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On Wednesday September 23rd 2020, the Federal Executive Council (FEC) announced the decision that the Federal Government had approved the construction of a $1.959 billion 284-kilometre single track standard gauge rail line from Kano to Maradi  in Niger Republic with a 93-kilometre branch line from Kano to Dutse, the capital of Jigawa state. The 377 km rail line will have stations in Dutse, Gaya, Wudil, Dambatta, Kazaure, Daura, Shargale, Marshi, Katsina, Jibia and Maradi in southern Niger republic.

Based on the official announcement, the 387-kilometre single track rail line will cost about $5million per kilometre according the official announcement, which is in the same range as the  dysfunctional dual-track rail line from Lagos to Ibadan that costs about $10.1 million per kilometre  and includes 4 extra-large bridges, 11 large bridges, 4 medium bridges 2 steel bridges, 10 frame bridges, 207 culverts, 40 railway crossings, no level crossings, and 31 pedestrian overpasses.[i]

While the approval of the project has been heavily criticised as a misplaced priority by many, it did not come as a surprise. President Buhari had earlier announced it to the public in his 2018 New Year’s speech when he said that “negotiations are also advanced for the construction of other railway lines, firstly from Kano to Maradi in Niger Republic passing through Kazaure, Daura, Katsina, Jibia to Maradi”.[ii] Provision for the project had also already been made in the 2019 Appropriation Bill.

A European contractor and a Chinese loan

The rail line is scheduled for completion within 36 months and is arranged under a 14-year buyer credit and long-term commercial loans. Financing will be provided by China, no surprise there. Contract details such as the interest rate on the loan or enforceable repayment clauses are not known or readily available in the public domain.[iii] Borrower and guarantor is the Federal Ministry of Finance of Nigeria on behalf of the Federal Government. Financial advisors to the project are KfW IPEX-Bank and Africa Finance Corporation (AFC).[iv]

The contractor handling the Engineering-Procurement-Construction (EPC) project, which leaves all the risk of the project with the Federal government, is Mota-Engil, a Portuguese company listed on the Portuguese Exchange, Euronext Lisbon. The company was designated as preferred bidder for the project in October 2018 after a due diligence mission conducted by a delegation composed by the Ministry of Finance (MoF), the Nigerian Railway Company (NRC) and the Infrastructure Concession Regulatory Commission (ICRC). [v] Mota-Engil also recently formed a joint venture with the Nigerian oil company Shoreline Group. Under the new venture, Mota-Engil will hold 51% of Mota-Engil Nigeria. [vi]

Positive social and economic effects for the population

Quoting Mota-Engil “the new railway line will impact a population of approximately 8.8 million people with many positive social and economic effects, including encouraging economic development through ease of access to goods and services, facilitate transport of raw materials and manufactured goods, and creation of employment for a wide range of personnel.”[vii] What these positive social and economic effects for the population are, will have to be put to the test in the future.

So far, the Government’s justification for the project has been underwhelming for Nigerians. The rationale for constructing infrastructure deep into foreign territory remains unknown to the people – who are the ones ultimately paying for this. The public announcement  was made by the Minister of Transportation, Rotimi Amaechi on Independence Day, only days before the Spokesperson to the President Garba Shehu had denied this fact via his Twitter handle, where he wrote that the rail project is part of an agreement between Nigeria and Niger that has been coordinated by the Nigeria-Niger Joint Commission for Cooperation and is part of the 2015 ‘Kano-Katsina-Maradi Corridor Master Plan, (K2M).[viii] This Master Plan needs to be made accessible to the public.

Purely economic reasons as rationale

Back in 2018 the public was told that the rail line, when completed, would assist the supply of crude oil from Niger Republic to a new refinery being built in the border town between both countries.[ix] [x] Selling the project has also been linked to a refinery project in Mashi, Katsina State,[xi] and to a planned refinery in Maradi. Why crude should be moved to a refinery by rail has neither been disclosed or justified yet.

The Government’s latest justifications for the rail line are economic and commercial benefits for Nigeria. The attempt by the Minister of Information and Culture, Alhaji Lai Mohammed, to explain the rail extension by citing “economic advantages of import and export of Niger Republic, Chad and Burkina Faso, which are landlocked countries” also stating that “there has been a lot of disinformation and total lack of information” over the rail line amounts to no more than a statement as he did not specifically state how Nigeria stands to benefit. Fair enough to inform the people that Niger to date has no functioning rail line at all. Neither has Chad, while Burkina Faso has a rail line with a narrow gauge that is not compatible with the narrow gauge in Nigeria.

It is not clear if the minister was airing an opinion when he implied that Nigeria will be able to take over the imports and exports from the mentioned countries with the rail link by connecting them to Nigeria’s ports. The simple reason, is to strengthen the economy of Nigeria he said. [xii] Days before, spokesperson to the President Garba Shehu had written on Twitter that the objective of the rail is the harnessing of raw materials, mineral resources, and agricultural produce.

The Maradi region is known as the breadbasket of Niger – predominant crops there are millet and sorghum.[xiii] But the country imports food to meet its needs and is on the FAO list for countries in crisis requiring external assistance for food. As the justification for the rail line is predominately premised on purely economic grounds, one should ask what quantum of trade is needed with Niger, a very poor country of 24 million inhabitants, to justify a US$2bn investment in economically difficult times. Nigeria imported mainly mineral fuels, oils, distillation products from Niger with a net worth of $75.53 million and exported mainly agricultural goods worth around $110 million in 2018. [xiv] A mere 5 per cent of Nigeria’s intra West African trade passes through the border with Niger Republic.

The question how the 8.8 million people in the region will benefit also remains to be seen. The railway will have a station in every little town between Dutse and Maradi but the internally generated revenue of Kaduna, Katsina, Kano and Jigawa will be around $300 million in 2020 which translates into $30 for each of the 8.8 million people Mota-Engil had talked about. How many people will be able to afford a rail ticket in that region at a price that allows the National Railway Corporation to break even on the route? Difficult to see the economic justification from this perspective.

A question of interest

While many justifications for the project have been shared, it is therefore not clear how it is in the interest of Nigerian people and that is why Nigerians have every reason to be ask questions. The country is re-developing its railways since 2002. Guiding documents are the 25-Year Strategic Vision of the Nigerian Railway System formulated under the Obasanjo presidency and the 2015 National Integrated Infrastructure Master Plan (NIIMP). As the new rail line is not mentioned in the NIIMP, people should be permitted to question the rationale behind the project that was inaugurated in the absence of recommendation on the viability.

The money now spent for the new rail line could also have been used on building and connecting the much-needed dry ports, food processing zones and existing industries to the nation’s growing rail network. A rail network that lacks locomotives, coaches, waggons, trained staff, and money to entertain it. As Donald Duke said on Saturday at a 60th Independence Day Celebration Symposium, “As long as we continue to outsource our development, we will never gain the confidence to develop our nation. It has to be developed by ourselves. …We need to take it head-on, be prepared to make the mistakes, build those rail lines, build the things that you require. We talk more of investment in infrastructure than skills and that ought not to be and the skills also should involve technology.” That is what money should be spent for.

An uneconomic explanation for the newly announced rail line is, that in the usual practice of Nigerian leaders, it is just a part of Buhari’s personnel legacy to his homeland, the Daura Emirate. That it is a gift to connect his hometown, and the North with no real benefits? A gift like the Federal University of Transportation, the Air Force referral hospital or the National Directorate of Employment (NDE) that all went to Daura. [xv]Ironically, Buhari came in on the argument of integrity and propriety and as such should have put an end to this tradition. This sort of wastage of national resources and bequeathing legacies that potentially cost future generations large sums must stop if the country itself is to move forward.  


[i] https://guardian.ng/features/towards-completion-of-old-rail-road-projects-in-another-four-years

[ii] https://punchng.com/full-text-muhammadu-buharis-2018-new-year-address/

[iii] https://leadership.ng/2020/10/03/kano-maradi-rail-line-eases-transportation-of-cargoes-goods-amaechi/

[iv] https://www.s-ge.com/sites/default/files/event/downloads/kama_project_presentation.pdf

[v] https://www.bloomberg.com/news/articles/2018-07-11/mota-engil-africa-eyes-1-8-billion-building-projects-in-nigeria

[vi] https://guardian.ng/business-services/shoreline-mota-engil-agreement-births-trade-infrastructure-firm/

[vii] https://www.s-ge.com/sites/default/files/event/downloads/kama_railway_project_information_31.7.2019.pdf

[viii] https://twitter.com/GarShehu/status/1309181698958069760

[ix] https://punchng.com/kano-to-niger-republic-rail-line-to-cover-248km/

[x] https://www.railwaygazette.com/infrastructure/nigeria-plans-railway-northwards-to-niger/47495.article

[xi] https://guardian.ng/news/nigeria-niger-refinery-train-link-favours-north-against-south/

[xii] https://www.thisdaylive.com/index.php/2020/10/03/fg-highlights-gains-of-extending-railway-to-niger-republics-border/

[xiii] http://www.fao.org/giews/countrybrief/country.jsp?code=NER

[xiv] https://tradingeconomics.com/nigeria/exports/niger

[xv] https://dailytrust.com/for-buharis-sake-so-many-projects-go-to-daura 

Possibly the only mark of distinction Apapa Port at present has is that its name can be read from left to right or from right to left. Nothing much else makes it stand out – positively, that is. The negative aspects are quite overwhelming. As a port, it is dysfunctional because, today, it is quite simply in the wrong place: It is captured by the city on its landside and, therefore, has no functioning, adequate evacuation route. The dual carriageway as is, to the extent that it is passable – given its wretched state (the black-top in places has so many pot holes as to resemble a honeycomb) – leads traffic northwards in order to then plough all the container-bearing lorries and petrol tankers into the daily East-West traffic.

To make things worse, this is the case not because of a lack of attention, but despite there having been a Presidential Task Team now in place for over a year dedicated to solving the problems. This is despite all sorts of pre-election promises, flurries of proclamations and official site visits. This is despite having the Minister of Works (a Lagosian, and former governor of the state), the Minister of Transport, and the Vice President involved, not to mention the Dangote Group. So, what is going wrong or why can’t things be put right?

