Expanding National Resources and Infrastructure in Challenging Times

Expanding National Resources and Infrastructure in Challenging Times

Infrastructure and Development
The Nigerian Economy: Issues, Challenges, Recent Trends and the Infrastructure Nexus
State of Infrastructure
The Population Connection
Financing Infrastructure
Conceptual Context
Unlocking the Resources
Chinese and South Korean Experiences
Possible Game Changers for Nigeria
End Notes
Infrastructure and Development
Infrastructure and Development (contd.)
As a public good, it is non-rivalrous (use by one economic agent does not limit use by another) and it is non-excludable (one agent cannot stop another from using it), according to Peter Heler (2010).
Infrastructure and Development (contd.)
Infrastructure has also been an effective way to provide fiscal stimulus for recessed or slowing economies.
The evidence of this abounds in history, and especially during the recent global financial crisis and economic downturn1.

The resulting improvements in the standard of living and income levels further fuel demand for new infrastructure because the increase in discretionary income through urbanization raises the demand for automobiles (logistics needs), high-end electronics and modern communication gadgets as well as other high quality consumer goods.
Infrastructure and Development (contd.)
In essence, economic development (especially income growth) and infrastructure improvement are mutually reinforcing.
Infrastructure and Development (contd.)
The state of infrastructure attracts new investments in two different ways:
If it is world-class, it makes the business climate competitive and to attract new investments.2
This is the common sentiment of investors in their preference for particular investment destinations.
If it is not world-class, it creates opportunities for investments in infrastructure for …
Infrastructure and Development (contd.)
The typical measures of international competitiveness and attractiveness in infrastructure include power, telecommunications (telephony services and internet access), roads, aviation (especially domestic air travel), seaports (container cargo handling), potable (clean) water and sewage (access to sanitation facilities).
Infrastructure and Development (contd.)

Kathryn Koch and Luke Barrs (2012) summarize the state of infrastructure in the Next-113 countries as:
“While the current standard of infrastructure across the N-11 is extremely diverse … all of them face at least one or often several of the following challenges: improving their power supply, increasing technological adaptation, building better transportation networks and providing enhanced access to clean water and sanitation.”
Infrastructure and Development (contd.)
There are many lessons to draw from China and South Korea when it comes to resource mobilization for infrastructure development from both the public and private sources.
It has also been argued that South Korea is to the Next-11 what China represents to the BRICs, and this indeed reflects in Korea’s peculiar commitment to infrastructure development in the last two and half decades.
For South Korea, the infrastructure gap of the mid-1990’s as its economy grew strongly elicited increased new investments at the rate of 20% annually through the 1990s, while government budget had substantial allocations to infrastructure –- 11.2% in 1993, 14.2% in 1997 and 14.6% in 2001.4
The Nigerian Economy: Issues and Challenges
Economy is diversified by GDP contributions (non-oil sector was 89.71% in Q1 2016), but over-dependent on hydrocarbons (at about 97% of total exports, 77% of foreign earnings and 74% of government revenue over the last 15 years).
Major source of foreign earnings and government revenue is threatened (due to restiveness in the Niger Delta).
Bloated government recurrent expenditure (40% of 2016 budget and much higher since the late 1990’s).
Preponderantly a consuming and not a producing nation.
High unemployment rate (12.1% plus 19.1% under-employment); Youth unemployment at 42.4%.
Depleting external reserves. ($26.36 bn at end-June and equivalent of less than 5 months imports bill).
High cost of doing business and high cost of living. (inflation at 15.6% in May 2016).
The Nigerian Economy: Recent Trends
The Nigerian Economy: Recent Trends (contd.)
The Nigerian Economy and Infrastructure Nexus
The way out of the looming recession is to SPEND OUR WAY OUT OF TROUBLE!
And this must be on hard-core INFRASTRUCTURE that enable socio-economic activities towards growth and development, and not a primary focus on the ‘stomach’.
If economic agents have avenues to release their entrepreneurial and innovative energies, they will earn income and be able to attend to their consumption needs!
It is quite unfortunate that the 2016 Federal budget that gave such hope was mishandled and weakened before it got approved for implementation.
Some N792 billion (49% of proposed total MDA capital expenditure) committed to key socio-economic infrastructure was a huge departure from the meager allocation of N72.85 billion under the same headings in Budget 2015!
The State of Infrastructure
Per capita consumption was 155.9 kWh as at 2012 (an improvement from the dismal 74.1 in 2000), but miserable when compared with 346 kWh for Ghana, 4,404.5 kWh for South Africa and average of 511.9 kWh for sub-Saharan Africa!
Only 20% of consumption came from the national grid, leaving private individuals and corporate entities to generate 80% of national electricity consumption by themselves at huge cost to the economy5 and much damage to the environment.
Installed capacity of 10,396 MW, but available 6,056 MW in 2013.
Target availability is 10,000 MW6 for 2019, against an estimated demand in excess of 40,000 MW.
State of Infrastructure (contd.)
Of the 192,873 km roads, only 15% were paved as at 2009 and most of those roads have deteriorated further since then.
Some N1.7 trillion needed now to deliver 206 federal roads covering over 6,000KM with contract value at over N2 trillion.
3,528km as at 2007, mostly out of service until the recent rehabilitation work on the Lagos-Kano narrow gauge (1,124km) and the Port Harcourt-Kano line (1,139km).
The newly constructed Abuja-Kaduna standard gauge (186 km) line should commence full commence operations this month.
There are proposed new standard gauge lines for Lagos-Benin (300km), Benin-Abakaliki (500km), Benin-Obudu Cattle Ranch (673km), Lagos-Abuja high speed (615km), Zaria-Birni Koni (520km), Eganyi-Oturkpo (533km) Port Harcourt-Maiduguri (1,657km).
State of Infrastructure (contd.)
Air transportation
Some 26 airports, with 7 main airports7 among the 20 that are active. Not all are commercially viable.
Total domestic passenger traffic in 2015 was 10.22m, and international 4.35m.
During Q3 and Q4 2015, Lagos and Abuja accounted for 70.8% of local traffic, while Lagos represented 69.2% of international air passenger traffic.
Most of the terminal buildings, runways, air sidings and other vital facilities beg for rehabilitation and overhauling.
State of Infrastructure (contd.)
On the map, there are 19 seaports and jetties in Nigeria, but only six operational seaports (Lagos, Tin Can, Warri, Rivers, Onne and Calabar) that recorded cargo throughput of 195,969,200 metric tonnes in 2015.
The facilities lack capacity to handle contemporary ocean-going liners and supertankers.
Envisioned since early 2000’s and not a single one out of the six licensed dry-ports is fully operational and active at present.
State of Infrastructure (contd.)
Estimated deficit of about 17.37 million units, from juxtaposing the population estimate of 182.2m with fertility rate of 6.1 and available 12.5m units.
Potable Water
As at 2013, only 49% of rural dwellers in Nigeria had access to potable water -– a far cry from Indonesia (76%), Ghana (81%), South Africa (88%), Mexico (91%) Egypt/Turkey (99%).
The Population Connection
Estimate: 182.2m in 2015 (no. 7 in the world!)
Spatial: urban at 51% and rapidly growing, with increasing pressure on urban infrastructure.
Median Age: 17.8 years
Fertility rate: 6.1
Relative growth trajectory:
Overtake Pakistan (2018), Brazil (2021), Indonesia (2036) and USA (2044).
Only China and India will have more people than Nigeria by 2050!
Financing Infrastructure: Issues and Sources
The big question is where do we look to for funding and how do we go?

