The US-based Omidyar Network, a philanthropic investment firm started by eBay founder Pierre Omidyar, released a study in 2013 on entrepreneurship in six African countries: Ethiopia, Ghana, Kenya, Nigeria, South Africa and Tanzania. Nigerian entrepreneurs lament that “inconsistent infrastructure electricity supply across the country has resulted in backup generators forming a key part of any business’s assets, albeit at a significant additional operational expense,” the report noted. “Nigerian respondents cited access to finance as a key challenge for starting and growing small businesses. In particular, the requirements for obtaining capital are prohibitive.”

Collateral of up to 120% is often required for debt financing, according to the interviews with the Nigerian participants in the Omidyar study. Collateral is high because banks fear that borrowers may default. As a result, 67% of respondents believe that bank lending policies for newer companies are more challenging than for well-established firms.

Bank executives, however, argue that high interest rates are forced on them by Nigeria’s challenging business environment. “I also want a lower rate,” said Phillips Oduoza, the managing director of one of Nigeria’s biggest lenders, the United Bank for Africa (UBA), at a meeting with newspaper editors last January. “But when you look at it, you find that banks are an integral part of the economy. One of the reasons why [the] interest rate is very high in Nigeria is because of the infrastructure challenge,” he said.

Banks, like other businesses in Nigeria, pay a high price for the country’s infrastructure deficiencies, he added. For example, UBA has to generate the electricity that it uses at its headquarters and in its branches, Oduoza explained. “UBA has about four generators at its head office that run simultaneously. It’s a mini-power station. Diesel consumption alone is extremely high. This is one of the reasons [the] interest rate is very high.”

The way forward, according to Oduoza, is for government to fix Nigeria’s infrastructure problems. “If you compare the financials of the Nigerian banks with those of other emerging and frontier markets, the cost-to-income ratio [a rough guide to how good a bank is at reining in costs] of Nigerian banks is in the 60s,” he said. “Some extreme ones are in the 70s. In all the other emerging markets like Turkey, Malaysia, India, etc., their cost-to-income ratios are in the 40s. So if we are able to deal with all these cost elements, I can tell you that the interest rate can come down to a single digit.”

Infrastructure Master Plan

Nigeria’s suspended central bank chief, Lamido Sanusi, agrees that the business environment and the country’s high interest rate are linked. Sanusi, however, looks at the same problem from a different angle.

“It is not about moving the interest rate down or up. Most of the small- and medium-scale enterprises (SMEs) that do not have access to credit do not have access to credit because the environment does not allow businesses to thrive,” Sanusi said during a public session with federal legislators in July 2013.

“How low do you have to bring down interest rates for banks to lend to a manufacturer that does not have power, or for a bank to lend to a company that operates in an environment that does not have security, or where there is no infrastructure?” he asked. “At what rate of interest would a bank loan to a tomato farmer who is going to lose 50% of his output between the farm and the market because there is no investment in storage facilities or cold rooms? These problems are infrastructure.”

Is there any government plan to fix infrastructure in Nigeria? Yes, a grand plan: the Nigerian Infrastructure Master Plan, projected to cost $2.9tr and last 20 years.

But many Nigerians, such as Ayinde, are not hopeful that it will yield immediate benefits. The country’s infrastructure has fallen into disrepair, he complains, because successive governments rarely keep promises to overhaul the system.

Adeyeye Joseph is the editor of The Punch, Nigeria’s biggest daily newspaper. He won the Nigerian Media Merit Award for editor of the year in 2011 and 2012 and newspaper columnist of the year in 2011.

This article was first published by Good Governance Africa.