You need to active Javascript on your
BusinessDay
Nigeria's leading finance and market intelligence news report.

Is growth in rail transportation sub sector sustainable?

With a 76.81 percent real GDP growth rate as of the end of the second quarter of 2021, no one will doubt the fact that the transport sector is one of the beneficiaries of the gradual ease of lockdown in Nigeria. Another interesting trend within this sector is that all the sub sectors within the transportation and storage sector closed the second quarter of 2021 with positive real GDP growth rates.

Transportation and storage sector attracted more attention during the period for so many reasons. First, it is that all its sub sectors recorded positive real GDP growth rates at the end of the second quarter. Second, two of its sub sectors, road transportation, as well as rail transport and pipelines are among the top five highest growth sectors in Q2 2021. Third, apart from water transport sub sector that is the laggard, recording a real GDP growth rate of 1.14 percent, other sub sectors, air transport, transport services, and post and courier services ended the second quarter with real GDP growth rate ranging from 3.86 percent to 4.98 percent.

Rail transport and pipelines sub sector, in particular, recorded a real growth of 53.28 percent, as that places it among the top five highest growth sub sectors. Throughout 2020, for obvious reasons such as the non-pharmaceutical measures implemented by state and federal governments in Nigeria, transportation activities were at their lowest ebb in 2020. Consequently, throughout last year, real GDP growth rates for the transportation and storage sub sectors were negative.

The positive sectoral growth rate will be received as good news to stakeholders in the rail transport sub sector, following the huge investments made by the federal government and other stakeholders in recent times.
On June 10, 2021 President Buhari commissioned the $1.5 billion 157- kilometre Lagos Ibadan standard gauge railway project in Lagos State. The rail project connects Lagos, Ogun and Oyo states, which are primarily where close to half of Nigeria’s GDP is generated.

According to President Buhari, the Lagos-Ibadan rail line would enhance end to end logistic supply chain, with the rail corridor is expected to help in lifting goods from the Apapa ports to the Inland Container Depot in Ibadan, the Oyo State capital.
With regards to the nation’s rail sub sector, there are five metrics to gauge the pulse of Nigeria’s railway sub sector. These are the quantity of passengers, volume of goods/cargos, revenue generated from passengers, revenue generated from goods/cargos, and other income receipts.

Between 2017 and 2020, these metrics recorded different fortunes. The nation’s rail network systems lifted 2.59 million passengers in 2017. In 2018, the total number of passengers that used the nation’s rail networks rose by 16 percent to 3.019 million. In 2019, the number of passengers fell by 4 percent to 2.89 million. It further fell by 65 percent to 1.02 million.
For the first and second quarters of 2021, the number of passengers grew by 33 percent. The annual growth rates from 2017 to the end of the second quarter of 2021 for the number of passengers that used the nation’s rail transport systems averaged 8 percent during the period.

Read also: Maltina encourages Lagosians to explore water transportation

There was a significant improvement in the volume of cargo transported during the reference period. From 141,186 tons in 2017, the metric grew by 133 percent to 328,634 tons in 2018. The tempo was not sustained in 2019 due to 39 percent decline in volume of goods to 200,113 tons. With 87,440 tons lifted in 2020, this metric declined 56 percent. Quarter on quarter in 2021, the volume of good rose by 307 percent from 10,511 tons in Q1 2021 to 42,782 tons in Q2 2021. And when considered with the growth in previous years, the volume of goods rose on the average by 160 percent between 2017 and Q2 2021.

Since the number of passengers that used rail system only rose by 8 percent on the average, one would have expected a similar trend in the revenue generated from the passengers. However, this is not the case. Revenue from passengers rose by 20 percent averagely during the period. This may be attributed to inflation. In the last eighteen months, inflationary pressures have mounted in Nigeria, with prices of goods and services doubling within the period. In effect, moderate rise in revenue generated from passengers is highly attributed to rise in food and non-food inflation.

The revenue generated from goods rose by 84 percent during the reference period, and that mirrors the rate of increase in the volume of cargo. Cargo revenue rose from N373.95 million in 2017 to N492.93 million in 2018. The revenue declined by 26 percent in 2019 to N362.88 million. It witnessed a further decline of 22 percent to N281.35 million in 2020. But with gradual recovery of the economy, there was a 173 percent increase in revenue between the first and second quarters of 2021 from N26.20 million in Q1 to N71.56 million in Q2 2021.

Revenue regarded as other receipt grew by an average 128 percent from 2017 to Q2 2021. At the end of the first quarter of 2021, N8.06 million was generated. Better sentiment in the economy propelled this segment of the nation’s rail system to generate N32.94 million.

Meanwhile, certain factors might hamper the sustainability of the recovery seen in the nation’s transport system. One of these factors is the rising insecurity in Nigeria, especially from Abuja, the nation’s administrative capital and the entire north-west.
The last few days have witnessed government kinetic response to banditry and criminality. The measures, while they are highly needed to tame the bandits and insurgents, economic activities including transportation of goods and services, have been affected.

For instance, there are some areas in Katsina and Zamfara states that are closed to motorists. On September 1, 2021, the following steps were taken by the Katsina State’s governor:

“In the exercise of powers conferred on me by the subsection (2) of section 176 of the constitution of the Federal Republic of Nigeria as amended and all other powers enabling me on that behalf, I, Aminu Bello Masari, the Governor of Katsina State do hereby make the following:

”Immediate total closure of Jibia-Gurbin Baure road to all motorists until further notice and immediate closure of Kankara-Sheme road to all commercial vehicles.

”Ban on transportation of cattle trucks from Katsina State to any state in Nigeria. Lorries/Trucks carrying firewood from the bush are totally banned.”

Another factor is the breakdown of the locomotives especially along the Abuja-Kaduna corridor. Kaduna has witnessed killings of unprecedented proportions and passengers might begin to entertain fear of being kidnapped by bandits should another breakdown of the locomotives occur, which usually happen in the bush.

If the security situation could improve and breakdown avoided, the recovery seen in the rail transport sub sector, and other sub sectors within the transportation and storage sector should be sustained till year end and beyond.

Get real time updates directly on you device, subscribe now.