The cost of the Apapa gridlock

Let us start by addressing the cost of the constant gridlock, so that we all appreciate the issues and the sheer scale of the problem becomes apparent. Most recently, the National President of the National Council of Managing Directors of Licensed Customs Agents complained that the cost of doing business at the Lagos ports has increased by 500 percent as a result of the intractable Apapa gridlock.[i] That is disastrous in an economic situation as dire as that in which Nigeria currently finds itself post-oil-price-crunch and COVID-crash. In case the cost is considered improbably high,  MoverDB, the online platform that compares the costs of international shipping and forwarding, computes in its analysis of overseas cargo and freight expenses that the cost of shipping both 20-foot and 40-foot containers to Lagos ports from New York is the most expensive in the world![ii] As the table below shows, shipping from Cape Town to the New York costs half the price.

Indeed, it is four times more expensive to ship goods from the European Union to Nigeria, compared to other African countries like Ghana and South Africa.[iii] If that were not bad enough, Dynamar B.V., the Dutch marine information experts, in its recent in-depth study of ports in West Africa, believes that the economic consequences of the congestion now exceed US$55 million daily, and the situation has increased the cost of inland connections (2020).[iv] If we take  the official exchange rate of N384 to the US Dollar, and an average year as 360 days, the economic impact is N 7.603 trillion. By way of comparison: The adjusted Federal Government Budget as passed by the Senate for 2020 is N 10.805 trillion. In other words, the economic impact is thus on a par with more or less 70 percent of the budget. Or in relation to another benchmark: According to the National Bureau of Statistics (NBS) 2019 GDP ran at N 19.53 trillion – the economic impact of the Apapa gridlock is the equivalent of 36% of Nigeria’s GDP before it fell prey to the double whammy of oil price drop and COVID-19, and is over three times the size of the N 2.3 trillion stimulus package the Federal government has stated it will inject into the economy.

There is only one possible conclusion in light of these numbers: The Apapa gridlock is indeed an economic disaster.

The chronology of disastrous disaster relief

Yet the problem is not new, and its well known. Back in 2018 alarm bells were ringing: On 19 July, State Commissioner of Police, Mr Imohimi Edgal said that the Lagos State Police Command and other relevant agencies are to begin ‘Operation Restore Sanity’ on Friday to free Apapa of gridlock, telling newsmen the Apapa gridlock was a “national disaster’’. The problem which gave rise to the sorry state of roads linking the ports is not limited to mere blocking of roads or activities of tank-farms with no holding bays for trucks.[v]

The news reached Abuja and on 2 August 2018, Minister of Transport Amaechi, who is lord over the ports, stepped in to the fray. He visited then Governor Ambode – and revealed that work on the Apapa corridor of the Lagos-Ibadan Rail project would commence the following week. A typical case of closing the stable door after the horse had bolted. He proudly declared “What we are trying to do there is to get a good road to evacuate cargos, but it would be faster with the rail. So, while we are working hard to ensure that the rail is delivered by this year ending, the Federal Government has also awarded the contract to deal with the road from Apapa and Tin Can to enable us to evacuate cargos freely which is an addition to the rail.” The rail project was awarded to China’s CCECC and was not delivered by year-end 2018.[vi]

Eight months lapsed until, just prior to inauguration day, namely on 24 May 2019 Vice President Osinbajo gave the Presidential Task Force two more weeks to clear the traffic. “The task force which commenced its assignment on May 24 had up to June 7 to complete the assignment but is now expected to present a formal report at the end of its extended mandate on June 24.”[vii] No doubt not wanting to be outdone by Abuja and in an effort to outshine his predecessor, on 4 June 2019

Lagos State Governor Babajide Sanwo-Olu weighed in, vowing to end the Apapa gridlock within 60 days of his administration. This “coincided with a presidential order to truck and tanker drivers who parked their vehicles on all access roads and bridges to the Apapa ports and environs to vacate within 72 hours.”[viii]

On 16 August, 2019, over six months after his Minister had promised the port rail link would be in place, the Managing Director of Nigerian Railway Corporation (NRC), disclosed the December deadline in response to stakeholders’ calls for proper integration of rails to ports nationwide.[ix] And another 10 months passed before, on 12 June 2020, Lagos District Manager of NRC, Jerry Oche, said: “A train is made up of 19 wagons and each of the wagons can take one 40-feet or two 20-feet containers. So, if we are doing 40-feet, that is 19 trucks off the road and if it is 20-feet, that is 38 trucks off the road per trip. We are starting with two trips per day and we hope to increase it in no distant time.”[x] One might be forgiven saying that such a rail service is firstly a drop in the ocean and secondly hardly likely to be cost-effective.

Another two months lapsed before, on 30 August 2020 the press reported that “ongoing reconstruction work on Creek Road and Liverpool Road in Apapa, Lagos, may have compelled the Presidential Task Force on Apapa gridlock to force the Federal Ministry of Power, Works and Housing to temporarily open the Tin Can Island truck transit park to ease the perennial gridlock along the port access road. It was gathered that the presidential task force managing the Apapa gridlock has directed that the transit park be opened to take trucks off the roads, though the park is yet to be completed and officially handed over to the Nigerian Ports Authority (NPA). The truck park has been under construction for more than ten years. The project has, however, suffered delay despite repeated assurances by the Federal Ministry of Power, Works, and Housing that it would be completed in April 2019.’’[xi]

The price of the lack of a solution

What is at stake? Lagos’s ports handle about 80 percent of all shipping traffic. And the problem is not just outside their gates, but inside them. The difficulties include:

  • Failure by shipping firms to provide holding bays for empty containers. This is responsible for ports’ congestion, operators have said.[xii]
  • Existing terminals are not used at full capacity[xiii] Apapa runs at 82 percent, Tin Can Island at 44 percent.
  • Low port capacity utilisation: Only 38 and 40 percent of installed stevedoring and other port-related capacities are deployed regularly at dockyards and approximately 40 percent of businesses located around the port communities have either relocated to other areas, or have scaled down [xiv][xv]
  • The maritime sector’s contribution to GDP in Nigeria is a minimal 0.05 percent.[xvi]
  • The maritime ports sector currently employs about 35,000 Nigerians. This is low when compared to South Africa where maritime and allied sectors currently provide about 700,000 direct and indirect jobs.[xvii]
  • And last but not least, the Nigerian economy is currently losing about N600bn in customs revenue, an estimated US$10bn in non-oil exports and about N 2.5 trillion in corporate revenue in the ports industry on an annual basis according to the Lagos Chamber of Commerce and Industry (LCCI) and other members of the Organised Private Sector (OPS) in 2018.[xviii]

Solutions in sight?

Does it surprise anyone that Apapa Port, Lagos State, has lost its status as West Africa’s leading and busiest container port to Lome Port in neighbouring Republic of Togo? Data from Dynamar reveals that Lome Port upstaged the Lagos facility largely as a result of wide-ranging implemented reforms, as well as container traffic. Consequently, the port’s earnings have grown more than threefold since 2013.[xix].

Given such a massive hit to the economy, surely one of the first things that a clear-thinking Federal government would be doing is solving the Apapa gridlock as quickly as possible and not letting first weeks, then months, then years slip by. Such delays are tantamount to gross negligence. Today, admittedly, Apapa Port is (like Lagos Airport) simply in the wrong place – unless you reactivate the rail network big time that is. The geography is always going to be a challenge if you try and funnel the containers out by road. A few years ago, one proposal was to route road haulage toward Badagry and then up a new outer ring road heading for Ijegun and then Ota. The proposal was not taken up because of the cost. In light of what the economy is losing each day, that cost appears insignificant. Admittedly, even such a silver bullet might not have worked, because given the speed at which Lagos is growing and the sloth’s pace at which right-of-way issues get resolved, by the time such a proposal would have been realized, with all the pile-driving required across the in part marshy terrain, what was conceived as an ‘outer’ ring might well have become ‘a second inner ring’ running parallel to the Apapa-Oworonshoki Expressway – and, therefore, potentially not an expressway at all.

Be that as it may, despite the government being cash-strapped, the erstwhile cherished government cash cow, the National Ports Authority (based at Marina opposite Apapa and thus in full view of the problem), is forgoing revenue by the day. The underlying reason for this financial turpitude seems to be a mixture of two factors. Firstly, the two ministries involved are acting to type and therefore as silos: The Ministry of Transport is focusing on trophy rail projects and not on port efficiency, cargo evacuation, etc. And the Ministry of Works is busy with Federal roads elsewhere. Secondly, and perhaps even more worryingly, there seems to be a complete absence of any integrated forward planning. (One consequence is that another quango, the Presidential Task Force, has long since mutated into a permanent institution like the erstwhile task force on power.)

The same combination of factors already threatens to ensure that the new deep-sea port in Lekki, once operational, will face similar issues. Surely the Chinese PPP partners, who may be hoping to take over ownership should there be any default on repayments, are aware of the difficulties and assume this will also be a reason for default and for them to claim ownership. Remember, that the Chinese Habour Engineering Company, who is the main player in the Lekki Deep Sea Port and has already nominated the CEO for the project company, has previously claimed a piece of the sovereign territory of Sir Lanka as its own in the form of the seaport it built there – after the Sri Lankans had to default on payment. The Lekki-Epe Expressway is in part almost impassable and given that it is not even dualized just down the road from the Free Trade Zone the potential for congestion is already firmly in place.

The net result of such institutional torpidity is that when the country can least afford to lose money and is searching frantically for internally generated revenue, it is seemingly quite oblivious to the single greatest source of such: Apapa. And consequently, tous ca change mais tous c’est la meme chose: Members of the task force come and go. While the hapless residents of Lagos State suffer from the permanent traffic congestion and gag on diesel fumes of the trucks, the Nigerian economy gags on the astronomical losses And even when you think you have escaped the traffic snarl, a peek in your rear-view mirror of the chaos still reads Apapa correctly. It is surreal.


