Infrastructure Development and Financing Approaches in Developing Nations: Constraints and Opportunities

OLUFEMI A. OYEDELE

Department of Building, Faculty of Environmental Design and Management

Obafemi Awolowo University, Ile-Ife, State of Osun.

NIGERIA

femoyede@yahoo.com

Abstract: Infrastructure is the physical and organisation structures on which nation’s development depend. Infrastructure is conspicuously an essential component of national competitiveness and social well-being. Developed and developing countries aim at designing and developing infrastructure systems that truly contribute to sustainable development throughout their whole-life cycle. Infrastructure project finance which is the life-line of infrastructure development in developed countries is a big problem in developing nations with inefficient and inadequate financial systems. Poor risk management is also a bane of developers accessing project loans. Project finance is different from corporate business finance in that in project finance, the security for loan is the project, while in the latter, security is the entire balance sheet of the business. The financial structure provider in a project finance must therefore, be very careful in a volatile business environment with little cash-flow understandings on the part of the developers. Infrastructure financing provides good investment opportunities in developing nations because of the high deficit of infrastructure. The challenges lie in the members of the public who still have the notion that infrastructure provision is the sole responsibility of governments. This paper discusses the nature of infrastructure in Nigeria and methods of financing infrastructure in developing nations for better return on investment (ROI).

Key words: Development Partners, Infrastructure, Project Finance, Risk Management, Syndication

Introduction

Infrastructure, typically, is the technical and organisation structures that support a society, such as roads, water supply, sewers, electrical national grids, telecommunications, good governance, services and so forth, and can be defined as "the physical components of interrelated systems providing commodities and services essential to enable, sustain, or enhance societal living conditions" (Fulmer, 2009). Developing nations sit at the bottom of the World Infrastructure Table with Switzerland in first position and Nigeria at 122nd in 2013.

Merriam-Webster Online Dictionary (2014) defines infrastructure as “the basic equipment and structures (such as roads, buildings, rails, parks and bridges) that are needed for a country, region, or organization to function properly”. Viewed functionally, infrastructure facilitates the production of goods and services, and also the distribution of finished products to end-users (markets), as well as basic social services such as schools and hospitals; for example, roads enable the transport of raw materials to a

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factory (American Heritage Dictionary, 2009). In military parlance, the term refers to the buildings and permanent installations necessary for the support, redeployment, and operation of military forces (Department of Defense Dictionary, 2005). The word infrastructure has been used in English since at least 1927 according to Online Etymology Dictionary (2012), originally meaning "the installations that form the basis for any operation or system". Infrastructure in developing countries connotes roads, telecommunication and transport infrastructures. The advent of telecommunication infrastructure in Nigeria in the year 2000 brought infrastructure to the limelight as the products and services necessary for the performance of an entity. There are two types of infrastructure, “hard and soft" infrastructures. Hard refers to the large physical networks necessary for the functioning of a modern industrial nation, whereas "soft" infrastructure refers to all the institutions which are required to maintain the economic, health, and cultural and social standards of a country, such as the financial system, the education system, the health system, the governance system, and judiciary system, as well as security (Kumar, 2005). The approaches of financing hard infrastructure in developing nations, like Nigeria, are the premise of this paper. The nature of infrastructures in developing nations Infrastructure development is one of the bases of assessing the achievements of leaders and it is the foundation of good governance. Agitation for infrastructural development is higher in developing nations than in developed countries. This is because the resources for provision of infrastructure are scarce. Ethnic-interest agitation and

lobbying are common things in democratic governance in developing countries. This is why the Office of Government Commerce (OGC) in United Kingdom, advised that infrastructure projects initiation should be done by an office specifically established to do this job. (P3O, 2008). The Infrastructural report of Nigeria, just like any developing nation, is nothing to write home about. The housing situation is in a sorry state both quantitatively and qualitatively (Onibokun, 1996; Agbola, 1998; Nubi, 2000; Ajanlekoko, 2001 and Oyedele, 2006). Most infrastructures are now decayed and need repair, rehabilitation or replacement. Government is the system that plans, organizes, controls and supervises the people who are resident in an area in other for all to have conducive-environment for living and a sense of belonging. Governments have the power to put in place all measures that it deem fit will make an environment beneficial for the living of every law abiding people. Nigeria has a total of 194,200 kilometres of roads on an area of 923,768 km2. The United States of America has a total road of 6,586,610 kilometres and a total expressway length of 76,334 kilometres on 3,718,710 sq miles (9,631,420 sq km). The United Kingdom has a total road length of 394,428 kilometres on a total area of 234, 610 kilometre square. The roads in Nigeria are mostly not in good condition because of lack of maintenance. They are made of asphalt, a water soluble material, unlike concrete in most developed nations. They are also not adequate because of lack of finance. The cost of infrastructure development in developing nations is outrageously high due to corruption. The Nigerian public kicked against the construction of second runway at the Nnamdi Azikiwe International Airport,

