The Central Bank Of Nigeria (CBN)’s 32nd Seminar For Finance Correspondents And Business Editors 2022 identified the infrastructure deficiency places as a huge burden on businesses, thus moving Nigeria from the lowest ‘official tax’ to the highest ‘implicit tax’ in Africa.
The two-day CBN’s 32nd Seminar For Finance Correspondents And Business Editors 2022 was held at Akure, Ondo where the speaker, Professor Ken Ife, Development Consultant & Lead Consultant, Industry & Private Sector Development, ECOWAS Commission titled his paper “Infrastructure, Economic Diversification and Price Stability”.
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Prof Ife in his paper said that this to revealed the qualitative link between infrastructure spending and borrowing, which are critically important for the diversification of our economy, and how these as well as insecurity and exogenic factors such as crude oil prices over which we have no control, have severe consequences for Price Stability.
The theme of the seminar: “Exchange Rate Management and Economic Diversification in Nigeria: The ‘PAVE’ stands for Produce, Add Value and Export Options”
He pointed out that Nigeria actually hit GDP US$ 575 in Qtr4-2014, and suddenly succumbed to US$ 330b with oil price crashing by 60% and devaluation of the Naira against US Dollar
He noted that there are some of the global economic headwinds that can impact local economy, they are:
- Topping the list now is the Russia – Ukraine War, now pushing Nigeria Brent Crude Oil price to $129 as at 09/03/22
- Rising global inflation (stagflation)
- Normalisation of monetary policies (and rising monetary policy rates), and consequently, lending rate, led by US Federal Reserve Bank. In US, this is aggravated by inflation of 7.8%, the highest since 1982.
- Rising debt crisis and turbulence in emerging markets
- Continuing COVID-19 variants and supply chain disruption
- Global insecurity, geo-political conflicts and tension around the world especially Russia-Ukraine
- China’s slowing economy and property debt crisis, notwithstanding US-China Trade War.
Prof pointed out that for Nigeria economy jumped out of recession in just one quarter (Dec 2020), he said this was possible because of quantitative monetary and fiscal policy responses, including a higher order of targeting of CBN’s domestic finance intervention at the real sector of the economy.
How they could affect the economy? Ife further disclosed that the following Sensitivity Analysis in this macro-economic modelling shows how influential, an exogenic factor such as crude oil price, could be, and its effect on; GDP growth, Exchange rate, Inflation rate, Policy rate, Account Balances, Budget Balances etc
He cited saying the state of Nigeria’s infrastructure and the size of the infrastructure challenge
- POWER
You can image Nigeria with 210m population haven12,500 MW installed capacity but delivering only 4,500 – 5,000 MW compared to 58m South Africans producing 58,000 MW and Brazil with 212m population producing 568,000 MW. On per capita KW basis; Nigeria per capita power consumption is Nigeria– 24KW; South Africa – 1,000KW (X40times); Brazil – 2,700KW (X103 times). The appropriate level of power production for Nigeria should be 100,000 MW.!!
- HIGHWAY
On Africa infrastructure development index 2020 by Mariam Saley, Statista 2022, Nigeria’s stock of infrastructure is 23% against our GDP, compared to Seychelles stood 97%; Egypt stood 88%; South Africa’ stood 79%; Mauritius stood 79%; Tunisia stood 71%; Morocco stood 67%; and Ghana stood 30%.
- RAILWAY NETWORK
It is on record that there is no functional fully connected National Rail Network in Nigeria. The last laying of new tracks by the Colonial Masters was in 1927. The investment required runs into tens of billions of USD. Currently, China seems to be reneging on the funding, and also seem reluctant to offer concessionary loans because of legacy issues, notwithstanding on-going concerns on contract clauses that amount to ‘waiver of sovereign immunity’
- AVIATION
Even in modern transport system, Nigeria has just upgraded 4 International Aviation Terminals costing around $400m, has 32 Airports, 26 of which is managed by FAAN. South Africa has 90 Airports; Egypt has 486 Airports, 123 of which have scheduled commercial flights and Brazil has 4,023 Airports.
