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Infrastructural Development In Nigeria In The Face Of A Rising Debt Profile

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Nigeria’s external debt currently stands at US$25 million, which is about 24.1% of its GDP. Although this debt ratio is one of the lowest in the world, it is still a significant percentage. More worrisome is the fact that Nigeria’s debt service to revenue ratio is at 60%, significantly higher than the World Bank prescribed ration of 22.5%. Also, despite the fact that Nigeria is Africa’s largest economy, its GDP of $400 billion is not nearly enough to service an economy that has a population of almost 200 million people. These two realities have significant implications for major infrastructural investment.

First of all, it ensures that over 25% of expenditure under the 2019 National budget is directed towards debt servicing. More importantly, it also suggests that any major infrastructural projects taking place in the foreseeable future will be funded to an extent by some form of borrowing. Two main questions stem from this: can infrastructural development still be possible without a significant rise in our debt profile and if so, how?

In answering the first, it is important to consider what areas of infrastructural expenditure are most relevant to our debt profile. In the author’s view, the most pressing infrastructural needs in this regard are provision of stable electricity and a viable transport network.These factors according to recent Investment Climate Assessments (ICA) conducted by the World Bank constitute two of the three most important constraints to doing business effectively in Nigeria, particularly in the context of private sector participation.

 

POWER SUPPLY

Provision of stable electricity has remained a significant problem in Nigeria notwithstanding the various strategies applied by successive governments aimed at reviving the power sector. The latest in a series of commitments to electrification in Nigeria is the World bank electrification project which is expected to cost about US$765 million . The power sector recovery programme (PRSP) initiated by the government in conjunction with the World Bank in 2017indicates that the total bailout fund required for Nigeria’s power sector is close to US$7.5 billion. This seems like a significant investment, especially considering the fact that such bailout funds will most likely be secured by borrowing.

However, this is a small price to pay considering the fact that Nigeria could potentially save more than $1 billion per year if a nationwide electrification project is successful, a figure that could rise  as high as US$25billion if PRSP estimates are taken into account.

 

TRANSPORT NETWORKS

Ensuring infrastructural development takes place in a country with scarce resources requires that infrastructural projects represent good value for money. Great emphasis is currently being placed on rail travel to boost transportation and ease domestic trade. Major ongoing railway projects in this respect include the light rail project connecting Abuja-Kaduna and a railway connecting Lagos-Ibadan. The former is estimated as costing US$876 million for a distance of 186 kilometres (US$4.70 million per kilometre while the other is estimated to cost $1.6billion for a distance of 156 kilometres (US$10.6 million per kilometre.

Comparison with similar projects in other countries suggests that this is good value for money. The688-kilometre East Coast rail project in Malaysia is costing the Malaysian government about $11billion dollars($15.9 million per kilometre. The Eglinton Crosstown project covering 19 kilometres in Toronto, Ontario is expected to cost US$5billion dollars(US$263million per kilometre). The CBD light rail project in Sydney Australia costs US$1.58billion for a distance of 12 kilometres (US$131million per kilometre).

Questions will nevertheless remain as to the true value of expenditure on the projects and the quality of materials being used. This is particularly given the corruption prone nature of our infrastructure sector evident in the mismanagement of previous rail projects such as the 2.6 kilometre downtown monorail project in Port-Harcourt.

 

PURSUING INFRASTRUCTURAL DEVELOPMENT WITHOUT INCREASING DEBT PROFILE: A FEW CLOSING THOUGHTS

Investment in infrastructure is an integral part of economic growth and cannot be avoided in the 21st century. However, with a rising debt profile, Nigeria must begin to consider alternative strategies for securing funds outside of borrowing. The first strategy will be to reduce recurrent government expenditure particularly in the area of salaries and allowances for public officials. Nigeria’s legislators are the 2nd highest paid lawmakers in the world and nearly $400 million is being used to service a National Assembly of less than 550. This amount is hardly sustainable particularly in view of revenue generated by the government which is less than The various interests involved indicates that doing so will prove extremely difficult but it is not impossible.

Secondly, projects must be arranged in order of priority in accordance with recognized economic laws of allocation of scarce resources. One will argue that given its importance to large and small scale businesses as well as families, projects relating to power supply should be prioritized. This will not only save costs of nearly $1bn per year, it will also enhance FDI and provide alternative means of income for both the government and citizens.

Finally, procedural requirements for infrastructural investment must function in such a way as to provide easier access to market for potential investors. Privatization of the power sector for example is of little benefit if investors still struggle to obtain permits and licenses for development of power plants and other power generation mechanisms.One particular measure that has been proven by research to enhance long-term macroeconomic growth is enhanced property rights.In particular , modern economists have established a connection between protecting property rights and economic growth  and further acknowledged that properly enforced property rights lead to increased participation in economic activities.

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Thus, one would advocate that access to property through land registration be made less complex, especially for infrastructure investors. Other measures such as better access to credit facilities and reduced import and excise duties may also prove useful in developing an investment-friendly climate.

Infrastructural development remains a key aspect of economic growth in Nigeria, rising debt notwithstanding. A properly structured approach in this regard may serve as the way to debt reduction and will provide an invaluable boost to the economy.

