From rails and roads to ports and airports, Nigeria’s transport sector is facing an extensive overhaul. The country has long suffered as a result of inadequate investment in infrastructure, constraining the movement of people and goods, and prompting the government to push for the rehabilitation and expansion of the country’s entire transport network.
The Plan
In December 2015 Rotimi Amaechi, minister of transport, announced that the government is working on a national transportation master plan. “For a sector that plays a major role in the nation’s development, there is an urgent need to exploit the opportunities that abound within the sector to improve its contribution to the national economy,” Amaechi told the local press. “While reducing dependence on oil revenues, it will also develop the rural economy, and reduce unemployment and urban drift.” While public budgets have been constrained by economic conditions, the current administration’s budget commitments, coupled with its desire to bring the private sector on board, promises to improve the capacity and quality of the transport network. This will create opportunities for the construction industry and service operators to capitalise on the significant potential of the 184m-strong Nigerian market.
Indicators
The transport sector currently falls well short of its potential. The network, including rail, aviation, ports and roads, contributes only 1.41% to GDP. Despite this, year-on-year (y-o-y) growth between 2014 and 2015 was positive, according to Central Bank of Nigeria (CBN) data. The sector contributed N805.5bn ($2.5bn at the time of printing) in 2015 compared to N770.7bn ($2.4bn) in 2014, representing y-o-y growth of 4.5%. This upturn follows a contraction of 17.8% between 2013 and 2014.
The current limitations of the country’s transport network hamper trade and increase costs for producers and manufacturers, as well as importers and exporters – Nigeria ranks 182nd out of 189 countries for trading across borders in the World Bank’s 2016 “Doing Business” report. The cost and time it takes to both import and export is well above the average for sub-Saharan Africa and OECD high-income countries.
Border compliance in Lagos, for example, takes 298 hours for imports and costs $1077. This compares to an average of 160 hours and $643 in sub-Saharan Africa and nine hours and $123 in OECD high-income countries. Similarly, while the same procedure for exports takes 159 hours and costs $786 in Lagos, this is reduced to 108 hours and $542 in sub-Saharan Africa and 15 hours and $160 in OECD high-income countries. A comparison of the time and cost of documentary compliance for imports results in a similarly negative result, taking 173 hours in Lagos, 123 hours on average in sub-Saharan Africa and four hours on average in the OECD countries. In terms of export documentary compliance, Lagos stands at 131 hours, sub-Saharan Africa at 97 hours and OECD high-income countries at five hours. This level of performance is also reflected throughout Nigeria’s transport system, resulting in a range of issues, from road congestion and accidents – tailbacks are a frequent occurrence and can extend daily commutes by several hours – to airport and airline delays.
Spending
The government is also looking to increase spending prior to the launch of the transport master plan, and as part of its efforts to ramp up rehabilitation and expansion activity. In October 2015 the current administration announced a $25bn national fund for infrastructure. This is also being backed by several line items in the N6trn ($18.9bn) national budget for 2016, which includes N433.4bn ($1.4bn) for the Ministry of Works, Power and Housing and N202bn ($637.7m) for the Ministry of Transport. As the two largest recipients of budget allocations, these ministries are expected to be instrumental in driving spending on improvements to the nation’s transport infrastructure over the coming year.
Roads
Nigeria has the largest road network in West Africa. However, although it accounts for 90% of passenger and freight movement in the country, large parts of the network are not well-maintained, and a high road traffic death rate of 20.5 per 100,000 people remains, according to the World Health Organisation’s “Global Status Report on Road Safety 2015” report. There is increasing pressure on the government to reverse the deterioration of the road network and extend the system to keep pace with economic and population growth. In its current state, the network falls significantly short of global benchmarks for paved road-to-population ratios.
To address this, the government has allocated N208bn ($656.7m) for roads projects and pledged to finish 200 roads – currently at various stages of completion due to funding issues – by the end of 2016. It has also planned to build 6000 km of strategic roads by 2018. A number of public-private partnership toll-road concessions are also being rolled out as a way to pay for the maintenance of federal roads.
