Nigeria should consider more innovative approaches to fund infrastructure

Nov 11, 2021|Carl T. Macaulay

“The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.”

Lenin, a communist revolutionary and the first Head of Government of the Soviet Union, made this statement. While we may disagree on many ideological fronts, I fully agree with him on this one. In Nigeria, we do not face heavy taxation, and many people even say we are not taxed enough, but inflation has been more than able to deal with the middle class.

Some takeaways:

Nigeria has a significant infrastructure problem. Electricity, for example, should be about 200,000 MW given the population; however, installed capacity is just 16,000 MW.
The government cannot fund infrastructure alone. There needs to be a partnership with the private sector to cover the $3 trillion gap in the next 30 years.
InfraCorp is a Public-Private Partnership with a seed funding of ₦1 trillion from the federal government with the potential to catalyse infrastructure development in Nigeria.

The price of goods and services in Nigeria is rising at an incredible rate. The value of the Naira has halved in just seven years from 2013. You would have to earn twice as much as you did in 2013 to afford the same lifestyle. Inflation doesn’t just make things get progressively expensive; it makes it hard to store wealth. If you cannot invest your money at a rate above inflation, you will be worse off in real terms.

So what causes inflation? Too much spending by consumers can lead to inflation. High production costs can also lead to inflation. Two months ago, I showed how insufficient infrastructure contributes to rapidly increasing prices or inflation in Nigeria. The Infrastructure Concession Regulatory Commission said in 2019 that Nigeria paved only about 30% of our roads. This situation makes logistics expensive and adds to the cost of moving goods and people from one place to another. Finding a solution to our infrastructure problem is critical to helping businesses lower costs and inflation.

Top UK retailer Tesco was able to keep costs down and ensured it had a stable supply of goods because it increased its use of rail infrastructure to move produce. Following this, the retailer was able to avoid competing for limited truck drivers and make more profits. Businesses need access to different types of infrastructure for them to choose the kind that is most suited to their needs. With a substantial investment in infrastructure, companies can see a reduction in their electricity, transportation and other input costs.

The results are not appealing when we look at how Nigeria performs across critical infrastructure from electricity to transportation. We should have about 200,000 MW of electricity going by our population, but the current installed capacity is about 16,000MW. Besides, the Manufacturing Association of Nigeria (MAN) says that manufacturers spent 38% of production costs on energy in 2019. This high cost suggests that industries supply their electricity to manufacture goods, leading to more expensive goods.

But building infrastructure is pricey, and the government doesn’t always have enough money to meet Nigeria’s infrastructure needs. This means we need to consider all angles that could boost infrastructure spending in Nigeria.