A full agenda: Bringing the system up to scratch will be a huge challenge

With impressive economic growth rates in recent years, Nigeria is in need of transport infrastructure befitting an emerging powerhouse. Despite heavy congestion in its urban areas and seaports, the GDP of West Africa’s largest economy – and the continent’s most populous country – grew by an annual average of 7.6% from 2003 to 2011. That this was done with such a heavily used system and limited infrastructure is no small feat.

The completion of a port at Lekki, in Lagos State, in 2015 is expected to take some pressure off Lagos Port Complex and Tin Can Island Port. Nigeria’s road system is by far the primary means of freight and passenger traffic, while the railways have been neglected. The dramatic increase of passenger air travel in the past five years is encouraging, though the country’s airports are in need of modernisation.

GOVERNMENT ROLE: The federal government’s 2010 draft of its National Transport Policy (NTP) provides a general overview of the state of the Nigerian transport system and the framework by which the government hopes to improve the sector’s infrastructure. Much work needs to be done, but if the government can translate will into action, many of its policy objectives will be achievable in the short to medium term. These include integrating the transport system by modernising all elements of the sector. The NTP recognises that lifting the barriers to private enterprise, particularly regarding public-private partnerships (PPPs), is a vital component of any comprehensive transport policy. Where the government has failed to undertake transport projects, it has at least shown a willingness to recognise this by entering into PPPs so that desperately needed projects may commence sooner rather than later.

In addition, in March 2012 Nigeria’s Debt Management Office announced that it would guarantee bonds sold by companies engaged in major road, rail and power infrastructure projects. The move could encourage more firms to engage in competitive bidding for large-scale development projects.

Regardless, the move to backstop corporate bonds is a proactive measure from a government that has previously been accused of being unresponsive to the country’s infrastructural needs.

ROADS: Nigeria has 194,000 km of roadway, according to the Ministry of Transport, and a population of 160m, placing it well inside the bottom quintile in road length per capita. Two-thirds of these roads are local, 17% are federal and 16% are state.

Due in part to neglect of the railways, the roads bear almost all inland passenger and freight traffic.

The lack of a reliable mass transit system means more vehicles on the road, and the result is heavy congestion, particularly in urban areas, where outmoded roads are not ready to handle the demands of the country’s growing commercial activity. If the government’s aim of becoming one of the world’s 20-largest economies by 2020 is to be realised, Nigeria’s roads will require a huge overhaul and expansion. The minister of works, Mike Onolememen, said in May 2012 that the country will need at least 300,000 km of roads to meet this objective. “The commercial vehicle market has strong growth potential.

Rapid development throughout the country, particularly in the southern regions, will require many trucks and logistics operations,” Mirko Plath, the managing director of Weststar Associates, told OBG.

It is not just a lack of roads that causes congestion, but also the poor state of existing routes. Many have potholes so large that motorists have to slow down and drive over them, bringing traffic to a crawl.

Driving in big cities can be frustrating and costly. The dilapidated surface takes a toll on vehicles, and has been estimated to cost the average Nigerian driver an extra $603 annually in maintenance. “A major component of our ground distribution is poor road infrastructure and traffic, which add to delivery costs and impede deliver cycles,” Randy Buday, the managing director of DHL International Nigeria, told OBG.

ROAD PLANS: Nigeria is aiming to increase the length of its road network by 35% by 2020, and several key projects are under way. Among them is the $450m Lagos Infrastructure Project (LIP), designed to ease gridlock around the Eti-Osa Lekki-Epe Expressway. The LIP is expanding and upgrading the 49-km expressway, and will build a 20-km coastal road. Part of this project, the Falomo On-Ramp Bridge, opened to traffic in October 2011, giving motorists bound for Falomo and Ikoyi from Victoria Island more direct access to the bridge. Tolling began in December 2011 as part of the LIP’s 30-year concession to Lekki Concession Company. According to the Lagos State PPP Office, LIP’s financing will be recovered through tolls, advertising fees and other sources.

Another major active development is the 309-km road linking the port cities of Warri and Port Harcourt. In 2006 N200bn ($1.28bn) in contracts were awarded by the government to overhaul the road, but by May 2012 cost projections had ballooned to N360bn ($2.3bn) with just half of the project completed. It is hoped the road will be finished by 2015.

