Nigeria’s rebased GDP and the infrastructure gap

It was expected that Nigeria’s national debt as a proportion of GDP would undergo a significant change after rebasing the GDP. For example, the ratio of the budget deficit and public debt to GDP were expected to decline. This is a positive for the economy’s fiscal and debt profile.

Some estimated that a rebased GDP would increase income per person to $2.600 from $1,600 changing Nigeria’s economic status in the eyes of donors. Consequently Nigeria won’t be able to capitalise on concessional loans e.g. a 30-year loan at a low interest rate, from multilateral agencies like the World Bank. Such loans are typically used to fund social infrastructure e.g. schools and hospital.

Building airports and generating electricity with private capital won’t be a problem because such projects generate substantial profit faster. Nevertheless, an educated and a healthy workforce are critical to increasing productivity. What use are airports and electricity generation companies without skilled people in good health to run or use them?

Hence, a rebased GDP will inevitably draw attention to Nigeria’s infrastructure stock as a percentage of GDP. As at 2012 Nigeria’s infrastructure stock was between 35 to 40 percent while South Africa’s was 87 percent. The global “rule of thumb” average is 70 percent. Besides a low infrastructure stock, the Nigeria’s infrastructure is frustratingly inadequate and disjointed.

The National Integrated Infrastructure Master Plan (NIIMP), a 30-year plan to provide and integrate road, rail, ports, airports, water, ICT etc in Nigeria, is an ambitious project. It estimates Nigeria will need $2.9 trillion to fund these projects.

The master plan reckons that 48 percent of the required amount will be funded by private capital e.g. the capital market. The bulk of the balance will come from government issued bonds e.g. Eurobonds.

But there are roadblocks even though a seemingly better fiscal position will lure Nigeria to raise money from the international debt market.

There is currency risk. These foreign currencies are funding projects that earn naira. In addition, there is a global demand infrastructure investment – between 2013 and 2030, the world needs $57 trillion for infrastructure. But banks, the traditional lenders, are hampered by new regulation. A $50 trillion global “pot of gold” managed by Sovereign Wealth Funds, pension funds, insurance companies and institutional investors has been identified has a potential source of funds.

It is assumed that infrastructure projects, because of their long tenure, stable cash flows low volatility and ability to protect against inflation, should attract such investors; on the contrary: the scale, complexity and risks involved in such projects are deterrents. Poor project management and political risks further complicate matters. And in Nigeria these problems are more pronounced.

Few private investors will be willing to part away with their money without guarantees that the project, say, a bridge, will be completed in time and within budget. Getting permits for land, right of way, cost-benefit analysis of the project, corrupt politicians and incompetent public officials are some of the plights of executing projects in Nigeria. Unfortunately, a better fiscal or debt profile cannot fix these difficulties.

Training, establishment of transparent processes and systems, preventing competent public officials from clueless and corrupt politicians, involving private sector experts in project design can address these problems. A maintenance culture also matters. According to a World Bank report, if African countries spent $12bn more on road repair in 1990s they could have $45bn in reconstruction costs.

The benefits of a well executed infrastructure master plan outweigh the costs. McKinsey, a consultancy, notes that infrastructure investments equivalent to 1 percent of GDP generates thousands of new direct and indirect jobs, as much as 3.4m, 1.3m and 0.7m in India, Brazil and Indonesia respectively (infrastructure stock as a percentage of GDP in the three respective countries was 58 percent, 47 percent and 70 percent).