Connect with us

Folorunso David: A $12 billion question for Africa’s largest economy


Folorunso David: A $12 billion question for Africa’s largest economy

By Folorunso David

In 2006, Nigeria’s government and China Railway Construction Corporation (CRCC), signed an $8.3 billion contract for the latter to construct a railroad that would link Kano and Lagos, the putative commercial capitals of northern and southern Nigeria respectively. Two years later, with a change in central government in Nigeria, the agreement was revoked. This was largely due to inadequate financing with certain reports  also suggesting the project cost was overinflated.

Fast forward six years and Nigeria has become Africa’s largest economy after a fiscal edit that saw its GDP double overnight leapfrogging South Africa’s in the process. It is with this renewed sense of prosperity that the international airports in Lagos and Abuja have become abuzz with foreign investors hoping to tap into the miracle of Nigeria’s nascent economic success.
Unsurprisingly, Chinese firms lead the pack. Even with the recent US-Africa Summit that ended with a promise of improved economic ties between both regions it goes without saying that China still nibbles the biggest piece of Africa’s cookie as it were.

Last week, Xinhua News Agency reported that Nigeria’s Ministry of Transport and CRCC signed an $11.97 billion contract to link Lagos and Calabar via rail. Calabar is a quiet, suburban town in the southeastern state of Cross River which shares border with Cameroon and is notable for its tourism industry. This deal is said to be the largest single overseas project by a Chinese firm ever.

According to this report the investment will create about 200,000 local jobs and another 30,000 when it becomes fully operational.

This sounds very exciting. With a $500-billion economy Nigeria will need abundant infrastructure that matches its book value in wealth in order to power its way into the new dispensation of the global economy. This is in line with the famous Transformation Agenda  of the incumbent administration which promises to link the country’s major seaports via modernized rail. The agenda also promises double-digit economic growth rate; and 40,000 megawatts of electricity by 2020. The current figures for these indices suggest Nigerian government still has a long road ahead. But I digress.

Another merit to this project is that it promises to reduce the number of road accidents. The highway that links Lagos and Calabar runs through Benin City and Owerri, big towns in Nigeria’s southeastern regions.  Motor accidents involving commodity trucks and trailers are not infrequent and have been a major cause of untimely, unnecessary deaths. Other positive externalities abound.

Policy wise, however, this project defies logic in many respects.

To begin with, it will be interesting to see how the parties involved came up with all the appealing numbers. With the notoriety of Chinese contractors in Africa to source labor from their home country, the prime question to be asked if this is 200,000 jobs for Nigerians or Chinese expatriates. Also, is this figure exclusive to jobs to be created within Nigeria or does it include employment from the manufacturing processes for machinery and equipment to be done in China by Chinese people? Xinhua reports that they are all local jobs but that’s one of those factoid the Devil’s Advocate in me would asterisk.

Secondly, how certain can Nigerians be that this will not be a repeat of the 2008 narrative were the federal government eventually pulled the plug on the Lagos-Kano rail project two years into its execution for lack of funds? With oil prices currently falling it would not be out of order to question the ability of Nigeria to foot the bill in the long run. If the government intends to incur debt to execute this project then they should be projecting a sizeable internal rate of return relative to the cost of capital. 

This segues to the next logical question: At an estimated $12 billion, is a railroad between Calabar and Lagos worth it?

Linking two southern coastal cities via rail in a country that has more than half its population in the landlocked north comes across as a bit of an oddity except of course the trade and revenue that will ensue from such amenity outweighs that for any other regions.

There is no figure on the current volume of trade between Nigeria’s south-east and south-west but even if this is significantly large the mind boggles that an effort to link the north-eastern states that are landlocked (and whose economies have been ravaged by the inexorable Boko Haram insurgency) is not being prioritized. Except this part of Nigeria has been ceded to the terrorists, their economic integration with the rest of Nigeria through trade and transport will be the first step in their recovery from years of neglect.

Furthermore, for a nation which ranks corruption topmost in its list of besetting impediments to development it is fascinating to observe that there has been no formal statement on the deal by government representatives (As at the time of writing the webpage of Nigeria’s Ministry of Transport had no information on the contract). What’s more concerning is that it comes in the wake of Mexican government revoking a $3.75 billion contract it had originally awarded CRCC for a rail project due to lack of transparency in the bidding process. Even with the Freedom of Information Act that was signed into law by President Goodluck Jonathan in 2011 accessing information on the activities of public offices in Nigeria is just as painstaking as it has always been.

Here’s a thought for the Nigerian government: If we necessarily must build a railroad between Lagos and Calabar (and CRCC is awarded the contract after an equitable bidding process) why not insist that all production processes from track design to hardware manufacturing be done within the shores of Nigeria rather than have CRCC import labour, technology and equipment from China for the purpose of this project? With $12 billion, Nigeria’s gain shouldn’t just be 30,000 new jobs upon project completion. The benefit of this project should include economic prosperity but, more importantly, technology transfer. In other words, do a China on China.

In conclusion, while there are ample theories on why most of Africa remains underdeveloped in spite of the flurry of economic opportunities and potentials, the insouciance with which government officials negotiate business deals is a stand-out bane that needs to be addressed. Unfortunately, any parse of government dealings is often treated as naysaying by elected officials. $12 billion is a lot of money. Nigerian people should not allow government spend their tax monies recklessly – or, even worse, encumber future generations with debt that arose from a white elephant.

Folorunso David can be reached on twitter @funsodavid

1 Comment
To Top