Rising debts, little infrastructure: Nigeria’s economic paradox

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Despite incurring huge debts purportedly to bridge the yawning infrastructural gap, the state of the nation’s infrastructure is nothing to write home about. Chima Nwokoji reports.

CRIPPLING infrastructure deficit in Nigeria has been one of the biggest challenges confronting the country over the years. This has significantly increased the cost of doing business in Nigeria and hampered both international and local investments in the country. This is despite huge borrowings by the country purportedly to improve its infrastructure.

Unveiling his second term plans to improve the country’s desperately needed infrastructure to buoy the economy and ease living for citizens, President Muhammadu Buhari in 2018 promised to fix four areas which are road, rail, power, and the Internet, marked to be treated as ‘a critical infrastructure’.

Specifically, he promised to complete the Second Niger Bridge, which had been in the works for years before his coming, and “the phased works in each state of the federation.”

It was evident then that several roads in Nigeria were in a bad state and work on them had been on for several years, gulping billions of taxpayers’ money with little or nothing to show for it. President Buhari then promised to complete these projects if re-elected.

On railway, he said he would complete the Lagos- Ibadan-Kano Rail, Eastern Rail (Port-Harcourt-Maiduguri) taking the network through Aba, all South-East state capitals, Makurdi, Jos, Bauchi and Gombe, and the Coastal Rail (Lagos-Calabar).

He promised to move broadband coverage to 120,000kilometre of fibre network across the country, after ‘addressing uniform Right of Way charges,’ and prioritise Internet access to education, markets, primary health care and business clusters.

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Through renewable, clean energy sources, such as solar, President Buhari said he would ‘energise’ universities and up to 300 markets across the country to have uninterrupted power supply.

On power, he promised “a minimum of 1,000 megawatts new generation incremental power capacity per annum on the [national] grid; distribution to get to 7,000 megawatts under the distribution expansion programme.”

Ahead of the 2019 elections, at the opening session of the Direct Investors Summit organised by the Nigeria Investment Promotion Commission (NIPC) in January 2019, Vice-president Yemi Osinbajo said the Federal Government had invested about $10 billion in infrastructure development in the last three years.

He said the investment which focused on roads, power and a new national rail network, was unprecedented.

His words: “We have in the last three years invested close to $10 billion an unprecedented sum in infrastructure since 2016.

“Our focus is on roads, power and a new national rail network; all of which will help guarantee increased access to markets and reduced operating costs for businesses.’’

But the question on the lips of most Nigerians is whether the infrastructure situation in the country has recorded remarkable improvement better than the All Progressives Congress (APC) government met it?

The answer was immediately provided by the Managing Director of Financial Derivatives Company (FDC), Mr. Bismarck Rewane.

According to the renowned economist, Nigeria requires $15 billion (N4.59tn at N306 to a dollar) worth of investments annually for 15 years in order to adequately develop its infrastructure nationwide.

To support this view, a study conducted by Mckinsey on Nigeria’s infrastructure requirement threw up the need for the investment of well over $31billion annually, over a 10-year period for the country to bridge her huge infrastructure deficit.

Going by these estimates without looking at other aspects of infrastructure development, the alleged $10 billion investment in the basic infrastructure by the Federal Government has not impacted much on Nigeria’s infrastructure development in terms of funding.

In the firm’s bi-monthly Economic and Business Report, the Financial Derivative Company stated that the underinvestment in infrastructure in Nigeria over the years had widened the infrastructural gap across the country.

Indeed, the Federal Government’s limited access to foreign credit and revenue constraints had made it difficult for the country to source funds to meet its infrastructural needs. Although, the government has recorded some improvements in infrastructure delivery, the impact has remained insignificant.

A herd of analysts agreed that if the infrastructure situation had improved in Nigeria, the country’s economic statistics would have been brighter than what it is at the moment. For instance, Nigerian roads are still bad, the country is among the top 10 countries in the ‘misery index.’ Nigeria has one of Africa’s highest unemployment rates with 23 per cent of its population—18 million of the labour force—currently without jobs, according to the National Bureau of Statistics (NBS). The challenge of inequality is at crisis levels in Nigeria.

As a result of its decrepit health sector, Nigeria is at the bottom of most world health indices – one of the worst places in the world to bear a child and or cater for infant or mother; has the world’s third-lowest life expectancy rate of 55 years; has the second largest number of stunted children in the world, to mention but a few. Currently, Nigeria has over 10 million out-of-school children.

According to FDC, “Nigeria’s underinvestment in infrastructure has left it with a core stock of infrastructure of just 20 per cent to 25 per cent of Gross Domestic Product, compared to an average of 70 per cent of the GDP for more advanced middle-income countries of similar size.

