Key considerations before starting new public infrastructure projects
Between 2019 and 2023, we should not build a single new road, plant, factory, refinery or building. We should simply spend our capital budgets on maintaining existing infrastructure.
There are many schools of thought regarding how to sort out Nigeria’s enormous infrastructural deficit. A lot of people think we should acquire some sort of tunnel vision, which would entail picking just one sector, and developing it. When we reach critical mass in infrastructure in that sector, it would then catalyse development in other sectors.
Some experts and commentators think the focus should be on roads; others think it should be power. Another school of thought supports the idea that we should focus on education. Based on my observations, I’d say most city-dwelling Nigerians would choose power in this tunnel vision of infrastructure development. But I am partial to roads.
Two thousand years ago, when the Romans conquered a territory, one of the first things they did after pacifying the inhabitants was to get young people to work on road construction projects. The Romans knew that roads facilitated the flow of trade and the maintenance of those roads helped to solve the unemployment problem. Moreover, in the event of a crisis, proper road networks made it easy to deploy the security forces.
Transportation, of which roads are a key component, has historically been the major tool for connecting people and markets, and opening up places that were previously cut off from trade. Trade enhances economic growth, and makes it profitable to invest in all other productive activities and sectors, including, yes, power.
But unfortunately, the grim facts about roads infrastructure in Nigeria shows that only 18 percent of the country’s 197,000 kilometres of federal roads, used by 90 percent of persons moving across the country, is paved. The situation is worse for state and local government roads.
I spent a substantial part of the last two months commuting in Lagos, which is my base, and travelling to Port Harcourt, Owerri, Umuahia, Calabar, Onitsha, Asaba, Benin, Lokoja, Abuja, Ijebu-Ode, and Abeokuta. One thing that is common in all of these places is that there are construction activities going on, including residential or commercial buildings, and roads. During my visit to Port Harcourt, I found out that a General Electric power project was on hold, more or less, for months because GE was reportedly waiting on the Federal Road Management Agency (FERMA) to fix the road between Onne, where GE’s equipment was offloaded, and Afam, the project site.
To my mind, this provides conclusive evidence as to why road infrastructure is crucial. The delayed GE project is an example of how the crumbling state of our roads affects business.
Lack of maintenance is also a major issue that has exacerbated the Nigerian infrastructure dilemma. A lot of the new infrastructure coming out of the pipeline simply do not last either due to their substandard quality or poor maintenance. This has led to my left field idea that between 2019 and 2023, we should not build a single new road, plant, factory, refinery or building. We should simply spend our capital budgets on maintaining existing infrastructure.
Here is how things work in countries that have world-class infrastructure and public services. Every project starts with something called a business case. You build a strategic case for why you want to commence and finish a project. Then you enumerate the benefits of the project to the community it aims to serve or the nation’s economy.
You then go on to consider alternative options on how to achieve the same set goals under the business case. You can also have the (sometimes fail-proof) option of doing nothing at all. This should be seriously considered as sometimes doing nothing is the safest option.
Following that, you build an economic case for the lifespan of the project (usually a decade). This involves getting professionals to analyse the expected economic benefits of each option in the business case, as well as the potential risks. In other words, you outline the critical success factors and risks, and create contingencies to manage those risks.
The next step is to create a financial case for the option you have picked. This is where you outline projected costs and revenue and the cash flow implications of your chosen option. If, for example, you’re providing ₦1 billion in initial investment, you could also budget ₦100 million in annual maintenance costs for the following decade, and adjust for inflation.
One critical point to note here is that when you provide funding for a project, it is not only funding for the initial cost, but also the funding for running costs for the next decade (if that investment has a 10-year value), or quarter century (if it has a 25-year value).
You also have to consider how the project will be delivered. Even after you have completed the project, for as long as the output exists, you must continue to track the actual benefits derived against the expectations outlined in the business case.
When a government has competing priorities in a portfolio of potential public investments, one question it must always consider is this: Which of the many investment options in front of it has the highest expected lifetime benefits, considering both the initial and ongoing costs?
Crucially, most policymakers, when they make triumphant announcements of plum new projects, they fail to determine the economic cost of the new investment in relation to letting existing infrastructure to decay without maintenance. Hence, all the economic value of the existing infrastructure is lost as a result.
To put it differently, if you choose to build a new road to connect Point A to Point B, also consider the initial and ongoing costs of that new road. And if the funding of the new road means you will not have money to maintain another road connecting Point C to Point D, the economic value of the new road had better exceed the value lost from letting the road from Point C to Point D to degrade.
Nigeria badly needs all its infrastructure to work. If one analyses the portfolio of Nigeria’s infrastructure, what is evident is that if all the critical pieces of infrastructure the country is committed to are fully operational, they should deliver massive benefits to the economy and to the Nigerian people. The World Bank says every 1 percent of government funds spent on infrastructure leads to an equivalent percentage increase in Gross Domestic Product (GDP). This invariably means that there is a correlation between any meaningful input in infrastructure development and economic growth.
And according to National Bureau of Statistics, over the past decade, Nigeria’s infrastructure spending contributed on average 1.9 percent (approximately $4 billion) per annum to the GDP. But more investment is needed to achieve an appreciable level of growth and development. A 30-year infrastructure development plan, known as the National Integrated Infrastructure Master Plan (NIIMP), projects that Nigeria requires at least $2 trillion (₦398.1 trillion) for infrastructure development over the next three decades. The laundry list of stuff to be done is daunting.
According to the Africa Finance Corporation, for a sustainable infrastructure development to happen, governments must first address policy instability, an unpredictable legal and political framework, lack of a holistic view on national planning, lack of coordination between government agencies as well as the limited capacity of civil servants.
My argument is simple: consider the maintenance of all new projects alongside the initial costs. If new projects are not going to be maintained, they should not be built. If new projects will hinder the maintenance of existing ones, then we should not just take a plunge into starting the new projects. Some Nigerians who should know better have a tendency to erroneously believe that best practices don't apply to the country. Nevertheless, the national infrastructure deficit continues to expand as new projects are hardly delivered while existing projects fall into disrepair.
But of course government’s resources are limited. While everyone agrees that private investments are needed to close the infrastructure deficit in the country, the policies that are required to build investors’ confidence are weak.
Here is how the head of ARM Harith Infrastructure Investment Limited, Opuiyo Oforiokuma, succinctly put the challenges of delivering projects in emerging markets: “In emerging markets, regulators just happen to be government and they don’t allow the transparency that gives investors confidence. If investors do not have confidence in your environment, it may take many years for them to take certain decisions.” This is why Nigeria continues to be left behind.