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Abuja, at an ‘exorbitant’ cost of N63.8 billion in 2010. The initial cost of N32billion proposed to the Bureau of Public Procurement (BPP) suddenly jumped to N63.8billion. The Federal Government then hurriedly reduced the initial cost of N63.8 billion to N49.6 billion (Oyedele, 2013). The seemingly inadequate reduction was kicked against by the House of Representatives saying it was pre-emptive of its public hearing on the matter. Infrastructure development in Nigeria has found itself in the present financial mess because of procurement indiscipline. The representatives of the masses who are supposed to protect their interests in all construction contracts administration see all cases as opportunities for them to make money. They hardly do the just because of financial gratification from capitalist-contractors.

Infrastructure development in developing nations is more challenging because of the accessibility of people to government and involves identifying the right project, carrying out feasibility and viability studies and embarking on physical development of the project. The challenges are numerous and include finance, technology for development, maintenance and design. The challenges also include quality requirements of projects to meet international standard and to be sustainably developed. Projects must meet the carbon emission standard set by international organizations like International Standard Organisation (ISO). Air capture and analysis are done in communities to ensure that they emit as little greenhouse gases (GHGs) as possible, human settlements must be bio-diversified with co-habitation of other animals and plants and natural environment must be

conserved for sustainable development and so on. Infrastructure development process is highly controversial and litigious. After its development, the tolled Ikoyi-Lekki Bridge case is still in court as a Human Right Crusader Barrister Olu Adegboruwa is challenging the collection of toll by the government in court. His bone of contention is that governments’ functions include provision of infrastructure through various taxes. Government cannot transfer its responsibility to the masses and abdicate its duties to a third party. The Lekki-Epe Expressway concession to Lekki Concessioning Company (LCC) has also been determined by the Lagos State government after series of protests by the public. Tradesmen and other technical human resources needed for infrastructural development are scarce because of lack of training and motivation. “As a result many professional people, tradesmen and senior managers are migrating to other countries” (Robbins et al, 2009). Because of fast money, most youths that suppose to learn a trade are now “commercial bicycle riders”. The numerous infrastructure problems have not been tackled as they should. Nigeria's lack of basic infrastructure to facilitate sustainable development and trade – both regionally and globally – and to ensure competitiveness is already known by all. In particular, for the large number of local governments, especially the rural ones, the dwellers produce have no access to markets and are not stored, hampered by weak transport and energy infrastructure. The contract for the development of Lagos-Ibadan Expressway concessioned to Messrs BiCourtney Limited under Build, Own, Operate and Transfer (BOOT) has been terminated, while the termination of the

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right to develop a five-star hotel at the Murtala Muhammed International Airport, Ikeja given to AIC Limited has also been carried out. The latest termination of contract is the suspension of 2nd Niger Bridge by the federal government after the contractor has been greatly mobilized. Infrastructure Development and Developing Nations The state of infrastructure of any state is directly related to its quality of life. “According to recent statistics, the quality of life of most people in Africa appears to have either not improved or only done so marginally. This situation arose from the misrule of early leaders most of whom spearheaded the struggle for independence” (Eregha, 2007). Lack of basic infrastructure like housing, roads, health facilities, storage facilities, electricity, security etc, are greatly contributing to poor standard of living in the developing countries. The military governments professed to have come in as corrective regimes that would stay for only brief periods within which they would right wrong things before handing over to democratic governments. These military governments often ended up entrenching themselves in power. In fact, most of them exhibited all the traits of the much vilified early leaders and even more (Ikpi, 1997: 18). The civil wars have led to the neglect of provision of infrastructure such as education facilities and health buildings, and in some cases, agricultural services and transport facilities were destroyed. School buildings have been converted to military use. Civil wars in Africa undermine the continent’s productive capacity, destroy or severely weaken social structures, distort economic policy, pollute the value-systems of the

