Project Financing; Challenges And The Way Forward

Project and Seminar Material for Quantity Surveying QS

Project Financing; Challenges And The Way Forward


Project transport represents a dominant force in the transport industry in developing countries. It therefore stimulates growth and development. However, traditionally projects provision in developing countries has been the responsibility of government and the huge budget constraints over the years has made governments unable to effectively fund project infrastructural provision. This problem calls for paradigm shift in the provision of project infrastructure in Nigeria.

Consequently, the study was articulated with the aim of exploring innovative ways of financing urban project projects in Nigeria. A quantitative enquiry to the study was adopted and subsequently, close-ended questionnaire was utilised in eliciting response from the major stakeholders in the project construction industry. The data was subjected to analysis using descriptive and inferential statistics.

Based on the overall rankings the findings revealed that Construction management and Public private partnership are the modern or innovative project financing options frequently used in urban project projects. Accessible financing, Cost effectiveness, Improved quality of services among others are the drivers that somewhat push innovative project financing.

The barriers identified to be significant were Contractual complexity, Unfavourable economic and commercial conditions, Corruption issues all having mean values greater than 3.50. Throughout the study it became apparent that most innovative financing projects in other infrastructure projects were awarded not on competitive basis. It is therefore recommended that innovative financing of urban projects be awarded on competitive basis to ensure value for money. Public engagement is necessary, especially with the affected communities. The study explores a relatively new area and consequently serves as the basis to spur future research.

Table of Contents

Preliminary Page(s)

  • Title page
  • Certification page
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of content

Chapter One


  • Background to the Study
  • Problem Statement
  • Research Aim and Objectives
  • Aim
  • Research Objectives
  • Significance of the Study
  • Scope of the Study
  • Methodology
  • Dissertation Organisation

Chapter Two

Literature Review

  • Introduction
  • Overview of the Construction Industry
  • Financing of Infrastructure Projects in the Nigerian Construction Industry
  • Project Projects Financing Options in Nigeria
  • Traditional Financing
  • Modern Methods
  • Finance for Construction Projects
  • Finance Providers
  • Sources of Finance
  • Drivers of Innovative Project Infrastructure Financing
  • Identifiable Risk and Better Allocation of Risk
  • Accessible Financing
  • Improved Quality of Services
  • Political Stability
  • Demand Need
  • Cost Effectiveness
  • Barriers to Innovative Financing of Project Infrastructure
  • Contractual Complexity
  • Unfavourable Economic and Commercial Conditions.
  • Transaction Costs
  • Reduced Public Accountability
  • Addressing the Barriers to Innovative Financing of Project Projects
  • Project Risk Allocation
  • Require Competitive Bidding Process
  • Ensure Full Transparency and Accountability

Chapter Three

Research Methodology

  • Introduction
  • Research Strategy and Design
  • Population, Sampling and Sampling Technique
  • Sources of Data and Data Collection
  • Data Presentation and Analysis
  • Ethical Issues

Chapter Four

Data Analysis and Discussion of Results

  • Introduction
  • Background Information
  • Profession of Respondents
  • Job Position of Respondents
  • Academic Qualification of Respondents
  • Years of Experience in Project Construction
  • Involvement in Project Finance Projects
  • Analysis of Dependent Variables
  • Construction Financing Projects Options
  • Drivers of Innovative Financial of Project Infrastructure Projects
  • Barriers to Innovative Financing of Project Projects
  • Improving Innovative Financing of Urban Projects Projects in Nigeria
  • Chapter Summary

Chapter Five

Conclusion And Recommendation

  • Introduction
  • Attaining the Research Objectives
  • Review of Research Objectives
  • Recommendations
  • Limitation of the Study
  • Directions for Future Study
  • References
  • Appendix
  • Questionnaire

Chapter One


Background of the Study

The construction industry is an established industry: the sector regarded as a catalyst for growth while its performance serves as a nation’s economy (Aibinu, & Jagboro, 2002). It comprises of building, civil and engineering works. Oliver (2005) affirm the industry to be a prime motivator of any economy, while in Akwa Ibom State, it represents sixty (60) percent of the capital investment.

According to Esty (2004) there has been a new wave of global interest in project finance as a tool for economic investment. Project financing is not a new financing method. It has been used to finance industrial projects such as mines, pipelines, power stations and oil fields (Finnerty1996; Esty, 2004). In today’s low-yield environment, insurers and asset managers are particularly eager to invest in developmental projects such as infrastructure (Wilkins, 2015).

