Infrastructure, The Bailout Nigeria Needs

Times are indeed hard for businesses, but no, we [Tetramanor] do not need a financial bailout. What we need is an infrastructure bailout.

That is not to say the real estate and construction industries have not been hard hit by the current COVID-19 pandemic. Indeed, we have. We had to completely suspend construction at our ongoing project – TM Meadows at Ebute-Metta – for about 5 weeks, and we now are operating at skeletal capacity in accordance with the Lagos state guidelines. Delayed delivery of projects impact sales inflows, the cost of carrying loans, and most importantly, the daily workers (over a hundred on our site) who have to be laid off when work grinds to a halt. Still, the industry can manage – COVID-19 is not our greatest problem.

I’ve been reading the Residential Development Handbook (ULI series) in preparation for a new project we’re about to embark on at Ikoyi. And of course, the book had many recommendations about things to look for before choosing a site. Being a book written in/for the US, it naturally had a lot to say about ensuring there was adequate provisions for power, treated water supply, road network etc. considering that these are basic for that market. But that set me thinking: What was my cost of providing these infrastructures for which government was responsible?

I have provided a breakdown below showing actual and projected costs at TM Meadows (a 40-unit estate) for infrastructure items we would not have had to spend money on, or at least spent drastically less on, if they had been provided as expected by our dear government. Note: The cost of connecting to the water mains (cost yet to be determined), connecting to PHCN (N13m) and construction of a sewage treatment plant (N12m) have not been included as these are considered to be normal costs.

• Power (three generators, transformer, diesel tank, ATS, valuable space etc.) – N55m
• Water (industrial borehole, surface tank, stanchion, overhead tank, treatment plant) – N30m
• Road (complete revamp of external roads and drainages leading to the estate) – N20m
• Local taxes (omo-onile aka Area Boys, security agencies etc.) – N12m and counting

The total expenditure on these avoidable infrastructure items comes to about N105million, and if we should add ‘local taxes’ paid to secure the safety of our workers and ensure that work goes on in peace, it comes to approximately N120million. This is painful; it’s causing me palpitations as I think about it.

“One hundred and twenty million (N120m) is the infrastructure tax paid by Tetramanor…”

One hundred and twenty million (N120m) is the infrastructure tax paid by Tetramanor at TM Meadows, our 40-unit estate at Ebute-Metta on the Lagos Mainland. But make no mistakes, these costs would not be borne by us. Using a simple average, that is about N3million extra that each of our subscriber has to pay or has paid to live in that estate, despite the fact that taxes are being paid to government by these people already. Put another way, the total project cost for the estate is about N1.2billion, hence a full 10% of the cost at a minimum should have been avoidable. That means each subscriber would already pay a 10% non-accountable tax for owning the property, before paying fresh taxes to government.

Considering the serious dearth of affordable housing in Nigeria, it is imperative that this infrastructure tax burden on real estate developers be addressed. COVID-19 has not and will not cost us [Tetramanor] N120million. However, having to serve as a proxy government taxes us about 5 – 15% of the cost of every project we embark on depending on the size and this is about the same for every developer out there. We developers do need a bailout, but not one of cash distribution. We need a drastic rollout of critical infrastructure so we can continue doing what we do best. Don’t give us money, just build roads and provide power, then watch us build the economy.

While this was not the purpose of the article, I can’t help but ask: What can be done about it? Considering the dire straits in which Nigeria happens to be in right now, it would be quite naïve to make such blanket pronouncements as ‘government should build infrastructure immediately’ and ‘government should give developers cashback’ and other statements of the sort. Yet, we need solutions – without accounting for the completely obsolete budget assumptions, the ~N500 billion allocated to transportation, power and works in the 2020 budget isn’t going to make a dent even if fully implemented. I’ve had to ask myself what I would do with respect to infrastructure should I be the president right now. Truly, there are no easy answers, but here’s what I would do.

One, I would drastically borrow more – billions and billions of dollars – and pump the funds into infrastructure. Internally generated revenue isn’t going to cut it fast enough. Yes, I know Nigeria is already seriously indebted (about N27.4trillion as at Dec 2019. The hope here is that critical infrastructure – power and transportation networks (roads, rails) especially – would drastically spur development, manufacturing, agriculture and real estate, which in turn would generate income and attract capital.

Two, Public-Private Partnerships (PPP) – that favour capital – and deregulations would become the order of the day. Honestly, I simply don’t see how the government alone can drive the infrastructure revolution on its own. The funds controlled by private enterprises far outweigh that of our broke government that can hardly pay salaries. It’s high time we bring those funds to bear – in building & managing roads especially. And to bring it fast enough, the terms have to be favourable to the owners of capital. Sure, individuals would have to pay more, but the price would ultimately be worth it. As for the power industry, the government has tried enough; after 60 years of failure, it’s time to hands off the price controls and stifling policies. To bring it home, how much would I be willing to pay in tolls and increased power costs to avoid N120m in capital expenditures on one single project?

Three, I would give the tax agencies ALL the powers they need to drastically widen the tax net in any way possible – carrot and/or stick, whichever works best. This crap about not paying taxes need to stop. The talk about government providing adequate amenities before collecting taxes is naïve and rhetorical. Nigerians, we need to pay this money (tax), or soon we won’t have a country anymore. When the government spends about 60% of its revenue paying interest on loans and can hardly pay salaries, infrastructure would naturally take the back burner. According to FIRS, Nigeria earned N5.26trillion in tax revenues in 2019 at a tax-to-GDP ratio of about 6%. Now, assuming a tax-to-GDP ratio of 10%, which is much less than the 17% average for Africa, that brings government tax revenues to about N8.8trillion or N13trillion at 15%! That’s real gold there and as it grows, the bulk of it should be pumped towards infrastructure and paying down our public debt.

Anyway, this is a good place to stop – my point is made. We real estate developers and citizens in general, pay a heavy infrastructure tax daily and we need a bailout soon.

John Beecroft

MD/CEO, Tetramanor Ltd