Transport Sector as Economic Goldmine
Despite several government policy frameworks aimed at repositioning the transport sector, its contribution to the Gross Domestic Product remains unsatisfactory, according to experts. In this report, Ugo Aliogo examines the sector’s huge potential and how
Transportation is a vital component of human activity. In many developing countries, inadequate transport facilities constitute huge challenge to economic growth. In developed economies, the transport sector is a key driver to economic development and strong revenue. Studies have revealed that developing societies have not sufficiently tapped into the potential of the transport sector as a result it is not fully maximised in those regions. The Nigeria’s transport sector has long suffered as a result of inadequate investment in infrastructure, thereby prompting the federal government to push for the rehabilitation and expansion of the country’s entire transport network.
Experts have argued that the sector can contribute about 10 percent to the Nigeria’s Gross Domestic Products (GDP) if the right policies are put in place to drive the sector. To achieve this, they said there must be massive investment in infrastructure and training for operators and regulators on new global trends in transportation services. The argument is that if the country actually wants to diversify its economy, transportation and shipping should be sectors that should be placed on the front burner.
Government Target for the Sector
In December 2015, the Minister of Transport, Rotimi Amaechi, said government was working on a national transportation master plan.
He explained that there is an urgent need to exploit the opportunities within the sector in order to improve its contribution to the economy.
“Public budgets have been constrained by economic conditions, the current administration’s budget commitments, coupled with its desire to bring the private sector on board, promises to improve the capacity and quality of the transport network”, he said.
Amaechi at a recent forum explained that the target of the federal government programmes was to achieve sustainability based on three principles: rehabilitation, restoration and procurement of new platforms, noting that the principles were deployed so that the nation doesn’t lose what has improved and increase opportunities through procurement.
The minister remarked that in respect to rehabilitation and restoration, the current administration has laid emphasis on the completion of existing and abandoned projects, repair of existing facilities in the rail, roads and aviation sectors.
He stressed that the essence of the approach was to bring infrastructure to a level that can support productivity and position it in such a manner that it can be improved upon through procurements.
He noted that it is also a humble approach that appreciates the efforts of past administration and the costs incurred, “the government opted to rehabilitate the Nnamdi Azikiwe International Airport, Abuja runway, instead of building a new one.”
Amaechi added: “There is truly some level of crises in the transportation sector. Evidently, the sector suffers from shortfalls in infrastructure and service delivery, unregulated service delivery especially in the road sub-sector, poor financing of infrastructure and service platforms and others challenges.
“Expectedly, government should partner with the private sector to alleviate these problems. The challenge has been the capacity of the private sector to be able to partner in this regard.”
He said that the private sector participation (PSP) lags behind because of inadequate finance and the desire to be contractors to government.
“Aside the operations of rolling stock as service platforms, the private sector have no infrastructure plans. That is why investment in the rail and inland waterways subsector are not popular. Whenever the private sector shows interests, they want either to collect revenue or become monopolies without competitors.
“The opportunities will be high when government completes the current rehabilitation and restoration programmes that will ease operations nationwide. Our procurement packages are creating interconnectivity that will reduce the stresses of distance and facilitate trade. New programmes such as the development of more international corridors and establishment of Truck Transit Parks (TTP) and Modern Vehicle Parks (MVP) will greatly encourage more investment”, he added.
Growth Indicators
The sector currently falls short of its potential. The network, including rail, aviation, ports and roads, contributes only 1.41% to GDP. Despite this, year-on-year (y-o-y) growth between 2014 and 2015 was positive, according to Central Bank of Nigeria (CBN) data. The sector contributed N805.5bn ($2.5bn at the time of printing) in 2015 compared to N770.7bn ($2.4bn) in 2014, representing y-o-y growth of 4.5%. This upturn follows a contraction of 17.8% between 2013 and 2014.
The current limitations of the country’s transport network hamper trade and increase costs for producers and manufacturers, as well as importers and exporters.
Nigeria ranks 182nd out of 189 countries for trading across borders in the World Bank’s 2016 “Doing Business” report. The cost and time it takes to both import and export is well above the average for sub-Saharan Africa and Organisation for Economic Co-operation and Development (OECD) high-income countries.
Border compliance in Lagos, for example, takes 298 hours for imports and costs $1077. This compares to an average of 160 hours and $643 in sub-Saharan Africa and nine hours and $123 in OECD high-income countries. Similarly, while the same procedure for exports takes 159 hours and costs $786 in Lagos, this is reduced to 108 hours and $542 in sub-Saharan Africa and 15 hours and $160 in OECD high-income countries.
A comparison of the time and cost of documentary compliance for imports results in a similarly negative result, taking 173 hours in Lagos, 123 hours on average in sub-Saharan Africa and four hours on average in the OECD countries. In terms of export documentary compliance, Lagos stands at 131 hours, sub-Saharan Africa at 97 hours and OECD high-income countries at five hours. This level of performance is also reflected throughout Nigeria’s transport system, resulting in a range of issues, from road congestion and accidents – tailbacks are a frequent occurrence and can extend daily commutes by several hours – to airport and airline delays.
