Reactivating abandoned infrastructure development and considering the Islamic finance option: a case study of Nigeria

Infrastructure is vital for social development and economic growth of the modern economy. Adequate infrastructure spurs growth by increasing productivity, facilitating the accumulation of human capital, diversifying productive structures, and creating employment. With a population of approximately two hundred million people, Nigeria's infrastructure deficits are conservatively estimated at USD3 trillion to meet the increasing needs of the nation and support economic development by the year 2043. Despite these huge deficits, latest records show there are over 56,000 government funded abandoned capital projects across Nigeria's six geo-political zones. While technical difficulties, funding, corruption and political interests are often cited as causes for the rising stock of abandoned infrastructure projects throughout the country, this chapter examines the relevance of Islamic finance practices in mitigating corruption and inadequate fund mobilisation for infrastructure delivery in Nigeria. The chapter assesses selected cases of abandoned infrastructure projects in Nigeria and the reasons for their failure. The issues of technicalities and morality for the abandonment of capital infrastructure projects has ultimately affected the capital deficit and the unavailability of sustainable financial support that will facilitate the successful completion of the project to serve the needs of the economy and the national development program. We find that a significant infrastructure funding mismatch exists between the capital expenditure required for long-term investments and short-term financing packages to sustain these long-term investments. In fact, financiers' have concerns that even short-term borrowers will not fulfil their obligations, exacerbating the hesitance toward long-term financing. In essence, the mismanagement of working capital required for daily expenses and inefficient use of capital expenditure for development also contributed to project failure. Political interference, weak governance oversight and mismanagement of cash flows were identified as the primary reasons for the project failure. To mitigate the risk of failure of sustainable financing, we consider an Islamic finance quasi-equity approach with strict independent governance and Shariah audit. This is expected to prevent rent-seeking among other reasons for project failure. Policy adjustment including the embracing of Islamic capital market solutions, increasing technical adequacy, and ensuring independent valuation free of political interference will create a more enabling and secure environment for infrastructure development. Additionally, a serious commitment is required from government in providing the necessary, legal, physical, and operational infrastructure to effectively implement the solution.