The World Bank has been active in the transport sector, particularly via the $365m Federal Roads Development Project, which is overhauling roads and highways around Nigeria. In May 2012 Onolememen announced an additional $300m commitment from the World Bank to upgrade and maintain 792 km of existing roadway, in addition to a $10m loan to improve road safety. The African Development Bank has also been a player in the sector, having invested 89% of the $167m required for three projects in the Nigeria-Cameroon highway corridor.

RAIL: Despite having one of the continent’s most elaborate rail networks, lack of maintenance reduced traffic from 3m tonnes of freight and 3m passengers a year in 1960 to a near standstill by the new millennium. The railways remain in a dilapidated state despite successive modernisation attempts.

The network consists of 3505 km of narrow-gauge (1067-mm) track, alongside 254 km of standard-gauge (1435-mm), along two main routes: the western line from Lagos to Kano and north-east to Yobe State capital Nguru, and the eastern line from Port Harcourt to Maiduguri. While a four-year modernisation effort from 1978 led by Indian consultants fell through, a $500m rehabilitation contract under the Abacha government in the 1990s and the award of a $8.5bn Lagos-Kano upgrade contract under the Obasanjo government in 2006 were never implemented. While limited infrastructure upgrades took place, train operations were discontinued due to inadequate maintenance and mismanagement.

While most of its neighbours operate standard-gauge rail lines, Nigeria’s narrow-gauge lines allow for sharper turns but sacrifice speed, with trains operating at a maximum of 100 km per hour. Although different track widths sacrifice some operational efficiency, Nigeria is forging ahead with narrow-gauge network upgrades and expansion of standard-gauge lines that will allow the government to concession train operations to the private sector. The patchwork of different lines could pose some challenges for efficient freight handling, but the rehabilitation of lines is vital to introducing competition in rail services provision.

OVERHAUL: The NTP summed up the state of Nigeria’s railway system as follows: “It has deteriorated in all areas, and is caught up in a vicious circle of declining traffic, endemic deficits, decreasing capacity to serve its customers resulting in further loss of revenue. In short, the railways have ceased to be economically viable. If the present imbalance of the transport sector is to be corrected and the goals arising from increasing industrialisation be actualised, the Nigerian railway must be resuscitated.”

In a serious push at overhauling the network, several key projects are either under way or in the planning stages to upgrade the system (see analysis). Much of the track has not been maintained and has fallen into disrepair due to inadequate funding and inefficient management of the Nigerian Railway Corporation (NRC) the state monopoly responsible for oversight of the system. However, in 2012 the National Assembly, with the blessing of the Ministry of Transport, moved to repeal legislation that had bestowed the NRC with monopolistic powers.

This move could lay the groundwork for greater private sector participation, which will be important for any rehabilitation of the network. In recent years the government has awarded contracts for several railway projects, including a renovation of the 488-km Western Line from Lagos to Jebba, and also a N31bn ($198m) contract to install new signalling equipment across the country. In May 2012 President Goodluck Jonathan announced a memorandum of understanding with General Electric on the construction of a new locomotive assembly plant. Then in June the government granted N67bn ($429m) in contracts to three foreign firms for additional work on various lines. In addition, in 2012 the NRC purchased 20 tank wagons for the transport of petroleum products on the Lagos-Kano rail line when it comes into use. The NRC is considering adding another 50 tank wagons to the fleet at a cost of $9.6m.

CABOTAGE: In 2003 Nigeria’s National Assembly passed the Coastal and Inland Shipping (Cabotage) Act, which took effect the following year, designed to boost domestic shipping interests by allowing only vessels built and registered in Nigeria to engage in domestic coastal trade. The act covers all of Nigeria’s territorial waters and inland waterways, and applies to the transport of goods and passengers.

However, it has been ineffective at spurring the kind of growth in the domestic maritime industry proponents of the law had anticipated. In June 2012 the National Assembly commenced a review of the act after domestic stakeholders charged its waiver clause had been used liberally to grant exemptions to vessels owned or registered in other countries.

Funding has also been a problem for local shipping interests, as banks have been reluctant to finance the domestic maritime industry, rendering such waivers necessary to ensure the number of vessels is adequate enough to meet current demand.

