A recent article by Ayorinde Oluokun highlights the challenges faced by infrastructure projects in Nigeria, citing the example of a road project that, despite having government backing and strong demand, failed to materialize due to lack of proper preparation. The project had undergone an engineering feasibility study, and a regional development bank had flagged it as a priority corridor. However, three years after the first term sheet was drafted, the project still did not exist.
The article notes that the concept of "bankability" is often misunderstood, with many assuming it to be an inherent quality of a project. However, bankability is actually a constructed outcome that requires substantial, expensive, and technically demanding work to turn a good idea into a viable project. This work includes feasibility studies, land acquisition, and obtaining necessary permits.
The author argues that the distance between an infrastructure need and an infrastructure asset in operation involves at least five distinct stages: a good idea, a good project, a bankable project, a financeable transaction, and an investable asset. Conflating these stages is a major contributor to the gap between infrastructure needs and actual projects.
The article highlights the "preparation gap" as a major obstacle to infrastructure development. Project preparation is expensive and carries a high probability of failure, making commercial capital reluctant to fund this stage. Development finance institutions are better suited to absorb this risk, but their funding for project preparation is often fragmented and insufficient.
The author notes that governments and development institutions often announce good ideas and call them "pipelines," while investors are asked to evaluate projects that are still several stages away from being financeable. When investors decline, the conclusion drawn is often that capital is scarce or risk-averse, rather than that the project was presented too early.
The article concludes that the solution to this problem is to build the capacity to construct bankability, deliberately, as infrastructure in its own right. This requires a deliberate effort to fund project preparation and to develop the technical, legal, and institutional capabilities needed to turn good ideas into viable projects.
The article emphasizes that the preparation gap will not close on its own, and that a structural solution is needed to address the issue. This includes providing sufficient funding for project preparation and developing the necessary capabilities to support infrastructure development.
Key points
- Many infrastructure projects fail due to lack of proper preparation and financing structure.
- Bankability is a constructed outcome that requires substantial work to turn a good idea into a viable project.
- The preparation gap is a major obstacle to infrastructure development, and a structural solution is needed to address it.