The government is also looking to increase spending prior to the launch of the transport master plan, and as part of its efforts to ramp up rehabilitation and expansion activity. In October 2015 the current administration announced a $25bn national fund for infrastructure. This is also being backed by several line items in the N6trn ($18.9bn) national budget for 2016, which includes N433.4bn ($1.4bn) for the Ministry of Works, Power and Housing and N202bn ($637.7m) for the Ministry of Transport. As the two largest recipients of budget allocations, these ministries are expected to be instrumental in driving spending on improvements to the nation’s transport infrastructure over the coming year.
Private Sector Investment
Amaechi remarked that in 2005, government published the investment opportunities in the sector, which defined opportunities and exposed prospective areas.
He added that since then, much more opportunities have been created through the establishment of the infrastructure concession and regulatory, commission, master plan on integrated transportation infrastructure, rail masterplan, inland container depot programme and the dredging of the lower Niger.
The minister said without restrictions, the present administration is open to PSP and Public Private Partnership (PPP) that would develop the infrastructure, put rolling stocks on the inland waterways, railways and supportive investments in indigenous manufacture of spare-parts and rolling stocks.
He added that emphasis on private sector financing is not yet assured however there would be concessionary participation if the proposal is bankable and it can grow the sector, stressing that 70 percent of the inefficiency in the aviation sector should be divorced from the private sector.
The minister stated that the focus should not be in examining government participation, but that of the private sector, stating that the concession of most transport sub-sectors by the government.
Amaechi added: “I don’t think the private sector has done very well in line with the expectations we have in mind. I don’t think there is any sector in the economy that has done well with the private sector more the transport sector because there is concession in airport, seaport, and aviation. We are currently working to concession the railway and when we do that the next step is to regulate the sector.
“The snail speed at which we are moving is because the private sector has refused to perform its expected responsibility. If there is progress in what we are doing so far, it is more on the side of government. When you examine what is going on, government is gradually coming back to transport.
“The private sector must agree with government that the slow pace of development in the transport sector is having its toll on transportation. Government solution to these challenges is through three principles; rehabilitation, restoration and procurement.
“We are doing a performance audit in the maritime sector. Give us 1 year we will come back with results, so you can see how the private sector has performed. We wanted to establish single window for port tariff, but people are yet to accept the idea. Government has a lot of potentials for the private sector to come and invest. There is no law stopping you from investing in the sector. Statistics has shown that it is not possible to make money from rail transport unless it is operated by government. Government therefore provides subsidies to support the railway sub-sector anywhere in the world.”
Singapore Land Transport Masterplan
As part of efforts to improve its Land transport infrastructure, the Singapore Land Transport Authority (LTA) developed its new 2013 Land Transport Master Plan that sets out its vision for the sector in the next 20 years. This vision is that by 2030, Singapore will have: 8 in 10 households living within a 10 minute walk from a train station; 85% of public transport journeys (less than 20km) completed within 60 minutes; 75% of all journeys in peak hours undertaken on public transport.
Price Water Cooper (PWC) in reviewing the masterplan advised the LTA on certain steps to embark on. The key areas of recommendations are:
Private sector capacity and capability
The LTA harnesses the skills and experience of the private sector to construct new transport infrastructure and operate and maintain the existing network. This has worked well for the LTA in the past and there is no reason to suggest that it won’t remain the case in the future. However, the LTA must work with its private sector partners to enable them to be in a position to deliver.
Indeed, the published and credible project pipeline helps the private sector plan and makes the necessary investments to deliver these projects. LTA must stick to these projects and ensure that they remain attractive to existing and new suppliers. There must be recognition that the LTA’s programme is competing for suppliers who have a wealth of alternative projects to target in South East Asia.
Supplier financial sustainability
Linked to this is the need for suppliers to be financially sustainable. If they are not, then performance and standards may fall and transport services could be interrupted. For instance, the implementation of the new Rail financing framework and the findings of the Fare Review will be instrumental in providing an environment where operators can be sustainable.
Manage technological advances
A number of the initiatives, from second generation Electronic Road Pricing System (ERP) to Wi-Fi on trains or improved travel information, require technology to enable their delivery. The LTA must work effectively with technology companies to specify the project outcomes whilst not limiting or impinging on their innovation.
Manage conflict between different road users
The Master Plan includes measures to encourage cycling and increased use of bus priority lanes. Vehicle growth will continue which could lead to increased conflict between road users; how the LTA manages this will be key to maintaining public support for its transport policies.
Maintaining service standards
The bus market has already been opened up with new routes tendered to private operators and LTA aiming to work towards greater contestability in the bus industry to improve the efficiency of bus operations. The LTA must ensure that this increased competition does not result in inconsistent service standards across operators, with passengers suffering. The introduction of the new Quality Incentive Framework is a positive first step in this regard.
If the LTA can overcome these challenges and continues to listen to citizens and respond to external changes then Singapore can maintain its position as a leading liveable city. The successful implementation of the specified projects will realise significant benefits. For example, a smooth transition to a second generation ERP system will give the LTA a much greater ability to manage traffic and congestion on a real time basis. Dynamic pricing could be implemented to respond to congestion black spots or respond to accidents. It also enables the LTA to be more flexible and targeted in its overall road use policy.