people and perpetuate prolong poverty (Elu, 2000: 60). It is evident that Africa is the poorest continent in the world and the present situation shows backward movement in terms of infrastructural provision especially, the technology based. “It has now become clear, even to obstinate and recalcitrant policy makers, that unless drastic measures are taken, living conditions for most people in this continent will continue to fall” (Elu, 2000: 60). There are many theories of development: they are classified into modernisation and dependency. The modernisation theorists based their argument on Economic, Psychology and Diffusion. The economic approach of Rostow (1962: 6) identified five stages in the process of a nation’s economic development. Rostow’s postulation is that underdevelopment was an original position from which traditional societies could move through (stages) to development without a recourse to social revolution. Weber (1930: 60), McClelland (1968: 20) and Everret (1983: 31) explained development in terms of presence (or absence) of (i) some individual personalistic traits or (ii) the general psychological state characterising a society. McClelland (1968) argued that the need for achievement encourages the individuals to meet challenges, to take risks and to succeed in the face of difficulties. Western industrialized nations contained individuals with high level of achievement motivation, which led to high rate of national growth. Hagen (1962: 16) argued that traditional developing nations produced authoritarian personalities who lacked self-confidence, exhibited a high level of anxiety when faced with new situations and who

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were content to preserve the status quo. The leaders are not interested in growth but, at best, how to maintain status quo. This is a bane of development in developing nations. Developed societies have more innovative personalities who display self-confidence, derived satisfaction in solving problems and who are achievers. He argued further that for development to occur, individual personalities had to change. More innovative personalities could be encouraged by improving literacy, expanding the mass media, urbanising and promoting nationalism (Eregha, 2000: 30). Edari (1976:19) utilises diffusion theory to explain the process of less privilege societies’ development. Diffusion is a process by which a third world country adopts capital, technology, and social structure from western industrialised countries. He argued that the developing countries would develop to the extent that: (a) Western industrialised countries provide capital programmes. (b) They adopt modern methods of agricultural and industrial production and (c) They adopt those values, attitudes and behaviour patterns that are exhibited by western industrialised nations. “The people-centered approach to development views an individual not as a subject- ’but an actor who defines the goals, controls the resources, and directs processes affecting his/her life” (Korten, 1984:21). The key elements in this approach are provision of infrastructure through: (a) empowerment of people, (b) development of an administrative process, which responds to the needs of the people, (c) human growth and well being, (d) equality, (e) self-reliance, (f) participation and (g) sustainability.

White (1987: 60) argued that sustainability is a measure of lasting quality in development programme. An infrastructural development programme can be sustained by creating a felt need among beneficiaries about the efficacy of the programme, developing institutions which continually adapt, providing (or self-generating) resources and building support among political elite and community groups. Modernisation theories goaded a lot of criticisms from radical writers who argued that colonialism and Western capitalism were the two major factors responsible for the underdeveloped nature of developing nations. The Western industrialised countries developed by exploiting human and natural resources of their colonies and by making them economically dependent on their colonial powers after independence. One factor that is pertinent is that the developing nations, irrespective of locations, share some features in common whether they were colonized or not. However, since the demise of the colonialists, the leaders of the developing nations ought to have found their feet in infrastructure provision. The Benefits of Infrastructure in National Development UN-Habitat State of World Cities Report (SWCR) 2014 features the five pillars of cities prosperity, that is, Environmental Sustainability, Urban Infrastructures (Road, Telecommunications, Urban Mobility), Quality of life, Manufacturing and Productivity, and Equity and Social Inclusion (Good Governance). It establishes the relationship between sustainable development of infrastructures and quality of life. The report discussed the roles of infrastructure in nation development and how it can impact quality of life. It also related infrastructure development to employment generation and wealth creation.

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The direct relationship between horizontal infrastructure development and Gross Domestic Product (GDP) development has been accounted for by many writers. In Brazil, construction employment rose from 781,000 in 1960 to 4,743,000 in 1999, almost doubling its share of the workforce from 3.4 per cent to 6.6 per cent. Its share of GDP also doubled from 4.2 per cent to 8.5 per cent over the same period. (PNAD, 1997 and 1999).

