If Nigeria needed a reason to stop paying lip service to the its infrastructure needs and return the country to full economic strength, the fallout of the new coronavirus outbreak makes a compelling case.
The virus-related economic disruption and oil market downturn are expected to hammer a 3.4 percent contraction on the economy going by IMF’s predictions and have caused the FG to roll out palliatives to households and businesses.
While paying people’s wages, supporting the most vulnerable and keeping businesses afloat are important priorities in the immediate term during an unprecedented crisis, these measures alone will not bring long-lasting results, said Ernst & Young Global in a report on “Repairing the damage from COVID-19.”
“By contrast, investment in new infrastructure, such as hospitals, schools, renewable energy and digital networks, will create jobs and deliver tangible assets that will fuel long-term economic growth,” said E&Y.
The idea that government can help stimulate the economy through its spending is one that can be traced back to the economist John Maynard Keynes during the 1930s. The relevance today is unquestionable.
According to a 2014 study by the IMF, an unanticipated increase in capital spending of 1.0 percent of GDP leads to a 0.4 percent uplift in output that same year and a 1.5 percent rise four years later.
“This economic dividend occurs because building new infrastructure lays the groundwork for future economic growth, whether that’s an improved transport network to move goods, a digital backbone to power a new economy or education facilities to train a skilled workforce for the future,” said E&Y.
“Moreover, countries that spend on new capital stock tend to attract more private investment.”
For Nigeria which will need a quick rebound from COVID-19 blows as opposed to the low growth cycle suffered post-2016-recession, this means investing in new infrastructures is the only way out.
Old message
The call for the government to focus on critical infrastructure investment in the country of 200 million people isn’t new.
The African Development Bank (AfDB), The World Bank, IMF, trade unions and associations, economists and even public office holders have clamoured for more investment in the country.
Last year, Zainab Ahmed, minister of finance, budget and national planning, said Nigeria’s infrastructure gap would require an estimated sum of $3trn to bridge over a 30-year period.
Compared to emerging market economies, Nigeria’s infrastructure gap is 35 percent of GDP, with major challenges in the electricity sector, low and inefficient capital spending, and road and port infrastructure constraining transport and trade, according to the IMF in 2019.
The Fund’s Indicators of Public Infrastructure shows that Nigeria has less than 2 secondary teachers per 1,000 persons, compared to around 6 for emerging market economies and 3 for sub-Saharan Africa.
Asides ranking low on public education infrastructure, Nigeria underperformed in electricity production per capita, roads per capita, public health infrastructure and access to treated water.
The low ranking has been due to low spending on capital projects over the years, although capex as a percentage of the total budget has risen from around 23 percent of the total budget in 2014 to around 33 percent in 2019.
For 2020, the government had proposed to spend 2.14 trillion for capital expenditure (excluding the capital component of statutory transfers) compared to debt service of N2.45 trillion in its N10.33 trillion budget (data from budget speech delivered by President Buhari on October 8, 2019) and slightly much higher spending on MDAs’ personnel cost.
Due to the pandemic outbreak that cut Nigeria’s revenue significantly, the 2020 budget was revised down to N10.523 trillion from N10.594 trillion signed into law by President Buhari.
Although the share of the budget for capex has increased in the last six years and Nigeria’s borrowings have spiked, actual spending on capital projects has been below amounts earmarked. For instance, capital release for the 2019 budget took off in the third quarter leading to the release of N1.2 trillion as capex by mid-December, and a 50 percent performance of the capital for the whole year 2019.
Other critical setbacks for infrastructure over the years and across various administrations have been getting the PPP framework right, lack of political will, partisan politics, corruption and budget misalignment due to Nigeria’s expensive bureaucracy.
A brave new world
While there is still much to be done, recent steps by the government have been in the right direction. For example, earmarking recovered loots for road and similar infrastructures, plans to cut down the number of government agencies and parastatals, removal of petroleum subsidies, and pre-COVID-19 plans to create an infrastructure-focused fund that draws contributions from pension funds, Development Finance Institutions (DFI) as well as foreign investors to be managed by the Nigerian Sovereign Investment Authority (NSIA).
The world the COVID-19 outbreak will leave behind will, however, be more digital which means “investments enabling ‘InfraTech’ may well be more valuable than those in concrete and steel”, according to E&Y.
Already, businesses in Nigeria across various sectors are exploring the opportunities in remote working beyond the lockdowns due to the pandemic.
Some say productive hours due to traffic jam in states like Lagos, or overhead cost for the day-to-day operation could drop and at the same time output of workers could increase.
But issues around quality and cost of data, availability of power and regulatory framework are some of the challenges that must be addressed.
This implies Nigeria would need to increase investment in infrastructures that will support its digital economy drive.
Last year, the World Bank said the world’s digital economy (worth about $11.5 trillion or 15.5 percent of the world’s overall GDP) is expected to reach 25 percent of the global GDP in less than a decade, quickly outpacing the growth of the overall economy.
“Nigeria is currently capturing only a fraction of this growth and needs to strategically invest in the foundational elements of its digital economy to keep pace,” the World Bank said.