 

Author: Fifehan Ogunde Ph.D (Resarch Consultant)

 

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Economy

Egypt, PRL sign train engines contracts worth $466.3M

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CAIRO – 16 November 2019: The Egyptian Railway Authority (ERA) signed with PRL (Progress Rail Automotives) a number of contracts worth $466.3 million after a meeting with President Abdel Fatah al-Sisi that took place last week.

The American company will supply 50 train engines over 22 months, carry out long-term maintenance for 41 engines by June 30, and upgrade 50 others within 30 months since the conclusion of the deal. The company will also provide maintenance services and spare parts for those 141 train engines for 15 years. The value of contracts will be secured through soft loans, except for $27 million that will be paid by ERA’s treasury.

In July, ERA endorsed the technical specifications of two passenger railcars to be supplied by Transmashholding in September. Those are part of a contract to supply 1,300 railcars. One of the railcars will be tested in Hungary, so it will be granted the safety certification by the European Railway Agency. The other will be tested in Egypt. Afterwards, the first batch of railcars in the contract will be delivered in accordance with the timeline set by both parties.

The contract states that 650 railcars will be supplied from Hungary, 500 will be delivered by Russia, and 150 will be manufactured by Egypt under the supervision of Transmashholding. An Egyptian locomotive factory will be established as part of a plan to localize the locomotive industry in Egypt and transfer the know-how to workers, technicians, and engineers in the sector. The factory will produce the 150 railcars and also provide maintenance services.

The representatives of ERA and Transmashholding agreed to hold further visits and meetings to study the possibility of cooperation in rail infrastructure, mobile rail, workshops, new lines, and maintenance of existing railcars.

In the same month, an official source told Egypt Today that ERA needs 12 rail test machines to detect and repair defects in railroads revealing that contracts to purchase eight of those are being finalized.

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ERA will receive four rail test machines worth €8.5 million by the end of 2020 supplied by an Austrian company with which a contract was signed a few months ago. The machines will enable the authority to better diagnose defects in the railroads which would increase the safety, and inhibit derailment accidents.

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Economy

France-Africa Summit secretary general praises Egypt’s experience in infrastructure

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Investment Minister Sahar Nasr meets with Secretary General of France-Africa Summit 2020 Stephanie Rivoal Reminisces- press photo

CAIRO – 8 November 2019: Ambassador Stephanie Rivoal Reminisces, the Secretary General of France-Africa Summit 2020, has hailed Egypt’s experience in the infrastructure field mainly with regard to the the sustainable and smart cities as well as digitization which she said offers investment opportunities to the private sector.

During her meeting with Investment Minister Sahar Nasr, the French diplomat added that France prioritizes consolidating strategic relations with the African countries, topped by Egypt, the current president of the African Union.

The meeting is held on Friday as part of Reminisces’s current visit to Egypt to hold talks with the government on preparations for the anticipated summit, slated for June, 2020. This year’s summit will focus on the sustainable cities.

Several heads of state and government will address the summit and meetings among businessmen from all over the African continents will be held as part of the summit’s activities, Reminisces said.

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About 1,000 investors representing major, small and medium sized- businesses have been invited to the summit, Reminisces added.

Meanwhile, Nasr asserted Egypt’s keenness on developing cooperation with France at economic, development and investment levels.

She hailed successes achieved through the French investments in Egypt which she said hit 5.2 billion dollars with 160 French companies operating in the country.

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Egypt urges World Bank, IMF to support regional integrity in Africa

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CAIRO – 18 October 2019: Minister of Investment and International Cooperation Sahar Nasr called on the World Bank and IMF to boost their support to Egypt in achieving regional integrity and intra-trade in Africa, a press release on Friday read.

Addressing the Intergovernmental Group of 24 on International Monetary Affairs and Development in Washington, Nasr called on the WB and International Monetary Fund to expand investments in the region.

The minister said that Egypt’s vision to face the slowdown in global economic growth and trade tensions is to achieve more economic integration and continue to take the path of reform to make our economies more competitive and attractive for investment, to achieve the aspirations of the world countries in growth and development.

Nasr explained that the Egyptian government has implemented a comprehensive economic and social reform program to promote sustainable growth, alleviate poverty, create good jobs, enable the private sector to promote growth, and provide opportunities for all sectors of society to participate in the economy, especially women and young entrepreneurs.

The Minister added that President Abdel Fattah al-Sisi, as the chairman of the African Union, has set the achievement of regional economic integration as a top priority.

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Nasr also discussed Wednesday with the World Bank the provision of $500 million for the pollution control and solid waste management project in Egypt.

Nasr added in a statement that Egypt is also discussing with the World Bank raising the level of partnership to support the health and education sectors in Egypt.

For his part, World Bank Vice President for the Middle East and North Africa Farid Belhadj affirmed that Egypt is a very important country for the bank’s fields of work.

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“Therefore the World Bank is keen to contribute effectively to the efforts exerted to achieve development in Egypt, especially in the field of infrastructure, in light of the economic and legislative reform that contributed to improving the investment climate in Egypt,”Belhadj explained.

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