SAM OLATUNJI examines the reasons behind government’s inability to finance infrastructural development in the country
Despite the huge infrastructural deficit in the country, the Federal Government has continued to spend more on security and debt service due to the rising insecurity and debt profile of the country. While the Federal Government budgeted N2.98tn for defence and security and N6.31tn for debt service, N1.24tn was budgeted for infrastructure in the 2023 approved budget. This shows that 13.4 per cent of the entire N21.83 budget is to tackle insecurity, 28.9 per cent is to service debt, and only 5.7 per cent is for infrastructure.
The World Bank recently described the level and quality of infrastructure in Nigeria as low, despite the Federal Government’s claim to have borrowed to finance infrastructure. In its Nigeria public finance review report, the World Bank said that Nigeria’s physical infrastructure gap would likely reach $3tn in the next 30 years.
The report read, “The level and quality of Nigeria’s infrastructure are low, with the country ranking 132 out of 137 countries for infrastructure in the 2018 Global Competitive Index. Nigeria’s physical infrastructure gap is estimated to reach $3tn over the next 30 years.”
It added that Nigeria’s development outcomes were among the lowest globally, which indicated high public spending needs. The Washington-based bank also noted that it would take Nigeria 300 years to close its infrastructure gap, which would cost the country 4 per cent of its GDP annually.
The report read, “At the current rate of expenditure allocation, it would take 300 years to close the country’s current infrastructure gap. Closing Nigeria’s infrastructure gap would cost at least four per cent of GDP growth per year.”
“In November 2021, the President, Major General Muhammadu Buhari (retd.), told world leaders in Glasgow at a COP 26 high-level side event that Nigeria needs at least $1.5tn in the next 10 years to close its infrastructure deficit and achieve an appreciable level of the National Infrastructure Stock.
The President also declared that his administration had taken infrastructure expansion in Nigeria seriously, conscious of the fact that new investments in critical sectors of the economy would aid in lifting 100 million Nigerians out of poverty by 2030. In the previous month of that year, the Vice President, Prof. Yemi Osinbajo, had boasted that “Since the inception of our administration, the President has prioritised the development of infrastructure, roads, rail, and power, and despite the severe economic downturn we have experienced in the first six years, we have invested more than any administration in infrastructure.”
However, spending on ensuring security and servicing debt has continued to weaken the amount spent on infrastructure. The World Economic Forum recently noted that terrorist attacks and debt crises are the top two risks in Nigeria that may hamper the country’s growth and development.
Insecurity
The PUNCH recently reported that Nigeria budgeted a total of N11.18tn for security from 2015 to 2022 amid the persisting insecurity issue. Despite the high budgetary allocation, however, the country remains the second most attacked country globally by the Islamic State terrorist group, according to the data from Jihad Analytics.
Jihad Analytics specialises in global and cyber jihad, open-source intelligence, and data. In its report covering January to June 2022, the group said Nigeria recorded 305 attacks, with Iraq being the first (337) and Syria third (142).
With more Nigerians getting killed due to the increasing state of insecurity in the country, experts have warned that the constant loss of human capital may affect the economic growth of the nation. Even Buhari had said that no growth or development could be achieved in an insecure environment.
Imo State governor, Hope Uzodinma, stated in October 2021 that vast resources of the country that should have been used for infrastructure projects had been diverted to the fight against insecurity.
He said, “Unfortunately, we have had to contend with reactionary elements who want to sabotage the nation for purely selfish and political considerations. The unrelenting activities of these elements manifested in banditry, kidnapping, and other forms of criminality have been a setback to the progress and development of the nation.
“Trillions of naira, which would have been used for development, are being wasted fighting insurgency and criminality. This is why both the perpetrators and their sponsors should have a rethink to release their stranglehold on our economy and advancement.”
A report by the African Development Bank stated that high military expenditures in Nigeria and other African countries such as Mali, Burkina Faso, Niger, Ghana, and Senegal have weakened governments’ investments in critical sectors.
