Executive Order 007 and the Infrastructure deficit gap in Nigeria – A Nexus


Preamble

The signing of the Executive Order 007 by His Excellency, President Muhammadu Buhari, GCFR, on 25 January 2019, on Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme . is a good development which suggests a paradigm shift or reinforcement of the perspective of how the infrastructure deficit can be reduced in Nigeria.

 A feature of this scheme is that the total cost, or “Project Cost” incurred in the construction or refurbishment of an eligible road can be used by companies as a Tax Credit against their Company’s Income Tax (CIT) liability, up to the full amount of the value of the project cost and a percentage addition to be applied at Monetary Policy Rate plus 2%.

The Reality

The budgetary allocation to road projects in the country shows a wide funding gap between the budgetary provision and the infrastructure deficit in the country. A study by the Africa Infrastructure Country Diagnostic (AICD) concluded that Africa’s large infrastructure finance gap could be reduced by a third through efficiency gains, some of these gains can be gotten through the involvement of the private sector through PFI, which guarantees the engagement of appropriate professionals for the execution of the infrastructure projects.

However, there is a new approach to Infrastructure delivery that focuses on Quality infrastructure as against the ‘run of the mill’ which has failed in Nigeria evidenced by the underdevelopment and failure of roads all over the country. This concept has begun to attract broad global support and efforts to achieve the newly agreed upon Sustainable Development Goals (SDGs) shows there is a clear window of opportunity to bring a new approach to infrastructure delivery that focuses on delivering the best long-term value for each infrastructure investment.

 One of the principles guiding the conversation on Quality infrastructure is enhancing effective resource mobilization including through Public-Private Partnerships (PPPs). Quality Infrastructure underpins the economic development of any nation, which to a large scale , determines the long-term economic and social trajectory of a country. “One World Bank study found that infrastructure not only accounted for over half of Africa’s improved growth performance from 2001 to 2005, but also yielded indirect human development benefits in terms of disease reduction, health and education, and market creation.”

Our Thoughts

It is on the backdrop of this that we at Projects Associates (PA) support this bold initiative in changing the fiscal policies to create the right environment for attracting investment into infrastructure development .Therefore we wish to state as follows;

1)     Quality Infrastructure only comes through appropriate Value Analysis which apart from limiting social and environmental costs will also consider, amongst other things ; the terms & structure of construction contract, life-cycle cost, safety, resilience against natural disaster, job creation, capacity building, and transfer of expertise. This calls for the enforcement of the executive order 05 in the accomplishment of the Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme (“the Scheme”)

 2)     In order to guide against poor workmanship and guarantee value for money, the project cost should also include the maintenance period of the roads thereby putting a check on the probability of executing a poor grade work by the parties engaged on the project. Since the projects are linked to “the scheme”, such maintenance periods should be above and beyond what currently obtains in the industry to reduce the risk borne by the Federal Government. Therefore, while considering the gestation period, execution period and expected maintenance period of infrastructure projects;: the proposed time bar of 10 years from the commencement date of “The Scheme” might not only be detrimental to the purpose but might be a bane to the success of “The scheme.”.

 3)     Furthermore, the professionals involved in these projects should be required to provide professional indemnity insurance over the maintenance period of the project in order to guarantee the full discharge of their duties without any collusion with the parties to the contract.

 4)     As a firm that is involved in the total cost management of construction projects, we understand the macroeconomic impact of this initiative on the GDP of the Nation as a whole and the livelihood of the citizens in the immediate vicinity of the projects. Therefore, we encourage the fast track process for the execution of the projects under this scheme and also encourage all Professionals to be open to new dynamic and inclusive ways to make this project succeed through new collaborations between all professionals.

 5)     We join the Minister of Finance to appeal to companies to take advantage of the initiative to improve road infrastructure in Nigeria and in order to guarantee value for money, due care should be taken to engage the services of professionals in the appropriate and globally accepted standard /model for costing and supervision of the projects to assure of quality project delivery. It is also pertinent to note that the Minister also disclosed that investors will only be eligible to recover the cost after it has been properly verified and approved, based on set parameters. The best way to achieve this is through the engagement of persons who are specially trained to provide such services, which has always been the practice in the private sector.

 6)     Finally, the apothegm that “What does not get measured does not get done.” sums up the issues at stake, in order to evaluate the tax credit application, a proper cost or value of the projects must be ascertained, and to ascertain this, the project must first be measured properly and then valued in accordance with global best practice. This is the only way to ensure efficiency of funds in the course of administering the scheme.

 7)   While this Scheme is a step in the right direction, we urge the FGN to go a step further and enact similar order to revamp the housing sector of the economy which has a deficit in the range of 17million homes. This proposed scheme will have even a greater impact on the GDP and the citizenry because of its all encompassing multiplier effect on the economy through the direct engagement of workers to the provision of one of the key need of citizens – shelter. Projects Associates (PA) is ever ready to partner with other like minded consulting firms and the FGN for the actualization /success of this scheme.


In concluding,we at Projects Associates also believe that for “the scheme” to succeed, the right political climate must be guaranteed by the FGN in order to woo investors who have a stake in the Local Companies and may wish to support the actualization of this bold initiative - reducing the Infrastructure deficit gap.

 

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