ECONOMY - 26 JUL 2019

The Cost of Abandoned Projects in Nigeria

The Cost of Abandoned Projects in Nigeria
Bridge to nowhere, built by broken promises by both major parties

Ajaokuta steel mill, Rivers Monorail project, Ekiti Airport—all abandoned or incomplete. Yet, with every change in government comes fresh promises of infrastructural development and completion of abandoned projects. Large sums of money are allocated for this purpose and contracts are awarded to different local and multinational companies. This is a big problem for Nigeria because the costs of these abandonments are not only direct but affect the whole economy. 

 

Costs of abandoned projects

Valuing the costs of abandoned projects is by no means straightforward, but they are undoubtedly high. A 2012 report indicated that about 12,000 federal government projects had been abandoned between 1962 and 2012. From a strictly monetary perspective, a report by the Chartered Institute of Project Management in 2017 suggested that abandoned projects with regard to existing structures alone amount to over ₦12 trillion—that is 10% of the economy. A former Minister of Works put the costs of abandoned projects at ₦17 trillion, based on an investigation during the Jonathan administration.

Yet, the scarcity of up-to-date data also means that the extent of the losses cannot be fully quantified. Even more difficult to estimate is the opportunity cost of these projects. If an abandoned project costs ₦150 million, not only have we lost ₦150 million, but we have also lost the opportunity to spend that amount on alternative projects like building schools or hospitals. This is why it is crucial to make the right investment decisions on costly long term projects. 

 

More Private Sector Involvement 

So how do we move forward from here? The easy answer would be to complete existing projects. And the 2019 Budget proposal presented suggests that the government is headed in this direction. Many promises have also been made in addition by the current administration in this regard. But not all projects are worth completing. In some instances, we are better off leaving projects incomplete than spending additional money for little benefit.

Additionally, there are fundamental issues which keep bringing us back to the problem of abandoned projects. Projects are long term, politics is not. With a maximum eight-year window to showcase your work, politicians don't tend to think of the long run. They are also not held accountable for project completion, as there is no real punishment or scrutiny from peers or the public. 

One way forward is giving the private sector greater freedom in project implementation. Private contractors have cited government interference and forceful takeovers as reasons for the failure of major projects such as the Lagos-Ibadan expressway completion project and Lagos Homes Housing Scheme, Iponri. Without discounting the potential drawbacks, outsourcing government projects to private organisations with limited government interference is a pragmatic approach to preventing abandoned projects. This is because they are less bureaucratic than the government, and it is easier for the government to hold private companies to account than the other way round. 

All the government should be required to do in this instance is to provide the necessary oversight, funding, and permission. Contracts between the government and private bodies should be made subject to the principles of contract law, with disputes being resolved by the court or other recognised dispute resolution mechanisms.

 

Better Governance

But the private sector alone is not going to solve this problem. By nature, some projects will always be executed solely by the government, so we need better governance structures. The decision-making process that leads to a project being commissioned needs to be better scrutinised before it is added to the budget. The civil service needs to provide the government with evidence-based options that will succeed, offer more benefits than costs, and is likely to be completed.  

Approved projects must also be adequately monitored to ensure implementation. In Nigeria, the Ministry of Budget and National Planning has limited monitoring powers for government projects. The Chartered Institute of Project Management of Nigeria has no such mandate but is considering setting up project management units in all the local government units of the country to monitor project implementation.

An independent project monitoring organisation similar to the Infrastructure and Project Management Authority in the United Kingdom should be established to complement the monitoring exercises of the government. Such a body can work with recognised project management organisations, such as government advisors, on the feasibility of proposed projects and also keep the public updated on the state of existing projects. This should improve public engagement in government spending, which will do more to hold governments accountable for their bad or good investment decisions. 

 

Fifehan is a research specialist and legal consultant.

Fifehan Ogunde

Fifehan Ogunde

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