The African Development Bank (ADB) has made infrastructure development a cornerstone in its development agenda with regional member countries (TMSA, 2012). The Bank recognizes that lack of adequate social and economic infrastructure is one of the key constraints to short-, and medium-, term poverty reduction in Africa, and has thus been a major force in private and public sector infrastructure development through the provision of financial and technical resources. At the same time, the Bank recognises the increasing importance of governance for infrastructure development and has made good governance an imperative in its lending and non-lending operations. There have been considerable changes in the delivery of national infrastructure services across Africa. While Nigeria has improved its telecommunication infrastructural situation, it has not improved in other areas like health, education, airport infrastructures, electricity, housing, recreation and transportation. However, performance in terms of infrastructure service delivery and quality continue to vary across countries. Infrastructure is the medium of production of goods and services and forms the national asset of any nation.

According to Kathmandu Final Workshop Report (2009), infrastructure can help solve four problems: social; health and environment; development; and, economics. A region's infrastructure network, broadly speaking, is the very socio-economic climate created by the institutions that serve as conduits of trade and investment. Some of these institutions are public, others private. In either case, their roles in the context of integration are transformative, helping to change resources into outputs or to enhance trade by removing barriers. Therefore, an improvement in regional infrastructure is one of the key factors affecting the long-term economic growth of a region. The linkages between infrastructure and economic growth are multiple and complex. Not only does infrastructure affect production and consumption directly, it also creates many direct and indirect externalities. It also involves large flows of expenditure, thereby creating additional employment. Studies have shown that infrastructure can have a significant impact on output, income, employment, international trade, and quality of life. Infrastructure development can reduce stress and promote good health. It will also reduce crime level. Infrastructure has always played a key role in integrating economies within a region. Well developed and efficient infrastructure is essential for a region's economic development and growth. In a dynamic concept, infrastructure is seen as a regional public good that moves factors of production within and across countries, thus helping the region attain higher productivity and growth. Infrastructure Development Challenges in Nigeria • Dearth of Visionary Leaders: Visionary

leaders are the builders of a new dawn,

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working with imagination, insight, and boldness. They present a challenge that calls forth the best in people and brings them together around a shared sense of purpose. Visionary leaders are change agents. Nigeria contains few change agents and therefore lacks the needed infrastructure to develop the nation. According to Olufowobi (2014) “Governor Babatunde Fashola of Lagos State says the Federal Government has been doing little with the huge revenue allocation it gets monthly from the federation account. “There are three governments in the Nigeria family – the federal, the state and the local government – and we get income from three major sources. One is oil; the others are charge and import duties. Last year in Apapa alone, between January and June, the published income for the Federal Government was N1.4tn”. The government of United Arab Emirate (UAE) has been doing wonders in the country in terms of construction. It is constructing superlative edifices across the nation. One of them is “The Mall of the World”. “The new mall would up the ante. With 20,000 hotel rooms at hand, you could stay for a week and never have to get into your car. Four miles of streets and promenades – covered in summer to keep it cool, open-air in winter – connect the different elements of the mall” (Aitose, 2014).

• Wide dichotomy between demand and supply: Due to poor performances of most past leaders in the area of infrastructure provision, the agitation for infrastructure development overwhelms the provision. With a land mass of 9,110,000 square kilometers of land and over 160,000 million people, Nigeria has a total road network of 193,200KM. This comprises of 34,123KM federal roads, 30,500KM state roads and 129,577 KM

local government roads. Unfortunately, over 70% of the federal roads are in bad state of repair. In the area of housing, Nigeria requires about 17 million housing units and 60 trillion naira in order to meet its housing needs.

• PESTLES Analysis: The challenges of

infrastructural development in Nigeria can be discussed under PESTLES Analysis. Challenges infrastructural development can be: political, economic, social, technology, legal, environmental and safety. Political environment has to do with the political stability, policy formulation and politics of the project environment both within and without. Economic environment deals with issues like interest rate, inflation, currency exchange rate, price fluctuation etc. Social environment has to do with workforce diversity including cultural difference, age difference etc. Technology environment deals with the machineries which are used for the execution of projects. Physical environmental issues like site ecology, topography, geology and climatology is also essential. Safety issues have to do with health and safety and security of resources on site, that is, human, material and financial. While some countries have been able to implement individual projects to alleviate those difficulties, Nigeria does not have common strategic targets for infrastructure development. Good governance is crucial for ensuring the effective and efficient provision of infrastructure. This is largely because, firstly, good governance means that resource allocations will reflect national developmental priorities and thus respond to societal demands.

