FG Capital Expenditure unlikely to dent infrastructure deficit

Capex spend too puny to upgrade crumbling infrastructure choking growth!

Fig 1: FG Budget Performance (2012 – 2016)

Source: Diaspora Bond Prospectus, BusinessDay Market Intelligence Research

Whether it is modern international airports for its flagship cities of Lagos, Abuja, Kano, Port Harcourt and Enugu, new roads, bridges, high speed railway tracks to connect its vast landmass and move goods or to build out social infrastructure like hospitals and schools, Nigeria is in dire need of infrastructure.

Africa’s largest economy needs at least $20 billion a year, or up to $200 billion over a 10 year period to finance its huge infrastructure deficit, according to the Urban Development Bank of Nigeria.

A look at the Federal Government Capital Expenditure between 2012 and 2016 however exposes that Abuja is incapable of fixing Nigeria’s infrastructure deficit unless it changes its mind-set and adopts innovate means of financing the country’s badly needed infrastructure.

Data from the recently issued diaspora bond prospectus shows that for the 5 year period from 2012 to 2016 the Federal Government spent N3.65 trillion ($11.9 billion) on Capex or an average of $2.4 billion a year.

The abysmal Capex is a symptom of a bloated civil service and thus unrestrained recurrent expenditure.

For instance actual recurrent non debt expenditure for the period (2012 – 2016) was equivalent to N11.95 trillion ($39 billion) or 3.2 times Capex.

The increase in the wage bill is largely as a result of pay rises awarded before the 2011 general elections as well as the minimum wage legislation.

Other factors responsible for the poor FG Capex include low overall revenues and poor execution or absorptive capacity.

Nigeria’s tax revenue to gross domestic product (GDP) fell to 12 percent after the GDP rebasing exercise, which is one of the lowest in Africa, as well as for a country of its economic size.

The Federal Government’s retained revenue as a percentage of GDP also fell to 3 percent in 2016.

From the data we can see that the FG was unable to spend above N1 trillion in Capex for any singleyear in the time period, even for years in which its Capex budget exceeded N1 trillion.

The data shows that in 2012 the FG budgeted N1.34 trillion for Capex but actual spending was N744 billion or 57 percent, in 2013, N1.59 trillion and actual N958 billion (60%), in 2014, N1.119 trillion and actual N587 billion (52%), in 2015, N557 billion and actual N577 billion (103.5%), and 2016, N1.587 trillion and actual N784 billion (49.6%).

The mounting debt service payments are also a source of worry for us as it reduces funds available for the FG to use on Capex.

The data shows that actual debt service payments have jumped from N679.3 billion in 2012 to N1.38 trillion at the end of 2016.

We believe there has to be a paradigm shift in governments thinking as these figures show that the FG is not a credible means of fixing Nigeria’s crumbling infrastructure which is slowing down growth and keeping people in poverty.

The poor performance of concessions in the country means the Government at all levels are still the largest source of infrastructure spending.

The infrastructure concession regulatory commission (ICRC) set up in 2005 as the Federal Government’s regulatory agency for the provision
of institutional framework and guidelines for catalysing public private partnerships (PPP’s) has been mostly ineffective.

Critical success factors for PPPs in the country include access to long term capital, legislation, political will, and institutional framework.

Given high levels of corruption and bureaucratic inefficiency, many PPP concession projects have however become stalled.

We believe that this should not be so as there is ample capital in the private sector ready to build out infrastructure as long as the framework is right!

 

PATRICK ATUANYA