- MARITIME
As at Dec 2020, Nigeria has a total of 6 seaports with cargo throughput of 1,528,520 TEU; compared to South Africa’s 8 seaports with a throughput of 4,029,000 TEU and Brazil with 175 seaports with 32 public owned and 143 privately owned have cargo throughput of 10,376,571 TEU. However, the new Deepsea Ports begging for investment planned are: Lekki, Ibaka-Ibom, Bonny, Badagry, Bayelsa, Abia, Ondo etc
QUALITY INFRASTRUCTURE (INLAND WATERWAY, DIGITAL BROADBAND & CBN PAYMENT INFRASTRUCTURE)
Prof acknowledge saying quality Infrastructure is one of the major issue Nigeria facing includes: Trade Analysis; Accreditation; Standardization; Metrology; Product Testing; Quality Promotion; Traceability and Inspection, in addition to cold chain logistics, irradiation; export conditioning centres, reefer containers etc
He reiterated that the infrastructure deficiency places a huge burden on businesses, thus moving Nigeria from the lowest ‘official tax’ to the highest ‘implicit tax’ in Africa.
“The infrastructure is so critical to foreign investment flow; for wealth creation, employment generation and sustainable poverty reduction, hence the urgent need to leverage private sector in PPP models”
- THE INFRASTRUCTURE PLC
According to the expert, the Infrastructure Plc is the answer to private sector engagement in the public infrastructure landscape. He noted that it has been capitalised by Federal Govt to the tune of one trillion naira, (N1trillion) and heading out to the capital market to raise up to fifteen trillion naira (N15 trillion). With these resources, they would be better placed to address the economic diversification agenda from the infrastructure perspective, he stressed.
- infrastructure and Price Stability
Professor in his wisdom was trying to link infrastructure to that of price stability saying The sustained push by the government on infrastructure projects around the country to keep the momentum on capital expenditure, which in turn, provided employment, has increased the demand for imported construction and earth moving equipment, machineries and industrial equipment and consumer goods, iron and steel etc. This results in increased borrowing and increases the demand for foreign exchange which exceeds the supply of forex.
“But because of the enormity of the infrastructure challenge, continuing debt finance, with high debt service to Govt revenue is unsustainable. We need to switch to issuing equity finance instruments and encourage more robust PPP. With private sector investment, private sector pays the capital and interest and Govt only provides sovereign guarantees, Valuation of Public Assets paves the way for privatisation, commercialisation, concessioning, PPP and public quotation of these operations
THE DEBT SUSTAINABILITY CHALLENGE AND THE IMPACT ON PRICE STABILITY
- The existential challenges and the inevitability of increased borrowing
He noted that besides the urgent need to continue to invest in infrastructure and human resource development to create and sustain employment, there are 3 additional existential challenges:
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- The pervasive and devastating impact of the asymmetric conflict in the 6 geo-political zones, draining Govt budget (22% of 2022 Federal Govt Budget) created huge deficit being financed by borrowing and huge debt service, which in 2021, was 70% of Govt revenue!! Do nothing, is clearly not an option as Nigeria could easily be overrun like Afghanistan.
- Covid-19 was a matter of life and death, and the health hazard, supply chain disruption, death, redundancies, unemployment, under-employment and the deepening poverty, required urgent quantitative fiscal, monetary and humanitarian intervention. It simply translated to increased borrowing. Ways and Means Overdraft to Government by Central Bank is believed to be well in excess of ten trillion Naira(N10tr). No doubt, that will increase domestic money supply, and add to domestic pressure on inflation, besides the preponderance of structural factors.
- c) Unacceptable levels of youth unemployment and underemployment. The average unemployment in Nigeria in 2021, according to NBS, is 33.5%. But the under 35 years group, which account for about 75% of the population, has unemployment rate of about 48% and under-employment of 22%, totalling 70%. This is collaborated with the fact that only 7% of graduates get employment. For over 2 decades, all levels of Govt have embargo on recruitment but for exceptional circumstance, this is double tragedy for young people who are jobless in the face of an ageing Govt workforce and contraction of the workforce only by natural wastage.
- Debt Sustainability and Fiscal Responsibility Act 2007 (FRA 2007)
He pointed out that FRA 2007 provides for Govt borrowing for capital projects and for human resource development ONLY, though there were attempt by the National Assembly to water it down to undefined territories.
According to him, the borrowing should be long term (Part X(1), on concessionary rates (usually less than3%) and supported with cost-benefit analysis, and needs to be captured in the borrowing plan and the Medium Term Expenditure Framework(MTEF).The budget deficit is set to 3% of GDP, (sec 12(1)) although adjusted to about 4% by the Finance Act and the current review of the FRA 2007 law. Banks and Financial Institutions are required to obtain ‘Proof of Compliance’, Sec 45(1), and lending outside this legal framework in Unlawful, Sec 45(2)