[i] https://www.thisdaylive.com/index.php/2020/07/31/apapa-gridlock-customs-agents-petition-fg-over-500-increase-in-costs/

[ii] https://moverdb.com/freight-costs-usa/

[iii] https://www.sbmintel.com/2020/03/chart-of-the-week-comparison-of-shipping-costs/

[iv] https://guardian.ng/business-services/nigeria-loses-55-million-daily-to-port-congestion/

[v] https://punchng.com/apapa-gridlock-police-others-begin-operation-restore-sanity-friday/

[vi] https://www.vanguardngr.com/2018/08/amaechi-visits-ambode-says-apapa-ports-phase-of-lagos-ibadan-rail-project-takes-off-next-week/

[vii] http://saharareporters.com/2019/06/14/apapa-gridlock-osinbajo-gives-presidential-task-force-two-more-weeks-clear-traffic

[viii] https://allafrica.com/stories/201906040242.html

[ix] https://guardian.ng/features/fresh-hope-for-apapa-as-fg-links-rail-to-port-by-december/

[x] https://allafrica.com/stories/202006120065.html

[xi] https://www.autoreportng.com/2020/08/apapa-gridlock-presidential-task-force.html

[xii] https://thenationonlineng.net/npa-warns-shipping-firms-over-empty-containers/

[xiii] https://drive.google.com/file/d/1xBCYjNr190M-jQSvueE3pqlTFwgJqGYO/view

[xiv] https://www.portstrategy.com/news101/world/africa/inefficiency-and-corruption-in-nigerian-ports

[xv] https://www.proshareng.com/news/Doing-Business-in-Nigeria/Port-Reforms–Why-Nigerian-Ports-Lose-Mo/47340#

[xvi] https://www.tralac.org/documents/news/2287-costs-of-maritime-port-challenges-in-nigeria-lcci-september-2018/file.html

[xvii] https://www.tralac.org/documents/news/2287-costs-of-maritime-port-challenges-in-nigeria-lcci-september-2018/file.html

[xix] https://guardian.ng/sunday-magazine/inefficiency-high-charges-infrastructure-dearth-de-marketing-nigerian-ports/ ; needless to say, the border closure impacted on that growth.

Image by Anja from Pixabay

Democracy and resources

A nation, if it is fortunate, is endowed with specific resources. These resources are common goods in the sense that they are owned by all those citizens who go to make up the nation. At any rate, this is the case in a democracy. The latter is a normative system in which the citizens as the subjects elect persons from among their own ranks to represent their interests, to legislate and to act as the executive. Those laws created by the elected representatives are ultimately subject to public debate and public legitimation.

The nation’s resources are managed by a set of those representatives on behalf of the citizens, whereby we refer to that set as the government. So, what exactly is government in a democracy? In the Nigerian case, under the democratic dispensation the citizens vote for a president who forms a government. At the same time, the citizens elect representatives whose job it is to oversee what the government does if only because the entire polity cannot be expected to spend its time doing such oversight. The citizens, therefore, vote for members of the two houses whose role is to legislate and oversee that government.

The presidential government is, in other words, elected by the citizens in order to provide certain services for the citizens. This is crucial, because it means that the subjects, the citizens, do not appoint someone to rule over them, but appoint someone and his/her government to rule on their behalf. When such a government ceases to render the requisite services to its citizens it loses its legitimacy and logically will be voted out at the next election.

Nigeria is such a fortunate nation. It is blessed with huge natural resources, including water deposits deep underground in most of the Northeast. It is blessed with many rivers. Although it may seem incongruous to start a discussion of the Water Resources Bill before the National Assembly by recalling the basic premises of democratic governance, this is crucial as the issue involved is how government decides to use a common good, water. And the issue is itself crucial, in that for all the blessing, water is becoming a scarce common good in some geographical parts owing to climate change.

Inundated with water? Or by legislation?

Recent events show the need for better water management, as climate change causes flash flooding on a new scale as witnessed in Kebbi.[i] Indeed, one of the key challenges to agricultural productivity being increased is the availability of water. By all accounts, the government has for long been negligent in its duty to the people in this regard:[ii]

And now there is a Water Resources Bill that has passed two readings in the House of Representatives and is expected to be taken forward to the Senate after third reading and passage. It is perhaps worthy of note that we have to do here with a case of recidivism: It was brought before and rejected by the Eighth Assembly.

In light of the above remarks, the main questions are: Does it address the key issues of irrigation to enhance agricultural productivity and combat climate challenge? Does it improve water conservation and management or clarify doubts over use of this common good? The latter issue is not trivial as the matter of the Kiri Dam in Adamawa State shows. The dam was built as a reservoir dam but included bays for turbines. In the late Noughties an argument ensued between the Federal Ministry of Water Resources and the State government over who had the right to operate the dam as a hydropower plant: The Federation as it owned the water, or the state as it claimed that through the Gongola River Basin Authority it owned the water and the river banks. The issue was never clarified in court and the hydropower plant never built in a region that otherwise had no generating assets.

So does the Water Resources Bill as is now in the National Assembly clarify such ownership issues, ensure the Ministry of Water Resources is able to act decisively to support agriculture, etc., and define once and for all how the nation shall adjudicate use of this common good.

The simple answer is: It does not! In fact, it does nothing of the kind.

There has been much hue and cry over the reintroduction of this bill. Although on the surface the legislation is seemingly about water regulation, closer inspection reveals there are provisions that violate property rights, introduces stringent licensing rules, etc. And there is a general perception that it is essentially a vehicle for forcing through the discredited 2019 RUGA policy.

With all the controversy surrounding the bill, it is most surprising that it went through the first and second readings in the lower chamber of the NASS without a hitch. Some lawmakers expressed vehement opposition to its passage and have called for a public hearing where typically, members of the public could vent their concerns and questions about a proposed legislation and debates would be held on the merits or lack of before any further action is taken on it. Some lawmakers, however, are not favourably disposed to the idea of public hearing to avoid detailed scrutiny of the legislation.  Their argument is that given the bill was introduced in the Eight Assembly and went through public hearing then, it should not go through that process again. This is not in line with the accepted procedure for passage and enactment of legislation: Any bill that does not complete the process of passage and enactment before the end of a particular Assembly must start from scratch if at a later date someone wants to make it a law. Why are some lawmakers determined to avoid a public hearing?

A few public figures have expressed grave concerns about the bill, most notable amongst them Nigeria’s Nobel Laureate, Wole Soyinka, who warned against the passage of this bill into law stating: “It must be resisted across board. No compromising, or this nation is doomed, since it will be resisted by any and all means”

Is there any real cause for alarm?

In a nutshell, yes. The proposed bill, if passed, would empower the Federal Government to control all sources of water in Nigeria – a clear usurpation of powers ordinarily vested in state governments, which is in direct contravention of the Constitution. Other disturbing aspects include: the introduction of licensing for commercial use of water and drilling of boreholes which must be renewed on a five-year basis; the powers to be conferred on a proposed Water Resources Commission to declare any land a water reserve; unrestricted access to privately owned property granted to the proposed commission; unfettered rights conferred on persons to water livestock at any source of water whether on private or public land, and so on.

These provisions of the bill are disturbing on various levels. First up, the immense cost to the public purse of establishing a commission when a plethora of MDA (Ministry of Water Resources, NIWA, river basin authorities, water resource commissions at the state level) already exist.

Painful legal provisions

Second and perhaps most alarming to the public are the provisions which have led many to conclude that the legislation will encourage a land grab and facilitate appropriation of land that currently belongs to state governments and private individuals.

Specifically, Section 3 of the proposed legislation reads that:

“Notwithstanding the provisions set out in Section 2 of this Bill, but subject to Regulations issued by the relevant State Agency identified pursuant to Section 79 hereunder, and in overriding Public Interest, a person may, without license:

  • Take water from a water source to which the public has free access for the use of his household or for watering domestic livestock;
  • Use water for the purposes of subsistence fishing or for navigation to the extent that such use is not inconsistent with this Bill or any other existing law;
  • Where a statutory or customary right of occupancy to any land exists, take or use water without charge from the underground water source, or if abutting the bank of any watercourse, from that watercourse, for reasonable household use, watering livestock and for personal irrigation not for commercial purposes.“

And it gets worse: Section 71 states:

“The commission may, following public consultation, by order published in the Gazette, declare an area to be a groundwater conservation area in cases where the commission is satisfied that, in the public interest in such area, special measures for the conservation of groundwater are necessary for the protection –

  • of public water supplies;
  • of the environment; or
  • for water supplies used for agriculture, industry or other private purposes.

(2) The commission may impose such requirements, and regulate or prohibit such conduct or   activities, in or in relation to groundwater conservation areas such as the commission may deem necessary to protect the area.”

Legal experts, public policy analysts, renowned lawyers and social commentators have, in their analysis of this bill, highlighted similar provisions that were innate in the ill-fated RUGA policy introduced in 2019, which set out to appropriate and designate richly-irrigated parcels of land spanning the entire country for rearing of livestock. And many are concerned by the unilateral powers conferred on the proposed commission to take over any land it deems fit. It should be noted that the bill is strangely silent when it comes to defining what constitutes a potential “groundwater conservation area”.

Another salient aspect of the legislation is the licensing of water contained in section 62. The bill stipulates that:

“Any person who, undertakes the following activities (in this section referred to as “prescribed activities”) in relation to water sources listed in the First Schedule to this Bill, shall be licensed by the commission:

  • abstraction of surface water and groundwater;
  • diversion, pumping, storage or use on a commercial scale of any water;
  • the construction of boreholes for commercial purposes.”

This particular provision has enraged the public who are already suffering untold economic hardship.

Trespass to property and infringement of property rights can also be inferred from several sections in this Bill, such as Section 67 (3):

An Order under this section may require or authorize-

  • the laying of pipes and the construction of works on any land;
  • the entry on to any land by officers or agents of the Commission; and
  • such other measures that the Commission may consider necessary to overcome the shortage of water or effect of any accident

The Water Resources Bill is all about grabbing land, imposing yet more levies on the populace, and creating yet more legal confusion over rights of way. Bad luck to him or her who owns land where someone decides a water pipe needs to cross or where there is a borehole some person in the commission decides needs to be used by others.

Legislation for the people

First and foremost, the bill is an example of both the executive and legislative arms of government forgetting what their original duty is, namely, to represent the wishes of the majority of the citizens – and serve them. In this instance, the National Assembly is negligent in its oversight duty as it is not securing equal rights, property rights of individuals and use of a common good.