PORTS: Shipping as a whole has been on the rise, as 2011 saw a 10% increase in throughput at the country’s ports compared to the previous year, according to the Nigerian Ports Authority. Laden container throughput was 817,246 twenty-foot equivalent units (TEUs) in 2011. Cargo shipment for the year totalled 13.3m tonnes — a 47% increase from 2010. Dry bulk goods tallied 12.9m tonnes for an 8.5% increase on 2010. Liquefied natural gas shipments reached 22m tonnes – a 15% rise – while shipments of refined oil increased 19% to 21.5m tonnes.

Since they were concessioned to the private sector in 2006, Nigeria’s major ports have become much more efficient. Where dwell times for ships were often measured in weeks or months, turnaround for ships – even in the commercial hotbed of Lagos – has been reduced to two or three days at the most. Lagos Port Complex, at Apapa, has been managed by APM Terminals (APMT) since the subsidiary of Denmark’s AP Moller-Maersk won a 25-year concession with a $1.2bn bid in 2006. Around half of Nigeria’s imports are processed at Apapa, including 45% of dry container imports. Lagos’ ports imported nearly 650,000 TEUs of containerised goods.

RED TAPE: Importers to Nigeria have been frustrated by the immense bureaucratic overlap at the nation’s ports. Following the order of the Ministry of Finance in October 2011 the number of federal government agencies – and onerous amounts of associated paperwork – which exerted either direct or indirect oversight of imports at points of entry was reduced from almost 15 to 6 official bodies: the Nigerian Ports Authority, the Nigeria Customs Administration, the Nigeria Immigration Service, the Nigeria Police Force, Port Health Services and the State Security Services. This is compounded by the fact that the overseeing agencies often lack the workforce necessary to inspect and process incoming containers in a timely fashion. In addition, the Nigeria Customs Service enforces a long and frequently changing list of contraband.

The result is an average container wait time at Lagos Port Complex of 25-30 days from container arrival to clearance. Despite pledges by the government to streamline cargo processing, importers have seen little progress in this regard. “Nigeria is the logical maritime hub for West Africa, but it needs to address its infrastructural deficiencies,” Eric Opah, the CEO of Fortune Global Shipping, told OBG.

NEW CAPACITY: Some progress is being made in terms of infrastructure. Most notable is a $1.5bn PPP for first phase development entered into by the federal government, Lagos State government and the Tolaram Group to build a port in Lagos Free Trade Zone in Lekki, 65 km east of Lagos. Construction is scheduled to begin in the second half of 2012, with the first phase expected to be complete in the first quarter of 2015. It will be the deepest port in West Africa, featuring three container berths, one dry bulk berth and three liquid berths. The state of roads surrounding the ports, especially in Lagos, has been a prime cause of the vehicular bottlenecks that are frequently experienced at Tin Can Island and Apapa. Potholes are common on the road servicing the ports, damaging vehicles and causing congestion.

Trucks parking on the main road while waiting to offload their cargo at the terminals have also been an issue, causing major blockages and turning a five-minute drive from Tin Can Island to Apapa into an hour-long odyssey. However, in May 2012 federal and state authorities worked together to remove 60 trucks parked on the Apapa-Oshodi Expressway. Officials have pledged vigilance to ensure the road remains free of trucks, tankers, containers and other obstructions. As for the physical condition of the vital expressway, the government has been mulling over the concession of a 1.6-km stretch of the road leading into the ports. “Containerised imports into Nigeria have been growing at an annual rate of 16%. It is important that structural solutions are proffered by all stakeholders to cope with future volumes – not only within the port itself, but the road or rail network that leads to and from it,” Jan Thorhauge, the managing director of Maersk Nigeria, told OBG.

