Nigeria has been plagued by infrastructure challenges over for several decades. This has been attributed to the inability to the government to align its policies with its ability to implement policies that address infrastructure deficits. BENJAMIN UMUTEME in this report takes a cursory at the issue.
Going round the country from Lagos to Maiduguri, from Calabar to Sokoto and from Kano to Ekiti, the story is the same – decaying infrastructure.
When Nigeria got its independence from Britain in 1960, the civilian administration that took over the reins of government went about the business of developing infrastructure, even when the military did not slack in the bid to provide the needed infrastructure that will drive development.
However, everything took a different turn in the 1980s as successive governments, despite making provision for projects, engaged in diverting the monies meant for such projects into their pockets and those of their cronies. That started the steady decay of the country’s infrastructures till we are left with what we have at the moment.
Infrastructure development is a key driver for progress and a critical enabler for productivity and sustainable economic growth. Good infrastructure contribute significantly to human development, poverty
reduction and the attainment of the Sustainable Development Goals SDGs). Unfortunately, lack of proper infrastructure has continued to make it difficult for the flow of business and life generally in Nigeria.
The poor infrastructure situation of Nigeria ranging from perennial electricity shortages, housing problems, lack of good roads both inter and intra state, water and sanitation infrastructure has made the country unlivable. This also plays out in inefficiencies in transport logistics such as roads, ports and rail transport are major hindrances to economic development of the country.
The World Bank estimates that $95 billion is needed annually to build the infrastructure in Africa. Nigeria has one of the greatest infrastructure needs on the continent, particularly due to its size and population. Nigeria’s rising population is a huge strain on its failing infrastructure. It is important to note that without
infrastructure, enterprise and movement cannot happen.
According to the Federal Mortgage Bank of Nigeria (FMBN), “we need to build 720,000 units of houses per annum in Nigeria at a cost of N56 trillion per annum to close our housing gap. In the same vein, electricity, rail systems, airports, seaports are equally begging for financial attention.”
The challenge
To say that infrastructure financing plays critical role in promoting economic growth, improving standard of living, poverty reduction, enhancing productivity and in improving competitiveness is an understatement.
Clearly, with a huge infrastructure gap that continues to put a wedge on economic growth and development, it has become obvious that all hands needs to be on deck to find a lasting solution to these challenges.
The director, Praxis Centre and Convener Take Back Nigeria Movement, Jaye Gaskia, said the lack of a national development planning framework, combined with the absence of a regulatory framework, is a major drawback to the development of the country’s infrastructure.
“The challenges of the absence of critical infrastructure continue to impact negatively on the cost of doing business, investment, and capital inflow into the country.
“It is estimated that Nigeria needs $100 billion over the next six years to provide quality infrastructure in the country,” he said.
According to the director-general, Infrastructure Concession Regulatory Commission (ICRC), Mr. Chidi Izuwah, while about $60 billion would be required for the oil and gas sector, about $20 billion to revamp the power sector; $14 billion for road, and between $8 and $17 billion for rail tracks.
Izuwah said between 2009 and 2013, Nigeria invested a mere $664 per capita per annum in infrastructure or three per cent of GDP, compared with an average of $3,060 or five per cent of GDP in developed countries.
Addressing these challenges
Speaking at a conference organised by the Africa Finance Corporation (AFC) on infrastructure in 2017, its President/Chief Executive of the (AFC), Mr. Andrew Alli, stressed the need for the federal government to create the right environment to be able to attract private capital for infrastructure financing.
While arguing that funding alone is not the problem of infrastructure financing, Alli said other challenges that needs to be addressed include bad procurement processes, structural problems that make it difficult for investors to get value for money, funding structure, maintenance, tolling. Just as he frowned on inadequate attention which Nigeria pays to meeting the needs of specific investors and projects already in progress, or on creating policy incentives that will spur investments.
For the chief executive officer, Rand Merchant Bank Nigeria, Michael Larbie, there is the need for clearer legal and regulatory framework, improved and efficient competitive bidding procedures, consistent sector policies, (e.g. tariffs regimes, rule of engagement), strengthened management of fiscal obligations and supportive regulatory environment are key in improving the quality of infrastructure in Nigeria.
