Comparative Analysis Between Chinese Investments and Public-Private Partnerships (PPP) In Infrastructure Financing in FCT, Nigeria

ABSTRACT

This researcher examined the sustainability of infrastructure finance in the Federal Capital Territory (FCT), Nigeria. The author used comparative analysis to evaluate the use of Chinese Investment and Public-Private Partnership (PPP) schemes in infrastructure financing in FCT, Nigeria. The study defined the key variables: Infrastructure finance, public-private partnership, investments and loans, public asset, public infrastructure, project finance, and sustainable development goals (SDGs). The researcher assessed their impacts on meeting the objectives of Sustainable Development Goals (SDG 11) in FCT, Nigeria. The researcher explored the effects of infrastructure finance on societal transformation in Nigeria. The study found that infrastructure projects are massive and complex with multiple stakeholders and it requires knowledge and skills to deliver positive outcomes. The author formulated some research questions and tested the hypotheses. The study examined transport projects in FCT over a ten (10) year period. It found that Chinese investment has increased Nigerian debt stock. The author conducted various reviews and found that infrastructure paucity leads to multiple challenges. While adequate infrastructure enhances development and economic growth. The infrastructure delivery failure rate is as high as 66% in the advanced economies, even higher in Nigeria. Well-structured infrastructure finance improves positive outcomes and meets SDG 11. The study found that Nigeria uses over 92% of its revenue to service debts. Some researchers proposed PPP as an alternative method of financing infrastructures and other supported Chinese loans. This researcher explored the two policy options. The author gathered data using Google Research Tool. The researcher analysed the dataset with Statistical Package for Social Sciences (SPSS) and presented the findings: That 100% of the respondents preferred PPPs to Chinese Investments, over 95% agree that Chinese loans increased Nigerian debt profile, and 100% of the respondents agreed that PPPs can meet SDGs 11. While 91.7% agreed that PPPs enhance local employment, and 100% agree PPPs enhance the Nigerian public sector better than Chinese loans. The study concluded that PPP is a preferred method of financing infrastructure projects in Nigeria. It recommended the use of PPPs as the cost-effective method of infrastructure financing in Nigeria. The researcher contributed to the debate between the use of Chinese Loans and PPP schemes in Nigeria.

1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

This research examined sustainable infrastructure finance in developing countries, using a comparative analysis of Chinese investment and the Public-Private Partnership (PPP) schemes in FCT, Nigeria. It examined their impacts on meeting the objectives of Sustainable Development Goals (SDG 11). Infrastructure development and financing are the foundation for the economy of nations. Its deficit is one of the major factors militating against progress in Nigeria. It is difficult to finance. This study examines the financing of infrastructure projects in Nigeria using Chinese Investments and Public-Private Partnership (PPP) schemes. To Yescombe (2007), Public Infrastructure is the facilities that are necessary for the functioning of the economy and society, he posited that infrastructure could either be economic or social. Infrastructure financing is the means through which the public and private sectors raise money to execute infrastructural assets. Cass, Schwanen and Slove (2014) argued that infrastructure projects include roads, rails, hospitals, schools, nuclear plants, and dams. In their work on intersections and societal transformations, they opined that the aggregation of money and money-worth required to execute these mega projects is called infrastructure financing. The International Project Finance Association (IPFA, 2017) stated that infrastructure financing is a process that includes the development of investible funds into a pull, such as pension funds, insurance funds, private equity, structured debts, and sovereign bonds. For instance, the Nigerian government established InfraCo to finance infrastructure projects. According to Locatelli, Invernizzi and Brookes (2017), megaprojects are infrastructure projects - which are complex and challenging to deliver. In their study of 30 European Infrastructure projects, they posited infrastructure finance is essential to delivering positive project outcomes.

There are concerns that Chinese investments in Africa's infrastructure projects do not meet sustainability objectives. Some researchers proposed the use of PPP schemes as alternative methods for infrastructure finance to meet SDG 11. The study examined the extent to which any of these two options has met SDG 11 in Nigeria. Secondly, it assessed the degree of impact infrastructure projects have on societal transformations. The author used quantitative and qualitative methods such as capital budgeting, socio-cost-benefit-analysis (SCBA), risk and social factors to measure outcomes.

The study covers a ten (10) year period (2013 – 2022). Infrastructure projects include transport, housing, education and technology. The accumulated debt stock of the Federal Government of Nigeria is estimated to be USD 100B, stated Debt Management Office (DMO, 2020). The International Monetary Fund (IMF, 2022) posited that Nigeria suffering from debt distress. It stated that Nigeria spends about 92% of its revenue on debt services. The Central Bank of Nigeria stated that the accumulated debt stock of Nigeria has doubled and it stands at an estimated figure of $190B. Spending 92% of annual revenue on debt servicing has made the financing of infrastructure projects difficult. The huge national debt stock has impacted infrastructural projects negatively.?

