The general state of infrastructure across the African continent and especially in sub-Saharan Africa is highly puzzling. With the exception of South Africa, the continent’s largest economy, the entire region is bogged down by serious infrastructure deficits that have frustrated development agendas and dimmed growth prospects. The countries of the Southern African Development Community (SADC) have been relatively better off in this regard with their efforts to drive area-wide development through trade agreements, pooling of resources, and multinational collaborations. West Africa, on the other hand, has been deprived of similar benefits due to complex requirements past and present. As a result, the economic potential of this region has barely been scratched.
In June of this year, the World Bank approved a $1 billion loan to Nigeria to finance multiple development programs, including the expansion and improvement of the country’s seriously deficient energy sector. An amount of $200 million was earmarked for investments in networks and technical improvements to improve the electricity supply. While this interest-free, concessional financing is an undoubtedly welcome development, it represents only a small fraction of Nigeria’s overall infrastructure investment needs. In August 2008, the Nigerian Debt Management Office (DMO) revealed that the country needed at least $100 billion in investment to develop four key areas of infrastructure: power, rail, roads and oil and gas. The figure was calculated to align with the ambitious national goal of bringing Nigeria into the top 20 global economies by 2020. Of the four sectors mentioned, energy alone would require an estimated investment of between $18 and $20 billion over the next ten years. With a current installed capacity of 6,000 MW against the total requirement of 10,000 units, only 40% of Nigerians currently have access to electricity.
The collapse of basic infrastructure and social services began in the 1980s, after Abuja’s unhealthy dependence on oil exports decimated its agriculture and light manufacturing sectors. The static oil economy wiped out traditional and emerging livelihoods, creating rampant unemployment, poverty and degraded living standards. In 2002, per capita income was below the level of 1960, when Nigeria gained independence from British rule. In terms of infrastructure decline, energy turns out to be the hardest hit, but the government admits serious shortcomings in many other areas as well. For example, the railway network is in ruins and today represents only 1% of national transport1. The port service also suffers from severe bottlenecks and inadequate optimization of capacity. The more than 100,000 km long road network is in poor condition at best and barely usable at worst.
Due to Nigeria’s strategic location and abundance of natural resources, infrastructure development in the country has pan-African relevance. The human capital of 148 million that makes Nigeria the most populous African nation is a labor force of unknown economic potential. The country’s thriving informal sector, estimated to make up 75% of the total economy, also hides enormous potential for inclusive growth. Therefore, the rapid development of SMEs has been the mainstay of successive governments since the re-establishment of civilian rule in 1999. Nigeria’s ability to drive a business revolution that will fundamentally alter its macroeconomic imbalances remains the quintessential challenge of its target for 2020.
Infrastructure development is clearly going to be the first building block in this effort, and the realities on the ground are quite harsh under current conditions. For Nigeria, the biggest impact of infrastructure deficits is the high cost of doing business, for both large corporations and small businesses. Legislators must develop a comprehensive plan to reverse this trend within a given timeframe. Two key aspects in this consideration are the following:
o The whole of West Africa receives very nominal foreign private investment in infrastructure for a variety of reasons ranging from high currency risks to low creditworthiness. The region’s limited capacity to borrow and a bias toward infrastructure sectors with limited regulatory intervention are other obstacles. Nigeria must lead the way in improving access to debt capital as a means of attracting projects with viable private participation.
o The capacity of local financial markets to finance infrastructure projects is very low throughout the continent. Local long-term local financing is almost non-existent, except in South Africa, which has been successful in developing an indigenous capital market for consistent financing on convenient terms. The absence of similar capacity in the rest of Africa means that most of it relies entirely on grants and soft loans from international development agencies.
For developing African economies, increasing foreign investment in infrastructure while also developing avenues for credible local financing is a daunting task. The current Nigerian government under President UM Yar’Adua acknowledges the challenge by listing infrastructure development as a critical component of the 7-Point Agenda for the realization of the 2020 goals as well as the Millennium Development Goals. Some recent initiatives in this regard include the creation of a federal mortgage bank, a housing authority, and a national highway maintenance agency.
That infrastructure will be the main engine of all socio-economic development in Africa. What is not clear are the ways and means individual nations employ and the basic 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 sustain an effective model for accelerated growth in the rest of the continent. The success of your long-term ambition takes on broader importance because it is bound to have a gradual spillover effect on your immediate geography.