Report suggests Nigeria taps asset monetisation for revenue shortfall

• To address infrastructure needs

• 50,000 abandoned projects worth N10trn

• FG landed property put at N5trn

• Idle, underutilised assets worth $1trn

ONOME AMUGE

The Nigerian government is facing a host of financial challenges, as it struggles to find revenue sources to fund its operations, repay its outstanding loans, invest in much-needed infrastructure, and spur economic growth. The 2024 federal budget has a significant deficit of N9.18 trillion, adding to an already staggering debt burden of N87.38 trillion ($113.42 billion) as of the second quarter of 2023.

The government’s options for addressing its financial challenges include borrowing more money, as evidenced by the proposed N7.81 trillion borrowing plan for 2024 and a total of N26.42 trillion over the next four years. In addition, the government has introduced several new taxes on goods such as alcoholic beverages, imported drinks, vehicles, and plastics, while also attempting to improve tax collection efficiency. 

However, one potential revenue source that has not been fully explored is asset monetisation, as suggested by Olisa Agbakoba Legal (OAL), one of Nigeria’s leading legal solutions providers, with clients in diverse sectors of the Nigerian economy.

OAL, in a recent publication titled “Unlocking Dormant Capital: Strategies for Monetising Nigeria’s Abundant Public Assets”, defined asset monetisation as “generating new government revenue by unlocking the economic potential of currently unutilised or underutilised public assets.

Public assets, according to the report, encompass a wide range of physical and non-physical assets owned by government entities, including but not limited to roads, airports, railways, train stations, oil and gas pipelines, cellular towers, power transmission lines, and unutilised land. The report noted that asset monetisation allows for the transfer of public infrastructure to private sector investors through well-structured agreements.

“Asset monetisation has two key goals: First, it unlocks value from existing public infrastructure investments. Second, it utilises private-sector productivity. Asset monetisation is not a new revenue generation strategy. Several countries including the United Kingdom, the United States, Australia, Brazil, France, India, and China have successfully employed asset monetisation to generate revenue and meet their financial obligations,” the publication stated.

The publication, authored by Collins Okeke, an associate partner at OAL and Esther Nkechinyere, an associate trainee, OAL, dwelled  on Nigeria’s vast untapped public assets, noting that Nigeria is estimated to have around 50,000 abandoned federal projects valued at over N10 trillion. This, it noted further, is in addition to the federal government’s landed property across the country, estimated modestly at about N5 trillion.

The authors also stated, “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.”

According to the OAL publication, a strategic approach to asset monetisation is essential for unlocking the value of Nigeria’s vast dormant assets. The report recommended that the federal government adopt a systematic approach that includes clear criteria for selecting assets, a roadmap for the monetisation process, and a comprehensive plan for the use of the funds generated. The report emphasised the importance of the government clearly stating its goals and objectives for asset monetisation. This, it said, would help to guide the strategy and determine which assets should be prioritised.

The second step, according to the report, is to take a comprehensive inventory of all public assets and assess their potential value. The Bureau of Public Enterprises (BPE), Ministry of Finance (MOFI), and Infrastructure Concession Regulatory Commission (ICRC) were encouraged to work together to create a comprehensive federal asset registry that accurately lists and values all of Nigeria’s public assets. 

The report  further recommended that the government look for “low-hanging fruit” – assets that can be monetised relatively easily without changing their ownership structure.

The authors also highlighted some specific actions that the government could take to improve the performance of its assets. These include establishing key performance indicators for managers, reviewing pricing models to ensure they are optimal, reducing unnecessary costs, and streamlining capital expenditures. In addition, the report noted that new business models could be developed to generate additional revenue streams, such as a state retailer becoming a wholesaler, franchisor, or licensor. 

In addition to operational improvements, the report noted that restructuring ownership can also be a powerful tool for asset monetisation. This, it stated, could include partial privatisation, sales to strategic partners, listing assets on the public market, or entering into long-term leases. Additionally, it was noted that signalling the government’s intent to privatise certain assets can help to attract interest from investors and unlock value in the short term.

The report emphasised that the execution of these strategies must be undertaken with care, as they may face opposition from various stakeholders, including unions, local interests, and even directors. Therefore, it stressed the importance of prudent change management and careful stakeholder engagement. 

In addition, the report noted that legal and regulatory barriers may need to be addressed to ensure that the monetisation of public assets is both feasible and compliant. The report also noted that environmental, pension, and other legacy liabilities should be handled appropriately to avoid any potential complications down the road.

The report highlighted two primary models for monetising public assets: Toll Operate Transfer (TOT) and Infrastructure Investment Trusts (InvITs). 

According to the publication, “TOT is a contract between a public authority and a 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.”

As an example of TOT in action, the report cited Brazil’s experience with its major toll road concessions. In 2021, the government of Brazil granted a $9 billion, 30-year commercial concession to a consortium of private investors for the operation and maintenance of the Rio de Janeiro-São Paulo Dutra toll road. This has allowed the government to receive a significant revenue windfall while also freeing up public funds that would have otherwise been used to maintain the toll road. The investors, in turn, will have the opportunity to generate revenue and profits from the toll road for the duration of the agreement.

Infrastructure Investment Trusts (InvITs), on the other hand,were described  as investment vehicles that hold a portfolio of revenue-generating infrastructure assets. These assets generate cash flows that are periodically distributed to unit holders (investors). According to the publication, InvITs are a hybrid between debt and equity, providing investors with the predictable, relatively low-risk cash flows of debt while also offering growth potential similar to equity.

The report noted that India has been a pioneer in the use of InvITs, having adopted the model in 2014. Several successful InvITs in India include India Grid Trust, which holds electric power transmission assets; IRB InvIT Fund, which holds toll road assets; Power Grid Infrastructure Investment Trust, which holds power transmission networks; and Oriental InfraTrust, which holds road projects.

In addition to TOT and InvITs, the report also highlighted other structured models for asset monetisation, such as bonds, concessions, and outright sales. Bonds are a common method of raising capital for infrastructure projects, while concessions involve leasing public assets to private operators for a period of time. Outright sales, on the other hand, involve the outright sale of public assets to private entities.

The publication reiterated that Nigeria has a significant opportunity to address its revenue shortfalls and infrastructure needs by unlocking the value of its idle and underutilised assets, which are estimated to be worth over $1 trillion.

“Asset monetisation, 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,” it stated.

The report stressed that effective monetisation of assets also requires the government to build strong partnerships with the private sector and other stakeholders, and to establish clear, consistent, and supportive regulatory frameworks. Additionally, it emphasised the importance of building investor confidence by ensuring transparency and accountability in the monetisation process. It noted that without these elements, even the most promising asset monetisation initiatives can fail to deliver the desired results.