Conceptual Context
I will put this very simply as consisting of the following components:
Business case to establish relevance and relative importance.
Cluster value-chains and linkages
Collaboration across stakeholders with diverse and (at times) divergent interests
Risk sharing among stakeholders
Value maximization
Robust legal framework – responsibilities, rights, redress and protection of interests
Conceptual Context (contd.)
All of these are important if the government will attract and retain private sector partners that will enable delivery of its audacious infrastructure goals.
There is over a century-old experience to learn from in this regard, even before the modern Public-Private-Partnership (PPP) model of infrastructure delivery became popular.
We should be probing how China and South Korea have been able to do this creatively.
Unlocking the Resources
There are enough resources available to magically transform the Nigerian infrastructure state.
Though not immediately obvious, there are two keys to this.
First is that people respond to incentives.
Second is that the required reforms should not protect selfish, sectional interests and be insulated from primordial regional sentiments that focus on the part rather than the whole.
Unlocking the Resources (contd.)
It then means, there are things that we must do in order to harness the resources that are waiting eagerly to be poured into infrastructure development in Nigeria.
The question to ask is “what needs to change and where?”
Chinese Lesson on Road Infrastructure
Construction of new roads was funded from vehicle purchase tax, fees and taxes collected by local governments, state bonds, domestic investment and foreign investment.
Most of the new roads constructed since 2004 are tolled, having been largely financed by private companies under Public-Private-Partnership contracts from provincial governments.
The private companies raise money through bond and stock offerings, and recoup their investments through tolls.
South Korean Lesson on Infrastructure Development and PPP
Reforms have to be long-term in view, holistic, consistent and in overriding national interest.
Deregulation of infrastructure pricing, in such a manner that enables recoup of investments within reasonable time.
Proper policy sequencing to avoid opposition, especially by environmentalists.
Private sector partnership.
Make capacity building a continuous exercise by taking advantage of local expertise and deliberately domesticating imported expertise.
Possible Game Changers for Nigeria

Focus on the big picture!
We want to become a smaller version of what China9 is to the world today – largest manufacturing space and global manufacturing powerhouse!
Transparency and principled commitment to common good.
Stop the practice of constituency projects and politically-motivated project approval!
Observance of the rule of law.
This protects the interests of all the parties involved and engender confidence in current and prospective partners.
Possible Game Changers (contd.)

Assign commercially viable (and thus bankable) infrastructure projects to private partners, and fund non-viable projects from annual budget allocations.
Why should government functionaries worry about private investors making money from investment in infrastructure development, taking some burden off the government?
Give more attention to risk management.
Identification; Assessment; Measurement; Decision; Pricing; Mitigate
End Notes

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