Lagos, Nigeria

Breakthrough route from infrastructure conundrum

Breakthrough route from infrastructure conundrum

The world is changing at a rate faster than our ability to respond to the changes, resulting in the widening of inequality gaps and the gradual erosion of the middle class. Infrastructure facilities are the building blocks of a society upon which financial and human capital development can thrive. The role of infrastructure in ensuring economic growth at a time of sluggish global economy cannot be over-emphasized. According to the IMF, a 1% increase in infrastructure expenditure will result in an average of 1.5% points in GDP over 4 years and this goes as high as 2.6% points for more developed countries where infrastructure is properly planned and executed. Investment in infrastructure generates positive externalities making it an enabler of economic growth through a two-pronged stream of benefits: firstly, the flow of money into the economy through spending, and secondly, the benefits of improved production capacities upon successful execution of an infrastructure project.

Nigeria, like many other emerging economies, has been struggling with building infrastructure with problems ranging from high project finance requirements to the inability of the government to actively engage the private sector in financing infrastructure projects. This has contributed immensely to her ever-increasing infrastructure deficit and a rapid deterioration of already existing ones. In a bid to break through this conundrum the following process is advised:

·        Political Commitment: To be able to effectively engage the short-term profit-oriented private sector in investing in long-term-natured infrastructure, the government has to honestly speak the language of infrastructure building. Most times the government engages in the compression of the infrastructure cycle by looking for quick fixes and short-term investments in infrastructure that can create an illusion of progress rather than embark on long-term projects necessary for addressing the broader challenges. Through the provision of good leadership, outlining a strategy as well as creating agencies to effectively plan and implement infrastructure projects, the government can create an atmosphere that will attract private sector investment to the infrastructure market.

·        Decentralization of Infrastructure building: Federal structures lack the capacity to effectively accommodate the rate at which the world is changing thus limiting their ability to respond to these changes. Decentralization will make room for efficient needs assessment and the implementation of plausible projects tailored to meet each polity’s identified needs. The State governments should carry greater responsibility for building infrastructure while being supported by the Federal government. When states focus on bridging their individual infrastructure gaps, the effect will be felt at the national level through an improvement in production capacities, reduced misery indices, and improved living standards as well as a significant reduction in inter-state migration pressures.

·        Open Consultations: Like any other project, infrastructure projects have risks embedded that can deter investments from the private sector. It is therefore essential to engage in consultation with all stakeholders to capture their interests when designing an infrastructure project. For instance, if the dualization of a network of roads will encroach on a pre-existing market, adequate measures must be taken to inform the traders and educate them on the necessity of the project, re-settle affected traders, and give ample time for the resettlement process. All these will only be communicated effectively through open consultations. This will build people’s trust in the process, reduce the risks in the project, and create an atmosphere that attracts domestic and foreign investment to infrastructure markets.

·        PPPs: PPPs are not called Public-Private Partnerships without a reason. The government, just like their private sector partners, has a financial commitment. Though the budget allocation to capital expenditure has risen over the past years, more still needs to be done to achieve the results we clamour for. The government should also design bankable projects to attract private sector investment regardless of the class of infrastructure. As unattractive as sanitation might seem, if properly packaged into a bankable infrastructure project, it can attract private sector investment.

·        Regulatory Adjustments: There are two ways to finance infrastructure: through government funds and through capital markets. Due to the large financial requirement and long-term nature of infrastructure, capital markets are always considered the most suitable financing option. Regulatory restrictions can create risks in financing infrastructure through capital markets. It is therefore essential to de-risk infrastructure projects requiring an investment by improving their operational environment. Brazil, for instance, had to change some of the regulations for insurance and pension-fund systems, allowing them to have a larger share of their investment in infrastructure bonds.

The world is transitioning from being satisfied with merely achieving quantitative improvement to qualitative improvement in sectors like education, health, transport, and sanitation. Nigeria should not lag behind. More needs to be done to protect her citizens from the effects of the world’s dynamism. The advantage of investing in infrastructure is that it stimulates demand in the short term, through job creation, and creates new supply in the medium term. Deliberate steps need to be taken to build the schools, hospitals, airports, rail tracks, and execute other infrastructure projects that will serve as catalysts for economic growth and improve the general well-being of people.


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