Rail
The government has already made substantial strides in transforming the country’s rail infrastructure, which offers the greatest opportunity for shortterm reductions in shipping costs but which has been largely neglected in recent decades.
The current administration is building on the work started by former president Goodluck Jonathan, which laid the groundwork for the network’s rehabilitation and the recommencement of services on existing lines. The Lagos-Kano narrow-gauge line was reopened in late 2012 after a decade-long period of closure. The Jonathan administration invested N24bn ($75.8m) to upgrade tracks and signalling equipment, and purchase new rolling stock, including 25 GE locomotives and 500 wagons and passenger coaches. However, the existing network is narrow-gauge, which hampers the ability to run faster trains on the line. Trains navigate the Lagos-Kano route at an average speed of 35 km per hour, taking around 33 hours to complete the 1126-km journey, whereas a high-speed train, which travels up to 200 km per hour, would take six hours to complete the same journey.
As such, the current government is committed to overhauling the whole line, introducing standard-gauge tracks and faster rolling stock to the network. In March 2016 the Nigeria Railway Corporation (NRC), the owner and operator of the infrastructure, commenced testing on the new Abuja-Kaduna standard-gauge line. Built at a cost of $874m by the China Civil and Engineering Construction Company (CCECC), the 186.5-km route will have nine stations and run trains at speeds of 150 km per hour. Funding for the project was provided by the federal government and a $500m concessionary loan from China Eximbank, according to local press reports.
This is the first step in plans to overhaul the entire north-south line. In its original conception in 2006, the Lagos-Kano standard-gauge modernisation project was awarded in a single $8.3bn project to CCECC. However, after funding problems, the project was reconceived and split into several packages. CCECC was awarded a $1.53bn contract for the next segment of the line, the 312-km route between Lagos and Ibadan, which is set to be delivered by 2018, according to local press reports. Other packages include the 300-km line between Lagos and Benin City, the 615-km high speed Lagos-Abuja line and the 1675-km Port Harcourt-Maiduguri line.
Private Partners
Given previous funding challenges, it is unsurprising that the government is looking into using a public-private partnership (PPP) model for rail projects. Currently, the state-owned NRC is responsible for all operations on the rails, as per the 1957 Railway Act. In early 2015 the Federal Executive Council approved the Nigerian Railway Authority Bill 2014 in a bid to open up the sector to private investment and operation. The bill still needs final approval by the National Assembly. If passed, it will allow for railway concessioning and establish a regulatory framework for private sector participation. Thus far, contracts have been largely won by Chinese banks and contractors, from general contracting to sub-contracts and rolling stock orders.
Given the constrained spending potential of passengers in Nigeria and the need to limit ticket prices, passenger volumes will be crucial. It will, therefore, be critical for the government to package concessions in a way that interests potential bidders. “If you have a concession, it would have to maximise the opportunities coming from passengers and freight. You would have to make sure it has good end-to-end connections and give some leeway to the concessionaire to run freight on the lines,” Tola Sapara, country director for Alstom Transport, Nigeria, told OBG. There has also been a push to rehabilitate the old narrow-gauge corridors for freight use, with the standard-gauge lines taking over passenger services. “It might be exciting for investors if you have freight concessions on the old corridors,” Sapara told OBG. “An investor can be profitable on the narrow-gauge with freight, and then build a standard-gauge line in the same corridor for higher-speed passenger services,” he said.
Shipping
The maritime shipping sector has had to grapple with several macroeconomic headwinds which have led to slowing freight volumes, particularly for container traffic. “In 2015 the containerised import market dropped by about 15%, and the first quarter of 2016 looks like another 20% reduction on top of that,” Richard Smith, trade and marketing director at Maersk Nigeria, told OBG.
This is a reversal of the upward trend that has persisted since the global financial crisis in 2008. Indeed, between 2008 and 2014, containerised traffic at Nigerian ports increased by more than 100% to around 1.85m twenty-foot-equivalent units (TEUs), according to data from the Nigerian Ports Authority (NPA). In its annual report for 2015 the NPA reported a container throughput of 1.54m TEUs, a 20% decrease over 2014 levels. This trend continued into the first quarter of 2016, when the NPA reported a container throughput of 317,731 TEUs compared to 375,729 during the same period the previous year.
