Memo to Tinubu: Unlocking Nigeria’s dormant $1 trillion asset

Nigeria’s federal government faces significant financial challenges and actively seeks revenue sources to fund operations, address outstanding loans, invest in infrastructure, and boost the economy. The 2024 federal budget has a N9.18 trillion deficit, adding to the N87.38 trillion (US$113.42 billion) debt burden as of Q2 2023. The government’s options include further borrowing – it plans to borrow N7.81 trillion in 2024 and N26.42 trillion between 2023-2026. Several new taxes have also been introduced on items like alcoholic beverages, imported drinks, vehicles, and plastics, alongside efforts to improve existing tax collection. However, one revenue option yet to be fully explored is asset monetization.

UNDERSTANDING ASSET MONETIZATION

NIGERIA’S VAST UNTAPPED PUBLIC ASSETS

Nigeria is estimated to have around 50,000 abandoned federal projects valued at over N10 trillion. This is in addition to the federal government’s landed property across the country, estimated modestly at about N5 trillion. The Ministry of Finance Incorporated (MOFI), a Federal Government investment agency, holds N30 trillion worth of Federal Government assets, even though some studies show that it could be more. The Federal Secretariat in Ikoyi Lagos alone is estimated to be worth at least N120 billion and has been abandoned for over 40 years. Appropriate policy and legislative frameworks must be developed to turn these national assets into money-spinners.

A STRATEGIC APPROACH TO ASSET MONETIZATION

MODELS OF ASSET MONETIZATION

There are two main types of asset monetization: Toll Operate Transfer (TOT) and Infrastructure Investment Trusts (InvITs).

TOT is a contract between a public authority and private partner, usually via PPP concessions. TOT involves transferring assets like toll roads to a private investor for a designated time frame in exchange for an upfront payment. The investor assumes full operational control and is responsible for toll collection, maintenance, etc. They bear all financial risks and rewards as if they owned the asset. Brazil has utilized TOT for major toll road concessions, including a $9 billion 30-year commercial concession of the Rio de Janeiro-São Paulo Dutra toll road in 2021. This provided a significant revenue windfall.

InvITs is a business trust registered with regulators that owns, operates and manages revenue-generating infrastructure assets. These assets generate cash flows that are periodically distributed to unit holders. InvITs are hybrids of debt and equity – they provide stable, predictable, and relatively low-risk cash flows like debt alongside growth potential like equity since returns aren’t fixed. India pioneered the use of InvITs. Successful Indian InvITs include India Grid Trust (electric power transmission assets), IRB InvIT Fund (toll road assets), Power Grid Infrastructure Investment Trust (power transmission networks), and Oriental InfraTrust (road projects).

There are also other structured models like bonds, concessions and outright sales.

FRIENDLY INVESTMENT FRAMEWORK AND INSTITUTIONAL SUPPORT

CONCLUSION

Nigeria has a prime opportunity to address its revenue shortfalls and infrastructure needs by unlocking the immense potential of its unused and underutilized assets, worth over $1 trillion. Asset monetization, done judiciously, attracts private investment to upgrade public assets and services while generating substantial income. However, success requires selecting suitable models aligned to asset characteristics and policy goals, whether TOT, InvITs, concessions or other structures. Effective monetization also relies on fair partnerships between the state, private sector and other stakeholders to diligently execute complex, multi-year deals. Furthermore, Nigeria must build investor confidence by establishing a clear, consistent, supportive regulatory system with safeguards and transparency.

*Collins Okeke is an Associate Partner & Head, Public Sector Practice Group, Olisa Agbakoba Legal