It’s infrastructure, stupid!
The greatest legacy that President Buhari can leave behind is not anticorruption but landmark social and economic infrastructures dotted across the Nigerian landscape, delivered through an effective infrastructure investment drive.
From the north to the south and from the east to the west, the dearth of infrastructure in Nigeria is palpable. Poor road networks, dilapidated schools and hospitals, inadequate broadband internet access, and many more. Several figures are peddled around to illustrate the scale of the infrastructure deficit we are facing. The Lagos Chamber of Commerce and Industry recently put the figure needed for investment in infrastructure at $300 billion, which is more than 100 per cent of the country's GDP (at current exchange rate). In 2015, the Institute of Appraisers and Cost Engineers (IA & CE) said the country will require about $2.9 trillion over the next 30 years to bridge the infrastructure deficit.
Also, Minister for Transportation, Rotimi Amaechi, recently put the amount needed to bridge the transport infrastructure gap alone at $166 billion. Whatever the amount is, the fact is that the nation's growth continues to be hindered as a result of lack of infrastructure. This portends a great challenge for economic development in the long run.
The current downturn in the economy caused by the slump in oil prices presents a huge opportunity for the administration of President Muhammadu Buhari to invest massively in infrastructure to stimulate economic growth. The N1.59 trillion or about $5 billion (26 per cent of the 2016 budget) allocated for capital projects in the current fiscal budget is but a drop in the ocean. Allocating and investing 2-3 per cent of our GDP in infrastructure is a far cry from meeting our development needs. Low oil revenue is a huge constraint on even implementing the 2016 budget but the government has other options, including public-private partnerships (PPPs), to ramp up investment in infrastructure.
In the 1930s, British economist, John Maynard Keynes, advocated increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the Great Depression. Now known as Keynesian economics, his theories have become standard macroeconomic dictums used by many countries to boost economic output during short-run downturns.
In responding to the Great Depression in the 1930s, United States President Franklin D Roosevelt introduced a set of stimulus programmes referred to as the New Deal. Major parts of the programmes included construction of new government buildings, bridges, hospitals, airports, schools, roads and dams, all in efforts to activate the economy and reduce unemployment. About $3.3 billion was spent in two years on 34,599 projects. The New Deal provided jobs for an estimated 8.5 million workers, and constructed about 650,000 miles of highways and roads, and hundreds of thousands of public buildings, bridges, parks and playgrounds. Not a few Americans would agree that Roosevelt's New Deal was literally stamped on the American landscape.
Just over a decade later, at the end of World War II, U.S. Secretary of State, George Marshall, initiated the European Recovery Programme nicknamed the Marshall Plan. The initiative led the U.S. to spend over $12 billion to help rebuild parts of Europe after the war. According to available data, the years between 1948 and 1952 had the fastest economic growth in European history. Although some have questioned how much of the recovery should be credited to the Marshall Plan, many believed the plan helped a great deal even as Belgian economic historian, Herman Van der Wee, concluded that the Marshall Plan was a "great success".
These two instances show that a major infusion of funding is needed to address the infrastructure gaps in Nigeria to bring the economy out of the current recession in the short-run and also for sustainable longterm development. During the Great
Recession, the United States introduced the American Recovery and Reinvestment Act of 2009 or simply called the Recovery Act. It was signed into law on February 17, 2009 by President Barack Obama, with the appropriation of a total $831 billion. It included spending in infrastructure, education, health, energy, social welfare, among others. The United States' northern neighbour, Canada, responded to the crisis by enacting a C$40 billion stimulus package, with over 60 per cent of it spent on building some of the largest projects in Canada's history.
Now the question is, how could the Nigerian government finance a recovery and reinvestment plan? As mentioned earlier, there are several options such as debt financing and PPP. But while PPP remains a very viable option, I will advocate borrowing. According to 2015 data from International Monetary Fund (IMF), Nigeria's debt-to-GDP ratio is 17 per cent, although the Debt Management Office (DMO) puts the figure at 13 per cent. Given this ratio, Nigeria enjoys one of the lowest debt-to-GDP ratio globally. Japan has the world's highest debt-to-GDP ratio of 237.9 per cent, followed by Greece – 158.5 per cent, Italy – 126.9 per cent, Singapore – 111%, USA – 106.7 per cent; Canada and UK have debtto-GDP ratios of 87.5 per cent and 84.8 per cent, respectively.
The Nigerian government has the scope to borrow funds to invest in upgrading and building new schools, hospitals, roads, street lights, railways, drainage systems, airports, bridges, markets, etc. When completed, these projects will increase the standard of living of the citizenry, while providing a solid foundation for a modern economy. The African development Bank (AfDB) opined that citizens of nations who invest in infrastructures “are more likely to enjoy better health care, sanitation and other markings of well-being.”
Investing a dollar in infrastructure produces a multiplier effect greater than two dollars. For a developing country like Nigeria, the multiplier effect may even be higher. Top-performing countries like Singapore, China, South Korea and Taiwan owe their economic successes in part to infrastructure investments. When these countries invest, they do not consider projects in isolation; they consider how each project supports their overall policy objectives. For almost two decades, China has been spending about 9 per cent of its GDP to achieve the country's current level of development.
The AfDB estimates that deficient infrastructure reduces sub-Saharan Africa's output by about 40 per cent. From the foregoing, investments in infrastructures in Nigeria must be tripled at the very least. Otherwise, the country's output will continue to be subpar, while our potential will remain untapped.
In her book, Reforming the Unreformable: Lessons from Nigeria, Ngozi Okonjo-Iweala concludes that: “Without improvements in infrastructure, Nigeria's economy will not be able to produce the job-creating growth that is needed. In particular, small and medium sized enterprises will not be able to grow, as infrastructure costs and bottlenecks make it difficult for them to be competitive.” The President and his economic team should roll up their sleeves and get to work. Without increasing investments in infrastructure, we cannot achieve the growth needed to bring us out of this doldrums.
The recent announcement about the upcoming launch of a $25 billion Infrastructure Development Fund is a step in the right direction. While making the announcement, Minister for Budget and National Planning, Senator Udoma Udo Udoma, stated that the Fund is part of the existing National Integrated Infrastructure Master Plan (NIIMP), which serves as a robust framework for infrastructure development. Approved in September 2014, the NIIMP was designed to enhance economic growth, and create opportunities for employment, among other benefits. It seeks to raise Nigeria's current infrastructure stock from the current level of 20-25 per cent of GDP to at least 70 per cent by 2043.
The poor state of Nigeria's infrastructure is the outcome of decades of neglect and lip service by successive governments, both at the federal, state and federal government levels. Nigerian leaders would rather amass public funds in their private bank accounts at the expense of national development, than focus on developing the country's infrastructure. The NIIMP is an ambitious and achievable plan, which will put the political will of the Buhari government to test, since the administration has endorsed the plan. This government also needs to use its anti-corruption campaign to ensure the plan is implemented and that funds allotted to it are judiciously spent.
The advice by Dominic Barton, Global Managing Partner of McKinsey, becomes apt at this point in time. In his words: “Kicking the can down the road, is not a viable strategy for dealing with the world's infrastructure needs. It's up to us to avoid leaving a legacy of deferred costs and deteriorating fundamentals for the next generation. The money is available. Let's put it to use.” Like President Roosevelt, the greatest legacy that President Buhari can leave behind is not anticorruption but landmark social and economic infrastructures dotted across the Nigerian landscape, delivered through an effective infrastructure investment drive.