Government clearly lacks legitimacy as it cannot be construed to be providing a service to the people, this bill does not seek to enable water to be used by the nation for the nation- to drive productivity, neither does it seek to put institutions in place to ensure proper management and conservation of water in an age of climate change, where the resource is becoming scarce in some regions and exposing other to the risks of flash flooding.


[i] 3 Sept. “President Muhammadu Buhari Wednesday expressed concern over the heavy floods, which destroyed lives, submerged thousands of hectares of farmlands and houses in Kebbi State. The flood, according to a statement by the presidential spokesman, Malam Garba Shehu, also destroyed farm produce and personal belongings in the affected communities.

[ii] https://guardian.ng/saturday-magazine/cover/dams-neglected-water-resources-amid-acute-food-insecurity/

Image from from Flickr

Nigeria should brace itself for impending recession. Or so the World Bank suggests. Specifically, the bank in a recent report stated that Nigeria is facing “potentially the most severe downturn in four decades… even if the outbreak is contained.”

Apart from the series of foreign loans the government recently added to its debt stock, the devaluation of Naira, dwindling revenues, etc., there is little being discussed publicly to suggest a crisis is imminent or that measures are being put in place to avert it. Are we missing something or is the government deliberately taciturn to avoid causing alarm? Or perhaps people are so overwhelmed by so many mundane issues, which non-Nigerians familiar with the situation cannot comprehend, that they have no time for even worse news.

Lest we kid ourselves otherwise: The only solution to our predicament lies in the economy, but this time that does not mean praying for oil prices to somehow return to the dizzying heights of yesteryear. No, the only way Nigeria can avert the impending crisis is, firstly, to get the economy working, at an accelerated rate, creating jobs, and, secondly, to ensure that the economic growth is inclusive to improve the lives of Nigeria, not just statistically (as in: higher GDP per capita) but in a way that sees poverty decrease and HDIs increase.

Are we looking for the silver lining in these dark stormy clouds? It is there, and government must make hay with urgency. We should agree, at least in our resolve going forward, that successive administrations have not only been remiss in fixing socioeconomic problems but have been in denial as regards the scope and scale. Everyone, from the citizens, politicians to ministers, seems transfixed on the waiting for Godot in the hope that he will arrive with the panacea to cure all socioeconomic ills.

Put bluntly, the Nigerian economy is in dire need of structural change. And this goes far beyond mere reform and minimal tinkering with the system. No, what is required is the construction of a new economy that can provide prosperity and jobs for all. Central to this new economy must be clarity on the socioeconomic problems we face, on the desired realistic outcomes, and on the resources required to achieve this. You cannot leave a nation of 200 million people to contend with the twists and turns of a nascent democracy and not expect chaos, unless you harness resources and organise markets that function properly.

Today’s reality is, by contrast, one of informal markets. Which is why there are very limited avenues for job creation, why the preponderance of transactions are in cash, why black market thrives, why the tax base is extremely narrow, why the government’s monetary policies are blunt, why fiscal policies and expenditures do not impact on the majority of the citizenry. This is why subsidies meant for the poor are enjoyed by the wealthy middle class, this is why taxes and charges are inordinately increased – for the hapless few. The harsh social and economic realities the country groans under today are the only too predictable result of a casual laissez faire approach to the economy by various administrations, when deliberate and more purposeful management of the economy was called for.

Let the truth be told, government is not doing enough to diversify the economy. Indeed, diversification must go far beyond merely reducing the reliance on oil. Diversification must put all average Nigerians squarely in the centre, front and back of the economy in terms of their needs, jobs and wealth creation. The economy we currently run is for a few and to a large extent a dichotomous one: oil and non-oil economy. The oil and gas sector that is the cynosure of all Nigerians, with everyone seeking to get a slice of the cake, has not served the nation; instead it has lined the pockets of businessmen and feathered the beds of politicians and bureaucrats, the custodians of our national patrimony. The sector has shut its doors to the majority. Indeed, to think that the sector we clamour to enter to “hammer” accounts for less than 10 percent of our GDP. Thank God for GSM and the spinoff industries that breathed a lease of life into the real sector of the economy. Even then, the predominance of foreign interests and investments mean the bulk of the money that would ordinarily stay in the economy constitutes a leakage – as dividends, fees, debt servicing, etc., are repatriated to foreign countries. Further, the capital intense nature of ICT has limited the scope for job creation. So, yes, ICT has been a boon, its impact on job creation and inclusiveness has, however, been limited. We need more sectors to breakthrough.

So whither way forward? To be very frank, we look as if we do not know where to start. What we have done to date is to throw money at the symptoms rather than the causes in the form of social investment programmes. Obviously, these cannot make any meaningful impact on the underlying and fundamental problems. The latter tend to be simply be ignored, yet they are staring us all in the face. We need to square up to them, go back to the drawing board, start from the known and proceed to the unknown.

The knowns

  • The informal sector of the economy is remarkably large.
  • Services dominate GDP while manufacturing is shrinking.
  • Agriculture is characterised by high wastage, low productivity, and small holders.
  • Physical infrastructure is inadequate: poor electricity services and limited transportation network and linkages.
  • Limited access to credit and dearth of long-term development/investment capital.
  • Shockingly high level of unemployment.
  • A widening income gap, increasing inflation, growing inequalities, and high population growth rate, the condemnable epitaph “the capital poverty of the world” conferred on Nigeria may find long term residence here if care is not taken.
  • Rampant corruption, inefficient uses of public resources.
  • A fundamental lack of security and unstable business environment.

In light of these knowns, it seems clear that we need to redefine the economy and the various constituent markets. And by this we are not limiting “market” to “marketplace” but the embodiment of people, their needs, production and distribution of goods and services. Businesses invest using personal funds or borrowings. Savings typically account for the bulk of investment. What if domestic savings are insufficient to meet investment requirements? This is where foreign investment comes in. The role of government in mobilising savings and spurring investment is not trivial. The mechanism for this is usually the management of public resources and taxation, both spheres were the Nigerian governments have not fared too well creating a situation in which government has had to increase taxation on those already in the narrow tax base and reliance on domestic and foreign borrowings to meet revenue shortfalls.

More needs to be done to address the challenges of the economy, starting with the basics. First, the generality of the populace must be included. To this end, we must start by reducing the informal sector. The rationale for this is twofold: a) enhancement of financial inclusion and effectiveness of macroeconomic policies; and b) expansion of the tax base and enhanced efficiency of fiscal policies and public expenditure.

There are many ways to achieve this. Bearing in mind that commerce and trade are common economic activities in Nigeria, and marketplaces play key roles, these activities should be formalised. Government should develop and formalise markets with suppliers, traders (petty, retail, wholesalers), etc. for example, by registration. Trading in markets, on the streets without registered trade number should be prohibited in phases. Incentives should be considered. The authorities could provide stalls etc. Think of the hundreds of billions of Naira worth of transactions taking place on a daily basis in markets all over the country, and the amount of VAT government could thus potentially collect. Government may initially have to incentivise the collection and payment of VAT with rebates or so on purchases of essential goods and services such as kerosene and healthcare. A key policy objective will be fiscal sustainability. We need money. Money for what purpose? Surely not merely to meet recurrent expenditures and pay off debts but for real economic activities – production of goods and services – to create jobs and wealth.  It will be incumbent on government to make stakeholders see that this is a win-win strategy.

Where to start? Possibly with all state capitals and major cities. Markets can play a central role in the development of infrastructure on a meaningful and sustainable basis. They can be used as catalyst for job creation, poverty reduction and rural development. And by extension they will pull in infrastructure as they develop.

Placing markets at the centre of economic activities is deliberate. Markets do not just facilitate the exchange of goods and services but play a critical role in their production and consumption. An efficient market provides goods and services consumers want, and it sends price signals to consumers and suppliers. It promotes efficiency in production and consumption, and, therefore, assures efficient allocation of resources. Moreover, Nigerians by habit and disposition are intrinsically suited to market economy. So, government must see getting markets to work efficiently as an imperative for the economy to deliver growth, job creation and therefore prosperity.

The Nigerian economy today is characterised by imperfect markets whose proper functioning is impeded. This is one main reason why the Nigerian economy cannot in its present form serve its people. Policymakers need to ask fundamental questions of how the economic functions are managed. Put differently, is the purpose of the economy primarily to serve the people of the government? Should the economy be structured in such that it continues to cater to the interests of this small segment of society at the expense of generality of the country? Should production or exchange of goods and services be promoted to encourage domestic production or importation?

Any attempt at answering these questions will reveal that the status quo is not meeting the needs of the people. Apart from a handful of goods, there is a heavy reliance on imports, and consumers have to contend with goods and services limited in scope and quality. Agriculture and rural areas receive little attention, despite accounting for half the populace, which explains why wastage remains high and low productivity persists.

To all intents and purposes, Nigeria runs a mixed market economy, and it does so improperly. A market economy is defined as an economic system in which the decisions on what to produce, distribute and invest are determined by price signals that come from the interplay of demand and supply forces. Central to market economy is existence of an input or factor market. This is important in determining the allocation of factors of production, namely, capital, labour and land, to economic activities.

Market economies range from laissez-faire markets at the one end of the spectrum, where government focus on provision of public goods and promote private ownership, to arrangements where government is more actively involved in correcting market failures and promoting social welfare. Market economies that are state-directed (dirigiste economies) in which government uses industrial policies to guide the market – but not as substitute for economic planning – are broadly termed mixed economy. At the other end of the spectrum of market economies are planned economies. These are arrangements where investment and production decisions are integral variables in holistic economic plans. In centrally planned economies, government is responsible for allocating resources to firms rather than leaving it to.

Although the Nigerian economy from the colonial days to the present is best defined as a mixed economy, the role of market as mechanism for allocating resources has been largely ineffectual. This is due to several reasons ranging from, among others, a lack of clear economic direction, inadequate factor markets, insufficient enablers such as energy and transportation infrastructure, etc. Rather than government’s efforts directed at ameliorating market failures so that markets can function better, interventions have supplanted measures that tilt the balance towards a planned economy. These shortcomings, undoubtedly, explain the preponderance of the failings of the economy.