Traffic Slowdown
The traffic decline is largely attributable to the fall in global oil prices and currency depreciation, which have led to a slowdown in growth and government spending. Laden containerised imports far outnumbered exports in the NPA’s figures, reflecting Nigeria’s position as a consumer country. The authority noted in its 2015 report that over 86% of imported laden containers left Nigeria empty, with non-oil commodities making up less than 10% of the export volume and less than 3% of the total volume of trade in the country. Agricultural products accounted for over 90% of non-oil exports, the bulk of which were cocoa beans and palm kernel.
The CBN has also restricted the use of foreign exchange for the payment of 41 different imports to encourage local production. This has limited the ability of companies to purchase foreign-made goods and has curtailed trade volumes entering the ports. The exchange rate and capital controls also directly complicate payment procedures for shipping firms; most firms are paid in naira, but foreign subsidiaries are unable to access the requisite foreign currency to remit back to their head offices or to pay government firms and agencies that demand dollar payments.
The drop in volumes has also led to a fall in prices, with shipping rates on the Lagos route declining. According to the Shanghai Containerised Freight Index, rates between Shanghai and Lagos fell by 36% to $966 per TEU between mid-October 2015 and late March 2016. As such, shipping lines have had to look at ways of adapting to the current environment. “We have to make self-imposed changes to our deployed capacity to reflect the changing demand patterns in West Africa, in particular in Nigeria,” Smith told OBG “Focus remains on effective utilisation of our vessels.”
Despite attempts to impose greater efficiencies, for some shippers the challenging environment has become too much. In the four months to the end of February 2016, three shipping lines exited the Nigerian market. Nippon Yusen Kaisha of Japan, Evergreen Line of Taiwan and Messina Line of Italy all withdrew due to difficulties generating adequate revenue. This is perhaps unsurprising, as by September 2015 many terminals in Nigeria were operating at just 30-40% of capacity across all cargo types.
More Efficient
However, there is a silver lining. The drop in trade volumes has had a beneficial, if unintended, impact on operations at the ports. Dwell times for containers at Apapa Port in Lagos have been reduced by up to three days and now stand at around 14 days. This will be welcome news for freight forwarders and businesses familiar with the extensive delays associated with Nigerian ports. Nor is Nigeria losing business to neighbouring countries. “I think Lome in Togo, Tema in Ghana and Apapa in Lagos, are very comparable in terms of efficiency levels,” Smith told OBG. “I don’t believe anyone is currently diverting cargoes as a result of port inefficiencies.”
Capacity Expansion
The government has realised it will need to boost port capacity to be competitive in the longer term. Indeed, plans for three new deepwater ports are already under way. In 2015 work began on the $1.5bn Badagry Deep Seaport, which is set to be the largest deepwater port in Africa. Another port, in Akwa Ibom State, is still in the planning stages.
Once completed, these projects will significantly improve the capacity of the country’s port infrastructure. At the moment, Nigeria’s main port at Apapa in Lagos has a depth of 13.5 metres, meaning it cannot handle the world’s larger container ships, which can have a draft of up to 16 metres. Furthermore, while Apapa is the busiest port in West Africa, handling over 625,000 TEUs each year, its capacity is much less than the busiest ports in the world, and it ranks outside the top 100 globally. Although Nigeria had, until recently, been struggling with port traffic and efficiencies, the government’s current infrastructure plans could lead to a dramatic reversal in the space of a few years. This is particularly the case given similar port aspirations throughout the region. “Along the coast [of the Gulf of Guinea] by 2020, you will have a deepwater port in Nigeria, and probably also in Ghana and Benin, as well as the existing one in Lome,” Smith told OBG. “Clearly terminal capacity for the coast will exceed capacity, whereas currently it is largely in balance. This may change how shipping lines serve the region, with the option of using fewer – but bigger – ships.”
Aviation
In recent years, domestic and overseas passenger traffic through Nigeria’s airports has risen steadily, with Murtala Muhammed International Airport (MMIA) in Lagos, accounting for over 60 per cent of the total passenger and aircraft movement.
