According to the World Bank, the international benchmark for infrastructure stock was 70% of the country’s GDP. However, Nigeria’s total infrastructure stock is currently 30% of its GDP. This highlights Nigeria’s massive infrastructure deficit and the need for infrastructure outlays of over $2.3 trillion, which is expected to be invested over 30 years to bridge this deficit.
Infrastructure is instrumental to the health and progress of any economy, as it is the basis for the operation of businesses and human activities. Some challenges widening the country's infrastructural gap include rapid urban growth, inadequate funding, corruption, governance issues like the lack of accountability and transparency, and ineffective management. Adequate and efficient infrastructure, such as transport, energy, and communication, can improve economic health and overall quality of life. The multiplier effect of infrastructural development further highlights the need to invest in bridging the infrastructure gap as Nigeria aspires to the development levels of her global counterparts.
Drivers of Infrastructure Development
Infrastructure development in any society is typically influenced by economic, social, financial, technological, environmental, and political factors. However, this analysis focuses on a select few. Political interest is the primary driver of infrastructural development in any society. Infrastructural deficits are often prevalent in societies where leadership dysfunction results in a lack of commitment to essential infrastructural investments. In Nigeria, infrastructure development has been highlighted as one of the priorities of President Tinubu’s administration.
It is worth noting that increased investments in Nigeria’s infrastructure may not necessarily be driven by development priorities but by tribal, political or parochial inclinations. For instance, the Jonathan administration increased investments in Western educational infrastructure in the northern region in the run-up to the 2015 elections in Nigeria. These efforts were aimed at courting political favour rather than economic priorities.
Furthermore, these investments ultimately failed as socio-cultural complications needed to be addressed to improve the success of such institutions in the region. However, political interest may not always be a negative factor as it could help direct focus and channel resources toward areas or regions deficient in infrastructural development. Political alignments and deliberations may reveal previously neglected areas of development that should have been prioritised earlier, like the construction of the much-needed second Niger bridge and the construction of the AKK gas pipeline in Nigeria from the south through the Northern region to further fuel electricity and industrial investments.
Infrastructural development heavily depends on the availability of financial resources to provide the required capital for project execution. This requirement is mainly responsible for the infrastructural gap between high-income and low-income economies. One reason is that high-income economies (due to higher income levels and capital base) tend to be more financially capable of delivering infrastructure projects. Another reason is that high-income countries have better-developed finance and legal mechanisms to structure funding for the capital requirements of these projects. On the contrary, Nigeria and other developing nations have made limited progress in effectively establishing systems and institutions to leverage financial mechanisms for infrastructure development.
To actualise effective infrastructure development in any society, the governing authorities must execute projects based on the society's infrastructural needs and acquire the necessary financial instruments to achieve this development. This calls for assessing the nation's infrastructure needs and increasing efforts to address the shortcomings hindering its actualisation.
In addition, there is a growing need to completely overhaul the construction and finance industries to facilitate structured financing of construction projects. These financial mechanisms, which include approved infrastructure budgets, loans, grants, private investments, and trusts, fuel the construction, revamping, and maintenance of infrastructure projects that contribute to economic growth and improve societal living standards.
Benefits of Infrastructure Investment
Infrastructure investment has an indirect link to economic development as these investments improve the infrastructural health of the country, thereby promoting growth. These investments in infrastructure in a country could have a short-term and long-term impact on the economy. In the short term, physical infrastructural projects like roads, bridges, and airports create a demand for a labour workforce from across all the necessary sectors needed to implement the project, such as engineers, manual labourers, etc. Increasing the demand for construction materials from ongoing projects also stimulates or expands production processes, creating additional jobs to meet the demand. These roles may include manufacturers, suppliers, transportation and logistics personnel. In the long term, the need to continuously maintain or upgrade these infrastructure projects creates a job market to be filled. Established and well-maintained infrastructure attracts businesses and industries to the area, which multiplies the available job opportunities.
Infrastructure investment also indirectly boosts the economy through consumer expenditure, which is made possible by creating job opportunities. This expenditure on goods or services stimulates other sectors, such as retail, manufacturing, transportation, hospitality, real estate, etc., thereby creating a long-term cycle of processes. Expanding these industries creates demand for more jobs and increases the expenditure of their workers who consume products and services from other sectors.
Infrastructure investments also improve the productive capacity and levels of society by enhancing the productivity and performance of industries. Improved transportation networks and infrastructure expedite the adequate and uninterrupted movement of goods and labour, reducing delays and operation costs. Accessible, reliable, and affordable energy systems also help maximise productivity by reducing production time and costs and promoting efficiency. Modern, reliable, and effective digital and communication systems enhance communication within and outside an economy, promoting economic activities and trade, improving digitalisation for the fourth industrial revolution, and aiding economic growth. These developments help improve market access and increase economic competition and investment opportunities. Infrastructure investment might also offer solutions to the issues that result from a fast-growing urban population in Nigeria.
Infrastructural development can improve economic opportunities and progress, especially in rural areas. Enhancing and upgrading healthcare facilities, educational services, water and sanitation facilities, and other infrastructure could slow the pace of urban migration. Infrastructural developments also grant rural populations access to markets, boosting economic activities and investment. This results in growing opportunities and income levels in these typically isolated areas, thus limiting the problem of economic inequality.
Case Studies
In a bid to boost its trade, connectivity, and market access across several regions, China established a Belt and Road Initiative in 2013. This involves several investments and development initiatives intended to expand China’s economic and political influence by linking East Asia, Africa, Europe, and Latin America through physical infrastructure. This initiative aimed to enhance trade connectivity and Chinese currency usage by developing several railway networks, pipelines, highways, ports, etc. It also funded the development of several special economic zones intended to boost economic activities, create more job opportunities, and attract investment. They also aim to top the global tech chart by developing and promoting 5G advanced communication technology. This program established new trade partnerships, dominated the export market, and increased Chinese incomes. So far, China has entered into agreements with more than 150 countries and 30 international organisations, with several projects already developed in BRI participating countries and the initiative surpassing $1 trillion, which they intend to recover through several debt repayment plans.
Nigeria’s infrastructure stock of 30% of its GDP and the deficit of $2.3 trillion is a significant indicator of the urgency of intense infrastructural investment. This investment in the infrastructure sector is instrumental in reducing unemployment, increasing productivity levels, reducing business costs, access to markets, and solving the urban migration crisis. These investments should be mainly from the private sector to reduce the burden on public finance and the country's debt stock. Incentives like Sukuk bonds that have proved effective at inspiring private investments in projects due to increased trust in structured systems, but also the nature of returns to investors originating from profits-generated appeals to specific religious tendencies should be adopted. While investments are crucial for infrastructural development, accountability of these investments, development, and management processes are essential for maintaining trust in these investors.
