ECONOMY - 06 JAN 2017

Rallying for the railways

Article Photo
Lagos Light Rail Project

Nigeria is in a recession, and those paying attention will tell you this is partly because our growth in the past was consumption-driven and not investment-led. In times like this, fiscal stimulus is deemed appropriate. Famously, the experience of post-war Britain in the 1920s suggests that during periods of weak demand, public works spending should increase to compensate for the negative demand shock.

In the 1930s, John Maynard Keynes, an economist, argued that long run growth may not be achieved unless the government intervenes strategically in the short run. From that idea, Keynesian economics was born. The "short run" is now, and one candidate for public spending is infrastructure investment. Specifically, transport infrastructure. Some conflict exists in deciding what expenditure to prioritise – Healthcare or Education? Transport or Security? Arguing in favour of transport infrastructure, it is important to note that access to markets, hospitals and schools depends crucially on the transport network. With increasing rural-urban migration and higher birth rates, significant and sustained pressure has been placed on Nigeria’s transport infrastructure. To fully realise welfare gains, investment in transport infrastructure must be aimed at eliminating bottlenecks.

The 2016 “Budget for Change” (and the 2017 instalment) shows the current administration’s shift in focus towards capital spending, but road transport perhaps gets too much attention in comparison with rail. It is not usual to see the FGN dedicating over ₦200 billion towards the development of roads in different parts of Nigeria, as in the 2016 budget, a material increase from less than N50 billion allocated in 2015.

 

Rallying for the railways

However, 90% of passenger and freight travel in Nigeria already occurs via roads. It does not help when we consider that the major agriculture producing states (e.g. Benue) are a considerable distance from major consuming states (e.g. Lagos, Ogun). 

Compared to our primary economic rival, South Africa, our rail infrastructure deficit is embarrassing. South Africa spans an area of about 1,214,470 sq.km, while Nigeria spans over 910,768 sq.km. About 2.2 million South Africans take advantage of their country’s extensive commuter rail network every day. The current train routes have the capacity to connect different regions to each other (Durban, Pretoria, Johannesburg and the Eastern Cape Province). This level of inter-state connectivity should be a target in Nigeria as it would be a driving force behind realising considerable gains from investments in capital projects.

Other parts of the country should not be left out either since improved connectivity would contribute significantly to elevating the living standards of Nigerians. Think about it. Lagos is the economic capital of Nigeria and, unsurprisingly, many people find it attractive enough to seek employment in this city. However, Lagos is a relatively small state but is already the second most populous in the country. Basic demand and supply analysis suggests that housing will be restrictively expensive. If residents in low rent paying neighbouring states are able to commute easily to Lagos for work, then that’s one problem at least partially solved. Besides, the transport of freight by those huge trucks that cause significant damage to poorly maintained roads (and cause mind-numbing traffic) would be shifted to the rail network. That is definitely a problem worth solving. 

 

A track record of shared benefits

The decision to direct funds towards rail transport is further justified by the broad economic and social benefits a reliable rail service could offer to a developing country. A dependable rail service could encourage less road use, which would significantly reduce pollution levels, and has the potential to transform the culture of entire cities. One of the most attractive features of rail is its ability to move a large number of people at once, which is very instrumental in driving productivity.

Railway stations also offer a myriad of attractive business opportunities to entrepreneurs. The retail sector has a lot to gain from this as rail stations can become attractions in their own right with stores, restaurants and bars enhancing the travel experience. 

Users of the popular Marina car park have access to a dry cleaning service that has a makeshift drop-off and pick-up point, and this can be adopted more formally in any Nigerian rail station. Surrounding communities could benefit as well since shopping and other services can become more accessible. A developing country that has adopted this station retail model is India, whose metro stations are being developed in line with today’s fast-paced consumer lifestyles.

However, the logistic needs of constructing a successful rail network are important. Some analysts believe the government’s current plan is ambitious but with the right strategy, that need not be a bad thing. Financing is the main crux of infrastructure development because let’s face it, if people are not paid, they will not do the work. This much is obvious in the numerous times the Lagos-Ibadan expressway construction has been suspended due to delayed payment to contractors.

 

Bridging the funding gap

Tumbling oil prices have placed an enormous strain on the government’s coffers, suggesting a need to turn away from the traditional form of procurement for transport infrastructure activities. Public Private Partnerships (PPPs) and loans from countries such as China have been listed as viable alternatives. Recently, pension funds have come into the conversation, as they are rightly considered an untapped source of funding for infrastructure projects. The new 186km Abuja-Kaduna line was awarded under an $875m construction contract, which was backed by $500m in concessionary loans from China's EXIM Bank and $350m in government spending. This year, PENCOM – the pension industry’s regulator – estimated that about 40% of pension funds under management should be directed towards infrastructure by 2019.

As the nerve centre of economic activity in any country, transport infrastructure should remain a priority for any responsible government looking to reflate its economy. Also, a coordinated development plan that seeks to achieve inclusive growth should be at the forefront. It would be counter-productive for development activities to be concentrated within certain states, while others that are deemed to be “economically inactive” are left out. Funding is expected to remain a big issue but should not serve as a deterrent since the expected economic gains are significant. Investment in transport infrastructure and more particularly, rail infrastructure would be a major driving force behind getting the Nigerian economy back on track.

Writer

Fadekemi Abiru