Markets are pivotal to economic activities. Reviving or reconstructing the Nigerian economy must leverage on markets to enhance efficient and prudent utilisation of resources in production and distribution of goods and services. At the same time, with the focus on addressing a myriad of social and economic challenges, the economy must be guided. Identification of key sectors to revamp the economy is key, here. Addressing shortcomings in factor markets is important for efficient decisions in investment, production and distribution. This must be preceded by clarity on what needs to be produced, identification of the necessary factors of production, and ensuring their availability. The role of properly functioning markets cannot be overemphasised. Shortages in financial and physical capital have blighted the activities of MSMEs, inadequate infrastructure has amplified distortions of factor and output markets making outputs expensive and non-competitive.

The market economy has played a key role in countries that have successfully transformed their economies and simultaneously lifted significant numbers of people out of poverty by creating jobs and prosperity, prime examples being Turkey and to a lesser extent India. The less said about centrally planned economies, the earlier Nigeria can focus on the task on hand. While a market system offers Nigeria the best and realistic option to create socioeconomic challenges, efforts must be on efficiency and efficacy of factor and product markets. This will require an alignment of needs, resources and enablers for both factor and product markets with all the fiscal, monetary and real sector policies geared to achieving this overarching goal. Government must promote the market economy, eliminate distortions where they exist, and nudge, but only nudge, markets in the appropriate directions such that jobs and prosperity are produced to address poverty, unemployment, income- and gender-inequalities. The problems we contend with are neither random nor spurious; they are the outcomes of a dysfunctional system.

While it may be too late in the day for Nigeria to completely escape the ravages of the economic downturn predicted by the World Bank, the focus of government must now be on immediately minimising the buffeting of the economy, shortening the painful period and priming the economy to embark on a strong and inclusive steady growth path. The authorities will not only need, as a matter of urgency, to get on with the arduous business of fixing, nay, constructing a new economy that works for all, but be seen to be doing so to bolster responsiveness to the plight of the people and legitimacy.

Image by Erin Johnson from Flickr

A lot seems to have happened in the power space over the last few days. First came the CBN announcement laying down specific rules for DMOs on what they can and cannot do with monies received on behalf of electricity distribution companies. We were also regaled with the efforts by FGN to avoid defaulting on payments to Azura IPP. Then came the bombshell, at least in the opinion of some industry watchers: The President approved significant electricity tariff increases – 73 percent in the first instance and by the time the second increase kicks in, total rise from the current position would be in excess of 130 percent. These news, alongside a series of other sobering headlines from last week (one in two Nigerians in the labour force is either unemployed or underemployed; inflation is on the increase; Nigerians now spend about 60 percent of their income on food, Nigeria borrows grain from ECOWAS to feed her citizens, etc.) are bound to agitate, or be of great concern to discerning minds.

Before dissecting the various issues, let us look at why these headlines elicit agitation and concern. Agitation because the consequences could have been avoided: The desperation and urgency of the authorities are apparent in the Azura case. If the same level of diligence had been accorded the negotiations in the first place, it is doubtful government would be where it is today. Likewise, if the way the tariff is calculated had been properly scrutinised, it is doubtful the clamour by the owners and financiers of the PHCN successor companies would have received such attention. Perhaps doing the right thing from the start is quite un-Nigerian. The default setting is to attempt to solve self-created problems that could have been avoided in the first place.

Why concern? The probability that the above developments will have a devastating impact on the wellbeing of the citizens of the “poverty capital of the world”. The expected consequences are higher prices of goods and services, leading to higher inflation, further unemployment, etc. A situation that will presumably be compounded if the looming recession materialises as the economy has reportedly contracted by 6.1 percent, having barely recovered from the last recession.

Of the series of recent news, the following three are noteworthy: the CBN announcement, the Azura payments, and the tariff increases.

CBN appears to be taking centre stage in running the economy. As the banker to the Federal Government, it became, by default, the de facto banker to the electricity industry. First, it played a key role in persuading the banks to provide finance to the would-be investors on the eve of the privatisation. Later, the liquidity problem caused by technical and non-technical losses led the Federal Government to mandate CBN to provide “market support” to the electricity industry. It is the inability of government to continue providing the credit support, considering its own revenue challenges, that must have driven the CBN to safeguard its exposure. No one seems to be asking the question of the causes of the shortfall.

What may come across as CBN using its regulatory powers to breathe some sanity into the financial position of the electricity industry is, to all intents and purposes, an overreach, as CBN has simply relegated the sector regulator to a casual bystander. CBN has stepped beyond its mandate and assumed a key function of NERC, namely, supervision of the electricity market. And that does not bode well for the future of the electricity industry and the real reform required to provide the energy to drive the economy.

As for Azura, the authorities were remiss in their responsibilities. The risks and contingent liabilities the PPA, PCOA and PRG were meant to mitigate or manage were not contingent. They were real risks merely waiting to happen, and happen they did. Alarm bells were sounded as far back as 2015, but evidently fell on deaf ears. Government was more focused on the willingness to provide what was considered the necessary mitigation required to facilitate the development of the power plant and less on its capability to fund or manage the expected liabilities.

Perhaps if more attention had been placed on capability, the necessary inquiries would have caused the spotlight to be focused on assumptions and parameters on which the financial viability of the plant was based. This would have led to financial modelling and sensitivity analysis not only to underpin the viability of the arrangement but would have thrown up issues and challenges that would allow the authorities to manage the situation better. Unfortunately, the level of diligence the developers and financers undertook to safeguard their interest was not replicated on the government side.

The second issue is the tariff increases, which ostensibly are to facilitate access to a US$1.5 billion facility from the World Bank to augment the financial position of the industry given the revenue challenges of government. One must ask whether an adequate assessment was undertaken to determine the implications and effects of tariff increases of 73 and 60 percent respectively, that is, the possible deleterious consequences on the economy and welfare of Nigerians.

Consider this: The bottom line is that a consumer who is currently paying ₦20,000 per month for electricity will end up paying ₦34,600 per month when the initial price increase takes effects in September 2020. The amount the same customer will pay in 2021 when the second increase is implemented is ₦46,600 per month for the same amount and quality of energy. This is a staggering increase. With the current realities of GDP contraction, lower oil prices, etc. we should brace ourselves for some serious economic challenges as real income declines, with a higher proportion expected to be spent on electricity and food already accounting for 60 percent of household income, food prices will tend upwards especially those that depend on electricity.

The distribution companies have been clamouring for tariff increases from inception on the grounds of non-cost reflective tariffs. However, what is ‘cost-reflective’ if there is no consensus on the areas that must be tackled to improve operational and financial performance by the authorities who are meant to balance the interests of consumers and service providers.

On the argument that prices are not cost reflective, the focus should be on appropriate pricing principles and efficient cost of production – after all, no one would support persistent disequilibrium of costs and price. The debate must, therefore, be on addressing the underlying systemic and structural deficiencies that consistently cause costs to diverge from set tariffs. Assuming a tariff increase will cure the myriad of sectoral challenges is naive. The overwhelming evidence is that any cure attributable to tariff increase is temporary at best. People adjust their consumption patterns in line with their disposable income. The implication is price increases that please service providers cause consumers to reduce consumption. This is basic economics.

Without addressing the underlying factors that drive cost to diverge from price, consumers will face further tariff increases in the future; this will negatively impact aggregate demand and cause shrinkage in supply and production. The factors which directly or indirectly influence costs and, consequently, prices), include: (i) technical losses, (ii) non-payment/theft of electricity, (iii) low capacity utilisation, and (iv) high operating and capital costs. Then there are unfavourable macroeconomic parameters, such as: high interest rates; a dearth of long-term development capital; the  regular depreciation and devaluation of the Naira and heightened foreign currency exposure increase prices for imported equipment (virtually everything) utilised in electricity production and supply; denominating gas supply purchases in US dollars despite the fact that it is produced domestically; the lack of adequate risk mitigation instruments; and finally, inappropriate trading arrangements for electricity that add to cost of services, etc.

Moreover, the knock-on effect of tariff increases does not receive the attention it deserves. The fact that factories and businesses are regularly closing is not unconnected with epileptic and expensive power supply. There is a presumption on the part of the authorities and operators in the industry that prices can be increased inordinately. This may be applicable to most residential consumers: they have low price elasticity of demand, that is, they have little or no choice on source of power and their consumption is not that sensitive to price changes. The reality for job- and wealth-creating commercial and industrial consumers is the opposite: with higher elasticity, when faced with increased power prices that can make their products more expensive and less competitive they respond by investing and switching to self-generation or closing up shop.

It is worth noting that the various tariff increases the industry has witnessed in the past did not solve any of the electricity supply challenges in Nigeria. Neither have tariff increases improved operational or financial performance of the sector or supplied more energy to the economy. The authorities still need to decide how to make electricity available at a fair price to enhance competitiveness, create jobs and spur economic growth. Nigeria is at a crossroads: Urgent attention must be paid to addressing growing poverty, unemployment, the flagging economy and HDIs that are negatively correlated to economic growth, an electricity is a critical infrastructure that must be available. The issue is not just about the electricity industry. No, it goes beyond that: The basic economic welfare of the citizens and society will be pulverised if business as usual approach is maintained. Our welfare is imperiled with dire consequences for society simply because we have failed to diligently attend to the economy and balance the interest of all stakeholders. We should be deeply concerned and agitated by these recent developments.

A lot seems to have happened in the power space over the last few days. First came the CBN announcement laying down specific rules for DMOs on what they can and cannot do with monies received on behalf of electricity distribution companies. We were also regaled with the efforts by FGN to avoid defaulting on payments to Azura IPP. Then came the bombshell, at least in the opinion of some industry watchers: The President approved significant electricity tariff increases – 73 percent in the first instance and by the time the second increase kicks in, total rise from the current position would be in excess of 130 percent. These news, alongside a series of other sobering headlines from last week (one in two Nigerians in the labour force is either unemployed or underemployed; inflation is on the increase; Nigerians now spend about 60 percent of their income on food, Nigeria borrows grain from ECOWAS to feed her citizens, etc.) are bound to agitate, or be of great concern to discerning minds.

