Policy Briefs

Deciphering the Value of the Infrastructure Loan

By Oseloka H. Obaze & Izu J. Okoye ~~

Great value was lost in the skewed reportage of the keynote address delivered by Mohammad Sanusi, Emir of Kano in Abuja on 2 December, 2016. Emir Sanusi, the Federal Government and Nigerians were ill-served by the media’s embellishing of a fiscal element of the address. The reality remains as Sanusi observed that Nigeria is heavily enmeshed in debts that “out of every one Naira Nigeria makes, 40 kobo goes to debt and 60 kobo is left for salaries, health, education, power and infrastructure.” Proclaiming that Nigeria should borrow more in order to dig itself out of the present debt peonage seems counterintuitive. Yet such argument gains validity, if such borrowing is per se, for development. The redeeming caveat is ensuring “beyond financing established infrastructural needs…that aggregate expenditure is of such quantum and composition to enable exit from recession.”

The proposed $30 billion loan is tailored mainly to social infrastructure. It’s safe to assume implicit correlation between the $30billion infrastructural development loan and reported plans to offer N20 billion to 36 states respectively, for infrastructural development. The loan document, split into three parts – programmes and projects $11.247bn; special national infrastructure $10.686bn; and Eurobonds and federal budget support, $4.5bn and $3.5bn — didn’t include the sectoral narratives, which made it hard to discern the benefiting geopolitical or economic sectors. But we know this much. Nigeria’s infrastructures are in bad shape and needs remediation. But the dismal state of our infrastructure is hardly by happenstance; they failed gradually, through poor policy articulation and implementation, wrong priorities and wrong utilization of previous loans. Nigerians remain cognizant that past foreign loans dedicated to Nigeria’s steel sector yielded very limited results.

The value and amortization terms of any loan are best assessed, if the loan is meant for hard infrastructure – power, housing, toll bridges and roads – that yield returns. Same is not always true of loans for soft and social infrastructures. Thus, it may be wise to borrow for hard infrastructure; yet not so wise to borrow for soft infrastructure. This position does not discount the overarching importance of soft infrastructure, needed to promote quality of life and human development, since rising youth unemployment, inequality, and poor healthcare delivery are corollaries of growing disenchantment and portend risks. Nigeria having only extricated herself from the sapping London and Paris Club debts just a decade ago, some heady questions arise. Will Nigeria’s borrowing outcome be any different now? Here is the challenge: Can an external loan – quick-fix, ad-hoc funding – couched in the attractive term of “infrastructure fund” even if it serves as stimulus or bailout, begin to redress existing infrastructure deficit, if its utilization is not properly handled?

Infrastructural deficit in Nigeria remains huge with sectoral infrastructures suffering major setbacks, which manifest in dismal electric generation and distribution; crumbling roads and bridges that are further exacerbated by a poor maintenance culture. The deregulated national air transportation system struggles, due to the existing oligopolistic market structures. Recent census shows that the national commercial air fleet shrank from a total of 60 to 20 planes in the past year alone. Prevailing operational challenges translate to air safety concerns. Nigeria is also underserved by its limited ports and waterways infrastructure. The sector is hampered by navigable, but yet to be dredged inland waterways totaling some 3,300km, and dearth of modern vessels. Nigeria’s housing deficit is estimated at 16-20 million, but Nigeria’s housing infrastructure is so laggardly that even 20% of its housing needs are presently unrealizable. The mortgage sector remains dysfunctional, given prevalent inefficacious mortgage policies and regiment. Whereas real estate construction contributed $990 billion or some 6% of U.S. GDP in 2015, and 4% of GDP in Ghana, in Nigeria, contributions via mortgages is a dismal 0.5% of the GDP.  

Whilst Nigeria’s GSM system is much improved, Nigeria’s 97 million GSM users are still underserved with only 21% broadband penetration. With Boko Haram destroying most GSM urban furniture in the Northeast; the national landline systems have totally collapsed and are non-existent in most parts of the country. Such setbacks are worsened by high tariffs, lack of periodic maintenance, insufficient public sector funding and unavailability of stable bond and capital markets. Even as Nigeria’s ICT sector yielded N1.4 trillion in FQ of 2016, the nexus between the parlous state of Nigeria’s communication infrastructure and her inability to fully catalyze the “use of ICTs for different aspects of national development” persists. Relatedly, Nigeria’s rating on the World Economic Forum’s Global Competitiveness index, which assesses “countries’ ability to have good and steady electricity supply, road quality construction, air transportation, and port and rail infrastructures”, remains bleak. Two consecutive surveys between 2014 and 2016 ranked Nigeria 133rd and 134th respectively, out of 144 countries.

Infrastructure funding and challenges were of lesser concern during the military era. Because democratically elected governments view infrastructure development as democratic dividends, the Jonathan administration prioritized infrastructural development via the National Integrated Infrastructure Master Plan (NIIMP), which linked key economic sectors. The plan envisaged to last for 30 years, would guarantee sustainable economic growth and development and bridge existing infrastructure deficit, if fully implemented. Still Nigeria has suffered from the inability of successive governments to follow through on approved infrastructural projects. Hence, leadership change and politicians jockeying for preferential funding and sitting of constituency projects, continue to impact negatively on infrastructure development.

The value of Nigeria’s infrastructure is relative to her historical realities regardless of whether the funding is borrowed or budgeted. Historical realities also reflect the federal government’s unending inability to leverage accruing oil revenue to develop national infrastructure fully. Resultantly, poorly funded and executed policies have contributed to awful deliverance or abandonment of strategic infrastructural projects. Meanwhile, States are increasingly averse to rehabilitating decrepit federal infrastructures, given extant policies prohibiting such repairs without prior authorization and challenges in recouping funds expended by States on federal projects.

Funding infrastructure via budgets or loans is no longer as important as finding the political will for executing and delivering national projects fully. Not delivering on requisite infrastructure amounts to shortchanging the national population and retarding development. As Ejeviome E. Otobo, averred in the recent edition of Jeune Afrique, “The ability of all tiers of government to increase citizens’ access to pipe-borne water, public healthcare and of the federal government to increase electricity supply will be an important test of their commitment to inclusive growth.” And as Abraham Nwankwo, Nigeria’s debt management czar observed; “If the economy does not succeed in converting the external borrowings to domestic productive capacity and self-sustaining economic growth, with substantial diversified export component, the resulting economic and social disruption will be unbearable.” Translated from our historical past to here-and-now, “unbearable” means recession, which is the new normal for Nigeria. Hence, advancing Nigeria does not require a foreign loan likely to be mismanaged, but a clear delineation of institutional structures and responsibilities for driving the deployment of critical national infrastructure. Such delineation will influence funding, resource and burden sharing among the three tiers of government, with a view to improving domestic productive capacity and sustainable development.

Obaze MD/CEO, Selonnes Consult Ltd.; Okoye is a Research Associate, at Selonnes Consult Ltd.


Oseloka Obaze, MD & CEO

Oseloka Obaze, MD & CEO

Mr. Obaze is the former Secretary to the State Government of Anambra State, Nigeria from 2012 to 2015 - MD & CEO, Oseloka H. Obaze. Mr. Obaze also served as a former United Nations official, from 1991-2012, and as a former member of the Nigerian Diplomatic Service, from 1982-1991.

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