Nigeria needs to increase its spending on infrastructures to stimulate economic growth as experts say stranded projects and low infrastructural investment is stunting the growth of Africa’s biggest economy.
The experts who spoke on Tuesday at the conference themed ‘Public-private Partnership Approaches to Rapidly Upscaling Nigeria’s Economic Infrastructure’ organised by Lafarge and Businessday.
“It is a myth to think Nigeria Gross Fixed Investment ( GFI) is generating investment. GFI as a percentage of GDP is 21 percent but this does not mean Nigeria is generating investment because 60 percent of these are stranded project.” said Bismark Rewane, CEO, Financial Derivative Co Ltd
“This is why the economy goes into a tail slump whenever there is any shock to the economy” Rewane said
Nigeria has a myriad of stranded projects. For instance, the Rivers Monorail project, the Ajaokuta steel mill, Lekki-epe and Ibadan expressway.
This is worrisome for Nigeria because the costs of these abandonments are not only direct but affect the whole economy.
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A recent survey by the Chartered Institute of Project Management in 2017, the abandoned projects with regard to existing structures alone amount to over 12 trillion.
This is a major concern as this amount is almost the country’s budgetary allocation for 2021, at 13.08 trillion. This is a major cost for the economy struggling to finance its budget while also wallowing in underdevelopment and poverty.
Also, the opportunity cost of these stranded projects cannot be fully quantified. For instance, if an abandoned project cost N200 million, not only is N200 million lost but also the opportunity to use that amount on alternative infrastructures like hospital, schools and other social amenities.
Rewane also pointed out that although physical capital is important, social and institutional infrastructures such as the banking system, education, police reforms are necessary to complement physical infrastructure.
“Nigeria’s Gross Fixed Investment must account for at least 35 percent of GDP to stimulate growth in the economy.” He said
To tackle the problem of stranded projects, Rewane says Nigeria needs to prioritize, optimize and execute projects effectively as this will have an impact on total factor productivity which is about -2.8 percent.
“Leakages, idle assets and inefficient use of resources will only lead to negative outcomes.” He said
The budgetary allocation for infrastructural development is also really low and not commensurate to the country’s needs.
“If we take a look at this year’s budget, only a quarter of Capital expenditure, less than 2 percent is going into infrastructural development,” said Mobolaji Balogun, the CEO, Chapelhill Denham.
“For Nigeria to successfully finance the infrastructures needed for development and make total factor productivity positive, the economy needs to increase infrastructural spending by 20 percent” Balogun said.
“The 1 billion budget allocation for housing and works is not sufficient, you cannot be sprinkling money and expect projects to be completed” Rewane said.
Experts have also given their opinions on the best course of action to attract private investment.
“A solid legal framework is needed to attract investments,” said Miljan Gutovic, Head, MEA Larfargeholcim. “Investors must also see an enabling environment where they can have a sustainable business”.
Rewane has also advocated that the government utilize market solutions.
“The market works everywhere, it must be allowed to regulate itself,” Rewane said. “Especially in the downstream firms, once people can determine price, they will be able to get a return on their investments”.
“All the government needs to do is to create an enabling environment and stand to regulate in cases where people do not adhere to rules,” Rewane said.
