The Federal Government needs about S$100 billion annually to address the nation’s infrastructure deficit, Governor of the Central Bank of Nigeria (CBN), Mr Godwin Emefiele, reiterated on Saturday in Lagos.
Speaking at the 30th Anniversary Conference and Awards of the Finance Correspondents Association of Nigeria (FICAN), Emefiele explained that the current level of infrastructure deficit is a major constraint to economic development and attainment.
Represented by the Director of Corporate Communications Department of CBN, Mr Osita Nwanisobi, Emefiele said: ” While infrastructure deficit in Nigeria is estimated to be about 1.2 percent of GDP, it is projected that the Federal Government needs to commit about US$100 billion annually to address the nation’s infrastructural deficit.”
Part of the CBN boss statement read: “Nigeria is no exception to growth-limiting challenges, that is infrastructure deficit and MSMEs’ lack of access to credit. While MSMEs have been recognized to play a critical role in supporting the growth of the Nigerian economy; poor access to finance, particularly credit; and lack of quality infrastructure, such as electricity and access to market, continue to pose a significant constraint to the growth of MSMEs in Nigeria. Thus, weak and inadequate infrastructure, as well as the poor flow of credit to businesses impact severely on economic growth, as well as human development.
“ In realization of the importance of access to finance and infrastructure to economic growth and development, the CBN has taken steps beyond its traditional macroeconomic mandates of ensuring price and financial system stability, as well as maintaining a strong external reserve. To this end, the Bank introduced several development finance policies and programmes to improve access to credit for MSMEs, deepen the Bank’s support to the real sector, support job creation, and build a robust payment system infrastructure to help drive financial inclusion.
“ My keynote address today will focus on the Bank’s efforts at addressing both challenges relative to MSME development in Nigeria, that is weak infrastructure and poor access to finance. First, I will be starting by outlining the access to finance and infrastructure challenges to MSMEs in Nigeria, particularly given the economic consequences of the Covid-19 pandemic on flow of investments towards infrastructure development and credit to MSMEs.
“ Infrastructure deficit continues to hinder economic growth and development in sub-Saharan Africa (SSA). Beyond economic growth, infrastructure impacts the quality of life of the people and the growth of the business sector. The deficit, estimated to be around US$31 billion a year, continues to hinder productivity, increases the costs of doing business and isolating markets. Bridging the infrastructure gap, therefore, as a means of overcoming the region’s economic and developmental challenges cannot be over-emphasized. While governments in sub-Saharan Africa continue to make progress in closing the deficit over the past decade, the continent still lags the rest of the world in coverage of key infrastructure classes, comprising the ICT, energy, roads and rail, transportation, water, and sanitation.
“There is no shortage of effort at bridging sub-Saharan Africa’s infrastructure deficit, as annual public expenditure on infrastructure continue to increase with most governments in the region spending about 6 – 12 percent of their GDP annually on infrastructure. According to the World Bank, about half of the countries spend more than 8 per cent of their GDP while a quarter spend less than 5 percent, a level close to those of the Organisation for Economic Co-operation and Development (OECD) countries.
“In Nigeria, the current level of infrastructure deficit is a major constraint to economic development and attainment of growth average rate of at least 5 to 7 percent required to boost productivity and sustainable growth for businesses. According to the World Development Indicators (2019), 56.20 percent of Nigerians have access to electricity, while electric power consumption stood at 144.52 kWh per capita as of 2018. While infrastructure deficit in Nigeria is estimated to be about 1.2 percent of GDP, it is projected that the Federal Government needs to commit about US$100 billion annually to address the nation’s infrastructural deficit.
Micro, Small and Medium Enterprises (MSMEs) and financing deficit
“A sector of the economy which has also emerged as a significant source of growth, innovation and job creation is the micro, small and medium enterprises (MSMEs). According to the World Bank, this sector represents an estimated 90 percent of businesses and employs over 50 per cent of world’s labour force. In fact, formal MSMEs have been identified to contribute about 40 percent of GDP in emerging economies, of which Nigeria is one (PwC).
Lack of access to quality infrastructure has been a limiting factor to MSMEs in developing countries delivering on their potential for growth and creating employment. Beyond infrastructure, access to finance remains one of the biggest threats to MSME development in both developed and developing economies alike, with serious implications for productivity, economic development, and job creation. Access to credit has been identified as a critical enabler for the growth and development of MSMEs, as the overall credit gap for MSMEs in developing countries is estimated to be US$5.2 trillion, representing 19 per cent of these countries’ cumulative GDP (IFC). Of this, the unmet financing demand from MSMEs in sub-Saharan Africa is about US$331 billion, representing 18 per cent of the potential demand for credit by MSMEs in the region.
With over 42 million MSMEs in Nigeria, contributing 49.78 per cent to the nation’s GDP, 7.64 per cent of exports and employing 76.5 per cent of work force, the sector is faced with numerous challenges that continue to limit the enterprises’ potential to contribute to economic growth and development. According to PwC, access to electricity accounts for the major share of costs to daily operations of MSMEs. The energy sector is overwhelmed by a plethora of challenges ranging from operational inefficiencies to infrastructure deficiencies, which have resulted in inadequate electricity supply by households and businesses in Nigeria. This has contributed significant economic costs to MSMEs, thus hampering their competitiveness and contribution to economic growth. Specifically, the IMF has identified lack of access to reliable electricity costs the Nigerian economy an estimated US$29 billion annually.
The financing gap for MSMEs in Nigeria is estimated to be about N617.3 billion annually pre-Covid-19 pandemic, as less than 5% of these businesses have access to adequate finance to support their working capital and business expansion needs (PwC). Other constraints to MSME development in Nigeria, as noted in the survey, included difficulty in finding customers, infrastructure deficit, insufficient cashflows, multiple taxation, regulatory burden, and sub-optimal implementation of the provisions of the MSME policy.
Covid-19 Pandemic and CBN’s Policy Responses
The onset of the Covid-19 pandemic in 2020 and the subsequent measures introduced to curtail the spread of the virus, caused an unprecedented shock to the global economy, with resultant declines in growth in developed and developing economies in the second quarter of the year. For instance, the United States’ economy recorded -9.5 percent decline; United Kingdom, -20 per cent; India, -24 per cent; and South Africa, -17 per cent. Nigeria was not immune from the shock, as the economy contracted by -6.1 per cent in same quarter and -3.6 per cent in the third quarter.
