Nigeria_economy
President Muhammadu Buhari presented the fiscal year 2016 budget on Tuesday December 22, 2015 before a joint session of the National Assembly. The President, the Vice-President (Professor Yemi Osinbajo), the Minister of Budget and National Planning (Mr. Udoma Udo Udoma) and the entire team should be commended for putting together a solid economic plan that touches on all the critical areas of the nation’s development.

Budget Breakdown

Using a NAIRA:USD exchange rate of 199, BudgIT (yourbudgit.com), gave a succinct breakdown of the N6,080 billion budget: Projected Expenditure: $30.5bn; Projected Revenue: $19.4bn; Recurrent Expenditure: $21.5bn (70.3% of the total budget); Capital Expenditure: $9.0bn (29.6% of the total budget); Debt Servicing: $6.8bn; Budget Deficit: $11.2bn (36.5% of the total budget).
Under the President’s plan, Nigeria will borrow $4.52bn from abroad and $4.94bn from domestic sources. For non-debt recurrent allocations, $1.86bn is budgeted for Education, $1.48bn for Defence, $1.11bn for Health and $0.73bn for the Interior. Main capital allocations have $2.18bn for Works, Power and Housing; $1.02bn for Transportation; $0.27bn for Interior; $1.01bn for Special Intervention Programmes and $0.69bn for Defence.

The proposed budget, which is 20% ($5.42bn) higher than the Y2015 plan, is the highest ever by any Federal Government of Nigeria. The budget is forward-looking and cautious. The plan was definitely put together by people who “know their onions” and professionals who evidently have the best intention for all cadres of the Nigerian population.

Global Standing

Nigeria is clearly way up there when these budget numbers are compared with those of other countries in sub-Saharan Africa. These budget figures, associated with Africa’s biggest economy, are impressive. However, our sense of pride and awe will quickly be tempered when the numbers are examined in the light of economic realities elsewhere. Nigeria’s budget does not even rank among the top 60 in the world. Brazil, a country whose development we should continue to study for valuable lessons, operates an annual budget of nearly $900bn – nearly 30 times that of Nigeria. The State of Ohio, in the industrial mid-west USA had a 2015 budget of $31.7bn (20th by size among 50 states). This is larger than Nigeria’s proposed $30.5bn budget. America’s biggest state, California, has a current budget of $167.6bn, or 5.5 times Nigeria’s budget. A number of top universities (e.g., Harvard University with an endowment of $32.7bn and 2015 budget of $4.2bn) spend more annually than we have budgeted for Power, Housing and Works combined.

According to International Policy Digest: “Nigeria is currently the seventh most populated country in the world. Its population is projected to surpass the population of the United States by 2050 and experts estimate it will exceed 752 million by 2100, according to a recent United Nations report.” For a population of over 180 million people, Nigeria is definitely not where the country needs to be considering the enormous needs and how far up the nation must climb to be counted among the comity of developed nations.

Big Country, Big Challenges

Let us look more closely the requirements of Power, Housing and Works sectors for which a combined total of $2.18bn was allocated in the proposed 2016 budget. A capable and experienced hand, Mr. Babatunde Raji Fashola (BRF), has been given the primary responsibility for these three strategic sectors. We all must wish BRF well in his important role as a “Super Minister”. We also must sprinkle some reality checks on our hope and aspirations for these sectors.

. Power: The country needs, in the short run, roughly 40,000MW generating capacity to meet the celebrated 2020 vision. The targeted 40GW capacity is roughly eight times the power being delivered through the national grid. Using $5/watt as the average capital cost to build a modern power infrastructure (with a robust generation, transmission and distribution capability), Nigeria will need to spend $200bn to fulfill that 40GW dream. The sobering truth is that the country actually needs more. To actually become a truly industrialised nation, Nigeria would need to generate 180,000MW. That is the capacity required to achieve the 1,000W per capita standard expected of a developed economy. Such a lofty goal will cost $900bn, a figure that far exceeds Nigeria’s nominal Gross Domestic Product (GDP) of $570bn.

. Housing: Nigeria currently has a shortage of about 18 million housing units. If the average new home costs US$50,000 to build, the housing sector will need another whopping $900bn, in today’s dollars, just to meet the current shortage.

. Roads: Nigeria’s per capita paved roads is barely one km per 1000 people. Austria, by comparison, has the world’s best at 25km per 1000 people. The world’s average is 7.07km per 1000 people. A total of 1.27 million km of new paved roads will need to be constructed for Nigeria to attain the world’s average number. Even at an average construction cost of $1,000,000 per km, Nigeria will require $1,270bn to build new paved roads just to meet the average world per capita standard. That huge sum must be added to the amount required to restore Nigeria’s current federal roads whose total asset value is estimated to be $35bn.