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• PARETO Analysis: Pareto analysis is a statistical method in decision making that is used for the identification of a specific number of tasks that produce major impact. It uses the Pareto Principle (which is also called the 80/20 rule). It originated the idea that by doing specific 20% of the work, you can generate 80% of the benefits of doing the whole job. In terms of quality improvement, a large majority of defects (80%) are produced by a few key causes (20%). This is also known as the vital few and the trivial many. In project management, 80% of project delays are caused by 20% of tasks etc. It can also mean that 80% of the tasks are done by 20% of the workforce. The people in charge should strive to improve the number of workforce that is genuinely working.

• Development Matrix: The four requirements of any physical infrastructure projects are: design, finance, technology and management. The appropriate designs that will ensure value for money are not adopted. The finance is not adequate, is procured at high interest rates and financial management is lacked by most Nigerian contractors. The technology of construction is scarce and the management of infrastructure is lacking. The maintenance culture of Nigerians is poor thereby allowing most projects to decay.

• Capital Flight, Capital Sink and Capital Stagnancy: Infrastructure development projects in Nigeria suffer from capital flight, capital sink and capital stagnancy. A lot of materials and managerial services are procured outside the country. The contracts are full of loop-holes that allow leakages of funds. In

some cases, there is over-design for the designers to earn more professional fees which are percentage of the contract sum. Capital stagnancy due to abandoned projects is also rampant.

• Project Management: Project management approach in project delivery evolved in the late fifties in the United States of America (USA) when it was first used by the American Army for military projects execution. The success recorded through project management approach in the Defense sector led to its establishment as a reliable method of project delivery in other sectors like construction, manufacturing, health, information technology (IT), media, pharmaceutical, education and entertainment (Oyedele, 2012). The approach was introduced into United Kingdom (UK) in the early sixties. Countries like Hong Kong, Malaysia, Canada and Ireland have adopted this approach, but it is still unpopular in developing countries, especially in Nigeria. Risk management is necessary for all Nigerian projects.

• Procurement Method: There is yet no harmony in the methods of project financing in Nigeria. The Public Procurement Act (PPA) 2007 stipulates that all states, local governments, ministries, departments and agencies must follow due process in its public procurement. Ministries, departments and agencies (MDAs) delay contractors’ payments more than the stipulated 60 days by the Procurement Act (Ezeh, 2011). In most cases, personal interests of Nigerian leaders override public interests in the management of construction projects.

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• The procurement methods being adopted are prone to criticisms. The Public Finance Initiatives, especially the Concession Method and Public/Private Partnership (PPP) are questionable and seems to mortgage the future of others who are not part of the arrangement to the scheme’s future. The 105-kilometre Lagos-Ibadan Expressway which, under the PPP scheme, the federal government did concession to Bi-Courtney Consortium in 2009 for N89.53 billion for 25 years is not the best arrangement possible and has not change the situation of the road.

• Corruption: Corruption does not only raise the price of infrastructure, it can also reduce the quality of, and economic returns from, infrastructure investments. The corruption in Nigeria is very high and unbearable for effective infrastructural development. The Bureau of Public Procurement (BPP), the Independent Corrupt Practices Commission (ICPC) and Economic and Financial Crimes Commission (EFCC) have not been able to eradicate corruption in the country. The BPP has saved the country a whopping sum of N216.6 billion during the 2010 Appropriation year from its review of contract processes before the issuance of Certificate of No Objection. Between 2007 and 2012, the BPP saved Nigeria the sum of N350billion. Stanbury (2005) worked on one of the most comprehensive review of corruption in the construction industry worldwide to date, and outlined thirteen features of construction projects that make them particularly prone to corruption. The most relevant for this write-up are: competition, size, uniqueness, complexity and the fact that

projects are structured through various phases and contractual links that disperse accountability among numerous separate agents. At least a part of the explanation for poor construction outcomes in low-income countries relates to mismanagement, but corruption is also an issue that has to be addressed. The construction sector is widely reported as one of the most corrupt globally. Public works and construction repeatedly tops the charts of Transparency International’s Bribe Payer’s Index, perceived as the sector most likely to engage in bribery (Hardoon and Heinrich, 2011). Estimates of 20-30% of project value lost through corruption are widespread (Wells, 2014).

