Infrastructural deficit and the challenge of development
The Minister of Finance, Mrs. Kemi Adeosun, has said that the Federal Government is determined to invest massively in infrastructure, sort out issues around the ease of doing business and encourage patronage of made-in-Nigeria goods in a bid to reflate the economy. She said these were part of broad measures being taken to create jobs, promote entrepreneurship and businesses, pull the country out of recession and grow the economy sustainably. Adeosun stated these while speaking at the Wealth Creation Platform 2016, a programme organized by the Kingsway International Christian Centre in Lagos on Saturday. Her lecture was entitled, ‘Where we are, why we are here and the future.’ The Finance minister said that the current administration had realized some mistakes made by past administrations and was working hard to ensure that they did not reoccur. She noted that over the years, Nigeria had merely been spending about 90 per cent of her budget on recurrent expenditure; while infrastructure investment was near zero“It is unfortunate we are where we are today. But we had been heading in this direction for long. The high oil price had just been the anesthesia,” Adeosun said. Adeosun said that the country needed about $25bn annually to meet her infrastructure deficit. She said this explained why the President Muhammadu Buhari-led administration was prioritizing infrastructure investment while also encouraging state governments to align with the government at the centre. “Our economy is not growing because we are not spending on infrastructure. The average Nigerian does not have an enabling environment to thrive and succeed because infrastructure investment has not been our priority. And lack of infrastructure hampers growth, entrepreneurship and businesses,” Adeosun said. She explained that this was why government was trying to reflate the economy through massive investment in capital projects, stressing that N750bn had so far been released for capital projects across the country in the last five months. “Very soon, before the end of this year, government will release another tranche of funds for infrastructure development. The strategy is to inject funds into the economy, particularly into capital projects — roads, bridges and power. We believe it will create jobs in the short-term, but more importantly they will unlock the productivity of the Nigerian economy,” she said. Adeosun stressed the need for Nigerians to begin to change their mindsets and patronize locally made products as much as possible. She said that remained the only way to encourage the manufacturers to get better, conserve scarce foreign exchange and grow the economy. “We must protect our own; everyone must join the campaign,” she added She also disclosed that government was focused on investing massively in agriculture and the Micro, Small and Medium-scale Enterprises to create jobs for Nigerians, adding that the government had earmarked about $1.3bn to be pumped into the MSME sector in 2017 through the Nigerian Development Bank.
Furthermore, Speaker of the House of Representatives, Yakubu Dogara, has said that the Federal Government would soon refund at least N20 billion to each of the 36 states of the federation for infrastructure development. Dogara disclosed this when he visited the Igwe of Ogwuekpele, His Royal Highness Igwe Valentine Onyema Ogidiga in his palace at Ogwuekpele in Anambra State. Dogara said that when the debts were refunded, they would assist the states in providing critical infrastructure in their respective domains. According to Dogara: “Regarding debts owed to states, I can announce that very soon, a chunk of money will be given to all the states. “It is being processed and I know that no state will get less than N20 billion from the money that is coming. “That will be something substantial in the hands of the governors. Those that are spirited, I believe they will be able to translate that money into development so that they can support the diversification of the Federal Government.” Responding to the Igwe’s concern on decaying infrastructure in the state, the Speaker said the Federal Government was planning to invest on infrastructure and provision of capital. “Without capital you cannot invest; so these are the two things that this government is devoted in carrying out. “By doing so Nigerians can have enough capital, they will have the needed infrastructure for the establishment of functional industries for the evacuation of either solid minerals or agricultural products. And we know that agriculture has the potential of providing employment for the majority of our people. “I can assure you that when we talk about diversification, it is not just on paper. Recently, there were efforts by the government to source money so that they can begin in earnest the putting up of infrastructure: functional road networks, inter-modal and multi-modal connectivity of our transportation and talk about building airports, railways and integrating them with land transportation. “These are the things that are on the agenda and then giving citizens access to cheap capital that they can use to better their lives and start businesses and provide employment that will earn us foreign exchange.’’
