|Chamberlain S. Peterside, Ph.D||Monday, May 9, 2005|
New York, NY, USA
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POWER & INFRASTRUCTURE SECTOR IN NIGERIA
...THE WEAKEST LINK IN THE PRODUCTIVITY VALUE CHAIN
f financial resource is the life-blood of economic development, infrastructure is the vessel on which that blood flows. No economic system known to man was able to function and thrive without fundamental backbone such as means of communication and firepower.
In any modern economy, the infrastuctural objects taken for granted by businesses and consumers are fixed assets that were painstakingly erected, meticulously maintained and virtually revolutionized production and commerce. Nigeria's experience will be no different in the quest to improve life for its people. Looking at Nigerian society one could easily discover the abundance of several pre-requisites of production - natural resources, human capital, financial wherewithal and strong desire to succeed.
But the capacity of Nigeria's infrastructure is simply deplorable and grossly inadequate to stimulate productivity. The sorry state of the economy is a direct consequence of epileptic power supply, comatose industrial base and decaying infrastructure.
Expenses for power generation account for as much as 40% of production cost in some enterprises in Nigeria. Little wonder why average capacity utilization still runs at less than 50%, while unemployment rate of able-bodied population remains unconscionably high at 30% and per capita Gross Domestic Product (GDP) stands at less than $300.
Dismal and undependable power supply is undoubtedly the main culprit of Nigeria's economic backwardness. However, the situation with the road network, seaports, airports and railway is quite pitiful too. Consider that construction of a rail system linking the East and West Coast of United States in the 18th century, opened a whole new world of opportunities that transformed the so-called "wild-wild-west". California State today is counted as one of the tenth largest economies in the world.
…Infrastructure Basket Case
In fairness, Nigeria's railway system was one of the notable legacies of the colonial era. True to form, the last kilometers of rail-line in Nigeria were built between 1958-1964. Since then Nigeria has been unable to add an inch of rail track or even maintain/efficiently operate the existing network, despite colossal sums of money allocated in the national budget. Total length of railway currently stands at 3500 kilometers, with narrow gauge single-track lines running diagonally across the geographical expanse as the "colonial masters" planned it. Unfunded pension liability of bloated headcount in Nigerian Railway Corporation (NRC) remains a major national concern.
The ability of railway wagons to massively move cargo and passengers over long-distances cheaply is unquestionable. But without such capability, Nigerian roads have become clogged-up with trailers and buses, which explains why economic activity is so sluggish.
With over 60,000 km of bitumen-paved roads, Nigeria has one of the largest networks of standard roads in sub-Sahara Africa. Most of these roads were built especially beginning in the 1970s. Hence President Obasanjo in one of his trips to the Eastern part of the country boasted that since leaving power in 1979, no successive government has been able to match his feat in creating federal highways in the country. Even at that, cash crunch, inefficiency and poor management have rendered the roads and bridges inaccessible or made them death traps. Road trip that could ordinarily take 4-6 hours now last as much as 12-14 hours in the most hazardous of conditions.
The airports and seaports haven't fared better so far in facilitating economic progress in Nigeria. With a teeming population of over 130 million people and net importer of consumer and industrial goods, you would expect that the 5 major seaports and 20 airports around the country would receive the required attention from policy circles. International shipping lines and importers are known to deliberately avoid Nigerian seaports, due to congestion and delays in discharging cargo that could result in very high demurrage and clearing cost. Most importers prefer to dislodge their cargo in neighboring Benin Republic that is considered more efficient and safer.
Analysis of Nigeria's infrastructure offers a glaring snapshot of why economic transformation will not take root, unless drastic measures are implemented. Against this backdrop, one must applaud the recent power reform bill and drive toward deregulating the sector. Another bright spot in this direction was the licensing of Private Telecom Operators (PTO). This singular act has resulted in an exponential growth in fixed and wireless telephone lines from less than 700,000 five years ago to over 11 million today. The net effect of this policy on productivity is unquantifiable.
Given the current policy to allow private operators in the telecomm, power and other infrastructure sectors. Other bottlenecks worth considering are how to finance this plethora of capital-intensive projects and problem of inadequate technical cadres and professional manpower to run the operations. According to the Managing Director of National Electric Power Authority (NEPA) Mr. Joseph Makoju, in building a new power plant, one megawatt of energy costs $500,000. Erecting even the smallest power plant in Nigeria will be a tall order for private investors unless they have their acts together.
As the largest gas-flaring nation on earth, research estimates that 2.5 billion standard cubic feet of gas is burnt daily in Nigeria. Equivalent to the total gas consumption of Pakistan or 25% of UK gas consumption. This flaring represents an annual economic loss of $2,5 billion to Nigeria. It is a well-known fact that gas is a necessary feedstock for thermal electric power stations. Therefore the abundance of gas reserves should be a strong impetus for investors and project sponsors. It does ironically make more economic sense and ecologically expedient to provide gas free of charge to independent power plants than flaring. There is also a substantial ready market for electric power in Nigeria.
Given the growth prospects for infrastructure in Nigeria, if the success of the telecomm industry could be replicated in the power sector, Nigeria might be on its way to sustainable economic recovery. Until that is achieved infrastructure would remain the weakest link in the productivity value chain that is negating prosperity, stifling industrial growth, short-changing poverty alleviation effort, and decimating quality of life.
The International Conference on Investment in Infrastructure and Public Utilities (INVEST-NIGERIA 2005) slated for Abuja between August 2-5, 2005 would hopefully shed more light on the on-going discussion and proffer innovative solutions as to how investors and project sponsors could capitalize on this seeming productivity-gap. More information on the conference could be received from www.AlliedBondConsulting.com. or www.INVESTNIGERIA2005.com by simply calling the conference hotline at 805-516-6600.
Chamberlain is the Founder & President of New Era Capital Corp. and MyCompleteFinance.com, a New York based financial services group. He was previously a Financial Advisor in the Global Private Client Group, of Merrill Lynch.