• High cost of operation: According to Adekoya and Jaiyeoba (2013), “a disclosure came yesterday from the Federal Government that it would require about N15 trillion within the next five years to address infrastructure deficit and accelerate the implementation of the interim National Integrated Infrastructure Plan (NIMP). For the country to have its desired road infrastructure that would place the nation among the top nations in the world, Nigeria needs N2.3 trillion, says Minister of Works, Mike Onolememen (Nnabugwu 2013). Feyisipo (2011) reported that “The Federal Road Maintenance Agency (FERMA) says it requires about N320 billion to maintain Nigeria’s 194,200 kilometres of roads on a yearly basis”. This is a whopping sum and a major share of the annual budget. Financing construction projects is a great challenge in developing countries and has left most of the infrastructures in sorry state.

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• High rate of project abandonment:

According to Onyekpere (2013), “following public complaints about the cost of projects and the quantum of abandoned projects in the country, President Goodluck Jonathan in March 2010 set up a 20-man Presidential Project Assessment Committee (PPAC) led by Ibrahim Bunu, a former Minister of the Federal Capital Territory. The Terms of Reference (ToR) of the committee were to take inventory of all ongoing projects awarded by the Federal Government; to assess the level of funding of each project; to undertake a physical inspection of each project; to determine work done and to ascertain whether it is commensurate to the amount paid to the contractors and to evaluate the professional competence of the contractors handling the various projects”. The ToR also include – to determine whether the level of execution of the projects is in accordance with the terms of the contract agreement between the Federal Government and the contractor; to examine a plan of action that is realistic, practical and achievable including implementation phases for the execution of the projects; to examine the reason given, if applicable, why the projects were not executed in accordance with the terms of contract agreement at the time of the award; and to make appropriate recommendations to government on how to fast-track the completion of the projects. The committee submitted its report in June 2011 and reported that there were 11,886 abandoned capital projects which will require N7.78tn to complete. The committee reported massive corruption

and collusion among public servants, contractors and service providers colluded to defraud the nation, widespread institutional mediocrity, deficiency of vision and lack of direction in project management. Funds were not released to contractors as at when due leading to contract abandonment; projects were arbitrarily inserted into the national budget without appropriate plans etc. The report of the committee mentioned the case of dams and dredging projects and noted, for instance, that N3.7bn has been paid to Van Ord Nigeria Limited for the N12.5bn Lower Niger dredging project without the supporting road and rail networks, rendering the entire project a waste. The committee also found that while the existing 201 dams and reservoirs were grossly under-utilised, between 2008 and 2010, the Federal Government went ahead to award N211bn worth of contracts for additional dams, for which it has since paid N86bn to the contractors. Thus, many of the budgetary projects were procurement-driven rather than being development-driven (Onyekpere, 2013). According to Abbah (2014), “the disclosure by the Delta State Governor, Emmanuel Uduaghan, that the Nkoyo Ibori hospital is a private initiative and not a government project and that the location is not okay for such hospital is unbelievable and not acceptable”. Politicians, especially those from opposing parties are fond of abandoning their predecessors’ projects to discredit them and to wholly earn credit for self-initiated projects in Nigeria.

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Infrastructure Financing Approaches in Developing Nations There are various ways through which infrastructure development are financed in developing nations. The examples below, which are not exhaustive, are the common methods: Direct financing by the government: Government is the major financiers of infrastructural projects in developing nations. This is why the implementation of government budget greatly affects the economy of developing nations. In 2015, the federal government of Nigeria spent N4.5 trillion ($22.6 billion) on provision of infrastructures. Local Purchase Order (LPO) An LPO is a commercial document and first official contract document issued by a willing buyer to a willing seller, indicating description of goods or services required, quantities or duration, and agreed price. Letter of Credit (LC) A letter of credit is a contract document from bank guaranteeing that a seller will receive payment in full upon meeting certain delivery conditions and in the event that the buyer is unable to make payment on the purchase. Security Bond A security bond is a debt investment in which a buyer or investor loans money to a supplier which borrows the fund for a limited period. Bond is usually required by buyers or customers where there is advance payment or mobilization for the purchase. Bond is usually issued by banks and insurance companies. Bank Guarantee

