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The suboptimal performance of Nigeria's infrastructure, limiting its giant developmental leap

by Olabisi Showole - 09 February 2021 197 Views
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The suboptimal performance of  Nigeria's infrastructure, limiting its giant developmental leap 


There is no doubt about it that infrastructure is critical to national growth and development. This is as a result of its inter-sectorial connectivity which invariably facilitates the realisation of national development goals through industrialisation. Yet, the optimal performance  of infrastructure has to contend with the fact of scarcity of resources. It is in consideration of the facts of resource scarcity and the competing demands for these resources that infrastructure should be built at a cost that is competitive, and also managed with utmost efficiency. In this regard, there is a compelling need to decide who should be responsible for producing or providing infrastructure- government or private sector- and when.


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 First, I will deal with the issue of time or timing.Timing is of essence, particularly when dealing with countries like Nigeria where the concept of time is not treated with all the seriousness it deserves. As a consequence of time or timing not been considered a serious factor, particularly in Nigeria, there is usually a policy-project execution timing mismatch, a common occurrence that has often, impacted the economy negatively in terms of cost escalation which, in the long term, is reflected in the uncompetitiveness of the country's  goods and services. 


The second issue of this essay, is concerned with who should be responsible for building, producing or operating, and managing infrastructure, which is alternatively called social overhead capital or public goods, and why? In the past, infrastructure, particularly the core infrastructure had been built, operated and managed entirely by the governments or local authorities, despite a stiff revenue constraint it faced and still facing. Why is this so? The reason cannot be dissociated from the characteristics of most of the public goods or infrastructure. The characteristics are high capital intensity, requiring heavy lump sum or lumpy capital to fund infrastructure projects; long gestation period for infrastructural projects; low level of returns to infrastructural investments despite lumpy capital requirement; problem of oversupply or over demand, or supply-demand gap; presence of externalities, which could be positive or negative, and the nonrivalrous and non-excludable characteristics of infrastructure or public goods, which qualifications I should emphasize, cover also soft infrastructure. 


With respect to funding of infrastructure, it was then wrongly assumed that the huge funds required for building infrastructure might be beyond the capability of the private sector. All that has now changed as concession options are now becoming an appealing strategy to confront the huge funding constraint for providing core infrastructure such as railways, roads, airports, seaports, energy, et cetera. 


By virtue of  the nonrivalrous and nonexcludable characters of infrastructure, competition is absent in its operations, instead monopoly reigns. As a result, there is distortion and inefficiency in the allocation of the scarce resources to infrastructure. The reason for this is that price mechanism, forces of supply and demand, or market mechanism is constrained and market failures consequently set in. Market failures mean that competitive market systems will not be able to achieve a socially optimal level of infrastructural services for the economy. They also mean that there will be huge infrastructural deficits. This is because the private sector, being driven by profit motive or attracted by profitability of investments, will only be involved in investment in infrastructure, in order to bridge the infrastructural gap or ensure efficiency of infrastructural service delivery, if it is assured of good returns on its investments. Only market mechanisms- the interplay of the forces of supply and demand in the determination of prices of infrastructural services- will assure this and encourage the private sector to participate solely or via public-private partnership (PPP) in building infrastructure.


 The foregoing provides veritable explanations for government's  preeminence in infrastructural project implementation as well as why market failures are often associated with public goods.  Meanwhile, the following core infrastructure, that is infrastructures with huge level of capital intensity, has been identified:   


  •  Energy/Power; 


  • Roads and road transport;


  •  Railways;


  •  Communication, especially telecommunication;

  •  Ports and airports, and


  •  Large dams for agriculture, irrigation and even energy. 


On the other hand, the soft infrastructure, with low capital intensiveness, includes  schools, hospitals, parks, courts, museums, theatres, libraries, universities, et cetera. Apparently, both cases have huge or low capital infusions, and long gestation periods. In view of these attributes, there is often the temptation by governments to resort to borrowing to fund infrastructure deficits. This  temptation should be avoided at all cost because of the potential for the country to be trapped in debts. Perhaps, this informed the current initiative- the trending strategy to concession infrastructural projects to a consortium of private sector players who are to build, operate and transfer but with government providing regulatory framework.


