Interview: Kalim Shah
Why are public-private partnerships (PPP) key to delivering accessible and quality public services?
KALIM SHAH: Infrastructure gaps cost Nigeria about 4% of GDP growth annually, according to a 2021 report from the World Bank. Rapid growth of the population projected to reach nearly 400m people by 2050, coupled with urbanisation has created strong demand for infrastructure development. Therefore, the country will need to spend around $100bn a year over the next 30 years to meet this goal. Through PPPs, the government can benefit from access to private financing and expertise, while boosting efficiency, transferring operational risk and increasing value along the entire chain, from asset creation to service delivery and maintenance.
These partnerships must fit into broader sector-specific plans, be screened for economic soundness and be prioritised using a cost-benefit analysis. Under the National Development Plan (NDP) 2021-25, Nigeria has developed a medium-term blueprint to unlock the country’s potential across all sectors. To attain the NDP’s objectives, Nigeria requires an investment of about N348.1trn ($829.3bn) and a strong PPP ecosystem.
What trade finance solutions can enable Nigeria’s private sector to maximise the benefit of the African Continental Free Trade Area (AfCFTA)?
SHAH: Financing shortfalls are among the main challenges to realising Nigeria’s international and intra-regional trade potential. Improving access to trade finance would benefit small businesses in particular, as they face high costs and the most restricted access to funding. In October 2022 IFC and the World Trade Organisation published a report on the trade finance ecosystem in West Africa looking at four countries: Ivory Coast, Ghana, Nigeria and Senegal. The report revealed that trade finance supports on average only 25% of trade in these countries – far below the 40% average for Africa and 60-80% for advanced economies and at considerably higher prices. Reducing the cost of trade finance and expanding access to the African and global markets could increase merchandise trade in the four countries by 8% and 16%, respectively, generating from $13bn to $26bn each year. These efforts are expected to boost trade within ECOWAS, among African countries and with other emerging economies. Nigeria’s private sector could maximise benefits from the AfCFTA by focusing on trade finance solutions. Collective action by policymakers, banks and the private sector is needed to reduce related costs and increase the availability of trade finance through both traditional instruments – where penetration remains low – and new tools, such as supply chain finance and digitisation. Additional enabling steps include enhancing the capacity of local lenders, integrating trade finance into the AfCFTA’s implementation, strengthening foreign correspondent banking relationships, expanding the range of firms that can access trade finance, and supporting decision-making through better data and analytics.
To what extent can value chain finance (VCF) help augment financial flows to smallholder farmers and enhance export competitiveness?
SHAH: Studies show that access to financing for agri-inputs and equipment, as well as information on improving agricultural practices and climate-smart farming, are obstacles to smallholder farmer productivity and sustainability. VCF can mobilise liquidity to enhance collaboration between farmers and agricultural service providers. If packaged with technical assistance for farmers, VCF can aid in developing sustainable agricultural systems, helping farmers meet changing market requirements, increased demand and international product standards, as well as adopt technological advancements and innovations in agriculture practices. To enhance export competitiveness, financial institutions can leverage lenders’ corporate and project financing, risk-sharing facilities and advisory support, including consultation on climate-smart agriculture.
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