- April 23, 2014
- Posted by: Diekola Onaolapo
- Category: Eczellon Talks
Opportunities in Nigeria’s Transportation Sector
Not long ago, residents of the megacity-state of Lagos, Nigeria had only a few options for commuting daily to their various destinations. Public transportation was limited to the infamous yellow mass transit buses (a.k.a. “Molue”), the ubiquitous Volkswagen mini-buses (or “Danfo”) and commercial motorcycles, popularly known as Okada.
Safe to say, that none of these was a preferred option.
The Molue was always filthy, packed, stuffy and hot. It was also very unsafe and had a high accident rate, with many fatalities, which is why it was routinely termed a “death trap” or “moving coffin”. The Danfo was no better and the Okada was on a totally different level of unfavourable mode of transportation. Many of the Okada riders were illiterate who had no knowledge nor regard for traffic rules and operated recklessly, resulting in a significant number of accidents and deaths.
In 2008, Lagos State Government introduced the Bus Rapid Transit (BRT) system. The BRT is a partnership between the Lagos State government and other private investors, which provided luxurious mass transit buses, with dedicated lanes along many traffic congested routes in the Lagos metropolis. It is cheap, relatively comfortable and readily accessible. It became an effective means of daily transportation and a welcome alternative for “Lagosians”.
The success of the scheme gives an insight into investment opportunities in the transportation sector.
The recent rebasing of Nigeria’s GDP shows that of the $510billion new GDP figure, services contributed about 55%, of which trade is believed to have contributed about 32%. Transportation and Storage – the backbone of economic activity noted for facilitating the exchange of value – contributed less than 2% to GDP!
A sizeable portion of economic potential is still trapped within transportation challenges.
The country’s booming services industry, its fast growing and urbanising population mean that more emphasis and attention will be directed at the transportation sector, a factor if the economy is to maintain and indeed exceed its current growth rate.
Beyond basic transportation for haulage of goods, Nigerians also demand modern transportation systems, similar to what is obtainable abroad. The middle class in Nigeria is growing with a proportional increase in disposable income. Even if it does not reflect the distribution of income, the current GDP Per Capita Income is put at US$2,696. Nigerians will be more than willing to spend more on efficient and reliable transportation that is fitting for status and taste.
There are significant opportunities in transportation.
The Federal Government, in its National Integrated Infrastructure Masterplan has put the total transportation sector deficit at US$800billion, an amount required to provide an efficient transportation system in the country. In order to encourage investors’ of its seriousness, government created “The Infrastructure Fund” – an asset class of the Nigeria Sovereign Investment Authority aimed at catalysing investments in order to boost the stock of infrastructure in the country, whilst at the same time increasing the statutory allocation to the ministries of Works, Transport, and Aviation.
In spite of government’s efforts, however, the sector contributes a paltry 1.24% to the GDP and the full potential has not been met.
One way that has been identified for the sector’s development, according to Mr Sotonye Inyeinenyi – Etomi, Special Assistant to the Federal Minister of Transportation, is moving operational functions to the private sector, thus encouraging Public-Private Partnerships, whilst government remains as regulator.
In addition, with the implementation of proposed investments in the transportation sub-sectors – roads, maritime, railway, aviation and urban mass transit, we expect a full exploitation of their value chains thereby creating a multiplier effect in the economy.
An investment in any of these areas, if well-structured and administered, will on the average reduce the total costs of production in the country – of which logistics alone currently account for an average of 20% as against 2% obtainable in developed economies.
Trade and services will continue to drive the Nigerian economy as it leverages on the population to spur growth. The current GDP is at a capacity utilisation of 58% largely due to lack of supporting infrastructure and efficiency of sectors like transportation.
For both the government and discerning investors, the benefits of investing in sectors such as transportation are significant. The challenges are equally great and the key to success will be creativity in thinking and resolve for right implementation. But the results will be worth it.