Real Estate

Nigeria’s low infrastructure investment finds explanation in poor non-oil tax revenue


January 30, 2018 | 6:00 pm
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Nigeria is known to be burdened with infrastructure deficit which experts say requires several billions of US Dollars to bridge. This deficit, according to experts,  is a direct consequence of low investment in this critical component of economic growth and national development.

Population growth and rapid urbanization have also played a major role here. It has been  observed that from 1960 when there were just 46 million people in Nigeria, the country’s population has grown to  about 180 million  and is projected to hit 550 million in 2070.

This rapid population growth requires huge investment in infrastructure but, according to Bode Agusto, CEO, Agusto & Co Limited, who was guest speaker at the 2018 Dinner hosted by the International Real Estate Federation (FIABCI) in Lagos,   “Nigeria is under-investing in infrastructure”.

The FIABCI Dinner is an annual event hosted by its Nigerian chapter through which federation speaks to the Nigerian economy. The theme of this year’s event, ‘Infrastructure Finance in a Challenging Economy’ was strategically chosen to reflect the present state of the economy.

In his presentation, Agusto noted that Nigeria is far behind its peers which include Ghana, Ivory Coast and Kenya, in infrastructure investment.  He  recalled that, during the five years ended 2016, these countries invested 5.3 percent, 6.5 percent and 7.5 percent respectively of their national income in infrastructure, while Nigeria invested only 2.1 percent

This is far from the link which the World Bank sees in infrastructure spend and national economic growth. The bank estimates that a sustained 20 percent growth in infrastructure spending leads to a 1.8 percent growth in the economy, hence the advice on Nigeria to increase it investment in infrastructure to engender the economic growth it badly needs at the moment.

“The national grid, railway tracks and signals that will connect all the state capitals and the ports, rolling stock that will move people and goods around Nigeria, and inter-city highways and bridges are crtical areas yawning for investment”, Agusto noted.

But this is not happening because, according to him, government’s tax revenue is too low. Non-oil tax as a percentage of national income in Nigeria is about 4 percent as against Angola’s 9 percent, Ivory Coast’s 15 percent, Ghana’s 16 percent and Kenya’s 17 percent.

Again, government’s  obligatory spending, in terms of interest on loans, payroll and other statutory payments, is higher than its revenues and,  therefore, its ability to invest in infrastructure without incurring significant debt is constrained.

Furthermore, the federal government’s local currency debt is about 350 percent of its revenues which is significantly higher than the median of 200 percent for countries in the Middle East and Africa.

Agusto pointed out that given its poor revenues, the government, acting alone, is unable to make the investments required in the aforemention sector where investment is required. He canvassed a departure from the traditional funding of infrastructure in which, government is the sole provider of funds for infrastructure investment and projects  are executed through government ministries, departments and agencies (MDAs).

The drawback of this model, he explained, is that infrastructure projects become politicized – budgets are approved late, there is a proliferation of projects, scarce funds are spread thinly amongst the numerous projects and are rarely completed, for example, the  Lagos- Ibadan Expressway.

A better and more viable alternative, he recommended, is the non-traditional funding model which is  for the government to look for partners such as International Development Institutions/Agencies (IDAs), local businesses and  foreign businesses in a public private partnership (PPP) arrangement.

Projects that readily lend themselves to this kind of arrangement are those with strong economics and social impact like the national grid, railway Infrastructure, railway rolling stock,  the second Niger Bridge; and also projects with weak economics but strong social impact e such as water for rural communities, rural  electrification, etc.

The benefits of this model, Agusto hinted, are  that project costs drop significantly; projects are completed; there will be improved transparency around government projects and reduction in corruption;  it will create significant economic activity and employment,  grow the tax revenue of government, and improve the quality of life by providing access to electricity, railway, water and roads.

The FIABCI dinner is also an occasion for recognizing and rewarding excellence in real estate projects design and execution. This year, the award recipients included Primrose Properties/Actis Heritage Place as the Best Commercial Development (Office category); Chagoury Group for their Banana Island and Eko Atlantic City development (Master Plan development category), and Dipo Davies, Publisher, Castles Magazine for Media Achievement  Award in print media (Real Estate).


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January 30, 2018 | 6:00 pm
  |     |     |   Start Conversation

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