A bank guarantee is an alternative to providing a cash deposit or bond to a supplier or vendor. It is an unconditional undertaken given by the bank, on behalf of a customer or supplier or seller, to pay the recipient of the guarantee or client the amount of the guarantee on written demand and within specified date. Infrastructure Procurement Method Direct Labour This a method of executing job directly by the owner or the person commissioning the project. It is a way of carrying out jobs without outsourcing or the use of contractors. It is the process of project delivery in which the buyer goes directly to the market to purchase without a contractor coordinating for him. This is usually done where a job is small or where there is no technical detail. Design, Bid and Build In Design, Bid and Build, the client designs his project and call for different contractors who will compete among each other especially in the area of cost, time and quality to win the bid (Open Tendering). Initially, the lowest bidder was considered. The problem with this method is that contractors who are desperate for job may under-bid and fail to complete projects. Now, it is the lowest responsive bidder. Under-bidding by desperate contractors led to Selective Tendering method. Selective Tendering involves inviting some “qualified contractors‟ who bid for works. Qualification may be in terms of turnover, number of employees, annual profit, letter of reference, previous jobs done (experience) or a combination of these. Design and Build

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Design and Build is an innovative method of construction which allows the contractor to design the structure and at the same time build it. Qualified contractors will be extensively briefed about the project and allow to make their own design and prepare their own Bill Of Quantities (BOQ) which will be compared with the client’s BOQ to select the winners. Public-Private Partnership Public-Private Partnership (PPP) can be defined as a contract between the public sector and a private party in the development of infrastructure in which the party which is in the best position to manage risk is allowed to manage it (Dewulf, Blanken and Bult-Spiering, 2011). There are three types of risks in the development of a project. These are: financial, technical and operation risks. In PPP, the private party assumes substantial financial and/or technical and/or operational risk in the design, build, operate and own or transfer of an infrastructure belonging to the public. Tax Holiday PPP Tax Holiday PPP is a project delivery arrangement in which a corporate organization agrees to develop or rehabilitate a public project with the agreement with the government of defraying part or all of the cost of construction from its tax. Example is the Ogba link road (Cocoa Road), which was recently renovated by Guinness Nigeria Plc with the sum of N300million (in November 2011) and commissioned by the Governor of Lagos State, Mr. Babatunde Raji Fashola. Concession Concession (delegation de service public) is a French model of PPP and has been in practice in France since over 100 years ago. It is a collaborative measure between a government and private developer/s to

design and develop facilities through a team of participants which include the financiers and the contractors. The developers may not necessarily be the financiers of the project. Build, Own, Operate and Transfer (BOOT) In Build, Own, Operate and Transfer, the client does not have intention of owning the infrastructure at the early stage of completion and allows the developer to own it for a period of time between 25 – 50 years depending on cost of development and income receivable. The tenure (term of operating the development) is calculated taken into consideration the risks involved in the development. Risks include: political; technological; economic like construction cost, interest rate, inflation rate, currency exchange rate and cost of labour; social like state culture and language barrier; legal risk including legislations, physical environment of the site and health and safety. This can also be called Design, Finance, Operate and Transfer (DFOT) or Design, Build, Manage and Transfer (DBMT). Build, Operate and Transfer (BOT) Under Build, Operate and Transfer, the contractors who may be a developer (financier) and not necessarily the builder, build and own the property which will be used by the client with the agreement that the client will possess the property in the future. This arrangement is usually used for specialized facilities like hospitals, schools, social housing and markets. The developers of projects under BOT only operate the facility for a short period of between 3-5 years except where there is renewal clause. The purpose is for operation (maintenance) risk retention after construction. Retention fee of contractors may not be retained by client as a means of ensuring standard has been observed and the

