It’s the Infrastructure, Stupid.

From North to South and from the East to the West, the dearth of the nation’s infrastructures is unimaginable. Poor roads network, dilapidated schools and hospitals, lack of broadband internet access, dilapidated airports, ports and many more. The infrastructure deficit is alarming. Several figures are being peddled around as the amount of infrastructure deficit we are facing. The Lagos Chamber of Commerce and industry put the figures at $300bn, that’s about 25 per cent of the country’s GDP. In 2015, the institute of Appraisers and cost engineers (IA & CE) said the country will require about $2.9trillioin in the next 30years to bridge the deficit and recently the Minister for transportation Rotimi Amaechi put the amount needed to bridge the transport infrastructure gap alone at $166bn.

Whatever the amount is, the fact is that the nation’s growth and development continues to be hindered by lack of infrastructures and this portends great danger to the economy in the long run.

The current economic slowdown in the country present a huge opportunity for the present administration to invest massively in infrastructures to activate economic growth. The paltry N1.8 trillion (30% of the 2016 budget) allocated for capital projects in the current fiscal budget is like a drop in the ocean.  The present administration should do all it takes to get the funds and build the infrastructures.

In the 1930s, British economist John Maynard Keynes advocated increased government expenditures and lower taxes to stimulate demand and pull the global economy out of recession.  Now known as Keynesian economics, it is now being used by many countries to pull their economy out of recession in the short run.

In responding to the great depression in the 1930s, President Franklin D Roosevelt introduced a set of stimulus program referred to as The New Deal. Major part of the new deal includes construction of new government buildings, bridges, hospitals, airports, schools, road and dams, all in an effort to activate the economy and reduce unemployment. About $3.3billion was spent in two years to build 34,599 projects. These programs together employed about 8.5million workers, constructed about 650,000miles of highways and roads, and hundreds of thousands of public buildings, bridges, parks and playgrounds.

Not a few Americans will agree that Roosevelt’s New Deal was literally stamped on the American landscape.

Just over a decade later, at the end of World War II, then secretary of state in the US, George Marshall initiated the European Recovery program now commonly referred to as the Marshall plan. The initiative saw America spending over $12billion to help rebuild parts of Europe after the war and according to available data, the years between 1948 to 1952 saw the fastest growth in European history.

Although some have questioned how much of the fast recovery should be credited to the Marshall plan , many believed the plan helped a great deal with Belgian economic historian Herman Van der Wee concluding that  the Marshall Plan was a “great success”.

These two instances show that in the short run, Keynesian economics can be applied effectively in time of recession. A major infusion of funding is needed to address the infrastructure gaps in Nigeria. Infrastructure investments’ unique ability to create jobs in the short term and boost productivity in the long term is well known to policymakers.

More recently, Canada responded to the 2008 economic crisis by enacting a stimulus plan in early 2009. Of the total C$40billion stimulus package, over sixty percent of it was spent on building new infrastructures like bridges, roads, schools, broadband internet access and housing projects. Although these investments put Canada in a $56bn red ink for the 2009-2010 fiscal year, it heralded one of the largest building projects in Canada’s history.

In responding to the same crisis, its neighbor to the south, United States introduced the recovery act signed into law on February 17, 2009 by President Obama. The act’s primary objective was to save and create jobs. Of the total $831 billion appropriated for the stimulus package, infrastructure development was a major plank of it. Roads and highways construction was the biggest single line infrastructure item in the final bill.

Now the question is, how will the government finance this?  There are several ways through which this can be done, of which one is through debt financing and Public Private Partnership (PPP). While PPP remain a very available route I will advocate for borrowing.

According to 2015 data from IMF, Nigeria’s debt to GDP ratio is 17%, although there are institutions who put it between 11%-15%. With these ratios Nigeria enjoys one of the lowest debt to GDP ratio globally. IMF data currently list Japan as the country with the highest debt to GDP ratio of 237.9% followed by Greece 158.5%, Italy 126.9%, and Singapore is at 111%, USA 106.7%, Canada and UK sits at 87.5% and 84.8% respectively.  With these low ratios nothing should stand in the government’s way in borrowing funds to develop infrastructures. Investing in both social infrastructures such as schools, universities, hospitals prisons, low cost housing, and economic infrastructures such as energy, water, transport, roads, highways, railways, traffic lights, street lights, drainage systems, airports, bridges, and markets will lay the foundation for economic development and growth. Infrastructure lays the foundation for modern economies. When completed these project will help the country grow its wealth while citizens’ standard of living increases.