International Project Finance Association (IPFA, 2017) stated that revenue shortage in the public sector due to population explosion, greater expectations from citizens, and increasing pressure on the government to meet competing needs - made seeking alternative infrastructure financing imperative. Through literature reviews, the author found that many researchers have discussed the importance of infrastructure finance, without adequate attention to the mode of financing projects. This gap is explored in this study. Doling, Vandenberg and Tolentino (2013) analysed the link between economic development and poverty reduction. They posited that infrastructure development in the transport sector employs the skilled and unskilled. The report concluded that there is a symbiotic relationship between infrastructure finance and economic growth.?

Furthermore, the paucity of infrastructure has restricted economic activities and increased the cost of goods and services in Nigeria. According to Dangote (2018) lack of transport infrastructure has negatively impacted DIL Food businesses and is estimated to be N36B in foregone profits. Smaller firms have closed down, thereby contributing to unemployment and insecurity. He stated that the projected government’s revenue across three businesses (Cement, Sugar and Flour) will amount to N2.1 Trillion in forgone taxes by 2022. This tax revenue to the government may not be achieved if the problem persists, he stated.

The study found that improving the Nigerian transport infrastructure will accelerate economic growth, grow GDP, improve foreign reserves and provide job opportunities for many Nigerians. Below is Dangote’s presentation to FMPWH in figure 1.1, a summary of projected government taxes by 2022.

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Moreover, Cass, Schwanen and Slove (2014) investigated infrastructure intersections and societal transformations - how infrastructure financing affects citizens' wellbeing. They posited that infrastructure affects human development. Infrastructure investments are megaprojects involving multiple stakeholders, massive financing, and technical complexity. Locatelli, Invernizzi and Brookes (2017) argued that megaprojects are complex and require large-scale investments, which escalate poor delivery: The study of 30 European Infrastructure projects, they concluded that the average failure rate exceeds 66%.

Through literature reviews, the study found that the mode of infrastructure financing is critical to success. Most Nigerian infrastructure projects that form part of the consolidated debts are from China - not operating at optimum levels, making it difficult to repay the debts. Instead, government use other revenue to service the debts and sometimes borrows to pay for recurrent expenditures (The WorldBank, 2021).

Using the PPP policy option ensures infrastructure finance is well structured to guarantee capital and interest repayment. Infrastructure created through PPP improves the quality of life; such as the provision of water, energy, and transportation (IPFA, 2017). The PPP process is adaptable to a variety of public services, such as hospitals, schools, prisons, housing, roads, ports, and roads. The contribution of this study includes an understanding of how infrastructures are financed using debts or PPP options and Chinese loans.

1.2 STATEMENT OF PROBLEM

Many benefits and challenges are associated with financing infrastructures through Chinese debts and PPPs. Some of the challenges include a distressed economy, poor infrastructure delivery, low output and GDP regression, uncompleted projects (idle assets) and they encourage corrupt practices.

There are concerns that Chinese investments/loans, if not well managed, could lead to neocolonialism. Adeniyi (2018) posited that Chinese infrastructure investments in Nigeria amounted to about $39billion. Goodfellow (2017) posited that many African societies remain primarily rural, but are experiencing urban growth. Investment in infrastructures is critical to growth, (Omirin & Nubi 2007): as cited by Akinwunmi (2009). This researcher examined these reports and found they are relevant to the debate.

Infrastructures financed by Chinese investments are megaprojects. Locatelli, Invernizzi and Brookes (2017) argued that megaprojects require massive investments. According to Akhator-Eneka (2018) Public-Private Partnership (PPP) is a reliable option for financing infrastructure projects.?

There are pieces of evidence to suggest that the Nigerian economy is distressed with huge debts, stated by these reports (IMF, 2022; DMO, 2021; CBN, 2021; NBS, 2021; and The Worldbank, 2020). This has aggravated the flawed economy to worse. Consequently, there are plausible arguments to support the need to seek alternative means of financing infrastructures. Without adequate infrastructure, it is difficult to accelerate economic growth. Financing structure and management are critical to delivering robust infrastructures.

There are shreds of evidence to support the regression of Nigerian GDP over the past eight years. The World Bank classified Nigeria as the headquarters of global poverty. To pull Nigerians out of poverty, infrastructure provision is an essential component in the growth matrices. But infrastructure must be well executed to meet Sustainable Development Goals (SDG). A blended finance option incorporating PPP is seen as a veritable alternative to direct debt(s).

Furthermore, some of the infrastructures financed through loans are not completed on time, resulting in project failures. Loans sunk into these projects are sunk costs without returns to meet the demands of repayment. Uncompleted projects are classified as idle assets without economic benefits. These idle assets financed with public debts are a waste to the national treasury. Worse still, interests are paid on the loans used to finance these idle assets. Consequently, the nation loses two folds. Nations without sound fiscal financial management and systems run the risk of wasting public borrowed funds. For instance, from 2012 to 2020, Nigeria borrowed various loans not tied to specific projects. Researchers suggest foreign direct investment (FDI) is preferred to foreign loans.?

If interested in the complete study, please contact the author W. Akhator (PhD, MBA, FCA)