As debts continue to increase at the subnational level, experts have called on states to reduce borrowing for capital projects.
They advocated public-private partnerships (PPPS) to initiate capital projects in their respective states.
For his part, the head of financial institutions ratings at Agusto & Co, Ayokunle Olubunmi, said that theoretically, states should begin to reduce their level of borrowing. However, he feels adjusting to this reality will take some time because, at the federal level, the GDP hasn’t really been that successful.
To him, “Theoretically, we must go; that’s the right direction. However, it will take some time because the GDP hasn’t been that successful at the federal level.
PPPs are a good option. First, the government does not have to spend as much, and secondly, when the businesses succeed, they create jobs. Those employees then pay taxes, which benefits the state.”
However, the challenge with PPPs at the state level, he discovered, is the same as at the federal level-political risk, adding that, “In Nigeria, you often see a governor approve a project, but once a new governor comes in, the first thing they do is revoke it. And this happens not just at the state level but also at the federal level, where every new government wants to start afresh.”
This political instability, he said, makes private investors wary, as many private sector players are willing to invest in such projects, but they need certainty. “Don’t forget, there are organisations such as AfDB that support PPP investments. Ironically, Nigeria is one of the most significant shareholders, yet implementation remains weak.
“So, the key issues are political risk and regulatory framework. The government must create a stable, reliable framework to attract more private investment into PPPs. PPPs often require long-term commitments, sometimes spanning decades, and investors need assurance that they can recoup their money.
“If you look at the federal level, Nigeria doesn’t have a strong track record with PPPs. Even the Murtala Muhammed Airport (MMA2) concession faced years of disputes. Cases like that discourage private investors,” he pointed out.
`Moreover, Professor Bongo Adi of Lagos Business School (LBS) said, there are innovative financing mechanisms that different segments of government can deploy to pursue development in their state.
“One of those we’ve been talking about requires a firm rule of law and government, commitment to respecting the sanctity of contracts, which is a public-private partnership. Forever, we’ve been talking about public-private partnerships. You must integrate for all infrastructure projects, especially infrastructure, because that’s significant.
“If it’s just about paying salaries and all of that, that’s not the issue. The government can always find the tax if you need to deal with that. But suppose you’re looking at those catalytic and transformative projects required to drive real economic productivity. The government needs to create a pipeline of bankable projects and clean up its act.
“Governments want to make an impact because of their political interests. Every government wants to be re-elected or wishes to remain in power. And the only way to convince the people working is if they go to do all this public work.
But then, when there is no money to do that, the only alternative is for the government to find creative ways to package the project in such a way that it becomes attractive to the public sector, public sector contractors, and private sector lenders,” he pointed out.
He added, “So, when you collaborate with private finance, private competence, that is the contractors, and then government, you can sort out the risk. So, whether the government has money or not, it is delivered. And it’s delivered at an efficient level. So, what the government does now is to transfer the management of that project, whether it is infrastructure or whatever, to the private sector developer or the private sector partner who will now find a way to generate revenue from that project.”
To him, “So, now people begin to think more efficiently. If you know that you’ll pay for the service you’re using, you become more prudent in using that service. That means that the sustainability of that service leads to the right incentives for the provider to also increase the provision of such service because there is an incentive for people to use it in a prudent manner and an incentive for people to also pay for it. After all, the service they are receiving is of the highest quality.
“The higher fee that people pay for services provided under this sort of concessionary arrangement is compensated by the quality and efficiency of services they receive. So, I do not see any reason why state governments or national entities should really be bothering themselves with the provision of these things. They need to set up very competent PPP units that will clean up every infrastructure. There is no aspect of government public service today, and public work cannot be designed for a PPP intervention or project financing. There is none.”
He noted that, “Whether it is hospitals or schools, or roads or bridges or ports or airports, it is just a waste of resources. It is useless, it is needless. Because if they really want to be judicial, if they are sensitive to the economic situation that the country and the economy at large are in, what they should be thinking of is to let us put this to the market, let us do market testing or market funding. So, let the market determine whether the project is bankable.
“Because most of these projects, airports and whatever they are doing, if you take it to the market, I’m sure that no investor will put their money in there, because when you look at it and do all the financials, do all the numbers, it will not be profitable, whether short or long term. Because, you know, so you have to look at traffic, you have to look at so many things, protecting power, and so many other things.
“So, using the private mechanism of PPP, which is actually about subjecting infrastructure investment, public investment to the difficulty of the market, if you use it, the government will become more rational in deploying cash resources. I think that is what the states need to be looking at. But unfortunately, I can’t think of any state with a leader or one that thinks in that direction. Most of them are all about politics and, you know, the optics of politics. That’s what everybody is interested in.”
Earlier, a report in Punch Online quoted the director-general of Nigeria’s Debt Management Office(DMO), Ms. Patience Oniha, advising state governments to adopt Public-Private Partnerships and prioritise tax revenue generation over borrowing to fund infrastructure projects.
The report added that the DMO DG remarked during a one-day workshop in Lagos on Tuesday, organised under the States Action on Business Enabling Reforms Programme with World Bank support.
According to the report, Oniha emphasised that PPPs can drive Nigeria’s economic growth by leveraging private sector investment and expertise for infrastructure development and public service delivery. This approach, she noted, reduces fiscal strain on governments, ensures faster project completion, and delivers higher-quality outcomes while creating jobs and spurring innovation.
She added that the federal government had to work with the states or sub-nationals as to how to borrow, as the nation has one economy, a single Gross Domestic Product, and is rated as one by ratings agencies as well as creditors.
