The repeal of Nigeria’s Railway Act of 1955, which confers state-owned Nigerian Railway Corporation (NRC) with exclusive rights to operate railways in the country, would jerk up investments in the rail sector of Africa’s largest economy, even as it significantly shaves the high cost of doing business.
The long stalled rescinding of the Act, which had taken the wind from the sails of private investors before now, was passed by Nigeria’s Senate on July 21, “and we are now awaiting the House of Representatives for approval,” Edeme Kelikume, chief executive officer of indigenous rail haulage, infrastructure and logistics support firm, Connect Rail Services Ltd, said in an interview with BusinessDay.
Nigeria’s transportation system has been cramped by an over-emphasis on road, to the detriment of waterway and rail, resulting in congestion, high costs of goods, as well as high accident and mortality rates.
Experts say expanding to a more efficient intermodal transport system , including rail and waterway, would lower transportation costs, as well as the cost of doing business.
They further say a broader transportation system would reduce the cost of food and rents, as it would encourage entrepreneurship, lead to a decongestion of big cities as people could save on rents by living in the sub-urbs and commuting cheaply by rail to work in the cities.
“The timing could not have been better for private investments in rail transportation. It would lead to better transport cost stability at a time of rising inflation which is partly fuelled by high road transport costs,” Kelikume added.
The yearning for cheaper modes of transportation like railways in Nigeria is riding on the back of increased price of Premium Motor Spirit (PMS) which has seen demand for the product declinet, amid swelling costs of doing business, as evidenced by June’s inflation report by government-funded National Bureau of Statistics (NBS).
Passenger transport by road, as well as fuels and lubricants for personal transport equipment, contributed to inflation in the country of about 180 million people, as it quickened to an 11-year high of 16.5 percent in June, according to the NBS.
The average spend by Nigerians on petrol cooled in June to N149 per litre from higher levels of N162 in April, as demand waned amid a price hike to N145 on May 11, which analysts say is keeping the product out of the reach of some households and businesses.
Rail transport market share in most countries on the African continent is below 20 percent of the total volume of freight transport and unless this mode of transport is developed, Africa may not realise its full potential in exploiting its abundant natural resources and wealth, according to the Africa Development Bank Group.
“The capacity shortage in the rail sector points at the fact that Nigeria is hugely underserved and chances are that investors begin to see an investment worth taking,” said Charles Robertson, global chief economist at investment bank, Renaissance Capital, by phone.
Chidi Odogwu, an SME operator, says the high costs incurred on transportation has suppressed his profit margin and curtailed sales.
“Of course, an effective rail system will drive down my cost of doing business because it is cheaper and more effective than road. This way I can cut down the price for some products as well,” Odogwu, who runs a supermarket, said in response to BusinessDay questions.
Despite the conspicuous returns on investments in rail transport, a fund manager at a Lagos-based private equity firm says the model for private sector participation must be clear to attract foreign investors.
“Investors would need clarity and must know the exact model of PPP Nigeria will adopt for the sector,” the fund manager said, on condition of anonymity.
“Will it be passenger or freight? In most economies, freight is much more profitable than passenger, so investors are usually attracted by the latter. Government also needs to communicate a realistic sense of how much work is left to be done in the railway sector.”
The repeal of the Railway Act of 1955, which confers state-owned Nigerian Railway Corporation (NRC) with exclusive rights to operate railways in Nigeria, was sponsored by Olugbenga Ashafa, the Chairman, Senate Committee on Land Transport.
“The Act marks the beginning of the transformation of the Nigerian railway sector, as it will now become open to private sector participation,” said Ashafa, who spoke at a one-day public hearing in Abuja.
“A lot of progress is being made and it makes a lot of sense that Nigeria is opening up the space to private investors through the Act, at a time when government finances are stretched,” Renaissance Capital’s Robertson said.
China Civil Engineering Construction Corporation Ltd. (CCECC), one of the subsidiaries of China Railway Construction Corporation, a state-owned construction enterprise, will undertake the construction work of a $19.4 billion railway project and the work will last two to three years, said Nigeria’s transportation minister, Rotimi Amaechi in a recent interview on CNBC.
The minister also said that the Export-Import Bank of China will provide loans for the construction.
LOLADE AKINMURELE
