The general state of infrastructure on the African continent and in sub-Saharan Africa in particular is extremely worrying. With the exception of South Africa, the continent’s largest economy, the entire region is bogged down by severe infrastructure deficits that have thwarted development programs and growth prospects. In this respect, the countries of the Southern African Development Community (SADC) have been relatively better off with their efforts to advance widespread development through trade agreements, resource pooling and multinational cooperation. West Africa, on the other hand, has lost similar advantages due to complex past and present needs. As a result, the economic potential of this region has hardly been touched.
In June this year, the World Bank approved a $1 billion loan to Nigeria to fund several development programs, including the expansion and improvement of the country’s massively deficit energy sector. A sum of 200 million US dollars was earmarked for investments in networking and technical modernization to improve the power supply. While this concessional, interest-free financing is undoubtedly a welcome development, it represents only a tiny fraction of Nigeria’s total investment needs in infrastructure. In August 2008, Nigeria’s Debt Management Office (DMO) announced that the country needed at least US$100 billion in investment to develop four major infrastructure sectors – electricity, rail, roads and oil and gas. The figure has been calculated to align with the ambitious national target of placing Nigeria in the top 20 global economies by 2020. Of the four sectors mentioned, energy supply alone would require an estimated investment of between 18 and 20 billion US dollars over the next ten years. With a current installed capacity of 6,000 MW for a total requirement of 10,000 units, only 40% of Nigerians currently have access to electricity.
The collapse of basic infrastructure and social services was triggered in the 1980s after Abuja’s unhealthy reliance on oil exports decimated agriculture and light industry. The static oil economy wiped out traditional and emerging livelihoods, leading to rampant unemployment, poverty and degraded living standards. By 2002, per capita income was below 1960 levels when Nigeria gained independence from British rule. In terms of infrastructure decline, electricity has been hit hardest, but the government is willing to admit serious shortcomings in many other areas as well. For example, the rail network is in ruins and today accounts for only 1% of national transport1. The port service also suffers from severe bottlenecks and insufficient capacity optimization. The more than 100,000 km long road network is at best dilapidated and at worst hardly usable.
Due to Nigeria’s strategic location and the abundance of its natural resources, the country’s infrastructure development has pan-African relevance. The human capital of 148 million that makes Nigeria the most populous African nation is a workforce with uncharted economic potential. The country’s thriving informal sector, which accounts for an estimated 75% of the overall economy, also harbors tremendous opportunities for inclusive growth. Therefore, since the reintroduction of civilian government in 1999, the rapid development of SMEs has been the mainstay of successive governments. Nigeria’s ability to ignite a corporate revolution that will fundamentally change its macroeconomic imbalances remains the key challenge to its 2020 target.
Infrastructure development will clearly be the first building block in this endeavour, and the realities on the ground are quite harsh in the current conditions. For Nigeria, the greater impact of infrastructure deficits is the high cost of doing business, for both large and small companies. The legislator must develop a comprehensive concept in order to reverse this trend in a timely manner. The following two aspects are in the foreground in this consideration:
o All of West Africa receives very little foreign private investment in infrastructure for a range of reasons ranging from high exchange rate risks to poor creditworthiness. Other obstacles include the region’s muted ability to borrow and propensity for infrastructure sectors with limited regulatory intervention. Nigeria needs to lead the way in improving access to equity capital to attract projects with viable private participation.
o The ability of local financial markets to finance infrastructure projects is very low across the continent. Local long-term local financing is almost non-existent, except in South Africa, which has successfully developed a domestic capital market for consistent financing on favorable terms. The lack of similar capacity in the rest of Africa means that most of this is entirely dependent on grants and soft loans from international development agencies.
For developing African economies, increasing foreign investment in infrastructure while finding avenues for credible local financing is a daunting task. The current Nigerian government under President UM Yar’Adua recognizes the challenge by listing infrastructure development as a cornerstone of the 7-point agenda to achieve the 2020 goals and the Millennium Development Goals. Recent initiatives in this regard include the establishment of a federal mortgage bank, a housing authority and a national road maintenance authority.
This infrastructure will be the main driver of all socio-economic development in Africa. What remains unclear are the ways and means that individual nations are employing and the fundamental effectiveness of such measures beyond official statistics and proclamations. Nigeria has a unique opportunity not only to reverse decades of economic stagnation, but also to present a powerful model for accelerated growth to the rest of the continent. The success of his long-term ambition becomes more important because it will inevitably have a gradual spill-over effect on his immediate geography.