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developers assumed maintenance during the period of operation. Turnkey Projects Turnkey projects are either designed by the client or the contractors. What makes them Turnkey Projects is the financing arrangement which is done by the contractor. The contractor is usually reimbursed after completion of project. A turnkey project provides a deliverable to the customer that is fully tested and ready to use upon delivery. It is like getting a Local Purchase Order (LPO) to supply a ready-to-use item which is paid for by the client upon delivery or at a later agreed time. The contractor does not operate a facility built under Turnkey Project arrangement. In some states in Nigeria, this is called “Contractor-Financed Projects”. Management Contracting Management Contracting is an alternative to using a principal building contractor. In this method, there is preference to using management contractors to manage and integrate the construction through a construction manager who let the construction jobs to contractors or through management contractor who lets construction works to sub-contractors after getting approval from the client. For example, residential buildings for small contractors are usually sub-let to other contractors who are registered with Julius Berger. Construction Management Nwosu (2007) stated that “construction management involves appointing a manager as a single point of responsibility to advise clients on their best interests by co-coordinating and controlling all aspects of the projects with duties embracing procurement, overall planning, controlling and coordination of the design and

construction processes from inception to hand-over”. The job of the construction manager is to efficiently and economically apply the required resources to realize a constructed facility of acceptable quality within the time frame and budgeted cost specified (Halpin and Senior, 2011) Strategic Alliance A strategic alliance is a agreement between two or more than two parties to pursue a set of agreed objectives needed jointly while remaining independent organization. In strategic alliance, parties are jointly responsible for the gain and loss. Joint venture (JV) A JV is a business contract in which the parties agree to develop, for a specified time, a new entity and new assets by contributing equity. One may contribute technical or managerial skill while the other provides the finance. The development of Nigeria petroleum is through JV with organizations like Agip, Total, Chevron and Shell. Partnering Partnering is a recognized method of improving communication mechanisms and technologies, responding to innovative construction projects, creating a less stressful working environment and reducing transaction cost resulting from uncertainty, competition and information asymmetry (Loraine, 1994; European Construction Institute (ECI), 1997 and Construction Industry Board (CIB), 1997). Partnering emphasizes collaboration, working together with commitment to mutual goals by all construction parties. Best Value Procurement System Best Value Procurement System (BVPS) is a procurement method which is based on price and technical bid (performance) of the

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bidders instead of price alone. This method is an improvement on Design-Bid-Bid where winners are determined based on price evaluation of bids. In BVPS, profiles of key members of staff, previous jobs done, plant and machinery owned, financial status and method to be used in job execution by the bidders are evaluated in order to decide the bid winner. Conclusion Infrastructure problems in developing nations are complex and numerous. The demand surpasses the supply for infrastructure and finance that will stimulate rapid provision is not available. This is where the opportunity for Public Finance Initiative (PFI) lies. Due to the wide gap between provision and needs, the leadership classes are in arrears of provision of infrastructure in all sectors. The political situation is not encouraging to foreign investors. Governments do not set the priority right in infrastructure strategy. There should be effort geared toward the mobilisation of both public and private sector financing resources that are critical for infrastructure development. The unemployment challenges of developing nations can be solved by infrastructure development. Most developing nations have big land masses that make it possible for the people to spread out. Connecting the people of developing nations with roads, National Grid and potable water will be tasking but the multiplier effect is worthwhile. High cost of materials for infrastructure development is also a challenge. The local content of production of goods and services must be increased to reduce production cost. Corruption level in Nigeria is too high and allows incompetent hands to handle contracts. Professionals are not allowed to handle projects due to corruption.

The cost of governance and recurrent expenditure are so high leaving little for capital expenditure. The high level of unemployment is a dis-incentive to market and to capital development. The political risk of infrastructure development is also high and needs the attention of government. For sustainable development, the government should adopt social inclusion of the masses, especially in infrastructure development. The infrastructure deficit of developing nations should be seen as opportunity and not as threat to development. Dr. Gerard Lyons, British Economist and Economic Advisor to the Mayor of London, gave a keynote address at the second edition of the World Pension Summit 'Africa Special' (WPS-AS) 2015, and looked at the Nigerian economy from global, regional and national perspectives and how the country’s huge pension fund assets can impact on the economy and infrastructure development. The pension fund has over N4.6 trillion in its stable. Dr. Lyons advocated that the country should focus on hard, soft and institutional infrastructure, which in turn would help address social infrastructure. Hard infrastructure opportunities include broadband and transport such as road and rail as well as housing and energy. Soft infrastructure is building the skills and education needed, while institutional infrastructure is linked to openness and transparency, as strong institutions allow confidence, enable growth and greater investment and create stability. Regulations, rules and laws are also vital in infrastructure development and financing.

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