Tariye Gbadegesin, Managing Director/Chief Executive Officer at ARM-Harith, a private infrastructure investor, said at the Arbiterz webinar, “AfCTA: Revamping Nigeria’s Infrastructure for Global Trade” that “the cost of infrastructure in Nigeria is extremely high” because Nigeria has so little infrastructure.
Nothing illustrates this more than the cost the poor road network and resulting congestion around Apapa ports inflict on importers and ultimately consumers. It costs about $4,000 to ship a 40ft container from a port in Shangai, China to Apapa, Lagos and also roughly $4,00 to move the same container from Apapa to a warehouse in Agege or Ojodu in mainland Lagos.
While the cost that Nigeria’s congested ports and bad roads impose on businesses which import inputs or merchandise and on consumers is clear, speakers at the Arbiterz webinar drew attention to how poor infrastructure hampers Nigeria’s ability to export.
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Tariye noted that “infrastructure is fundamental to our competitiveness, reducing our costs to produce for regional markets.” She added that improving infrastructure that support trade is very important if Nigeria is to benefit from exporting to the $3 trillion market created by the African Continental Free Trade Agreement (AfCTA).
The cost of transportation and energy is higher in Nigeria than in the more industrialised African countries that Nigerian businesses will compete with within AfCTA.
The ARM-Harith CEO said that neither the government nor the private sector can finance infrastructure alone, noting that AfCTA “presents an opportunity to invest in infrastructure solutions” and create a competitive manufacturing class in Nigeria.
Tariye expressed the readiness of private investors like ARM-Harith to invest not only in energy and logistic solutions for private companies but also in public-private partnerships to build high-cost, cross-national infrastructure such as railways, roads and ports.
She however noted that “it is very important that the strategies around rail are overlaid on trade”. ARM-Harith manages Nigerian pension funds as well as international funds.
The $550 Billion “Investibility” Question
According to Tariye, the challenge with railway in Nigeria is that “rail is designed to support passenger rather than cargo traffic.” She explained that “from an investibility standpoint”, it is more viable for private infrastructure investors to support railways designed to move goods rather than passengers.
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Nigeria has completed two major passenger railway projects in the last 3 years. These are the Abuja-Kaduna line and the Lagos-Ibadan line mainly with financing of $2.3 billion from China’s Export-Import Bank.
The government has had to subsidise fares. Increases in fares have been met with public criticism, including from populist politicians who ought to understand the vast gap between Nigeria’s need for infrastructure and public funds available to build it.
The government is planning two other major lines-the Eastern line from Port Harcourt to Maiduguri and a Coastal line from Lagos to Port Harcourt at the cost of $14.4 billion. The Minister of Finance has been reported to be “in talks” with the bank Standard Chartered to “arrange funding” for these two lines, a switch from an earlier agreement with Chinese banks to fund the project.
The switch may be because China is reducing its loans to African countries as questions arise about the countries’ ability to sustain debt repayment. Chinese tendency to lend towards projects which cannot generate funds to service loans has contributed to Africa’s debt sustainability problem. Nigeria’s debt service to revenue ratio rose to 99% in the first quarter of 2020.
Other speakers, including Mr. Ade Adefeko, Vice President at Olam International, Nigeria’s largest exporter of agriculture produce, agreed that private investors will finance railways built to move cargos rather passengers.
Olusegun Awolowo, the Executive Director/CEO Nigerian Export Promotion Council (NEPC), revealed the Zero Oil Plan, an initiative to raise Nigeria’s non-oil exports to $30 billion in value by 2025. The initiative rests on building “key export roads”, “rail links” and “key ports” identified by the NEPC in a “Field to Export Transport Corridors” map.
There is the implicit recognition that the government lacks the billions of dollars to finance the roads, ports and railways required to move goods from where they are produced and to where they will be shipped to foreign markets. Mr. Awolowo stressed the importance of attracting private investment in building export critical infrastructure.
Nigeria’s infrastructure lags behind not only that of comparable economies in the world but also below average level of infrastructure provision for African economies with similar income levels. The World Economic Forum’s 2016-17 Global Competitiveness Index ranks Nigeria’s infrastructure at the bottom – 132 out of 138 countries.
Nigeria has little choice but to court the private sector if it is to close its vast infrastructure gap. But there are significant political barriers, not least securing a firm consensus at the heart of government that creating incentives for the private sector to co-design, raise funds and build infrastructure is preferable to saddling Nigeria with more debts taken on projects which can’t generate funds to pay back their costs.
A McKinsey study found that international investors could have as much as $550 billion to invest in African infrastructure, the barrier being the paucity of commercially viable projects.
While there is an argument that investors exaggerate the risks attached to investing in infrastructure in Africa, Nigeria provides evidence of the need for political authorities to choose projects which can contribute the most to boosting economic production and incomes and to also convince the populace that user fees where viable are cheaper than the enormous cost of poor or missing infrastructure.
The Need for Scale
The panel also made it clear that the private sector would only invest in a rigorously planned and integrated infrastructure system. Hence, while there is a healthy interest from the private sector to fund railways, ports, inland dry ports etc. projects that are designed to move imported goods or goods for exports within Nigeria, individual projects are more likely to be financed if they are complemented by supporting infrastructure. For instance, an inland dry port in Kwara State would be more commercially viable if there is a train link with the ports in Apapa.