. Unemployment: The National Bureau of Statistics pegs the unemployment rate at 9.9%. Analysts believe the unemployment rate among the youth, 15-34 year olds, is over 50%. Having those millions of the country’s able-bodied young people unemployed or under employed is a ticking time bomb.

New Thinking Required

There is no gainsaying it, Nigeria’s development challenges are as big as our size. The key issue is to figure out the best to tackle and solve these problems. As Albert Einstein said: “We cannot solve our problems with the same thinking we used when we created them.” The Federal Government, despite the best of intentions, is incapable of “budgeting” its way through these gigantic and multi-faceted developmental problems. New thinking is needed urgently.

Useful Lessons from Nigeria’s Telecoms Sector

Fortunately, Nigeria is experiencing the second decade of a phenomenal success, the solution of the infrastructural challenges we faced, for prolonged years, in telecommunications. In 2002 there were 2.27 million registered phone lines in Nigeria. According to Nigerian Communications Commission, there were 150,660,631 total (mobile and fixed) telephone lines in Nigeria as of September 2015. The total number of telephone lines grew by over 6000% in 13 years. That is an extremely encouraging fact. Telecoms’ active subscribers spend over $12bn annually, just on phone calls. Lesson Number 1: Nigerians will readily pay for useful, available and dependable utility service when they are offered one.

The $12bn spent annually on phone calls is six times the President’s entire budget for Power, Housing and Works. The Information and Communications Technology (ICT) sector is on track to contributing more than 25 percent to Nigeria’s GDP by 2025. (This is akin to ICT contributing $140bn of Nigeria’s current $570bn GDP.) Some 87 million Nigerians currently have Internet subscription with the four largest cellular carriers. Lesson Number 2: Nigerians, drawn from all socio-economic levels, are capable of funding the development of the power sector given the right economic incentives.

The distinguishing feature of the miracle of the telecoms sector is that it was driven entirely by the private sector with the government playing the role of a strong regulator. In addition to the Telcos (owners and operators of the mobile cellular networks), there is a whole army of dealers, agents and street vendors selling recharge cards and performing top-up functions in every nook and cranny of the nation. The telecoms industry is vibrant and it is pervasive. The industry has created enormous wealth and employment opportunities throughout all socio-economic levels the society. Lesson Number 3: Massive employment and enormous wealth will be created if the proper participatory framework is available in critical developmental sectors.

Fiscal Federalism

Nigeria must practice and adhere to true principles of fiscal federalism, as clearly stipulated in the constitution. Every citizen (regardless of clan, locality, state or region of origin) must be given the opportunity to participate in the development of the larger society by being actively involved at the local community level. The material and human resources required to tackle our problems can be harvested from within Nigeria. The economic environment must make it possible for millions of our people to move up, socio-economically, and become significant contributors to national development. The result will be a true participatory, grassroots-based, free enterprise system.

The Federal Government should focus on their core areas of responsibility: security, law and order, regulation, border control, international diplomacy, etc. Development must be driven from the local communities with the private sector serving as the main engine. Government should be all about governance. Business should be left to the business sector.

Breaking the Problems Down – Community-by-Community Solution

Nigerians, across the board, should actively participate in developing their local communities. The country must move away from humongous, government-controlled projects that breed corruption, a culture of impunity and lack of accountability.

Below are the Seven essential steps in the new thinking paradigm:

1. Explore the solution to each problem (power, housing, transportation, agriculture, healthcare etc.) community by community. Nigeria’s 774 Local Government Areas (LGAs) are excellent geographical units for development;
2. Engage Small and Medium Enterprises (SMEs), the engines of growth, in executing projects designed to solve specific problems in the different sectors. Public-Private-Partnerships, based on concessionary agreements, are solid frameworks for implementing a large class of the infrastructural problems;
3. Break big infrastructural projects down into smaller projects that can be divided among a plurality of SMEs;
4. Develop human capacity, in all the relevant fields and subject areas, throughout the local communities;
5. Create incentives (guaranteed market, simplified licensing, access to land, duty waivers, tax holidays, subsidy on production, robust tariffs etc.) and enact laws that will facilitate (not inhibit) project execution;
6. Make maintenance mandatory for all built-up infrastructure;
7. Enforce all rules and regulations.

