When a country builds roads, factories, power plants, or buys machinery, it is investing in its future. Economists call this Gross Fixed Capital Formation (GFCF), but essentially, it comes down to one question: is the country building its future or not?
In Nigeria’s case, that answer has been leaning toward no. But that may be starting to change.
Economists describe GFCF as the value of new or existing fixed assets acquired by businesses, governments, and households, less disposals of fixed assets. But for everyday Nigerians, the impact is far more tangible: fewer new factories mean fewer jobs; fewer roads mean longer commutes and higher transport costs; underfunded power plants mean persistent blackouts.
According to World Bank data, Nigeria’s Gross Fixed Capital Formation (GFCF) as a share of gross domestic product (GDP) has hovered below 20 percent for much of the past decade. In 2023, it slipped to around 15.3 percent, compared to over 30 percent in some emerging market peers like Vietnam and Indonesia.
“When a country under invests in its future, the effects don’t show up immediately, but over time they become impossible to ignore,” said an economist at Consortium Research Institute (CRI). “We see it in everything from weak industrial output to declining real wages.”
A key driver behind the sluggish GFCF figures is Nigeria’s fiscal environment. High inflation, exchange rate volatility, and rising debt service costs have crowded out public investment. At the same time, private sector investors face hurdles like inconsistent policy, security concerns, and infrastructural bottlenecks.
One stark example: the Lagos-Ibadan Expressway expansion project has long been a symbol of Nigeria’s infrastructure ambitions. However, the reality of its construction has been far from smooth. Originally slated for completion in 2022, the project now faces an uncertain future, with experts predicting that its completion may not occur until 2026.
Several factors that contributed to the delays, including funding gaps, contractor disputes, and delayed policy decisions, have severely impacted its timeline. These challenges have left motorists and businesses frustrated while contributing to bottlenecks that limit economic growth and productivity.
“Investors look at things like roads, power, and reliable regulation before committing capital,” noted Umar Faruk, an economist. “Without that, Nigeria will struggle to attract serious investment beyond oil.”
Comparing Nigeria to peers, the gap is clear. In Ghana, GFCF reached approximately 22 percent of GDP in 2023, driven by growth in manufacturing and services. Meanwhile, South Africa, despite its own economic challenges, maintained GFCF levels around 18-20 percent.
The consequences are not just economic. In urban areas like Makoko in Lagos, where basic infrastructure is lacking, residents face daily risks from poorly maintained roads and unreliable electricity. “We pay more for transportation and generators than we make some days,” said Musa Akande, a fish trader in Makoko.
Policymakers acknowledge the issue. In a recent budget speech, Wale Edun, Finance Minister highlighted plans to boost capital spending by 30 percent in 2025. However, many analysts remain skeptical given Nigeria’s tight fiscal space.
To reverse the trend, experts suggest prioritizing public-private partnerships, reforming the business environment, and improving transparency around capital projects.
“The first step is recognizing the importance of GFCF,” said Faruk. “It may sound like a technical term, but for Nigeria’s future, it’s as real as the roads we drive on and the factories we work in.”
Without stronger investment in physical assets, Nigeria risks missing out on long-term growth and employment gains. As the country’s population continues to rise, so too will the costs of inaction.
Bridging the gaps in capital investment
As Nigeria struggles with persistent underinvestment in its infrastructure, experts stress that policy solutions must go beyond acknowledging the problem. While the ambitious plans for increased capital spending are welcome, the real test will be how effectively the government can overcome systemic barriers to investment.
Public-Private Partnerships (PPPs):
The government needs to focus on public-private partnerships to unlock funding for infrastructure projects. Countries like India and the UK have used these partnerships successfully to finance large-scale developments like highways and power plants. Nigeria must incentivize private investors through tax breaks, guarantees on returns, and clear contracts.
Fiscal Reforms:
To address Nigeria’s fiscal constraints, comprehensive tax reforms should be implemented, targeting sectors that are still in the informal economy. Efficient tax collection and broadening the tax base will help free up funds for public investment. Additionally, debt management reforms are needed to reduce Nigeria’s borrowing costs and increase fiscal space.
Sector-Specific Financial Instruments:
Infrastructure bonds could be a useful tool for financing critical projects. In sectors like power, government guarantees and targeted financial instruments should be used to attract both local and foreign investment, while ensuring the continuity of operations even during economic fluctuations.
Improved Governance and Transparency:
With a focus on project management, Nigeria should develop an independent oversight body to monitor capital projects, ensuring they are completed on time and within budget. Implementing digital platforms for procurement and regular audits could curb corruption and inefficiencies, ensuring greater accountability in the system.
Private Sector Incentives in Manufacturing and Agri-tech:
To boost industrial output, Nigeria should consider incentives for private investment in manufacturing and agritech. These incentives could include grants, subsidies, and low-interest loans. Such measures would help Nigeria diversify its economy away from oil, particularly in industries that create long-term employment.
Conclusion
The challenge facing Nigeria is clear: its underinvestment in infrastructure has left the country far behind its peers, with dire consequences for economic growth and the welfare of its citizens.
However, the ambitious tax reforms and capital investment plans outlined by the government provide a foundation upon which Nigeria can build its future. With the right mix of policy reform, institutional improvements, and increased private sector engagement, the country has the potential to turn its infrastructure deficit into an opportunity for sustainable growth and development.
The time to act is now before the gaps become insurmountable.