“Government must build a track record of public private partnership (PPP) performance to attract large sums of long-term funding from pensions funds and insurance,” he said.
The PPP option
As a way of addressing the country’s huge infrastructure deficit, the federal government, experts say, should seriously use the public private partnership option.
In a chat with Blueprint Weekend, Jaye believes the PPP option is the only way out as the government lacks the financial muscle to fix Nigeria’s infrastructure.
According to him, “PPP is the only way out of this infrastructure challenge; why can’t private capital build roads and collect tolls on a build, own and operate basis.”
In the same vein, the chief executive officer of Viathan Engineering Limited, Mr Ladi Sanni, said there is the need for more private capital to give infrastructure a facelift in the country.
He said: “Part of the problem we have in Nigeria is contract sanctity. The judiciary has a role in interpreting the legal framework. Government needs to demonstrate that private investors can go in to long term investment with them.
“Government bonds limits investment into high risk power project. We would like government to look at the issues of infrastructural bond.”
According to Izuwah, project refinancing is another option to solving the infrastructure problem.
“Experiences from other countries show that primary financing by banks and refinancing through bonds is the ideal model for infrastructure funding.
“Through this model, the focus of commercial and merchant banks in infrastructure financing should be on providing funding up to the pre-commissioning stage of projects.
“Given their strong project appraisal and monitoring skills, and their healthy capitalisation, banks are well placed to take up financing in the pre-commissioning phase, when project risk is the highest.
“Refinancing frees up bank funds and enable these funds to be deployed in new infrastructure projects.”
Shooting ourselves in the foot?
Even though the All Progressive Congress (APC)-led administration in the last three years raised the bar in terms of the amount budgeted for capital expenditure, the cut it plans to carry out in the 2019 budget may cancel the gains it recorded since 2015. In the budget presented before the National Assembly the federal government plans to reduce the budget by N500 billion representing a 10.54 per cent reduction in capital expenditure.
Out of a N500 billion proposed cut from what it is spending this year, capital expenditure would bear the largest chunk of N330 billion.
In doing this, the government says that forecasts for revenues are not being met by actual inflows and is therefore tightening up next year. But analysts fear that the butcher’s knife is being applied in the wrong place, which they say could be worrying for the economy.
Africa’s largest economy plans to cut its budget for 2019 to N8.6 trillion from N9.1 trillion in 2018.
While the overall cut in the budget proposal is N500 billion in 2019 to N2.8 trillion. This is against N3.13 trillion in the approved 2018 budget. The implication is that CAPEX would account for barely 27 per cent of total expenditure while the bulk of 73 per cent will go to recurrent expenditure.
Details of the medium term expenditure framework (MTEF) and fiscal strategy paper (FSP) 2019-2021, as presented by Udoma Udo Udoma, the minister of budget and national planning, at a consultative forum in Abuja on Thursday last week, showed that capital expenditure will suffer successive cuts for the three-year period to N2.8 trillion, N2.1 trillion, N2.28 trillion respectively for 2019, 2020 and 2021, despite increases in total expenditure at N8.6 trillion, N8.98 trillion and N9.4 trillion during the same period.
Head of banking and finance department at Nasarawa State University in Keffi Professor Uche Uwaleke says the reduction in capital expenditure in the fiscal plan was worrying.
He said: “The only worrying aspect of the proposed 2019 fiscal framework is the significant reduction in capital expenditure. Any funds freed in the process in addition to proceeds from the implementation of the newly introduced Voluntary Offshore Assets Disclosure Scheme, as well as other miscellaneous incomes, such as proceeds from loot recoveries should be used to augment the meagre allocation to capital expenditure.
“I think the decision to scale down on the size of the 2019 budget is a wise one considering the present fiscal realities in Nigeria. The 2017 budget implementation experience, coupled with the revenue challenges being encountered in the execution of the 2018 budget calls for a conservative approach to next year’s budget.
“Therefore, it goes without saying that the decision to slow down government’s expansionary spending, especially in an electioneering year, will pose less threat to inflation, reduce the fiscal deficit to GDP ratio in line with the ERGP target as well as curtail government borrowing in view of the present huge debt service burden, which is clearly unsustainable at over 65 percent of revenue.”
