CHAPTER ONE
INTRODUCTION
1.1       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.