Between 2010 and 2013 total passenger air traffic grew at a compound annual growth rate of around 14.3%, according to the latest available figures from the Federal Airports Authority of Nigeria. In 2013 air passenger numbers increased by 1.37% y-o-y from around 14.08m to 14.3m. Recently, however, the aviation industry has suffered from a reduction in air traffic due to the slowing economy. In the second quarter of 2015 international passenger numbers were down by 27.93% on the previous quarter and 6.55% on the same period in the previous year, according to data from South Africa Airways. In the same quarter, there was a 4.38% fall in cargo volumes, 1.85% less than the figure for the same period in 2014.
Despite these short-term difficulties, the mid- and long-term outlook for the sector is very promising. Domestic travel, which accounts for the majority of all passenger traffic, has excellent growth prospects, thanks to Nigeria’s growing population and rising incomes. More importantly, the government is also making headway with its sector-wide transformation programme, which aims to address infrastructural challenges that, due to a long period of underinvestment, have hindered the sector’s profitability. Conducted by the Federal Ministry of Aviation and backed by a $500m loan from the China-based Eximbank, the work includes the construction of new terminals at all four of Nigeria’s international airports and upgrades to 22 of its federal airports. Indeed, MMIA’s new passenger terminal, set to open by the end of 2016, is expected to increase the airport’s capacity by 1m passengers per year, and will significantly ease passenger flow at times of peak traffic.
Public Transport
The government is currently looking to involve private companies in the funding and operation of the country’s public transport networks. Lagos, Nigeria’s commercial centre, is slated for a transport overhaul in the coming years, offering ample opportunities for private sector involvement and investment. By the beginning of 2017, the first light rail line will become operational, and an extensive bus rapid transit (BRT) network is currently being rolled out. All of this is detailed in the city’s Strategic Transport Master Plan (STMP), which was released by the Lagos Metropolitan Area Transport Authority (LAMATA) in 2015. The document, which aims to address the chronic traffic problems of the city, calls for seven rail lines, one monorail, 14 BRT routes, 26 water transport routes and three cable car lines. “Under the STMP, we looked at the land use for all of Lagos and the use along each corridor,” Frederic Oladeinde, technical advisor for transport planning at LAMATA, told OBG. For high-volume corridors projected to carry more than 300,000 passengers, the government decided to employ rail. For lighter volumes, BRT was determined the better option. “The consideration between them was done on a cost-benefit analysis,” Oladeinde told OBG.
The new system, which will eventually include seven lines, will initially consist of three lines starting at the Marina, in central Lagos. From there, the Blue Line will run to Okokomaiko, the Red Line to Agabo, with a branch to the airport, and the Green Line to Lekki. While the cost of building a light rail system in Lagos is estimated at $30m per km compared to $2.5m per km for BRT, rail is able to carry greater passenger volumes and can also be utilised for business and industry. “The decision to build rail goes beyond passengers,” Oladeinde told OBG. “On some lines we are looking at the movement of freight as well.” The Green Line, for example, has been earmarked for freight transportation at night. The network will also have time-saving and accident-saving cost benefits.
Blue Line
The first two phases of the Blue Line are pegged for completion by the end of 2016, offering a 14-km rail route along one of Lagos’ busiest transit corridors towards Badagry. The line will initially run from Marina to Mile 2 and stop at five stations. In its third phase, the line will extend from Mile 2 to Okokomaiko, along the soon-to-be expanded 10-lane Lagos-Badagry road, incorporating a further six stations. CCECC won the design-build contract for the line and began work in 2009. In 2015 the government also signed a $14.65m deal for 15 Chinese-built electrical multiple units to run on the line.
The infrastructure is expected to have a sizeable impact on traffic flows in Lagos. Given that traffic problems cost the state around N250bn ($789.3m) each year, with the country’s so called “go slow” traffic jams a common complaint, the new lines will be warmly welcomed. Unregulated buses or cars conducted 90% of motorised trips in Lagos in 2013. As such, it currently takes up to two hours to traverse the full route of the proposed Blue Line by motor vehicle, due to congestion, but once the rail line is fully operational it will take just 34 minutes. In 2017, after the completion of the first two phases, the Blue Line will carry up to 300,000 passengers a day and create travel-time savings of up to 45 minutes.
