Privatising, concessioning, key to bridging Nigeria’s infrastructure deficit

Stakeholders across the country say that privatising and concessioning of key government assets will help bridge the copious infrastructure deficit undermining economic growth.

This follows the dent on the economy by the sudden slump in the price of crude oil since mid-2014 which undermined efforts at funding capital projects.

The country needs to invest $10 billion annually over the next ten years, to bridge its infrastructure bottleneck.

Stakeholders say that a robust and transparent concession policy through an organised Public Private Partnership (PPP) should reduce wastages, leakages and corruption from public treasuries.

The most common type of privatisation scheme has been concession or franchise, where a private operator provides rail transport services using publicly owned infrastructure.

“I support concession but it has to be done the proper way and packaged in the interest of the community,” said Senator Yusuf Anbubakar, representing Taraba Central at the National Assembly.

“What business has government with the airports? They should concession the airport, so that airline operators can pay good money for making use of the facilities. Assets are better managed by the private sector, compared to the public sector. Concession has a way of improving efficiency and revenue generation,” said Yusuf.

Dolapo Oni, head of research at EcoBank Energy, says that the country is losing huge revenue by not concessioning the Calabar and Lokoja Ports, as the Lagos ports have too much traffic.

Oni added that government itself does not have the resources to fund the copious capital projects before it.

As at 2005, Nigerian ports faced a myriad of challenges which put them among the most inefficient ports globally, as they was fraught with insecurity, theft, and congestion.

However, in 2006, the Federal Government concessioned the 26 ports in the country to 25 Terminal Operators over a 25-year licence period, in a land lord system that reduced financial liabilities on the part of government.

According to a report by global accounting firm, Deloitte, “as a result of copious investment by Terminal Operators the ports witnessed increased ship traffic and throughput which led to a 400 percent rise in container throughput from 400,000 TEU in 2006 to 1.60 million TEUs in 2014,”

The concession of the ports has resulted in job creation along the value chain, such as in freight forwarding and insurance, while saving the Nigerian economy an estimated $800 million annually in congestion fees alone.

Government is also making more money in export revenue as a result of PPP arrangements.

Last week, the Federal Executive Council (FEC) okayed the planned concession of Lagos and Abuja Airports, as it believes the privatisation of these assets will result in better management.

Analysts say the country is the only capitalist economy that still funds capital projects, a strain on the already lean budget.

“In industrialised economies, there is a growing privatisation of public services, undertaken through the establishment of public, private partnerships. Besides filling the resource gap in project delivery and operation,” said Aminu Adamu Diko Director General, Infrastructure Concession Regulatory Commission of Nigeria.

“It offers better risk allocation between public and private sectors, better and sustainable incentive to perform, engenders accountability in fund utilisation, and improves the overall quality of service. Evidence also abounds that it leads to the generation of additional revenue and overall value for money for the entire economy,” said Diko.

To exacerbate the already anaemic position of Federal Government is the fact that it is borrowing to fund the budget, though the country has a low debt to GDP ratio, compared to most African countries.

The option left is to invite the private sector to build infrastructure because government does not have the financial resource to build infrastructure that will translate to economic growth, said Johnson Chukwu, Managing Director/ CEO of Cowry Asset Management Limited.

“Take for instance in the 2017 budget, the amount earmarked for capital expenditure is N2.24 trillion, while total borrowing is N2.35 trillion , which means that every kobo that will be spent on capital expenditure will be borrowed. Government doesn’t have the capacity to borrow because debt service accounts for a third of government revenue,” said Chukwu.

Nigeria has a N7.44 trillion ($23.62 billion) budget for 2017, while government plans to borrow in order to plug a 2.2 trillion deficit.

The Federal Government has concessioned two narrow gauge rail lines in the country to General Electric Company, as the concessionaire plans to spend $2.2 billion in the upgrade of the infrastructure.

This means there is light at the end of the tunnel for a sector that has been moribund over six decades, due to corruption and negligence.

 

BALA AUGIE