Nze Sylva’s Corner: Making the Most of Nigeria’s Infrastructure Potential
It is an economic fact that accelerated infrastructure spending drives economic growth, provides jobs, and delivers vital services. The World Economic Forum estimates that every dollar spent on a capital project (in utilities, energy, transport, waste management, flood defence, telecommunications) generates an economic return of between 5% and 25%. That multiplier effect accounts for the rapid economic growth of emerging markets that have made infrastructure spending a priority.
Nigeria’s infrastructure today lags well behind that of the rest of the developed world and while this presents a present challenge to living and doing business in the country, it also offers a huge opportunity. With the country feeling the strains of the recent oil price drop and the consequent recession, the infrastructure sector provides the opportunity to create “new asset classes” for local and global investors and asset managers, with potential for relatively good returns.
With infrastructure under significant pressure, Nigeria cannot maintain her current levels of population and economic growth without enhancing her infrastructure. The basic needs for power, water and sanitation, transport and logistics, housing and ICT top the demand list for most cities in the country. The wisdom of the choices we make in balancing political, social and economic agendas will become even more critical in managing finite financial and environmental resources.
The need for enabling infrastructure is clearly evident. Nigeria is the largest economy in Africa. The growing middle class, strong demographic growth with improving age mix, the technological innovation, and fast-paced urbanisation are shaping what the future of Nigeria could look like. These trends create significant infrastructure needs and funding requirements. The burgeoning middle-class urban populations in the country will need a far more efficient infrastructure and this will drive demand. For example, it is estimated that there is a shortfall of 17 million housing units in Nigeria, with a funding requirement of US$363 billion.
Another interesting example can be given of the Power sector in Nigeria where a combination of low generation, weak transmission infrastructure and a myriad of other issues have held back the actualization of the power roadmap. The ripple effect of getting this sector right in this country is huge. For example, it is estimated that about 40% of manufacturing costs is spent on power generation today.
Transport infrastructure is a key consideration for investment in the country. Road transport is the predominant mode of transport and accounts for 80% of goods traffic. A study completed in 2008 showed that in Lagos, Nigerians commercial capital 57% of commuters and motorists spent 30–60 minutes on the road due to traffic congestion. With the increase in the city’s population since then, this situation has further deteriorated. This makes such infrastructure projects as the expansion of the Bus Rapid Transport Systems (BRTs), and construction of Light Rail Transits (LRTs) in Lagos very important. Equally laudable is the planned fourth mainland bridge and the Lagos smart city project.
The Kaduna-Abuja rail line is enjoying huge publicity these days following the closure of the Abuja airport and the diversion of flights to Kaduna. What a good decision that it was constructed. The purpose it’s serving now shows the importance of a modern and efficient rail system in the country. Our airports require major expansions and upgrades. A situation where we have to shut down the airport in the nation’s capital to rehabilitate the runway is unacceptable. The ports need holistic reforms and our inland waterways system require a new lease of life.
Infrastructure development is however driven by certain economic, social, and environmental factors, sometimes referred to as the enabling environment. Those countries that have been most successful in developing and maintaining infrastructure have established programmes of prioritised investment opportunities with a number of features, including clear political support, a proper legal and regulatory structure, a procurement framework that can be understood by both procurers and bidders, and credible project timetables. These country programmes eliminate key frictions such as long project lead times, clarity around funding and procurement strategies and to some extent reduce the risks of political term of office changes.
To realise growth over the next decade, Nigeria must provide a national model for evaluating and making decisions on the types of projects to be undertaken including elaborate infrastructural development master plan that takes into account, the nation’s future population projections and growth aspirations. We must also ensure the existence of a stable legal and regulatory framework that takes away red tapes, and administrative bottlenecks. Related to this is the need to ensure fiscal responsibility and fight corruption. Improving access to finance by further expanding the traditional sources of finance is also required.
Overall, the key message is that infrastructural development is a matter of many (larger or smaller) steps over a long period of time. But the steps must be well coordinated, part of a long-range vision and an integrated plan which is consistently implemented.
Smart, creative, ambitious people will congregate and invest their labour and capital where it is most advantageous and livable for them to do so. Hence it’s not only about more infrastructure, but better infrastructure. Rethinking urban design that improves the way people work, live and play, integrating energy efficiency and renewable resources, leveraging technology and smart city thinking, promoting sustainability and the green agenda, smarter public transportation and supply chain solutions are all the ingredients that will shape the Nigerian infrastructure space of the future.
Interestingly, there has been a lot of talk about huge spending on Infrastructure as a way out of the recession and the government says that is the hallmark of the 2017 budget. The fact is the success of the ambition to expand industrialisation, achieve economic diversification and regional trade which will, in turn, drive inclusive growth, depends largely on infrastructure. We need to get it right this time. There are not alternatives.