Power

We will now explore how this new thinking will work in solving the power problem, for our first example. The critical elements of the solution to the challenges in the power infrastructure are: Distributed Generation; Multiplicity of Energy Sources; Smart Micro-Grid Network; Community Energy Storage; Private/SME Ownership of Distributed Power Systems; Capacity Development of Local Workforce; Persistent Maintenance.

Nigeria obviously needs to revamp the entire power architecture so as to completely eliminate any possibility of frequent “total system failures”. The solution is a web of micro-grid power networks whose size will depend on the needs of the community being served. The new system will be based on distributed power generation with the energy source (natural gas, biogas, solar, wind, hydro etc.) obtained locally. Ubiquitous community energy storage must be an integral part of the new power system.

Taking this distributed generation approach will solve the single-point-of-failure challenges common with the current system. Generating 240MW in each of the 774 LGAs will guarantee for the nation a robust and modern 180GW power infrastructure. SMEs (who will engage local workforce) will be given concessionary deals to “Finance, Build and Operate” individual power systems in the local communities. Stakeholders, small and big players, drawn from within and outside the community, will raise both debt and equity capital required to build each power system. These owners, SMEs who are de facto “Micro Power Utility Companies”, will have the sole responsibility of: (a) generating, transmitting and distributing electricity to the local community; (b) collecting payments for electricity sold directly to consumers or to the designated Bulk Electricity Trader; (c) operating and maintaining the micro-grid network within the locality.

The proposed solution resolves the current transmission/distribution problem where a substantial portion of the power generated is lost along unwieldy kilometres of cables that make up Nigeria’s current national power grid. Good jobs, paying world-class living wages, will be created within and around each local community.

Housing

The same community-by-community solution strategy holds. Real Estate Investment Trusts (REITs) will build and sell modern energy efficient homes in each of the 774 LGAs. Government, at all levels (Federal, State, Local), will facilitate the building projects and create conducive regulatory environment for the REITs to operate successfully and profitably.

Transportation

The solution to Nigeria’s transportation challenges is hermetically linked to the solutions proffered for the power and housing sectors. Once distributed power is being achieved nationwide and modern energy efficient homes are being built, Nigeria can execute 21st century grand plans for the transportation sector. Private and public transportation road vehicles, running all-electric engines, become feasible once power and housing problems have been solved.

Unemployment

A firm commitment to solving the power problems (180GW modern power infrastructure and distributed generation) and housing shortage (18 million new units) as described above will create over 40 million direct and indirect jobs across the nation.

Agriculture

As posited in the book abulecentrism (2013), “The average farmer in a developing nation lacks the requisite knowledge, scale, financial means, marketing wherewithal, and transportation capability to be an efficient player in the modern agricultural sector… The development of agriculture at the local community level has to allow individual farmers to be strong players in community based agro business enterprises.”

To operate an abulecentric Community Agro Business Enterprise (CABE), “Local entrepreneurs and investors will be equity owners. Local farmers, primary produce suppliers to CABE, can also have equity ownership in CABE. This is not a requirement for CABE to succeed. Select members of the community (most especially the youth), after receiving proper capacity development marketing and business management, will serve as the key operators of CABE. They will also be the primary conduit of information flow to the farmers. They will organise farming educational classes. CABE will purchase produce directly from the farmers. CABE will also have the capability to process food and sell both raw produce and processed food to the larger market.” Each CABE’s Operations Facility must be equipped with uninterruptible power supply (hence the importance of distributed generation using locally sourced energy), modern ICT gear and a warehouse with silos and cold storage rooms for food preservation. That is the pathway to revolutionising agricultural sector.

Solving Other Problems

Other challenges (e.g., healthcare, water supply, waste management, congested telecom networks, etc.) are more readily solved once the nation is methodically tackling the above enumerated infrastructural problems.

Conclusions

Nigeria is a well-endowed country. The country is obviously blessed with enormous human and natural resources. The nation’s developmental challenges also present tremendous opportunities. There are excellent development models to tap into in order to accelerate the buildout of the country’s weak infrastructure. The population, currently estimated to be more than 180 million people, is an important asset in modernising critical sectors such as power, housing, transportation, education, agriculture, healthcare, manufacturing industry etc. Government, at all levels, must concentrate on their primary mission as regulators, providers of security, law and order and defender of the nation. We can do this, Nigeria.

Olurinde Lafe is Director, Centre for Renewable Energy Technology and Professor, School of Engineering and Engineering Technology, Federal University of Technology, Akure.