According to Fight (2006) project finance is generally used to refer to a non-recourse or limited recourse financing structure in which debt, equity and credit enhancement are combined for the construction and operation, or refinancing of a particular facility in a capital-intensive industry. Project Finance refers to the financing of long-term infrastructure, industrial projects and public services based upon a non-recourse or limited recourse financial structure where projects are paid back from the cash flow generated by the project (Prasana, 2013). Project Finance is used by the private sector companies as a means of funding major projects off balance sheet. The attractiveness of project financing is the ability to fund project in the off balance sheet with limited or non-recourse to the equity investors; i.e if a project fails, the project leaders’ recourse is to ownership of the actual project and they are unable to pursue the equity investors for debt (Graham, 2010). For this reason, lenders focus on the importance of projects cash flow as the main source for repaying project debt. Project financing is being used throughout the world and across a wide range of industries and sectors. This funding technique is growing in popularity as governments seek to involve the private sector in the funding and operation of public infrastructure (Prasana, 2013; Graham, 2010).

As a virtue of fact, the role played by project finance scheme in most economies is very significant to their development especially the emerging economies (Esty, 2004). The Nigerian construction industry as experienced various methods of construction project finance from traditional (Direct Labour, Open Tendering, and Selective Tendering) to Modern methods (Design and Build, Turnkey Project, Contract Management, Public-Private Partnership etc), and despite the failure of Public-Private Partnership (PPP)) in the finance of project in Nigeria (for example, Lagos-Ibadan express way, Guto-Bagana in Nasarawa and Kogi state and Macvis concession projects in all International Airport in Nigeria), the federal government as signified intention to concession two more bridges for private-investors’ development. These bridges are the second Niger bridge between Onitsha and Asaba and River Niger brigde in Nupeko, Niger state (Oyedele, 2013).

Akwa Ibom State infrastructural development has taken a central place in the various development plans or programmes with the ultimate goal of breaking down the vicious cycle of poverty and under development (Punch, 2016). This study discusses the challenges of project financing of construction projects in Akwa Ibom State, it is therefore observed that there are various challenges that hinders construction project financing, thereby making it a major problem in the construction industry as a whole and an adequate process must be involved because contractors, government and shareholders in the construction industry are faced with the consequence of not overcoming these challenges.

Statement of the Problem

Project delivery process has no stage specifically labeled “funding” yet funding challenges affect each stage of the process which may lead to delay in project delivery or project abandonment. Abandoned projects range from road projects, real estate, water projects and housing projects, which are the basic amenities which any government should provide for its citizens. (Akhanolu, Ekpefan, Ailemen & Chibuzo, 2016). Most of the survey results (Frimpong & Oluwoge, 2003) shows that financial constrain is one of the main causes of delays and project abandonment.

The financing methods have placed Nigerian infrastructure in horrible states across the country and there is yet no harmony in the method of project financing in Nigeria (Oyedele, 2013). The sourcing of funds for investment in project development poses a great deal due to economic instability and stringent measures imposed by most financial institutions. This is compounded by the fact that the Interest rate structure had had an unfavorable impact on funding the development of project financing (Akhanolu, Ikpafan, Ailemen & Chibuzor, 2016). The current infrastructural funding mechanism in Nigeria lack appropriate performance standards. This deficiency brings about cost overrun, lack of ability to complete project over specified contract periods, the associated sharp and corrupt practices within the awarding agencies and the contract officials (Vanguard, 2011). In most cases, personal interest of Nigerian leaders overrides public interest in the financing and management of construction projects (Oyedele, 2013).

According to Ika (2012) with the increase in oil revenue and other natural resources, Akwa Ibom State was viewed to have reached the turning point and set forth in the path to economic growth and industrial development but contrary to expectation, the State is apparently lagging behind its contemporaries. There seems to be missing links in the path to infrastructural development, attempts have been made to explain the rather paradox; one key factor seems to be recurring and to which the backwardness in infrastructural development in the state have been attributed to: this of course is due to lack of sufficient capital. It is this short of negative situation inspite of abundant natural and human resource and this have warrant the investigation into the challenges of project financing in the state, in other to advise contractors, the government and other stakeholders in the construction industry on the ways and means of financing construction projects, particularly in Akwa Ibom State.

