Nigeria’s GDP was N89 trillion or US$561 billion in 2014. Nigeria’s economy is not only Africa’s biggest, just the largest six of Nigeria’s 46 production sectors combine to produce slightly more than South Africa’s GDP! Beyond the six giant sectors, however, the reality is that Nigeria’s remaining 40 sectors are mostly small, constituting weak or broken links in Nigeria’s output and growth chain. This is because in 16 years of democratic rule, successive governments seem to have been preoccupied with doing more for the largest sectors. Nigeria now needs to accord priority to fixing the broken links.
The top six of the 46 sectors contributed about N60 trillion or 67.69 percent of GDP in 2014. N60 trillion was the equivalent of US$378.43 billion; that was slightly larger than South Africa’s GDP of US$351 billion. The six sectors are crops, trade, oil and gas, real estate, telecoms, and manufacturing. Each contributed between N4.24 trillion and N15.81 trillion.
The upper-middle 11 of the 46 sectors contributed N23.6 trillion or 26.5 percent of GDP in 2014. These are professional, scientific and technical services, construction, public administration, other services, financial institutions, textile, apparel and footwear, education, livestock, broadcasting, road transport, motion pictures, sound recording and music production. Each contributed between N1 trillion and N3.4 trillion.
The lower-middle 15 of the 46 sectors combined to contribute about N5.63 trillion or 6.33 percent of GDP in 2014. These are accommodation and food services, human health and social services, cement, electricity and gas supply, other manufacturing, fishing, oil refining, insurance, non-metallic products, wood and wood products, plastic and rubber products, forestry, basic metal, iron and steel, arts, entertainment and recreation, chemical and pharmaceutical products. Each contributed between N150 billion and N820 billion.
The bottom 15 of the 46 sectors combined to contribute just about 0.54 trillion or 0.61 percent of GDP in 2014. These are water supply, sewerage, waste management and remediation, quarrying and other minerals, air transport, motor vehicles and assembly, transport services, pulp, paper and paper products, post and courier services, publishing, administrative and support services, water transport, coal mining, electrical and electronics, metal ores, rail transport and pipelines. Each of these sectors contributed between N250 million and N90 billion, or N4.1 billion to N90 billion if we exclude rail transportation and pipelines, which was the only sector that generated less than N1 billion.
Stark differences between the first two and the last two sectoral categories demonstrate the extent to which some sectors are excluded from Nigeria’s growth process, while also pointing out the sectors that should attract the most immediate reform attention and efforts. Many weak links that now impede the competitiveness of other sectors need to be fixed for other sectors to actualize their growth potentials. Rail transportation and pipelines is a good example of a weak link in Nigeria’s economic growth chain.
According priority to agriculture or manufacturing without first fixing rail transport and energy supply, as successive regimes have done, is rather misguided, as high transport and energy costs will make most agricultural and manufacturing projects uncompetitive, unprofitable, and unsustainable. It is hard to think of any of the other 45 production sectors of the economy that will not benefit from a fully functioning cargo rail transport system. All sectors will thrive more with the competitive boost that low cost rail freight will guarantee. Energy (electricity, gas, and petroleum products) sectors provide other examples of weak links in Nigeria’s growth chain.
Nigeria has great potential to enable growth by urgently fixing the sectors that will contribute the most to the reduction of system-wide transaction costs and restore competitiveness and growth across sectors, cities, states, and regions. Adequate transportation and energy infrastructure will ensure that all other sectors are able to competitively generate enough wealth to provide the revenue that government needs to fund its many aspirations for the populace and other sectors.
The resulting growth across sectors will provide jobs and better economic livelihood for all. The reduction in system-wide transaction costs will translate to reduced cost of living that will enhance the welfare of all. Resumed growth of cities, states and regions will provide increased revenue for all levels of government, especially increased internally generated revenues that states and local governments require to raise the quality of health, education, security and general infrastructural services delivered by them.
Nigerian government needs to do to its rail transport sector what it has successfully done to its telecoms sector, and is in the process of doing to its power sector; namely, amend existing rail sector laws to end government monopoly, carve out the country into rail zones and allow private firms to bid for the rights to build and/or operate the lines under the oversight of a new regulatory commission. This could also be done to pipelines, and refineries.
One option for developing some aspects of the rail transport system is for government to replicate variants of the modalities it has successfully adopted for liquefied natural gas projects, in which the government entered joint venture arrangements with consortia of private technical partners who are allowed to collectively own slightly more than the government so they can lead/manage the projects. Government can issue special infrastructure bonds to fund its share.
A better option is to develop mechanisms and innovative laws for capturing some of the secondary benefits from rail development in advance by selling the rights to develop shopping malls, car parks, taxi and bus stations, hotels, offices, educational, residential and recreational facilities around commuter and cargo rail termini across over a hundred towns and cities in the 36 states and the FCT, where property values will be enhanced by new rail termini2.
Rail development delivers direct benefits to users in exchange for user fees that are often only enough to meet operation and maintenance costs. But rail development also yields much larger indirect benefits to owners of the adjacent lands, whose property values would increase, enabling perceptive governments to capture some of that value in advance to fund the capital project.
Thus, unlike the colonial regime that had to rely on tax revenue to develop the narrow gauge rail tracks and termini across the country a century ago, the new regime is well placed to explore self-financing mechanisms that would enable the government to sell property development rights in advance and capture some of the anticipated increases in land values around new rail termini that will be constructed in hundreds of towns and big cities across the 36 states and the FCT to fund the development of an ultra-modern rail system across the country.
Urban infrastructure projects are known to enhance the value of land around the sites of the project. Nigerians are quite familiar with cases in which public infrastructure improvements have enhanced private property values, especially in Lagos and Abuja, creating windfalls for a few. The federal and numerous state governments have inadvertently tended to spend large sums of public funds on infrastructure projects that effectively create private wealth for a few. Since such projects are funded by taxpayers, government is effectively taxing the public to enrich a few.
A fairer arrangement is to assess the likely enhancements to private property values before the projects are embarked upon and develop instruments for capturing most of the value for the government. Part of the value can be captured in advance to fund the capital project, and part can be captured after completion to fund operations and maintenance, or even fund normal government operations.
This will free the Nigerian government from the binding constraints imposed by revenue and debt on new infrastructure development. Also the fact that infrastructure rarely generates sufficient profits for investors, public or private, limits the scope for exploring public-private partnerships to develop large infrastructure projects, but the possibility of capturing part of the values-added to real estate by new infrastructure not only creates self-financing channels for such projects, but also raises the profits on investment.
Being Part 1 of the three-part article on ‘Nigeria’s post-election economic realities’, http://ssrn.com/abstract=2628976.
Ayo Teriba
