Nigerian Infrastructure Development and the Business Revolution: An African Perspective
The general state of infrastructure across the African continent and especially in sub-Saharan Africa is extremely disconcerting. With the exception of South Africa, the continent’s largest economy, the entire region is mired in severe infrastructure deficits that have thwarted development programs and clouded growth prospects. The countries of the Southern African Development Community (SADC) have fared relatively better in this regard with their efforts to boost area-wide development through trade agreements, pooling of resources and multinational collaborations. West Africa, on the other hand, has been deprived of similar benefits due to past and present complex requirements. As a result, the economic potential of this region has barely been scratched.
In June this year, the World Bank approved a $1 billion loan to Nigeria to finance multiple development programs, including expanding and upgrading the country’s woefully flawed energy sector. An amount of $200 million was earmarked for investments in networks and technical improvements to improve electricity supply. While this interest-free, concessional financing is an undoubtedly welcome development, it represents only a small fraction of Nigeria’s overall infrastructure investment needs. In August 2008, the Nigerian Debt Management Office (DMO) revealed that the country needed at least $100 billion in investment to develop four key areas of infrastructure: power, rail, highways and oil and gas. The figure was calculated to align with the ambitious national goal of bringing Nigeria into the top 20 global economies by 2020. Of the four sectors mentioned, energy alone would require an estimated investment of between $18 and $20 billion over the next ten years. With a current installed capacity of 6,000 MW against the total requirement of 10,000 units, only 40% of Nigerians currently have access to electricity.
The collapse of basic infrastructure and social services began in the 1980s, after Abuja’s unhealthy reliance on oil exports decimated its agriculture and light manufacturing sectors. The static oil economy wiped out traditional and emerging livelihoods, creating rampant unemployment, poverty, and degraded living standards. In 2002, per capita income was below the level of 1960, when Nigeria gained independence from British rule. In terms of declining infrastructure, energy turns out to be the most affected, but the government also admits serious shortcomings in many other areas. For example, the railway network is in ruins and today represents only 1% of national transport1. The port service also suffers severe bottlenecks and an inadequate optimization of capacity. The more than 100,000 km long road network is in poor condition at best and barely usable at worst.
Due to Nigeria’s strategic location and abundant natural resources, infrastructure development in the country has pan-African relevance. The human capital of 148 million that makes Nigeria the most populous African nation is a workforce of unknown economic potential. The country’s thriving informal sector, estimated to account for 75% of the total economy, also hides enormous potential for inclusive growth. Thus, the rapid development of SMEs has been the mainstay of successive governments since the restoration of civilian rule in 1999. Nigeria’s ability to fuel a business revolution that will fundamentally alter its macroeconomic imbalances remains the quintessential challenge of its target for 2020.
Infrastructure development is clearly going to be the first building block in this effort, and the realities on the ground are pretty harsh under current conditions. For Nigeria, the biggest impact of infrastructure deficits is the high cost of doing business, both for large corporations and small businesses. Lawmakers need to come up with a comprehensive plan to reverse this trend within a certain timeframe. Two key aspects in this consideration are the following:
o The whole of West Africa receives very nominal foreign private investment in infrastructure for a variety of reasons ranging from high currency risks to low creditworthiness. The region’s limited ability to borrow and the bias toward infrastructure sectors with limited regulatory intervention are other obstacles. Nigeria must lead the way in improving access to debt capital as a means of attracting projects with viable private participation.
o The capacity of local financial markets to finance infrastructure projects is very low throughout the continent. Long-term local local financing is almost non-existent, except in South Africa, which has been successful in developing an indigenous capital market for constant financing on convenient terms. The absence of similar capacity in the rest of Africa means that most of it is entirely dependent on grants and soft loans from international development agencies.
For developing African economies, increasing foreign investment in infrastructure while simultaneously developing avenues for credible local financing is a daunting task. The current Nigerian government under President UM Yar’Adua acknowledges the challenge by listing infrastructure development as a critical component of the 7-Point Agenda for the realization of the 2020 goals as well as the Millennium Development Goals. Some recent initiatives in this regard include the creation of a federal mortgage bank, a housing authority, and a national road maintenance agency.
That infrastructure will be the main engine of all socio-economic development in Africa. What is unclear are the ways and means employed by individual nations and the basic effectiveness of such measures beyond official statistics and proclamations. Nigeria has a unique opportunity not only to reverse decades of economic stagnation, but also to sustain an effective model for accelerated growth in the rest of the continent. The success of your long-term ambition takes on broader importance because it is bound to have a gradual spillover effect on your immediate geography.