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Building Nigeria's trade infrastructure 12 May 2016

Ideally, the 2016 budget would have been operational since the first of January. But the presumed final adjustments to the budget, before the assent of President Muhammadu Buhari, spilled to the first week of May. Considering that past budgets were also subjected to months of delays, and this invariably affected implementation of the capital expenditure (capex), it is of utmost importance that both the executive and the legislature work together to realign the budget cycle with the Gregorian calendar of January to December, beginning with fiscal 2017.
    
However, one important development in the 2016 budget is the increase in the capital expenditure. The provision for capex is 30 percent of the N6.08 trillion budget. This represents a remarkable restructuring of the yearly fiscal instrument. Capital votes in the immediate past budgets were less than 25 percent. The bigger picture is even in the fact that the allocation for capex in 2016 is 40 percent of the total budget for 2015. For that reason, there is the great expectation that the Nigerian infrastructure space will begin to come alive again, after about four decades of inconsiderable level of activities. The 2016 budget, therefore, provides a critical turning point in starting to close the Nigerian infrastructure gap.

Raising Nigeria's infrastructure stock is very important in the context of spurring economic growth and development. Infrastructure investment is key in reigniting economic growth; it is a frontline policy in fighting a recession, and for bringing about economic renewal. Infrastructural adequacy eases the burdens of doing business and everyday life.

We often point to the deplorable state of most of our roads; our archaic rail lines and their limited coverage; the intractable bottlenecks to power supply; and poor physical conditions of our educational and medical institutions as evidences of the low level of infrastructure supply in Nigeria. Not to forget the deficit in the housing sector and the absence of allied modern facilities in our cities. This translates to higher cost of doing business, productivity loss, hindrance to development, loss of lives in some cases, and serious discomfort to Nigerians, non-Nigerian residents and even those on short visits to the country.

A comparison of Nigeria's infrastructure gap to other countries is hardly necessary for us to understand the impacts of the deficits. But we will have some insights, some shocking and others dramatic, if we care to do a cross analysis. But the economic implications of our inadequate infrastructure must never elude our attention, and must spur the necessary actions. One of the areas of potential revelation is a comparative study of Nigeria's trade. Nigeria's trade-to-GDP, which stood at 31 percent in 2014, is behind South Africa's (64 percent), China's (42 percent), and Ghana's (88 percent).

Trade is the sum of exports and imports of goods and services of a country. Measuring trade against GDP helps to understand the level of international integration of an economy. The more internationally integrated an economy is, the more efficient its productivity factors are. And the more developed the economy is. It is in this respect that the advanced economies and China – which has been catching up in the last decades – account for the greater percentages of global trade. A country with supportive infrastructure will likely trade more – relative to its GDP – than a country with poor trade infrastructure. Thus, a country's trade-to-GDP will most likely reveal the state of its infrastructure. Indeed, Singapore (which has the highest trade-to-GDP ratio in the world – 351 percent in 2014), had reinvented itself as a hub for international trade. This propelled the tiny city-state of circa 5.3 million people to global economic stature.

The deficiencies in our infrastructure has continued to grate growth in the non-oil export sector. In the agriculture sector for example, poor road infrastructure ensures that up to 40 percent of our vegetables perished between farms and the local markets. Post-harvest losses will most likely deepen food insecurity in the country unless determined steps are taken to address this situation. Poor farm-to-market logistics and storage facilities are some of the currently intractable challenges to exploiting export markets with our farm produce. The associated revenue loss feeds a negative feedback loop: farmers earning far less than the market value of what they produced are unable to invest in the logistical facilities to reduce their post-harvest losses, and because of this they remain poor and produce less and earn even lesser with regard to  their potentials.

The United Nations Industrial Development Organisation (UNIDO) said Nigeria lacks an internationally recognized National Quality Infrastructure (NQI) with the capacity to ensure safety, integrity and marketability of goods and services. This fosters technical barriers to local, regional and international trade. Removal of the trade barriers should inform government priorities and strategies with regard to addressing the infrastructure deficit in the country. The good news is that the fiscal outlook of the Administration of President Buhari tells that more determined steps are being taken this time around.

Since the last few years, the federal government has begun to link its borrowing to funding infrastructure projects. The current regime has done well in adopting this policy. The fiscal policy will make Nigeria's deficit financing more credible and ensure long-term economic benefits to our borrowing. However, the rationale for borrowing to finance infrastructure investment is that there is a huge financing gap, which government's revenue cannot cover. However, since the country cannot go on a borrowing binge, it means we still have to prioritise our infrastructure investments.

In an ideal world, we don't have to make a choice between roads and medical facilities. We don't have to choose between having a functional rail service within an integrated transportation system and building schools. And we don't have to choose between upgrading our airports or sea ports and providing access to affordable housing for the people. We may not have to make these choices. Part of this is because the government doesn't have to single-handedly shoulder the responsibility for financing the necessary infrastructure projects. Public Private Partnerships can help provide a framework for accelerating the investments. Nevertheless, the government will need to prioritise the commitment of its own balance sheet to infrastructure projects that create jobs and boost trade. The private sector would be more forthcoming with projects that scaled bankability analysis, impose less risks and guarantee financial returns. The complementarity of objectives can ensure no area of our infrastructural needs is not invested in.

A smart strategy is to factor both domestic and external trade into our project decisions. Staying with agriculture, our earlier example, one strategic framework is to use infrastructure investment to create access to market for our agricultural produce. In this regard, “market” includes the food processing businesses, which could have contiguous location in a processing zone. In this case, one would be looking at federal and state collaboration to build feeder roads in agricultural corridors that are linked to railways. And, by the way, the Lagos-Calabar rail project, which has generated some controversy on its valid inclusion in the 2016 budget, would be great in improving trade on that corridor. The highways could be left for PPPs, where private sector provides the core financing and the users pay tolls on the busy roads for easy commute.

Another high value area with multiplier effect is infrastructure that facilitates inward tourism. Inward tourism is a key frontier of boosting Nigeria's economic growth and forex inflows. A great deal of trade and investment facilitation takes place by promoting tourism. Therefore, it will be worthwhile for us to get really ambitious with upgrading at least two of the nation's airports, beyond whatever facelift or expansion that is currently going on now. Nigerian airports are believed to be either too small or generally inadequate for jumbo jets. This is one of the negative signals that would-be foreigners to Nigeria receive before they are confronted by the appalling state of the ground facilities, poor ambience, unsatisfactory security protocols, and disorganised transport facilities out of the airports – if they made the trips.

However, inward tourism will increase the purchase of Nigerian memorabilia, made-in-Nigeria personal items and other products that will remain useful to the visitors long after they have returned from their trips to their countries and homes. Nigeria that is more welcoming to tourists serves as a positive narrative for attracting Foreign Direct Investment. This, apart from the intrinsic value of life, is the reason why the victory against Boko Haram should not be a trade-off for the spate of killings that have been well reported in the media recently. Nigeria must remain welcoming to the international community of tourists and investors with the profile of an improving governance and security environment.

Goal 9, one of 17 Global Goals that make up the 2030 Agenda for Sustainable Development, broadly seeks countries to build resilient infrastructure, promote sustainable industrialization and foster innovation. Building local, regional and trans-border infrastructure, and integrating industries into value chains and markets are some of the targets of SDG 9. If we deliver on a sound infrastructure investment strategy on the basis of our needs and the SDG targets, we will also improve the nation's competitiveness in the non-oil sector trade and achieve sustainable development.