 Meanwhile, let it be underscored that governments or local authorities should not only regulate but they should endeavor to ensure that the mechanisms for private sector involvement as well as the environment ensure a win-win outcome for both the private organisations and the citizenry. In this way, I believe private investments in infrastructure will not only reduce or eliminate infrastructure deficits, they will also contribute to the realization of the goals of faster national economic growth and development, including the reduction in the poverty level.


The foregoing provides the necessary backgrounds for how infrastructure can become a catalyst for Nigeria to make a giant leap in its developmental goal. It will also enable us to answer such questions as; how has Nigeria fared in its infrastructural development programmes? What are other sources of funding available and how can it be sourced to bridge the revenue gap? Has Nigeria been able to achieve the very important goal of making its infrastructure perform optimally in order to achieve the overall national objectives of growth and development on a sustainable basis? 


With regard to the first question, the IMF has disclosed that Nigeria's infrastructure stock is far below the 70% international benchmark, at around 25% of its GDP. This disclosure should not surprise those who have been following developments in the country's infrastructure subsector. Afterall,  the IMF estimate took cognizance of the profound but baffling inadequacies of the national infrastructure stock as exemplified by the decrepit railway system, the death trap road network of about 195,000 kilometers. According to Chidi Izuwah, the Director-General, Infrastructure Concession Regulatory Commission (ICRC), "Nigeria's  investment in road and rail remained low and had led to the continued under development of the country, adding to joblessness and poverty". Of course, the country is ever contending with epileptic national energy/power supply that has never exceeded 4,000MW or at most 6,000MW for a country of over 200 million people. In contrast, South Africa, a country of 59 million people, has exceeded the 10GW mark. What about our airports whose facilities are competing against modernity and modernization, or the nation's universities whose infrastructures are as good as those in our secondary schools, leading some not too charitable Nigerians to call our universities glorified secondary schools.


I am very optimistic about one of the important ways to, radically, bridge Nigeria's infrastructural gap and improve the infrastructure service delivery. That way is to attract private investments to the sector through public private participation (PPP). The examples of the concessioned Lagos Domestic Airport Terminal 2 and the Lekki Plaza toll are the success stories that should convince skeptics that the same feat can be replicated in respect of infrastructure elsewhere in the country.


With regard to Nigeria's poor energy production, which installed capacity is about 13GW and actual supply is from between 3000 to 4000MW, there is the urgent need to explore other funding sources outside of the national treasury. I had suggested, in my article titled, "Nigeria's Energy Supply Dilemma And Long Term Solution'' published in the The Nation Newspaper of May 29, 2016, that Nigeria should consider a paradigm shift from treasury funding to multi-funding-source for its national energy requirements. I proposed then that Nigeria should avail itself of the International Energy Charter's (IEC's) three funding options, namely, public solely, public-private partnership and foreign direct investment (FDI). The first option, I concluded, was unrealistic in view of Nigeria's dwindling oil revenue and the competing demand for the available revenues. I then, proposed that the IEC could play a prominent role in respect of the other two options, particularly the foreign direct investment (FDI) option where the IEC has a good amount of leverage with respect to strengthening synergies with the other international organisations and financial institutions, mobilising them for mutually beneficial investments in the Nigeria's energy sector. It is expected that, by taking this route, Nigeria will be able to build its energy infrastructure to the point of its being effective in the discharge of its statutory functions of supporting national industrial growth and competitiveness. The FDI approach as well as granting concessions to consortium of investors and financial institutions to build, operate and transfer should also be extended to road, railroad and air transport infrastructure nationwide.


Take building, operation and management of our infrastructure out of the hands of our governments- national and subnational- solution will be found for its suboptimal performance, corruption will be reduced, inclusive development and reduction of poverty will be assured. I believe it is the route Nigeria must take to realise its giant developmental leap.





 





















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