Successive governments in Nigeria have continued to battle with the onerous task of trying to bridge the wide infrastructural chasm that exists in every sector of the nation. This, no doubt, has contributed in no small measure to the inability of the Nigerian nation to harness the gains that come to a country endowed with so many natural resources, both human and material. For instance, the Nigerian Shippers Council has said that the Federal Government needed to make a minimum of N100 billion investments in order to upgrade the current infrastructure deficit that makes Nigeria’s seaports inefficient and uncompetitive. The Executive Secretary of the Council, Mr. Hassan Bello, noted that the government needs to make a minimum of N10 billion per annum over the next 10 years in order to address the current infrastructural deficit in the industry. According him, Nigeria in terms of market size based on the 170 million population, has what it takes to assume the position of a hub port of destination for the West and Central African sub-region but the ports must also be competitive in terms of efficiency and cost to attain such a standard, which will also bring about increased revenue for the government. In this wise, government must also enthrone a regime of conducive operating environment, by addressing the current huge infrastructural deficit that would address a modern, efficient and competitive port system. He said: “Nigeria’s ports are in competition. How do we make the nation a hub port and if she is sleeping, she will lose the opportunity to other neighbouring countries whose seaports are more efficient. “Efficient port system begins from the ship side up to the time the cargo gets to gets to its destination and so the government needs to make investments that would bring about this level of efficiency”, Bello added. Many port service users have decried the poor infrastructure, especially poor access roads and the total absence of a multi-modal transport system that connects the three major means of transportation comprising rail, road and sea, which currently inhibits efficient port operation in the country. Some stakeholders have therefore called for the adoption of a Public–Private sector Partnership PPP arrangement for fixing the transport infrastructure. While insisting that he does not oppose the idea of a PPP arrangement in providing certain infrastructure, he however argued that the government has the responsibility to provide a good operating environment that would allow the industry to thrive. He argued that with the right investment in key infrastructure upgrade coupled with the automation of port operation mechanisms by the relevant stakeholders, the nation’s seaports would attain a high level of efficiency and competitiveness among their peers. On the negative effects of rickety and outmoded trucks on the port access roads, he noted that what government needed do is to make the right kind of investments in upgrading the multi-modal transport after which substandard vehicles would naturally be phased out.
The Federal Government has also said the nation would need a whopping $166 billion to meet its energy and transport infrastructure requirement over the next five years. Transportation Minister, Rotimi Amaechi, who revealed this during a public hearing on Nigerian Railway Authority Bill and National Transport Commission Bill, said the Federal Government and General Electric (GE) have an agreement to commercialize the Lagos-Kano railway project. “Besides privatization, government also realized a monumental infrastructure deficit which as at 2015 stood at over $3.05 trillion in 30 years or $166 billion in five years with energy and transport infrastructure taking more than 50 per cent of that need,” the Minister said. “Transport infrastructure alone needs a whopping $50.9 billion in five years to cover the current gap in the sector, an average of $10.2 billion per year. Currently, the ratio of funding in the sector between the public and private is 9:1. This constituted a major disincentive to private sector participation in the industry. “In addition, it is considered imperative to intimate this Committee that full government ownership and management of these agencies had inherent restrictions for third party funding, undue government interferences; burdensome bureaucratic structures and over-bloated work force among others,” Amaechi added.
Furthermore, Minister of Solid Mineral Development, Dr. Kayode Fayemi, recently lamented the level of decay of Nigeria’s infrastructure, saying that it will cost the nation $3 trillion to fix. The Minister said this at a business forum organized by the Royal African Society in London, the United Kingdom. Quoting a recent report by the National Integrated Infrastructure Master Plan, he said, Nigeria’s current core infrastructure stock gap, based on international benchmarks, is estimated at $80 billion.
Fayemi who presented a keynote address entitled, “Mining for Prosperity: Fuelling Nigeria’s Industrialization in the 21st Century”, said the investment would allow Nigeria to close its current infrastructure gap and sustain an ideal infrastructure stock level of 70 per cent of Gross Domestic Products (GDP) and build infrastructure assets across the seven critical sectors – roads, rail, ports, airports, power, water and ICT.
In a statement, he said iron ore and steel would account for the bulk of material inputs needed to industrialize Nigeria, while urging investors to take advantage of the country’s huge steel market. “We project a steady increase in domestic demand for steel in Nigeria in the coming decade, driven by increased industrialization that will ignite a surge in building construction, power, automotive construction, agriculture, road and bridge building, military technology and infrastructure development, refinery investments and other heavy duty machinery. “This ever-widening vortex of hunger for steel and iron ore is an opportunity for local and international investors to participate in the consolidation and expansion of Africa’s largest economy,” he said.
Fayemi hailed the success recorded in limestone, where Nigeria moved from being a net-importer of cement to a net-exporter in less than a decade of putting in place the right policy and necessary incentives for local manufacturers. “We are working with all stakeholders in the industry to encourage replication of the limestone success story in the beneficiation of other industrial minerals, towards powering the industrialization of the country. Our aspiration is to build world-class minerals and mining ecosystem designed to serve a targeted domestic and export market for minerals and ores,” headed. The Minister said the country would focus on minerals, mining and related processing industry over a three-phased period to achieve this.“Phase 1: Nigeria will seek to rebuild market confidence in its minerals and mining sector and win over domestic users of industrial minerals that currently import. During this phase, Nigeria will also seek to expand use of its energy minerals. This phase will likely last about two to three years. “Phase 2: Nigeria will focus on expanding its domestic ore and mineral asset processing industry. This phase will last about five to ten years. “Phase 3: Nigeria should seek to return to global ore and mineral markets at a market competitive price point. We expect this to coincide with the next commodity upswing,” he explained.