Before dissecting the various issues, let us look at why these headlines elicit agitation and concern. Agitation because the consequences could have been avoided: The desperation and urgency of the authorities are apparent in the Azura case. If the same level of diligence had been accorded the negotiations in the first place, it is doubtful government would be where it is today. Likewise, if the way the tariff is calculated had been properly scrutinised, it is doubtful the clamour by the owners and financiers of the PHCN successor companies would have received such attention. Perhaps doing the right thing from the start is quite un-Nigerian. The default setting is to attempt to solve self-created problems that could have been avoided in the first place.

Why concern? The probability that the above developments will have a devastating impact on the wellbeing of the citizens of the “poverty capital of the world”. The expected consequences are higher prices of goods and services, leading to higher inflation, further unemployment, etc. A situation that will presumably be compounded if the looming recession materialises as the economy has reportedly contracted by 6.1 percent, having barely recovered from the last recession.

Of the series of recent news, the following three are noteworthy: the CBN announcement, the Azura payments, and the tariff increases.

CBN appears to be taking centre stage in running the economy. As the banker to the Federal Government, it became, by default, the de facto banker to the electricity industry. First, it played a key role in persuading the banks to provide finance to the would-be investors on the eve of the privatisation. Later, the liquidity problem caused by technical and non-technical losses led the Federal Government to mandate CBN to provide “market support” to the electricity industry. It is the inability of government to continue providing the credit support, considering its own revenue challenges, that must have driven the CBN to safeguard its exposure. No one seems to be asking the question of the causes of the shortfall.

What may come across as CBN using its regulatory powers to breathe some sanity into the financial position of the electricity industry is, to all intents and purposes, an overreach, as CBN has simply relegated the sector regulator to a casual bystander. CBN has stepped beyond its mandate and assumed a key function of NERC, namely, supervision of the electricity market. And that does not bode well for the future of the electricity industry and the real reform required to provide the energy to drive the economy.

As for Azura, the authorities were remiss in their responsibilities. The risks and contingent liabilities the PPA, PCOA and PRG were meant to mitigate or manage were not contingent. They were real risks merely waiting to happen, and happen they did. Alarm bells were sounded as far back as 2015, but evidently fell on deaf ears. Government was more focused on the willingness to provide what was considered the necessary mitigation required to facilitate the development of the power plant and less on its capability to fund or manage the expected liabilities.

Perhaps if more attention had been placed on capability, the necessary inquiries would have caused the spotlight to be focused on assumptions and parameters on which the financial viability of the plant was based. This would have led to financial modelling and sensitivity analysis not only to underpin the viability of the arrangement but would have thrown up issues and challenges that would allow the authorities to manage the situation better. Unfortunately, the level of diligence the developers and financers undertook to safeguard their interest was not replicated on the government side.

The second issue is the tariff increases, which ostensibly are to facilitate access to a US$1.5 billion facility from the World Bank to augment the financial position of the industry given the revenue challenges of government. One must ask whether an adequate assessment was undertaken to determine the implications and effects of tariff increases of 73 and 60 percent respectively, that is, the possible deleterious consequences on the economy and welfare of Nigerians.

Consider this: The bottom line is that a consumer who is currently paying ₦20,000 per month for electricity will end up paying ₦34,600 per month when the initial price increase takes effects in September 2020. The amount the same customer will pay in 2021 when the second increase is implemented is ₦46,600 per month for the same amount and quality of energy. This is a staggering increase. With the current realities of GDP contraction, lower oil prices, etc. we should brace ourselves for some serious economic challenges as real income declines, with a higher proportion expected to be spent on electricity and food already accounting for 60 percent of household income, food prices will tend upwards especially those that depend on electricity.

The distribution companies have been clamouring for tariff increases from inception on the grounds of non-cost reflective tariffs. However, what is ‘cost-reflective’ if there is no consensus on the areas that must be tackled to improve operational and financial performance by the authorities who are meant to balance the interests of consumers and service providers.

On the argument that prices are not cost reflective, the focus should be on appropriate pricing principles and efficient cost of production – after all, no one would support persistent disequilibrium of costs and price. The debate must, therefore, be on addressing the underlying systemic and structural deficiencies that consistently cause costs to diverge from set tariffs. Assuming a tariff increase will cure the myriad of sectoral challenges is naive. The overwhelming evidence is that any cure attributable to tariff increase is temporary at best. People adjust their consumption patterns in line with their disposable income. The implication is price increases that please service providers cause consumers to reduce consumption. This is basic economics.

Without addressing the underlying factors that drive cost to diverge from price, consumers will face further tariff increases in the future; this will negatively impact aggregate demand and cause shrinkage in supply and production. The factors which directly or indirectly influence costs and, consequently, prices), include: (i) technical losses, (ii) non-payment/theft of electricity, (iii) low capacity utilisation, and (iv) high operating and capital costs. Then there are unfavourable macroeconomic parameters, such as: high interest rates; a dearth of long-term development capital; the  regular depreciation and devaluation of the Naira and heightened foreign currency exposure increase prices for imported equipment (virtually everything) utilised in electricity production and supply; denominating gas supply purchases in US dollars despite the fact that it is produced domestically; the lack of adequate risk mitigation instruments; and finally, inappropriate trading arrangements for electricity that add to cost of services, etc.

Moreover, the knock-on effect of tariff increases does not receive the attention it deserves. The fact that factories and businesses are regularly closing is not unconnected with epileptic and expensive power supply. There is a presumption on the part of the authorities and operators in the industry that prices can be increased inordinately. This may be applicable to most residential consumers: they have low price elasticity of demand, that is, they have little or no choice on source of power and their consumption is not that sensitive to price changes. The reality for job- and wealth-creating commercial and industrial consumers is the opposite: with higher elasticity, when faced with increased power prices that can make their products more expensive and less competitive they respond by investing and switching to self-generation or closing up shop.

It is worth noting that the various tariff increases the industry has witnessed in the past did not solve any of the electricity supply challenges in Nigeria. Neither have tariff increases improved operational or financial performance of the sector or supplied more energy to the economy. The authorities still need to decide how to make electricity available at a fair price to enhance competitiveness, create jobs and spur economic growth. Nigeria is at a crossroads: Urgent attention must be paid to addressing growing poverty, unemployment, the flagging economy and HDIs that are negatively correlated to economic growth, an electricity is a critical infrastructure that must be available. The issue is not just about the electricity industry. No, it goes beyond that: The basic economic welfare of the citizens and society will be pulverised if business as usual approach is maintained. Our welfare is imperilled with dire consequences for society simply because we have failed to diligently attend to the economy and balance the interest of all stakeholders. We should be deeply concerned and agitated by these recent developments.

Photo by Miguel Á. Padriñán from Pexels

If Nigeria is to address its dire economic realities, it must diversify and intensify production activities. Transportation is crucial to this. Development of transportation infrastructure must be prioritised, and the focus should be on moving people and goods cost-efficiently and swiftly. Rail has an edge over road because of the economies of scale.

In recent times, rail infrastructure in Nigeria has received a lot of attention, largely due to the controversial loans being taken up for its construction. Concerns about the practicality of the routes and economic viability have been expressed, these concerns are of course valid. The question foremost in the minds of most is: Why is the country taking out loans for projects that are of questionable feasibility and viability?

The justification adduced for the specific projects that are being developed is that the existing lines are being expanded to carry more passengers and more cargo, and new routes will be added to enhance the system, which would ultimately aid economic development. However, when looking at the plans and structure in place, this does not seem to be the case. Undoubtedly, there is need for rail infrastructure, but can we really say that the form proposed serves the interest of the people or promotes economic growth? Take for instance the Abuja- Kaduna rail line, the commercial or economic rationale behind its existence is difficult to see. It has no haulage provision, which means cargo cannot be transported even assuming there were bulk goods to move this way or that. It simply conveys a fraction of the passengers that travel between Abuja and Kaduna at high operational costs that cannot be justified or recovered – even with the recent 100 percent price hike.

The existing rail infrastructure must be understood within the context of British colonial rule. In fact, to understand rail infrastructure in Nigeria in its entirety one must go back to its inception towards the tail end of the 1800s and in the early 1900s. Two major routes were built – the Western Line and the Eastern Line. These were not for the benefit of the country, but rather to facilitate the transportation of agriculture produce and mineral resources such as coal from the hinterlands to ports for ships bound for Britain, a model the British deployed in all their ‘colonies’ and which greatly helped the British economy develop. It is worth noting that the Jos-Kaduna spur, for example, was built solely to move tin from the mines in Jos to port in Lagos. The tin companies requested the track be laid, and the investment soon paid off. Over a hundred years later, with the affairs of the country in Nigerian hands and with a completely different take on what would make the economy thrive as opposed to what would favour those at the helm, the country surely should be building a railway system that will enhance production, expedite movement of goods and people, and have a positive impact on prices.

The Eastern Line, also known as the Port Harcourt – Maiduguri Rail Line, is another problem child. It was originally built to transport coal mined in Enugu to ports, in Port Harcourt, specifically created for the export of coal. The coal mines have long since been moribund and perhaps more pertinent is the fact that no exportation of coal will take place in the foreseeable future due to environmental concerns. It is quite difficult to see the bulk goods to be moved south from Maiduguri or Bauchi in the North East of the country. Is the project to resuscitate the Eastern Line linked to a focus on opening up the mineral reserves in Bauchi and Gombe, perhaps as part of the much talked about economic diversification? Based on the recent antecedents, it is safe to assume that emphasis has been placed on passenger traffic. The pertinent question is: How many passengers actually move regularly from Maiduguri southwards to justify the enormous investment, and more to the point, in order to recoup it? It is important to note that the estimated cost of the Port Harcourt- Maiduguri rail is US$15 billion, a non-insignificant amount for a project with questionable viability.

Rail infrastructure should not be built for its own sake or to give a semblance of development. The primary purpose of infrastructure is to aid economic growth; this is one of the key drivers in investing in transport infrastructure. Therefore, when embarking on any project, clarity on the purpose, who the infrastructure will serve, its positive impact on the economy, economic viability, etc. must be ascertained at the conceptualisation stage. It is important to make sure that these certain conditions are in place before embarking on such projects.