“Bridging this gap will require investing about $15billion annually for the next 15 years. Given the government’s limited access to international debt, revenue constraints and competing priorities, the major question is where will funding be sourced?”

It said, “One of the biggest constraints to competitiveness, economic growth and diversification in Nigeria is the crippling infrastructure deficit, estimated at about $300billion (N30tn) by the African Development Bank.

The bank estimates that the gross underinvestment in infrastructure over the years has left Nigeria with a core stock of infrastructure of just 20-25 per cent of the GDP, compared to 70 per cent for more advanced middle-income countries of similar size.

“This has driven the cost of doing business up significantly and impaired both foreign and domestic investment. The cheapest alternative to public power supply is at least three times more expensive. Businesses simply need adequate transportation systems (road, railway and port) to receive supplies and access markets for their goods,” Rewane stated.

The Lagos Chamber of Commerce and Industry (LCCI) says, “We note that the total budget size is N10.3 trillion. The recurrent component is N4.88 trillion, debt service is N2.45 trillion. Together, these two budget items amount to N7.33 trillion, which is 90 per cent total revenue estimates. In addition, from the record of accomplishment of revenue performance, the percentage may be much higher when related to the actual numbers. All of these indicate that the hope for an impactful investment in infrastructure is dim and would remain so for some time to come.’”

Borrowing to fund infrastructure

Is borrowing for long-term and leaving debt burden for future generations the solution? For instance, the Debt Management Office (DMO) wanted to issue a 30-year bond when it is known that a large part of the proceeds will go into recurrent expenditure, adjudged consuming the assets of future generations.

The Executive Vice Chairman of Alpha African Advisory Limited, a Financial Advisory and Fund Raising firm, Mr Mustafa Chike Obi, said there is nothing wrong with borrowing for 30 years if the money is going to be used to build an asset that will last for 100 years.

“But there is something wrong borrowing for 30 years if you are going to consume it. I keep telling people that Third Mainland Bridge is a great investment. It has impacted the growth and revenue of Lagos State more than any other single physical infrastructure, and it has been there for close to 30 years.

“There is nothing wrong with borrowing for 30 years to construct Fourth Mainland Bridge, because it will open up parts of Lagos State and probably parts of Ondo State to further development. So, if you are going to build such, that is fine. You can borrow but it has to be for things that touch lives. You have to look at what you are borrowing for. You just cannot borrow to consume or finance recurrent expenditure, which we have been doing too,” he stated.

But given the huge amount required therefore, it is near impossible to expect government to foot the entire bill, neither will traditional project finance models essentially leveraging medium to long term funds from banks and development finance institutions do much, given the huge funds required for infrastructure projects and the needs that the Development Finance Institutions (DFIs) contend with on the African continent.

The Senate, in March, approved President Buhari’s $22.7 billion loan request which would be used for critical projects across the country. According to a document accompanying the president’s request, the fresh loan is for about 35 projects, many of which are infrastructural. The document shows that part of the money will be used for new projects while others will go into already existing projects.

However, some finance and economic experts expressed concern that borrowing specifically to address the infrastructure gap would only push the debt-to-GDP and debt-to-exports ratios – 11.1 per cent and 62.4 per cent, respectively – beyond sustainable levels.

According to Dr Vincent Nwani, an investment and business analyst, although Nigeria had been borrowing to fund infrastructure, there are scant projects to show for this.

Speaking about the implications of borrowing without investing the fund properly, he said, “One of the implications is that given the current level of the nation’s external reserves, we will need twice the size of our external reserves to offset the debts. Another implication is that going by the total revenue earned by the country yearly, we will need our total revenue for between seven and nine years to pay off our debts. This shows how bad the situation is.”

Painting a more graphic illustration of the situation, Nwani said: “We are borrowing to maintain the current generation. The implication of this is that any child born in Nigeria today will inherit about N100million debt due to no fault of his but because of how we have managed our economy. On the other hand, any child born in Norway today inherits $100 million asset because of the reserve.”

On what the government should to raise revenue, Nwani urged the government do to be more creative with the management of the nation’s assets.

He said: “The model used for the NLNG (Nigerian Liquefied Natural Gas) should be replicated in managing other assets. That model fetches the nation over a billion dollars every year. Whenever I see the Federal Secretariat Complex, Ikoyi that has been abandoned since 1991, I wonder why the government would allow such asset to rot away. The asset should be put to good use to generate revenue. What are the prisons doing in the middle of the city? What are the barracks doing in the middle of the town? United Kingdom is relocating its barracks away from the city centre to create opportunity for real estate development. The government needs to bring creativity into the management of assets to create new wealth.”

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