Research Questions

  1. What are the sources of project finance?
  2. What are the challenges facing project financing in Akwa Ibom State?
  3. What are the possible ways of mitigating the challenges facing project financing in Akwa Ibom State?

Aim and Objectives

The aim of this study is to investigate the challenges of project financing on construction projects in Akwa Ibom state and to examine ways of mitigating project financing in Akwa Ibom State. The specific objective includes:

  1. To identify the sources of project finance.
  2. To investigate the challenges of project financing in Akwa Ibom State.
  3. To examine various ways of mitigating the challenges of project financing in Akwa Ibom State.

Scope of the Study

The scope of the study is confined to identifying the challenges of project financing in Akwa Ibom State and the way forward. The study is limited to Akwa Ibom State. Target respondents for this study are the professionals in the construction industry which include: Architects, Quantity Surveyors, Engineers and Builders.

Significant of the Study

According to UKCG (2009) the construction industry is a driver of growth in other sector due to its heavy reliance on an extended and varied supply chain. All other sector of the economy like manufacturing, education, health, sport etc, depends on the construction industry for performance.

The significance of this study to the construction industry is quite much in terms of improving the performance of project execution and delivery without abandonment. The study will be utilized by the government at both Federal and the state levels in the area of providing sustainable source of funding for government construction projects at all levels. Government will be guided on the various challenges facing project financing which often leads to delay or abandonment of construction projects.

The study will be of great importance to the construction industry by helping the investors, developers, clients, contractors and stakeholders to source for a more sustainable funding option and to avoid the various challenges facing construction project financing in the construction industry. The construction industry will derive benefits from the outcome of this study in the sense that there will be a timely delivery of projects within the contract duration and the pervasiveness of project delay and abandonment will be overcome.

Furthermore, the undergraduates will find the study as a useful tool to further learning and research and to other researchers whom may want to venture into the same subject matter. Finally, it will serve as an additional contribution to the existing body of knowledge which will be of immense and great improvement to construction project execution and delivery in the construction industry.

Chapter Five

Conclusion and Recommendation


The huge deficit in urban projects network and constraints on government fiscal budgets call for a paradigm shift in the financing of project projects in Nigeria. The study sought to explore innovative financing mechanisms to urban project projects in Nigeria. Through the review of extant literature, several factors were identified including barriers, drivers, innovative approaches of procurement, and ways of improving the situation. Adopting the quantitative research approach a questionnaire survey was employed to examine the identified factors by respondents with diverse background. The previous chapters presented the theoretical underpinnings of the study, procedures for addressing the research theme, analysed and discussed the results of the study. Finally, this chapter presents the findings of the study in relation to the laid out objectives of the study. Recommendations from the study are put forth. The study limitations and directions for future research are also presented

Attaining The Research Objectives

The study was articulated to achieve a particular aim that is to explore the sustainable innovative ways of project financing in the Nigerian construction industry. To realise the above aim, specific objectives were set. The objectives of the study include:

  1. To identify the current state of project financing in Nigeria.
  2. To identify the inherent barriers to sustainable innovative financing of project projects in the Nigerian construction industry; and
  3. To identify the drivers to sustainable innovative financing of project projects in Nigeria.


The current strain on public budget makes it more important to find innovative approach to arresting the current urban project deficit in Nigeria. This formed the basis for this study.

Consequently, the findings from the study inform the following recommendations to be put forward. These recommendations include:

  1. It has been noted over the years that the few infrastructure projects delivered through innovative financing were not realised using competitive bidding. The result has always been cost not meeting budget. The findings indicate that if competitive bidding is adopted for such projects, there is the possibility of getting value for money and quality is also assured.
  2. Most of the projects also have not been transparent. Full details have not been disclosed to citizens. Communities affected have not been engaged and listened to. The end results usually are demonstration among others, which all lead to project cost and time overruns. It is thus recommended that there must be public engagement, since it has been established to aid in the achieving of desired results.

Limitation of the Study

As with any research endeavour this study also had certain limitations. The study was limited geographically to only Abuja and Lagos in the Greater Abuja and Ashanti region respectively. Thus the sample used for the study was affected. There was the possibility of the mean values being affected if the sample size was increased.

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