To achieve the above, transportation infrastructure (road networks, rail, ports, etc) must be planned and constructed to connect areas of production to markets. Achieving this will enhance trade as well as reduce waste, and there would be a marked increase in production. Imagine the economic implication of moving a staple such as tomatoes from farms in Maiduguri to markets in the south at minimal cost and optimal level of freshness due to increased speed of delivery. This simple action would invariably reduce cost as high transportation cost increase prices and drive inflation. Even as appealing as the arguments on quality and cost are, it is still important to undertake the viability studies to ascertain that  the volume of tomatoes (and other commodities for that matter) that can be grown in Borno State and others along the rail corridor justifies the multi-billion-dollar investment.

Apart from improving quality and cost efficiencies, an effective working transport system also promotes competition and market development and would create a multiplier effect spurring the creation of warehousing, logistics, manufacturing business growth, etc. As such, studies and analyses should perforce focus on reducing the cost of transportation and ensuring inter connectivity of routes for viable trade and carriage of passengers and commodities, job creation and poverty reduction. Other factors that as a matter of routine be considered before embarking on such investment include pricing and recovery of investment, not to mention regulation and coordination. It is not until these conditions are fulfilled that viability of the infrastructure can be ascertained. This way, there would be certainty in meeting debt obligations without adding more to the growing debt burden Nigeria is dealing with. To date, sadly, there has been no mention in the public domain that such serious studies have been made or how best to deal with contingent liabilities that default poses.

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Clear Disconnect between Electricity Industry and Nigerian Economy

As any economist or industrialist will tell you, electricity is a key enabler of the transformation of goods. Most transformation of goods and productive activities cannot take place without energy, and electricity is ranked as the main form of energy. The positive relationship between energy and economic growth is a given. There is ample evidence to this effect – a recent study of 10 Latin American countries over a 36-year period showed that for every 1% in energy consumption, there is 0.59% increase in GDP. What, however, is not unambiguous is what is cause and what is effect? While the preponderance of empirical evidence establishes a unidirectional run from energy consumption to economic growth, some countries exhibit the converse. Nigeria is one of those. The obvious conclusion must be: Electricity has crippled the Nigerian economy. Not because of the erratic and inadequate nature of electricity supply but the fact that the main sectors that dominate the Nigeria economy – agriculture, manufacturing and services – are rarely the focus of electricity industry supplies. Put differently: The national grid to which we dedicate large proportions of national resources to rehabilitating first and foremost serves residential customers and then only those who are close to the distribution lines.

Myriad of Problems

This is a problem that policymakers have consistently eschewed. Even if we manage to increase power generation and distribution to 6,000, 7,000 or even 10,000MW, the effect on the economy can be expected to be negligible. The main reason for this is not complicated: Usually, industrial and commercial consumption form the hub of any electricity grid. In Nigeria, however, the grid has metamorphosed into a network serving primarily domestic consumption. This transformation was largely brought about by poor electricity services as factories and industries have suffered under the weight of irregular power supplies, very high prices relative to cost of service and as a result either closed down or sought alternative, reliable supply sources, usually investing significantly in own-generation. , However, it would be misleading to focus on poor power supply as the sole culprit. There are other issues and challenges ranging from the lack of other critical infrastructure and transportation, the absence of a supporting national industrial development plan, inconducive macroeconomic conditions, lack of economic goals etc., all of which are factors relevant to explaining the parlous state of the Nigeria economy.

That said, there are most definitely operational and systemic issues that come within the ambit of the electricity supply sector and have hobbled its ability to help drive economic growth. These include a lack of knowledge of the country’s demand and power requirements (believe it or not, the operations and development of the sector are based on guesstimates and not on any rigorous demand study), high technical and commercial losses, the misalignment of constituent sectors, the narrow choice of generation technologies, etc. Moreover, we should not forget the regulatory issues such as the flawed tariff methodology that consistently causes prices to diverge from an efficient cost-of-service delivery, and wrong-headed policy or practice of gas industry placing the power industry further down the pecking order. Or the simple fact that generating companies pay for their gas and purchases of equipment in dollars but are paid in Naira for electricity supplied and consumed.

From the above, it follows that the poor electricity supply has blighted the socio-economic landscape. Yet, if fundamental changes are not made to redirect the role electricity should play in promoting economic growth, job creation and poverty alleviation it looks set to continue to wreak havoc. At present, the Nigerian electricity supply industry (NESI) functions like a disguised version of the old subsidy on petrol at the pump. The government is busy subsidizing residential electricity users rather than focusing on the economy. For manufacturing and agriculture, NESI has long since become our Nessie (the elusive monster of Loch Ness) – given that it has been a long time since they last experienced adequate and reliable electricity. Yet the government ploughs over half a billion dollars just into covering NBET’s bills each year and is about to use a similar amount for the Presidential Power Initiative.

We Need to Create Prosperity and Jobs Urgently to Address Socioeconomic Problems

This being where we are today, we should endeavour to make sure this is not where we remain. Central to this is the need for inclusive economic growth. Why inclusive? The growth the economy posted between 2000 and 2015 did not create jobs, and that is why despite an increase in national GDP, the incidence of poverty increased substantially. Indeed, with the recessions since then, Nigeria has emerged as the “Capital of Poverty” in the world, and unemployment has risen at an alarming rate especially among the youth.

What is overly obvious is that a change of approach in addressing the problem is required. As things stand without focusing on how to generate prosperity and employment to improve the welfare of Nigerians, more people will fall into poverty with all the attendant dire social consequences. The latest releases on unemployment and inflation – and they shockingly stand at 27.1 percent and 12.82 percent, respectively – are sad testimonies to this reality. According to the latest NBS unemployment report, one in every two Nigerians in the country’s labour force is either unemployed or underemployed. At the same time, updated data from the World Economic Forum shows that Nigerians spend more on food than any other country in the world. Food takes up an astonishing 58.9 percent of Nigerians’ income. Talk about a disconnect. These statistics are grim as inflation and weak economy continue to erode household income.

Creating productivity and jobs will require improving productivity and expanding the economy’s productive base. Electricity has a crucial role to play here in the growth of the key sectors that will drive the growth, namely agriculture, manufacturing, and services. For electricity to perform this function a vastly different approach to generation and supply would be required. The improvement in productivity and expansion of agriculture require irrigation, mechanization and storage facilities – and these activities require energy and not all of it electricity and where electricity is most efficient form of energy, it need not be grid-supplied. Modern technologies that can be harnessed abound – at costs that are comparable to grid electricity. Manufacturing requires not only energy but energy that is provided efficiently and at reasonable costs. Only then will our industries be able to compete with imports from China etc. and will we be able to stop the drain of foreign currency out of the Treasury. It is important to state that while adequate and reliable power is critical and needs to be planned carefully, it must be complemented by an efficient transportation infrastructure, access to capital, an upskilled productive labour force etc.

Addressing the problem must be from a holistic perspective: Clear outputs and outcome-based indices must comprise the goals and targets in a comprehensive economic plan. Resources must be allocated to address specific problems, with a clear monitoring and evaluation framework to ensure there is enhanced performance. Nigeria must once and for all stop spending scant government revenues in the hundreds of billions of Naira in a way that does not address the fundamental problems of the industry and, moreover, further deprives other sectors such as education and health of much needed funds. Throwing money at the electricity industry without demanding a commensurate improvement in services that is transparently linked to addressing unemployment and income generation is in essence throwing money down the drain. Worse still, it simply delays the underlying socio-economic problems for a later day.

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A vital aspect of economic success in any developing country is the development of its infrastructure as this spurs industrial growth and socio-economic development. This has been FG’s justification for the Ajaokuta-Kaduna-Kano (AKK) gas pipeline project it embarked upon earlier in the year and for which a US$2.51 billion loan was taken up. The project is expected to be completed by mid-2022. The project financing structure is 15% equity, contributed by NNPC, and 85% debt, provided by China’s Sinosure at 3.7% (repayable over 12 years, with a moratorium of 3 years) – meaning the total repayment is US$ 3.1537 billion.

Although it is ostensibly NNPC repaying the debt (it cannot meet its cash-call obligations to the IOCs most of the time), the Ministry of Finance has issued a sovereign guarantee for it. The most compelling of reasons given for the construction of this gas pipeline is that it will drive economic growth by providing gas for generation of electricity for towns and industries in its general vicinity, bring to life collapsed and moribund industries which would in turn have a multiplier effect on commercial activity in the area. This certainly seems appealing as it is meant to be 614km long and would cut across at least 3 major states – Kogi, Kano and Kaduna. How exactly does it intend to deliver on all it has promised?

Is the AKK pipeline project commercially viable and will it pay for itself? Claims have been made that the project will pay for itself within a 10-year period, long before the 15-year repayment term as contained in the contract. The reason for this optimism is that if implemented properly, gas pipelines are very lucrative, there are the tariffs to be paid by those who use the pipeline to transport gas and on the other hand the money to be earned from the gas off-takers. Clearly, the very premise on which its viability rests is dependent, however, on so many external factors and conditions.

Firstly, the gas off takers would need to be in place. Talks about power plants meant to be built by NNPC that would provide 3,600MW of power to the area are part of the equation, so also are the methanol and fertilizer factories, the textile factories and so on.

The NNPC press release claimed that the pipeline would “support the addition of 3,600MW of power to the national grid and revitalize textile industries which alone boast of over 3 million jobs in parts of the country.” All very laudable. The release added that the AKK project would support “the development of petrochemicals, fertilizer, methanol and other gas-based industries thereby generating employment opportunities and facilitating balanced economic growth.”

However, without these in place this project would quite simply be another white elephant project embarked upon by government. And if these conditions are not in place the country would be making a loss at the outset and that loss needs to be factored into the sum total of the loan as the government is paying the mortgage.

Consider this: Power plants cannot be designed and built anywhere near that fast and there has not been any ground-breaking for NNPC’s own claimed power plant. The average construction time for comparable projects worldwide is 54 months, factoring all the red tape, completion of tenders and so on we can realistically round its delivery up to 5 years.

Considering that the project would be complete in 2 years the pipeline would therefore make a loss for at least the first 3 years of its existence as the operators will not be able to sell any major gas volume. We need to know: does FG have to reimburse them for their losses? If so, then that figure needs to be added to the total. Another point to consider is whether NNPC can find customers for its 3,600 MW in the vicinity. Presumably, if it does not, but is still injecting the power into the grid, then NBET will have to reimburse NNPC and will end up in a far worse condition than it is in presently. Would it not be better to take the money and build hydropower plants and other renewables? After all, the north is well endowed with hydro resources that can be harnessed for power generation, irrigation etc. Building more on existing architecture does not take cognisance of the limitations of the grid that undermine its viability. The economics on which the project is based should be made public, and if one does not exist, it is not too late to work on one. This way, we know exactly what we are dealing with: an eagle or albatross.

