Abstract
In October 2008, Nigeria' s federal government said it estimated that the
country would need at least
US$510bn-worth of investments in
infrastructure over the next decade. BMI is optimistic about the
strides
the government has been taking to increase the level of private participation
in the provision of
infrastructure and we anticipate increased activity.
However, we warn against fundamental risks in the
country' s business
environment that, unless addressed, will keep many investors at bay. The
government
said that the US$510bn required for investments in the various
infrastructure sectors over the next ten
years are necessary if Nigeria is
to be considered a leading economic player in the region. At least
US$100bn will be needed in the first five years for investments in the power
sector (US$18-20bn), the
railways (US$8-17bn), roads (US$14bn), and the
oil and gas sector (US$60bn). The central question, of
course, is that of
financing. The Nigerian daily Business Day reported in July 2008 that Nigeria
was
planning to attract US$600bn in foreign direct investments by 2020 to
bridge the financing gap in
infrastructure. Public-private partnerships
will be pivotal, but reforms are necessary to attract the private
sector
for the long term. The country faces several major challenges: endemic
corruption, high risks to
physical security, and weak enforcement of
property rights are highly visible constraints to the country' s
business
environment. As part of a comprehensive development strategy called Vision
2020, the
government has shown commitment to reforming the business
environment and turning around the
negative investment climate. Nigeria
has the ingredients necessary to become not only a regional, but also
a
global powerhouse thanks to abundant natural resources, a young population, a
strategic geographic
position on the Gulf of Guinea, and a long history of
being one of the major power brokers in Africa. That
said, for the freight
transport industry change will take time. Bearing in mind the more
difficult
international economic environment in 2009-10, which includes
the ending of the oil boom, in our latest
Nigeria Freight Transport
report, BMI concludes that freight traffic across all modes will grow by
an
average annual rate of 6.4% in the 2009-2013 period.
Various
factors, both positive and negative, support this prediction. Among the
positives is the
introduction of private operators into the ports sector,
as well as BMI’s view that domestic growth will
continue despite
lower oil prices. Predicted average annual GDP growth across the next five
years will be
5.6%. In our view, however, the economy still remains
prisoner to short-term oil-price related volatility
and domestic risk
factors. Among the negatives are the weakness of the Nigerian-flagged merchant
fleet,
continuing port congestion, corruption, and poor security.
We
continue to expect road haulage to be constrained as a result of the
disastrous state of the road
network, although there will be some recovery
as privately run toll roads are introduced. Rail freight will
also lag
behind because of the investment slump in this sector – the
government’s announcement of a
recovery programme will not boost
traffic until after 2011. Following the catastrophic accidents of late
2005, there are signs of a turn-around following Virgin Nigeria Airways’
relatively successful launch,
although there is some uncertainty over the
company’s immediate future. We have also held back our
projections
for pipeline throughput, given the range of attacks on pipeline infrastructure
that led to
significant cuts in Nigerian crude oil exports. Our conclusion
is that total freight volume across the
different modes, measured in
million tonnes-km, will rise by an annual average of 6.4% in the 2009-2013
forecast period, a little ahead of GDP.
The total value of transport and
communications GDP will rise to US$12.8bn in nominal terms by 2013,
representing 3.5% of Nigeria’s GDP (a low proportion compared with the
Africa region).
SWOT Analysis
One area where the country’s
privatisation process in the transport sector has made some headway is in
the operation of port facilities. The initial commercialisation process of the
Nigerian Ports Authority
(NPA) began in the mid-1990s. Little was achieved
in the early days, however, in terms of procedural
efficiencies, removing
obstacles, and speeding up turn-around times. A strategy for private
sector
concessioning – rather than full privatisation – was
eventually seen as the best way forward. Even this
strategy has been slow
in its evolution. However, the bidding process for operation of the ports has
now
taken place and some terminals are close to concessioning.
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