Interbank rate as at September 30, 2016 = N305/USD
Parallel market rate as at September 30, 2016 = N450/USD

5. DEBT MANAGEMENT OFFICE
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Introduction to Crisis and Recession cont’d
Enter: Recession
Q GDP growth: -0.36%
Q GDP growth: %
Needed: Appropriate Response
A bold plan for revenue-diversified, export-capable, export-diversified, and competitive economy
Turnaround highly feasible because of abundance of idle capacity
Imperative: massive development of power, physical and social infrastructure

6. DEBT MANAGEMENT OFFICE
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II. The Need Chain
Ultimate objective:
to turnaround the economy out of recession unto a path of self-sustaining,
inclusive growth
Route:
public revenue diversification
export-oriented diversification
competitive economic environment
real sector priorities: agriculture and agro-processing, manufacturing,
petrochemicals, solid minerals, housing and infrastructure, ICT
Critical requirement:
adequate & reliable infrastructure
electricity
transportation (roads, railways, aviation, others)
ICT
social infrastructure (education, health)
soft infrastructure: ease of doing business
Table of Contents
i. Introduction to Crisis & Recession
ii. The Need Chain
iii. Size of Funding Requirement
iv. Responsibility for Financing
v. Sources of Finance
vi. Risk of Exchange Rate Exposure?
vii. Conclusion

7. III. Size of Funding Requirement
DEBT MANAGEMENT OFFICE
NIGERIA
III. Size of Funding Requirement
Before recession, estimated that approximately USD25 billion per annum required for 7-10 years to close infrastructure deficit.
Add: drop in public revenue caused by structural collapse of global price of fossil oil: approximately USD20 billion per annum
Therefore, total investment required: approximately USD 45 billion per annum
Imperative that this investment requirement be addressed in order to turn around the economy
Table of Contents
i. Introduction to Crisis & Recession
ii. The Need Chain
iii. Size of Funding Requirement
iv. Responsibility for Financing
v. Sources of Finance
vi. Risk of Exchange Rate Exposure?
vii. Conclusion

8. IV. Responsibility for Financing
DEBT MANAGEMENT OFFICE
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IV. Responsibility for Financing
Both public and private sectors will source both equity and debt finance
But size and speed of private sector contribution could be uncertain, particularly in period of recession
Therefore, government has to accept primary responsibility for financing the turnaround through substantial investment in infrastructure
But private sector contribution , including PPPs, will be pursued pari passu
Given the huge size of investment required, given the drastic drop in public revenue, substantial public debt financing will be necessary
Table of Contents
i. Introduction to Crisis & Recession
ii. The Need Chain
iii. Size of Funding Requirement
iv. Responsibility for Financing
v. Sources of Finance
vi. Risk of Exchange Rate Exposure?
vii. Conclusion

9. DEBT MANAGEMENT OFFICE
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V. Sources of Finance
Why external borrowing will be the main financing source
much higher cost of domestic borrowing
existing high debt-service-to-revenue ratio
need to leave more domestic borrowing space for the private sector
apart funding projects, external borrowing will impact positively on
foreign exchange reserves
Major sources of external borrowing
multilateral & bilateral
international capital market (eurobond): a USD4.5 billion programme is being established
for execution over the next 3 years
Diaspora bonds
Sukkuk (foreign currency sukkuk will be issued but only after local currency has been issued as planned for Q1, 2017)
Green bonds
Co-investment: resources (revenue + debt) available to government will be used to leverage sovereign, global and sector funds to aggregate a bigger investment pool − Nigeria Sovereign Investment Authority (NSIA) would play a critical role
borrowed funds could also be used to meet governments part-funding of PPPs
Table of Contents
i. Introduction to Crisis & Recession
ii. The Need Chain
iii. Size of Funding Requirement
iv. Responsibility for Financing
v. Sources of Finance
vi. Risk of Exchange Rate Exposure?
vii. Conclusion

10. VI. Risk of Exchange Rate Exposure?
DEBT MANAGEMENT OFFICE
NIGERIA
VI. Risk of Exchange Rate Exposure?
Foreign currency borrowing will be for tenor of 10 years and above
Successful turnaround programme, based on the massive investment envisaged, should ensure that from Year 8, substantial rise in foreign exchange earnings from diversified sources (agro-processed, manufactured, solid minerals, petrochemicals, etc) will be adequate to repay the loans
Table of Contents
i. Introduction to Crisis & Recession
ii. The Need Chain
iii. Size of Funding Requirement
iv. Responsibility for Financing
v. Sources of Finance
vi. Risk of Exchange Rate Exposure?
vii. Conclusion

11. DEBT MANAGEMENT OFFICE
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VII. Conclusion
Pre-2014 collapse in oil prices Nigeria had established need for huge investments to fund its infrastructure deficit
The collapse in oil prices has created an additional need for significant injection of capital
This greater aggregated investment requirement is needed to turnaround the economy from downturn to recovery and prosperity
Private sector equity and debt financing is expected but is unpredictable and, therefore, unreliable for a counter-recession programme
Given the size of investment required and the constraints on domestic funds mobilization, public external debt financing seems a reasonable and necessary option
Table of Contents
i. Introduction to Crisis & Recession
ii. The Need Chain
iii. Size of Funding Requirement
iv. Responsibility for Financing
v. Sources of Finance
vi. Risk of Exchange Rate Exposure?
vii. Conclusion

12. DEBT MANAGEMENT OFFICE
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