What started out as a seemingly straightforward loan of US$2.51 billion may amount to a much greater figure when all is said and done. Sadly, it may very well end up being a millstone around the country’s neck. If the raison d’etre for infrastructure of any kind is economic growth, and the pathway to growth is not clearly defined from the outset then it makes no sense to further embroil the country in debt. This again is discussion for another day.

Interest on debt grows without rain: or so the old chestnut goes. This has certainly been the case for Nigeria over time and it seems no lessons have been learnt for all the angst and anguish debt and debt servicing have caused in the past.

Nigeria has been doing a lot of borrowing in recent times and between 2015 and 2020, Nigeria’s debt profile rose from US$9.7 billion to US$27 billion. Interestingly, these figures only show the amounts taken up as debt, the principal, and do not depict the full picture which should include the amount that the country has to pay as interest on loans.

Interest on loans is most times overlooked and not given the proper consideration it ought to receive as discussions on loans by the government and indeed the entire country is always at net price. This is less than ideal for a country like Nigeria which is neck-deep in debt. Take for instance, the P&ID case which was not properly handled and ended up costing the country an additional US$3 billion, in addition to the initial amount of US$6.6 billion, on interests accrued.

Borrowing to fund infrastructure projects is not itself wrong but it is important for the government to study the feasibility of loans taken up, and consider the interest that will be owed as an important aspect of the transaction, looking at the entire picture in a holistic manner and understanding the real implications of what it is getting into.

Earlier in the year, Nigeria entered into an agreement with Chinese lenders to fund a big gas pipeline project estimated to cost US$2.5 billion known as the AKK natural gas pipeline. This pipeline when complete would be a full 614km long and would pass through Ajaokuta- Kaduna- Kano hence the name AKK. The Ministry of Finance stated that the loan required for the project was US$2.51 billion, at a 3.75% interest rate over a period of 12years; in other words, the total sum the country will need to pay is actually approximately US$3.15billion. And that is the figure which should be talked about in the public space, because that is what the project will cost the country directly.

A similar approach should be taken to all project loans, so the country knows exactly where it stands in the real scheme of things. Yet strangely it is not. Consider the current loan in contention in the public space namely the US$500 million from China’s Exim bank for railway construction and other transport-related infrastructure. There is public outrage because of a clause in the agreement waiving immunity as a sovereign state. The Minister of Transport has tried to downplay the enormity of the implication of defaulting asserting that FG has the capacity to repay the loan within the 20-year timeframe as the incredibly low interest rate of 2.8 percent is favourable to Nigeria.

However, if one does the maths, at the 2.8% interest rate, repayment of the loan would mean payment of a total of US$659.79 million, factoring in annuity of US$32.99 million and interest of US$159.79 million. This might not be the most pragmatic of decisions as there is no guarantee that the railway would recoup even its operating costs (ticket prices have just been hiked by 100%, which can be read as a sign of the difficulties) and government would have to subsidize the project from oil revenues, further diminishing the treasury.

That is a discussion for another day- the possibility of the rail infrastructure paying for itself. Whilst the public worries about the sovereign clause it would do well to have the entire picture, as interest always mounts up over time and if ignored will at some point in the future invariably take the nation by surprise.

Last week SHOPRITE announced it was pulling out of Nigeria and looking for local investors to take over the business. While the news may have caught some completely by surprise, others who have followed the difficulties the chain has had to contend with may have already seen the writing on the wall. To name one such difficulty: epileptic electricity supplies, a major problem for shopping malls that rely on freezers 24/7 and massive air conditioning during opening hours.

The withdrawal should be of great concern to us all. After all, retail business sector as at 2018 accounted for about 16% of the Nigerian GDP. In an era characterized by a drive for diversification, the withdrawal is alarming. It is a well-known fact that Nigerian shoppers prefer and want to see, feel, and try on products before making a purchase thus, having a variety of products under one roof helps to address that aspect of the shopping flair in Nigeria.

To jog everyone’s memories: Shoprite is a South-African owned chain which started operations in Nigeria in 2005 and now boasts 26 retail stores across eight states in Nigeria, making it the biggest retailer in the country. It offers its customers a variety of food products, household goods and small appliances at affordable prices. Moreover, it has structured the retail business in Nigeria to international standards to deliver a world-class shopping experience. Indeed, it has a minimum payroll of 2,000 with 99% Nigerian staff strength. It should be noted that about 80% of sales in Shoprite Stores in Nigeria consists of domestic goods which encourages local products. Shoprite has built relationships with over 300 leading Nigerian suppliers, small businesses, and farmers, securing a wide assortment of local brands. It is an example to follow. And it is renowned for its staff training. In a nutshell: SHOPRITE are the pacesetters of structured retail business in Nigeria!

No other retail company in Nigeria has been able to achieve what Shoprite has done in Nigeria in the last 15 years. In fact, none has achieved anything similar in terms of branch outlets, staff strength and establishing an immense network of suppliers, let alone maintaining such standards. This begs the question whether a successor company will keep things moving so well.

The intended discontinuation of SHOPRITE in Nigeria is not surprising, because, for some time, the retailer has been grappling with the twin evils of weak sales revenue due to logistics concerns (one needs think only of clearing goods at Apapa) and the economic downturn in Nigeria – which has been worsened by the COVID-19 pandemic lockdown and social distancing. Customer patronage subsequently fell by 7.4% owing to the pandemic lockdown.

Another reason responsible for the challenges that Shoprite is currently facing is the difficult and hostile environment it finds itself: Beyond COVID-19 economic consequences and fall of oil price, there are other factors that made the decision inevitable, some of which are:

Exorbitant rents and high taxes, costs that have to be passed on to customers along with energy costs.

Currency devaluation, as this eats into profits that want to be repatriated, with currency-induced inflation putting another nail in the coffin.

Fast dwindling consumer purchasing power which automatically resulted in a dip in sales of most businesses.

Lack of access to local credit finance given the unrealistic 20-plus percent interest rates demanded by banks

Infrastructure deficits (transportation, energy), making getting produce to the malls and keeping them operating and customers cool – incredibly challenging and/or very costly.

Xenophobia – Some Shoprite stores were looted and destroyed in Nigeria in response to the xenophobic attacks on Nigerians in South Africa, sparking an 8.1% loss in sales in H2 of 2019.

All these factors added up to making it unattractive to the would-be investor, be it foreign or local to invest in Nigeria. It is in this context that the Chief Executive Officer of Shoprite, Pieter Engelbrecht, noted: “…we have taken a number of immediate operational actions, all of which are on-going and include rent reductions, store closures, productivity improvements and de-dollarising costs. We are confident in the absence of further currency devaluations and any unforeseen circumstances that these operational measures will positively impact profitability.”

From the foregoing, it is obvious that the exit of the chain-store will adversely affect not just the staff, but the numerous suppliers and farmers. It is conceivable that some of these small business holders will go out of business. In other words, the exit will have a ripple effect on the economy. There  is also no assurance that new owners, assuming such are found, will want to retain the old staff. And who knows what the situation will be as regards the real-estate investors who developed the shopping malls and own the respective sites.

A 2013 McKinsey report estimated that from 2008 to 2020, Nigeria offered a $40 billion growth opportunity in food and consumer goods. Evidently, with the SHOPRITE announcement, at the latest that bubble has burst. In fact, in 2019, according to a survey released by A.T Kearney, a global management consulting firm, Nigeria’s global ranking in retail development dropped to 30th position out of 30 countries with the total national sales dropping from $109 billion the prior year to $015 billion. Yet if one looks at the above factors closely, then it emerges that at leave five of the six are open to influence by good policymaking (on import duty regimes, red tape, infrastructure, etc.), which can definitely positively affect the cost of doing business in Nigeria. Remember, government is there to enable business to take place, not to do business. In this case, it would seem to have failed in its enabling role.

Government should already be going into action. After all, there the risk of contagion effect. What will happen to Game and other foreign companies directly and indirectly involved in the retail sector? It is no longer news that one of the clothing brand retailers, Mr. Price, a popular affordable clothing, sport and home wear brand has already closed shop and left with all their investments while citing difficulties and challenges, such as repatriating profits. With the attendant consequence of the COVID-19 pandemic on the Nigerian economy and its populace which is resulting to massive job losses and decreased income, it is only a matter of time and will not be a surprise if other similar foreign retail stores follow in Mr. Price’s and Shoprite’s footsteps.

Retail business in Nigeria is viewed by many as a new frontier of growth and holds significant opportunities for local and international investors and if fully harnessed, the opportunities it avails the economy are vast. These include job creation, spurring industrial growth, infrastructure development, and thus ultimately contribute to GDP growth. So, if we keep allowing these investors to close shop and leave, it portends a huge loss to the economy. In this context, it should be of great concern to the Nigerian government that the Nigerian economy is growing slower than its population growth due to the hostile business environment.

On the other hand, neither the government nor the populace need worry about the exit of one or more foreign investors if there are no impediments to healthy competition, markets function efficiently, and if the decision to close shop is based solely on corporate decisions – and has nothing to do with the systemic challenges facing the retail sector. If this were the case, then the departure of Shoprite from Nigeria could spell more business growth for Nigerian retail supermarkets and businesses. It is a big ‘if’ as it assumes quite a lot being in place: appropriate competition policies and legislation; insignificant barriers to entry and exit; open borders; easy repatriation of profits and capital; ease of doing business; low transaction and indirect costs; favourable macroeconomic conditions (taxation, fiscal policies, interest rates, access to finance, and exchange rate regime); improved security and infrastructure. And last but not least, effective sector-government liaison (to convey challenges and feedback).

Now that is a hefty set of homework assignments for government… And we can comfortably contend that it is only once those issues plaguing the Nigerian business environment are tackled squarely and openly and appropriate policies put in place that government can sit back and no longer worry if a major company, be it foreign or local, closes shop.