Investing in infrastructures is a great multiplier, a dollar spent on infrastructure leads to an outcome of greater than two dollars and for a developing country like Nigeria it may even be more. The country will be better positioned to attract foreign investments when we invest infrastructure. Stephen Hayes, the President of the corporate council for Africa submits that “Infrastructure is probably the single most important need for Africa to develop”. He is right. Top performing countries like Singapore, China, South Korea and Taiwan owe their economic successes in part to infrastructure investments. When these countries invest, they do not consider projects in isolation; they consider how each supports their policy objectives, and they weigh it against other projects that might yield better returns.

To develop at a pace that is commensurable with where we find ourselves now investments in infrastructures must be tripled at the very least or our outcome will continue to be poor while our potential will remain untapped. The African development Bank (AfDB) estimates that deficient infrastructure reduces sub- Saharan Africa’s output by about 40%. The AfDB also opined that citizens of nations who invest in infrastructures “are more likely to enjoy better health care, sanitation and other markings of well-being”.

In her book reforming the unreformable: Lessons from Nigeria. Mrs. Ngozi Okonjo- Iweala concludes that “Without improvements in infrastructure, Nigeria’s economy will not be able to produce the job-creating growth that is needed. In particular, small and medium sized enterprises will not be able to grow, as infrastructure costs and bottlenecks make it difficult for them to be competitive.”

The President and his economic team should roll their sleeves and get to work.  Without massive investments in infrastructures we cannot achieve the kind of growth needed to bring us out of this doldrums, increase in infrastructure spending would significantly boost economic activity and employment.

The recent launch of a $25billion Infrastructure fund is a step in the right direction. During the launch, Minister for Budget and National Planning Udoma Udo Udoma stated that his ministry had developed the National Integrated Infrastructure Master Plan. ( NIIMP). According to him, NIIMP, apart from being a robust framework for infrastructure development, will also serve as investors’ guide, enhance economic growth, and create job opportunities among other benefits”.

The fund seeks to raise the stock of infrastructure from the current level of 20 per cent to 25 per cent of the GDP to at least 70 per cent by 2043 requiring about 3.05 trillion dollars to implement.

While this sounds like a very ambitious and achievable plan, present and successive governments will require political will to see it through.

For decades, Nigeria’s poor infrastructure has historically held back its development with successive governments paying lip service to infrastructure development. What has been happening is that instead of focusing on the country’s potentials and the economic benefits of infrastructural investments politician focus on the next elections and invest in what can be done quickly, temporary power, quick investments in ill-equipped health centers, hurriedly and poorly constructed roads so they can show visible progress. But those kinds of actions do not necessarily address the broader challenges.

Allocating and investing 2-3% of our GDP on infrastructures will not cut it for a developing country like ours. For China to get to where they are today they have been spending about 9% of their GDP in almost two decades. We must get it right now. This government should use its anti-corruption posture to the country’s benefit by ensuring that funds allocated are rightly spent.

The advice by Dominic Barton, global country manager director of Mckinsey & company becomes apt at this point in time. In his words “Kicking the can down the road, is not a viable strategy for dealing with the world’s infrastructure needs. It’s up to us to avoid leaving a legacy of deferred costs and deteriorating fundamentals for the next generation. The money is available. Let’s put it to use”

Like President Roosevelt, President Buhari needs to stamp his signature infrastructures on the Nigerian landscape not mildly but massively.

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@Jideolutuyi

About Olajide Olutuyi

Entrepreneur Social Entrepreneur. Calgary Flames fan. Calgary Stampeders fan. Supports conscious capitalism.Progressive conservative( supports sin taxes, low taxes and laissez-faire economy). Former rap fan. Now listens to gospel and country. Believes in volunteering and community service as agents of developmental change. A lot of my time goes into community service, reading, encouraging people and most importantly God’s business. Loves culture , business start-ups and politics of both my home and adopted countries. This is my blog. The opinions and thoughts in my article are mine and I make no mistakes for having them. You may also find articles, news or opinions of others that I agree with or love to keep. More information about my professional background and interests available on my LinkedIn page.
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