Road Concession, Toll Gates Will Reduce Inflation, Strengthen Naira – Rewane

The Managing Director of Financial Derivatives Company Limited, Bismarck Rewane, has said the concession of Nigeria’s major roads in deplorable condition would ultimately reduce inflation, increase productivity, and strengthen the nation’s wobbling currency.

Rewane who is a member of the Highway Development and Management Initiative (HDMI), an initiative of the Federal Government that aims to attract sustainable investment and funding for road infrastructure development and asset management along federal highway corridors through a Public-Private Partnership (PPP) model stated this on Channels Television’s Business Morning show on Monday.

He said the initiative was the government’s way of getting out of the way so that the private sector can put money into it.

“Kidnapping is low, productivity increase, the cost of transportation which reflects in the prices of goods. So, you would now see the prices of goods begin to come down.

“Inflation is defined as the persistent increase in prices because of low productivity and an increase in money supply. So, we can take out the money supply by using the MPR (Monetary Policy Rate) and the central bank but the persistent cause of inflation in the country is a reduction in productivity.” He said

Going further, he noted the deplorable state of Nigerian roads was one of the reasons for the country’s reduced productivity.

“Why is productivity reduced? Because when goods are produced, they cannot get to the market and there are post-harvest losses.”

“So, you will now begin to see a difference between rural and urban inflation which is reflecting because of this cost of transportation because the roads are bad, post-harvest losses and because the price of petrol was high.

“So, we have all these three fBismabactors leading to a reduction in inflation and when inflation reduces, your exchange rate begin strengthen. There is a strong correlation between inflation and exchange rate weakness – the higher your inflation rate, the higher the volatility and the weakness of your currency,” he concluded.

Terms of Concession Agreement

Rewane said under the arrangement, private sector operators are given concession agreements for 25 years.

“He builds the road, maintained it for 25 years and he gives a percentage of his toll back to the Federal Government of Nigeria, in some cases, the states,” he said.

He said the maintenance costs of roads would go down to the benefit of the Federal Government and sub-nationals.

“When you concession the road to somebody that spends maybe N100bn or N200bn, and guards it with drone technology and central reservation and high barriers, only three or four outlets to get out of the way, it means that you cannot be kidnapped.

“When a road is well-built, well-maintained, you will enjoy greater efficiency and lower cost,” the economist said.

“The cost of transportation reduces sharply and this is coinciding with the reduction in the price of petrol,” he said, adding that goods would get to their destinations faster.

“The records are there, the evidence is clear that because I can get to my location faster, I would rather pay N1,000 or N500 to get there and come back and turn around.

“Right now, it takes three to four hours to get to Asaba from Benin but it is now going to come down to 45 minutes.” The economist concluded.

 

 

 

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