Tariye Gbadegesin

How has the pandemic reshaped the asset management space in Nigeria?

As infrastructure funds managers, we manage real assets, not financial assets, in the infrastructure space, which generate stable financial flows because of the essential service they provide. When the pandemic hit, we saw delays in project development and completion, though we are beginning to emerge from that. In terms of operating assets, whether a power plant, an energy distribution company or a toll road, these were fully operational because their services are essential, even during a pandemic. Even for those projects under development, the question of viability was less an issue and more the ability to close given the constraint. In Nigeria, we have a USD130-billion annual infrastructure gap, so projects remain viable because there is a great need.

What projects does ARM Harith have in the pipeline?

We have a thermal project that is currently under commissioning. In addition, we have many smaller scale IPPs in the pipeline, in the 30-40MW range that factor into a more embedded power business model. This is one of the shifts we are seeing in infrastructure. There are energy challenges in Africa, though these are different from 10 years ago. Then, the biggest issue was generation, whereas today, we have increasing amounts of power, but constraints with grids and distribution; therefore, it is more about efficiency. The types of projects we see now involve generation and distribution infrastructure enhancement, which solve both generation and distribution challenges. Sponsors are also reducing the number of parties involved in their projects. For example, four years ago a USD150-million project would require four or five parties; now, you need no more than three. Our pipeline focuses on embedded generation and distribution projects and transportation projects building upon the African Continental Free Trade Area. We also have a strategy to support low carbon infrastructure that deals with renewable energy, efficient public transportation, water solutions, and transportation that enhances resilience.

Is the transportation project part of the Global Innovation Lab for Climate Finance?

There is a trend to build infrastructure that is more climate friendly or better positioned for low carbon performance. Given the amount of work that we have done on climate, there is an auspicious relationship between many of the bankable private infrastructure in West Africa and the climate. West Africa is one of the most urbanized regions of Africa, though this higher economic activity means higher emissions. With minor shifts, we can make these projects, and thus the cities, more climate oriented, lower carbon in nature, and more sustainable. That is what we have shared with the Global Innovation Lab. We can tackle climate matters using urban areas at the point of a spear, potentially.

Nigeria’s infrastructure deficit is estimated to be USD3 trillion, six times the size of the country’s annual GDP. How will Nigeria fill this deficit?

This is a USD170-billion per year question, though it is not as complex as it has been made out to be. The infrastructure asset class globally is considered a stable low risk asset class, because most infrastructure being acquired or invested in is already operational. In Nigeria, infrastructure does not yet exist; we have to build it. International financial markets are not designed to build infrastructure, though they have adjusted themselves over the years to provide support via venture capital. A great deal of work is being done around project development of infrastructure, its risk profile, managing construction risk, and achieving stable cash flows. A second challenge is the currency risk for international investors. One solution would be for governments to link the projects to currency backed by the government. We need to come up with a framework for foreign currency-denominated investments to fill the gaps. We also need to build more renewable energy plants and more sustainable roads. With a climate-conscious environment, we can attract international capital to think outside the box and set up new and innovative funding models.