CHANGE IS HERE

CHANGE IS HERE

Friday, July 8, 2011

Nigeria's Infrastructure Deficits And Our Future By Nasir Ahmad El-Rufai





In the last 12 months, Nigerians were blessed with about 4 million babies. Within the next 20 years, about 3 million of these babies would have survived infant mortality, malaria and other preventable diseases to become adults, willing and able to join the workforce.


Most of them will not have jobs unless the current leaderships at Federal, state and local government levels make the right choices about the use of our resources. If at Federal level, we spend about 75% of the budget on current consumption and only a quarter on capital investments, the future of those 3 million babies would be worse than that of the millions of people unemployed in Nigeria today.  


Since 1989 (with the exception of some years during Obasanjo's second term), the balance of spending has shifted consistently towards recurrent spending. Government must reverse this by consciously postponing immediate consumption to sacrifice and invest for the future. This was the principal theme in my previous articles. 


I am convinced that the issues raised - about spending levels, priorities and whether we are getting value for money should be reflected upon by our leaders. Arresting and detaining the messenger will not make the message go away. 


And it is only when we direct our efforts and resources at investing in infrastructure - to build both physical and human capital, that the enabling environment for growth with employment opportunities can be created and sustained.


Physical infrastructures like electricity, transportation and communications networks are needed for a functioning market economy and to facilitate governance. 


It is the foundation of economic development, progress and human security. Without stable electricity, manufacturing, mining and agriculture - which are the usually the largest employers of labour in developing economies - cannot survive and thrive. 


Without efficient and affordable transportation networks, markets become disconnected and therefore fail, agricultural products will perish at farm-gates, price differentials between points of production and consumption then widen, and even public administration becomes a challenge as evident in the experience of the Democratic Republic of Congo.


Imagine if Nigeria had an efficient rail system that would enable the transportation of tomatoes produced in Kadawa, Kano State to Lagos within 12 hours and at an affordable price! 


The current differential of nearly 300% in the price of tomatoes between Lagos and Kano is largely attributable to inefficient logistics, which if debottlenecked will vastly improve the earnings of the Kano farmer and the quality of life of the Lagos consumer - a win-win situation for both, that is beneficial to the economy as a whole.


Our electricity supply shortages are well known. In 2000, when the Bureau for Public Enterprises (BPE) that I was privileged to serve drafted the new Nigeria Electric Power Policy, it was estimated that some 40 million Nigerians had not seen an electric bulb. 


With a population about three times that of South Africa, we produce about 3,000 megawatts on a really good day, while South Africa produces over 40,000 megawatts. It is estimated that private generation of electricity (at prices above N50 per kWH) far exceeds, and probably even doubles what our public supply sources produce (and sells at a weighted average price of about N10 per kWH). 


If we all suffer from these shortages - which affect households, schools, hospitals, hotels, manufacturing, extractive and other organizations, why do we as a nation appear helpless when we have ample gas reserves that are being flared, vast amounts of un-mined, sub-surface coal and only 5% of our hydro-generation resources being utilized? The same challenges apply to our roads, seaports, airports and water supply infrastructure.


If these shortages and resources are clear and obvious, why are we not investing aggressively in building and maintaining our physical infrastructure? 


With the slowdown in investments over the years, how much is the backlog, and how much do we need to invest to close the gap? If the infrastructure needs are so much, how do we prioritize and sequence? Is the problem principally of funding or project management? 


These and many more questions should command the attention of the authorities. This column will undertake a quick review of three of these - electric power, railways and roads and look at some ideas about what needs to be done, to encourage thoughtful debate about solutions.



The obvious need to address our electricity shortages is reflected in the rhetoric of successive governments since 1999, when we were generating and distributing about 1,500MW from an installed capacity of about 6,000MW. 


Some 12 years later, and several billion dollars spent, average generation has been raised to about 3,000MW. Seven new power stations were contracted mid-way in the second term of the Obasanjo administration, applying the accumulated proceeds of the Excess Crude Account that would have doubled the capacity, but remain uncompleted. 


Massive investments in transmission and distribution were contracted to facilitate the expected increase in payload from the power stations. These have been ongoing since 2005.


Project management lapses, suspension of contractual payments, delayed completion of gas supply contracts, and community issues are some of the reasons that have stalled completion.



Today, rather than improve investment in this sector, funding has actually gone down. In 2010, a total of N151 billion was voted for the ministry of power, but this year, the amount has gone down to N91 billion. What is logic behind this? If government assumes that the deregulation of the power sector will result in immediate inflows of private sector financing, then it has miscalculated badly. 


The global financial meltdown means fewer funds are available for investment, but even if there were, it would take upwards of two years for the impact of private investment to be felt, because the regulatory framework, price mechanisms, liquidity challenges and other technical details must be sorted out to attract serious money. 


For government to reduce allocations to the power sector but increase the overhead component of the budget is convoluted economics.


It is a national embarrassment to see government launching ‘new’ railway 'shuttles' on exorbitantly priced, low-tech diesel locomotives in 2011. 


From 1912 onward the British built railways in Nigeria principally as a means of evacuating minerals and agricultural produce. From 1964 to date, there has been little or no new investment in our railways. 


Except for the Ajaokuta-Itakpe rail link, we still use the narrow gauge system when we ought to have moved to the Standard Gauge long ago. Nigeria needs to build new East-West, and North-South lines using innovative combination of public funding and private management models. 


In a study conducted in 2005, we estimated that Nigeria needed about USD 45 billion to modernize its railway networks. This sum is more than we can afford in four budget cycles, so some of it must come from other sources. 


But private sector investment in railways is impossible without a new Railway Act as well as the development of an appropriate regulatory framework. 


The import is that seed public funding is critical to the sector. What did government do? Funding for the Federal Ministry of Transport which controls our railways was slashed from N83 billion in 2010 to N61 billion this year.


Talking about the state of our roads is painful. Every day, countless lives are lost on our roads. Every state in Nigeria has death traps with huge cost in terms of lives and property because only about 15% of our roads are paved and of this, about  28% easily motorable. 


Over 90% of travel is by road because air travel is beyond most Nigerians, yet government thinks it is prudent to cut down on allocations to public works. 


In 2010, the Federal Ministry of Works (with Housing and Urban Development) got N356 billion. This year, the two ministries have a combined budget of N219 billion. 


In the same period, allocations to Aviation dropped from 45 to 36 billion naira. Water Resources allocation dropped from N117 to N74 billion. All this is against World Bank findings that a mere one percent (1%) increase in a country’s level of just one type of infrastructure – such as electricity per household or paved road per worker or telephone line per worker – can increase gross domestic product (GDP) growth by as much as 0.20%. 


The impact of the rapid expansion of our telecoms sector since deregulation in 2001 is a pointer to the possibilities and opportunities for job creation  that we have not utilized adequately.


Infrastructure is critical to human and economic development and is the catalyst for Foreign Direct Investment. It is what defines our global competitive environment and is vital in addressing unemployment today and in the future. 


The lack of infrastructure explains why Nigeria’s cost of production has remained extremely high while industrial productivity has declined; it explains why we spend N1.3 trillion on food imports while our farmlands lie fallow; it is the reason why we lose lives every day to accidents and preventable diseases. Infrastructure deficit is why we are where we are today.


Can we truly justify borrowing and spending 75% of our income on consumption today with little plans for the future? An urgent review of public expenditure patterns and priorities, which will result in a rapid rightsizing of government should command the attention of the incoming minister of finance. 


A commensurate cut in the overheads of the legislature along with institution of accountability mechanisms for funds released must be effected. These measures will release more monies for the capital budget.
 



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