According to the report, the Nigerian government and other African governments have a reduced capacity to invest in human capital, infrastructure, energy, and agriculture due to the high military expenditures.
It read in part, “In response to heightened insecurity and violence, many African governments have increased military and security expenditures, diverting resources away from other development priorities. Military expenditure in Africa was estimated at US$39bn in 2021, 7 per cent higher than in 2018 and 16 per cent higher than in 2011. Over the past decade, the biggest percentage increases in military expenditure occurred in the Sahel countries of Mali, Burkina Faso, and Niger.
“Coastal countries in West Africa, including Nigeria, Ghana, and Senegal, also observe the largest percentage increase in military expenditure over the past year. High military expenditures reduce the capacity of countries to make critical investments in human capital, infrastructure, energy, and agriculture required to deliver on global development ambitions such as the UN Sustainable Development Goals.”
The report also noted that, apart from crowding out public investment in critical sectors, insecurity deteriorated the business environment and limited private investment and private sector development.
On the drivers of insecurity, it was noted that rural poverty, youth unemployment, and environmental degradation had contributed to conflict and insecurity.
It added, “Poor governance and weak state capacity are also important drivers of conflict, while corruption, lack of transparency and accountability, and mismanagement of resources lead to poor service delivery, increased inequality, and grievances that can trigger violence.”
It further noted that the cost of borrowing had also increased, limiting the ability of governments and the private sector to expand social initiatives.
Debt service
In a 67-page fact sheet chronicling the high points of the Buhari regime in May last year, it was noted that Buhari had made “strides in infrastructural development; roads, bridges, rail, air and seaports, housing, and many others.” However, these infrastructural development efforts have been built on heavy borrowing. For instance, while the rails have been mostly funded by Chinese loans to Nigeria, the roads have been built or repaired with over N600bn Sukuk bonds raised since 2017 for over 40 road projects across all six geopolitical zones.
In October 2001, Buhari defended his government’s borrowing, describing it as a necessary step to provide the infrastructure that would expand opportunities for the growth of the Nigerian economy. However, the Director General of the Debt Management Office, Patience Oniha, recently said that high debt levels lead to high debt services and affect investment in infrastructure.
According to the DMO boss, “High debt levels lead to heavy debt service, which reduces resources available for investment in infrastructure and key sectors of the economy.”
The PUNCH recently noted that the Federal Government spent nothing less than N13.17tn between 2016 and March 2022 on servicing debts. According to the information from the DMO, from 2016 to March 2022, servicing local debts gulped N10.77tn, while the government spent N2.40tn ($7.84bn) to service external debts. Multilateral agencies and economists have constantly warned the Federal Government about the rising cost of debt servicing, which could trigger a crisis for the country. The Minister of Finance, Budget, and National Planning, Dr Zainab Ahmed, recently admitted that Nigeria was struggling to service its debt.
She said, “Already, we are struggling with being able to service debt because even though revenue is increasing, the expenditure has been increasing at a much higher rate, so it is a very difficult situation.”
Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, stated that the Nigerian economy has been characterised by a variety of economic vulnerabilities, including rising public debt and debt service burden.
The Chief Executive Officer of SD&D Capital Management, Idakolo Gbolade, described Nigeria’s debt service-to-revenue ratio as abysmal.
“The issue of not having a debt problem can be ascertained because they are using the debt to GDP benchmark. But our debt service to revenue is abysmal,” he stated.
According to him, the rate of borrowing was unsustainable, and there was a need for the government to make necessary adjustments before the country got into a debt trap.
A development economist, Dr Aliyu Ilias, described the budget as problematic due to the huge cost of debt service and the government’s revenue shortfall.
He said, “Nigeria’s budget is in a serious crisis. Debt service is taking up the majority of our budget. That is not even the major problem.”
“The major problem is that our revenue is not even enough to service our debt. Looking at this now, it means Nigerians are going to suffer more.”