Fayemi said should Nigeria successfully follow through with the implementation plans, growth is expected to return to the sector in the form of new exploration activity, operations and production from active mining, functional (and expanded) processing and refining capacity, and higher value-addition in exports. “The net outcome will be the creation of thousands of direct jobs and potentially hundreds of thousands of indirect jobs,” he said.
To finance the infrastructural deficits, therefore, the Federal Government plans to set up a $25 billion infrastructure fund to bridge the funding gap in infrastructure development in the country, the Minister of Finance, Mrs Kemi Adeosun, said recently. According to Adeosun, setting up the fund became necessary due to the need to upgrade the country’s current infrastructure, which is in a very sorry state. She spoke at the inauguration of the 10-year Capital Market Master Plan, Nigeria Investor Protection Fund, and the launch of the Corporate Governance Scorecard for quoted companies by the Securities and Exchange Commission. The finance minister challenged the capital market community to come up with other innovative ways of mobilizing capital needed to address the nation’s infrastructure problem. She said, “In the current environment of significant revenue squeeze and other budgetary constraints, these investments will clearly not come from government coffers alone. We believe this is where the capital market can really make itself relevant by stepping in to close the funding gap. “Government is already looking to set up a $25 billion fund wholly dedicated to infrastructure investments. A crucial assignment we have for the capital market community is to come up with other innovative ways of mobilizing the capital needed to address Nigeria’s infrastructure challenge.”
For the minister, an efficient and vibrant capital market is an indispensable feature of any modern economy supplying affordable medium-to-long term capital needed for growth as they facilitate mobilization of savings, accelerate capital formation, provide investment avenues and enhance efficient allocation of capital to the growth of sectors as no country has been able to develop without a thriving capital market. She said further, “Nigeria needs and deserves a capital market that is characterized by high levels of liquidity, depth, breadth and sophistication to enable rapid socio-economic development. Going through the Master Plan, it is heart-warming to note that this is the type of capital market you envision for our country and indeed, we desperately need such a market to emerge in order to tackle Nigeria’s biggest challenge of huge infrastructure deficit and unacceptable level of unemployment. As you all know, to grow our economy, we require significant funds to modernize our critical infrastructure.” The minister is not comfortable with the current situation where less than three per cent of Nigerians invest in the capital market and only 0.2 per cent of Nigerians invest in mutual funds. “Imagine the kind of savings to be mobilized, the liquidity to be injected and the sophistication to be developed if we improve these numbers by bringing more millions Nigerians to invest in the capital market. For Nigerians of faith and people who prefer ethical investments, we must deepen the non-interest product space so they can be involved in wealth creation opportunities the capital market offers,” she said. “For a country and economy of our size, there is no reason why we should not be able to actualize the targets and aspirations we have set for ourselves within the Master Plan. Indeed, with diligent implementation, we shall emerge as ‘Africa’s most modern, efficient and internationally competitive capital market that catalyzes Nigeria’s emergence as a top 20 global economy”.
In a related development, the Federal Ministry of Finance has unfolded plans to reposition the Sovereign Wealth Fund in line with the infrastructure objectives of the federal government. The Minister of Finance, Mrs Kemi Adeosun said the sovereign wealth fund is currently being managed by the Nigerian Sovereign Investment Authority under the SWF, which had a seed capital of $ 1.55 billion there are three categories of fund from which investments could be anchored. They are Future Generation Fund where up to 20 per cent of the fund could be invested in it, Infrastructure Fund which had an allocation of 40 per cent, and Fiscal Stabilization Fund which also had a 40 per cent allocation. She said since budgetary allocations alone would not be able to address the infrastructure gap as only 30 per cent of the budget had been allocated to capital projects, there was need to reposition the sovereign wealth fund to attract more investments in the area of infrastructure. She said, “The economic blueprint is very clear. We are going to invest in capital projects to ensure that we diversify this economy. “We have been talking about diversification since I was a child and we haven’t achieved that. “What the FG wants to do is reposition and have it (SWF) focused in line with government’s objectives which is investments in infrastructure. “The government realized that even with 30 per cent of the budget earmarked for capital spending, the country’s infrastructure gap is so wide that government alone cannot bridge it. “So what we are hoping is that the sovereign wealth fund now becomes a channel to attract further private capital, particularly from investment funds abroad. “We really want to focus on infrastructure – toll roads, bridges, power plants; things that would help the economy grow.” She said the government is focused on revamping domestic production as part of efforts to diversify the economy. Hence, it is very obvious that this government is making all necessary efforts to really bridge the massive infrastructural gaps in the country.
Therefore, it is important to note that, this government has identified infrastructural deficit as a big challenge and it is looking for creative ways of raising funds to bridge the gaps and also consolidate on the gains achieved in this regard.