Financing
The light rail system is a much-needed addition to the transport network of Lagos, but its construction has not been without challenges. Funding issues for the $1.1bn project have led to serious delays in delivery. Initially, construction was scheduled to be completed by 2011, with financing supplied by the state government of Lagos. However, public funding constraints meant that a $200m loan from the World Bank was necessary to bring the project to completion. The funding and provision of public transport infrastructure remains a thorny issue. “The government funded infrastructure to demonstrate to investors that investing in transport is viable in Lagos,” Oladeinde told OBG. The state hopes to develop the local transport network on a PPP basis moving forward, though this may be difficult.
At the time of publication, the government had yet to secure a concessionaire to operate the first segment of the Blue Line. Under the STMP, the government had estimated the payback period for infrastructure and rolling stock across the six rail lines at 13 years, calculated at a cost of $1 per trip. However, in 2011 the government estimated the payback period for the Blue Line alone would be 18 years.
Despite its willingness to offer a concession of between 25 and 40 years, the government has yet to conclude a deal for the operation of the line. Eko Rail, a Nigerian company supported by Verod Capital Management, Investec Bank and First Class Partnerships, Britain, was in negotiations with the government for the concession, but these fell through. Oladeinde informed OBG that this was because both parties were unable agree on the estimated minimum guaranteed number of passengers on the system, which, in the event of passenger numbers falling below this number, would result in compensation being paid to the operator by the government.
Other potential points of contention include the franchise fee that the operator would have to pay the government as the infrastructure owner, and whether this fee would be fixed or based on passenger volumes; and also who would be responsible for maintaining the infrastructure. Concluding the agreement is vital, as it will ensure that the Blue Line begins operations on schedule and encourage investors to participate in future transport development.
Red Line
Lagos State is already looking into ways of securing funding for the second light rail line, the Red Line, given the funding difficulties experienced with the first route. “The Red Line is going to be a different funding model. Initially, we were looking for a private investor, but we realised there would be a viability gap in terms of revenues. The government will plug that viability gap and there will be a combination of public and private money,” Oladeinde told OBG. The federal government gave the go-ahead for the $2.4bn Red Line in November 2015, following long negotiations over rights of way with the NRC, in light of the route being shared with the national rail network.
Bus Rapid Transit
The 22-km pilot route between Mile 12 and Christian Missionary Society in Lagos was initially awarded to First BRT Cooperative, and operations began in 2008. Under the agreement with First BRT Cooperative, the operator paid a fixed franchise fee every year, while the government was responsible for the maintaining the infrastructure and the operator was charged with procuring and maintaining the bus fleet. However, in January 2016 the government terminated the agreement, citing non-compliance as the cause, according to local press reports. At the time of publication, there were no details available about a replacement operator.
Despite these issues, the new BRT has largely been a success, and passenger numbers have increased steadily. Average daily ridership has reached 180,000, with the average waiting time estimated at 15 minutes. Journey times have been reduced by 40% and waiting times by 35% compared to conventional buses. Furthermore, travel costs for passengers have fallen by 30% on average. Under the agreement with First BRT Cooperative, the network fare was capped at N70 ($0.22) for travel in one zone and N120 ($0.38) for travel across two zones, with any proposed fare increase to be negotiated with the state government.
The payback period on the rolling stock investment for the first BRT route was estimated at three years. The general traffic and revenue performance has also given the banking sector confidence to offer finance. Ecobank, for example, provided a N1bn ($3.2m) loan for procuring 100 buses for the pilot route.
Outlook
The current anticipation and uncertainty in the ports sector is matched across Nigeria’s transport industry. Despite the government’s substantial project pipeline and increased budget allocations, potential issues connected to investment, funding and coordination could limit their implementation. The anticipated overhaul of the industry will only happen if the private sector can be fully engaged. The success of future transport projects also depends on the coordination and integration of the networks to provide intermodal connections and seamless travel for people and goods these ambitious new routes.
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