AVIATION: In 2011 14.6m passengers — around 12m of whom were on domestic flights — and 122,700 tonnes of cargo passed through Nigeria’s airports, according to the Federal Ministry of Aviation. Aircraft movement at its 30 largest terminals increased from 192,828 in 2008 to 221,272 in 2009, according to the Federal Airports Authority – a 15% spike. As with other sectors, aviation infrastructure is hard-pressed to keep pace with rapidly rising demand, with passenger numbers having increased more than sevenfold from the 2m of 1999. However, Nigerian carriers are currently playing catch up in terms of competing with foreign airlines in international travel. While growing passenger and freight air traffic levels are encouraging, major improvements are needed to bring the country up to speed. The three largest domestic carriers are Aero, Arik Air and IRS Airlines. Air Nigeria was also a notable domestic player until the company announced the closure of its worldwide operations in September 2012, due, in-part, to non-compliance with tax obligations. Its closure came with the controversial lifting of an operational ban on Dana Air – whose flights were grounded following a crash in June 2012 that called into question the airworthiness of Dana Air’s fleet.

BATTLING COSTS: For these carriers, fuel constitutes 38-45% of operational costs, while maintenance comprises 28-30%. In 2011 the cost of fuel was between $0.96 and $1.28 per litre, when $0.77 or lower is considered ideal. In Kano, the figure was $1.86. Furthermore, tariffs on imported aircraft parts, along with the lengthy time they take to pass through Customs, costs local carriers significant amounts of time and money. Other factors are the lack of domestic maintenance activity and a shortage of local human capital, which results in the use of costlier expatriate workers. All of this gives the international competition an advantage. However, the market is still seeing increasing passenger and freight volumes, indicating the potential of the industry. The managing director of Aero Contractors, Akin George, told OBG, “We need to build an environment in which Nigerian airlines can compete internationally.”

FLY NIGERIA ACT: There has been a chorus of support from certain local aviation stakeholders for the Fly Nigeria Act (FNA). Among its provisions, the FNA would mandate that all government officials use Nigerian carriers when flying internationally, regardless of added costs. The bill’s sponsor claims it will mean an extra $3.2bn annually for Nigerian airlines, because that is the amount currently spent ferrying government employees on foreign carriers. It would also implement a revenue-sharing scheme among airlines to create a more level playing field between domestic and international players. However, the FNA may not fix the cost of doing business for carriers. “I don’t believe that the FNA will have a major impact on domestic airlines as most players simply don’t have the capacity to serve international routes frequently and consistently,” Yemi Dada, the managing director of IRS Airlines, told OBG.

MASS TRANSIT: In addition to expanding and maintaining roads, urban congestion can be alleviated through the development of a viable public transport system. As the federal government phases out the national petrol subsidy, more commuters may turn to the Bus Rapid Transit (BRT) and other commuting options. Given that its population is projected to grow 3% annually through 2015, Lagos has become a focal point for new public transport initiatives. The Lagos Metropolitan Area Transport Authority ( LAMATA) has been proactive in attracting the necessary funding for several important bus and rail projects.

Lagos’s BRT system features a fleet of 220 buses that travel on specially designated roads. Some 200,000 passengers avail themselves of the BRT each day. LAMATA has attracted passengers by reducing average BRT fares by 30%, according to the World Bank, despite the rising fuel costs. Also under development is the Lagos light rail network, which will be regulated by LAMATA. The $1.2bn contract to build the Blue Line, which will run 27.5 km through 13 stations from Okokomaiko to Marina, was awarded to the China Civil Engineering Construction Corporation. In anticipation of the Blue Line’s 2015 completion, Nigerian firm Eko Rail has bought 255 subway cars from Canada’s Toronto Transit Commission. Also being developed is the 30-km Red Line, to run between Marina and Agbado. LAMATA hopes to later add five more lines, to be serviced by Eko Rai.

Work on the rail system has been under way nationwide. Kano launched a mass transit rail service in 2010, and in 2011 it was announced that Enugu State would start work on a 117-km, $1.6bn monorail project. Anambra State has concluded a PPP agreement for the construction of a monorail for the city of Onitsha, and the Federal Capital Territory is mulling the implementation of its own rail system.

OUTLOOK: There is no single answer for bringing the transport sector up to speed to meet the needs of the economy and population, and any approach to overhauling it must be comprehensive. The government is aware of this, as evidenced by its NTP, which calls for initiatives to modernise roads, bridges, rails, ports, urban transport and other areas vital to commercial activity. The numerous projects reflect this and indicate the willingness of state and private firms to cooperate to meet the economy’s demands.

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The Report: Nigeria 2012

Transport chapter from The Report: Nigeria 2012

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