Economic Update

A multi-billion-dollar overhaul of Nigeria’s transport network is gaining pace as the country looks to plug infrastructure gaps and stimulate economic growth.

As with many hydrocarbons producers, lower energy receipts have put downward pressure on government spending, prompting Nigeria to look to private sector and foreign financing to help fund its rail and aviation projects.

Boosting private sector participation

In statement released in January, Kemi Adeosun, minister of finance, said the government would work to create a more business-friendly environment, enabling public-private partnerships “to thrive in the country”.

To this end, the government announced plans in November to set up a $25bn infrastructure fund for bankable, long-term projects in the transport and energy sectors, with funding to come from domestic pension funds, international investors and Nigeria’s own sovereign wealth fund (SWF). The country’s SWF manages around $1.35bn, according to the SWF Institute, a US-based group that analyses public asset owners.

According to Vice-President Yemi Osinbajo, the infrastructure fund has already drawn interest from investors, including domestic pension funds and other SWFs.

The administration is also hoping that the local capital market will prove to be an effective vehicle for raising funds.

“We believe this is where the capital market can really make itself relevant, by stepping in to close the funding gap,” Adeosun told local media in late November.

The establishment of a dedicated fund should help reduce pressure over the long term on the state budget, although the government has increased investment spending for the current fiscal year.

Under the proposed 2016 budget, released in December, the administration of President Muhammadu Buhari plans to double capital expenditure as a share of total spending to 30%, with a focus on infrastructure development. Of the N1.8trn ($9bn) pledged, N202bn ($1bn) is earmarked for transportation, with another N433.4bn ($2.2bn) allocated to works, power and housing.

Infrastructure investment

One priority for the planned capital upgrades is the railway network. Nigeria’s railway system represents a vital cog in the country’s transport infrastructure network, given the country’s sizeable population and logistic needs. However, years of inadequate funding and poor maintenance have rendered much of the network unfit for use, forcing heavy freight onto the country’s roads.

To address these issues, the government is moving ahead with an ambitious 25-year modernisation of the country’s railway network.

The $60bn programme, launched in 2002 under the former president, Olusegun Obasanjo, is focused on the rehabilitation of existing tracks, though progress has been somewhat uneven.

According to the initial plan, local and foreign investors would provide 80% of the funding, with the government to finance the remainder.

Chinese rail support

China has been playing a growing role in the construction and financing of Nigeria’s railway ambitions since the mid-2000s.

In 2006 Obasanjo signed a contract with China Civil Engineering Construction Corporation to modernise the Lagos-Kano railway line, the first stage of a proposed three-phase upgrade, though works stalled in 2008 due to contractual disputes.

The $850m Abuja-Kaduna high-speed railway — the first in Nigeria — also relied on Chinese involvement, with construction carried out by the state-owned China Railway Construction Corporation.

Following long-running delays, the 186-km, standard-gauge track is now set to commence operations within weeks, according to Adeseyi Sijuwade, former managing director of the Nigerian Railway Corporation.

The train will run at between 120 and 150 km per hour, allowing travellers to commute between the two cities in under an hour.

Talks held in December between Buhari and China’s President Xi Jinping, meanwhile, look to have helped Nigeria make progress on two additional railway projects that have stalled in recent years. February brought an announcement from Osinbajo that the Export-Import Bank of China had agreed to fund two rail lines providing welcome connections to Lagos.

One of the projects will link Lagos to Kano in the north, stretching across 1124 km and costing around $8.3bn, while a separate $12bn, 1402-km coastal railway line is set to connect Lagos to Calabar in the south-east.

Together, the two railways are expected to create approximately 250,000 jobs and should dramatically reduce inter-city transit times and travel costs. Currently, a railway journey on the existing narrow-gauge network can take more than 30 hours from Lagos to Kano.

According to Sahabi Ya’u, chairman of the senate committee on land transport, the Lagos-Kano line was 90% complete as of late February and is on track to be in use by the end of the year.

Airport capacity boost

China is also a major player in Nigeria’s efforts to improve its aviation infrastructure. In 2013, the government secured a $500m loan from the Export-Import Bank of China for the construction of new terminals at the Lagos and Abuja airports, which will more than double capacity.

The new terminals are being built by the China Civil Engineering Construction Company and are slated to be finished by December 2016.

Annual passenger-handling capacity will increase from 15m to 30m at Murtala Mohammed International Airport in Lagos once the new terminal is operational, and from 5m to 16m at Nnamdi Azikiwe International Airport in Abuja.

Other terminals under construction in Enugu, Kano and Port Harcourt will each have the capacity to serve 7m passengers upon completion.

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