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Hi there!

I'm Margaret, a female traveller from Nigeria, and welcome to my personal blog , TheAjalaBug.com.

Here, I document my adventures in travel and life experiences generally. Hope you get inspired!

Understanding Infrastructure Development | A practitioner's perspective

Understanding Infrastructure Development | A practitioner's perspective

Welcome to my Infrastructure Development free masterclass. I know I speak more about tourism development in Africa here, but I will be doing us a disservice if I don’t share my expertise on Infrastructure Development and Financing, which I am most committed to and passionate about. Looks like the blog is evolving, though synergically…..!.:):)

What is Infrastructure Development

Infrastructure development is the heartbeat or bedrock of any progressive economy and it is also a critical enabler for productivity and sustainable economic growth. This means that even tourism development will not strive except the catalyst, infrastructure, is in place.

Infrastructure is anything that makes human activities easier - Margaret Oghumu

For the purpose of discussion, Infrastructure referred to here is both hard (economic), soft (social) and technology infrastructure. Yes, I know the scholars before me tend to emphasize just hard and soft, but tech infrastructure cannot be ignored especially in this new age. This is a practitioner’s view not theory.

While hard infrastructure like Energy, Transport and Utilities are the physical facilities/assets that are required for advancing commercialization which also has an almost immediate catalytic effect on economic growth, soft infrastructure are essential institutions that improve the quality of lives or well-being and makes impact in somewhat invisible ways like healthcare, education and housing. Finally, my new/standalone addition, tech infrastructure are the sophisticated tools and systems that improve the way we build communities, connect people and transact.

The Challenge

Despite almost a third of African countries population growing at an annual rate of 2% and more according to the World Bank, there is negative correlation between the high population growth rates and increasing demand for infrastructure unfortunately.

In numerical terms, the infrastructure deficit according to The African Development Bank (AfDB) is said to be estimated to reach US$3 trillion by 2044 which is about US$100 billion annually. There’s no gainsaying that Nigeria has a huge infrastructure gap and there lies the investment opportunities.

Beyond infrastructure expansion, there’s demand for increased maintenance to improve the current state of Nigeria’s infrastructure. Regretfully, Nigeria suffered from economic recession in 2016, with negative GDP growth and has since had fiscal deficit. The Government however promised to ramp-up infrastructure development in 2018 by increasing the ratio of capital expenditure to total budget, though it appears that it backpedaled on that promise considering no new government supported project closed in 2018.

According to Mckinsey Global Institute ‘’A dollar of infrastructure investment can raise GDP by 20% in the long run by boosting productivity’’

Considering these trends and knowing that investment is a component of Gross Domestic Product, infrastructure investment remains a key element to Nigeria’s success.

Funding
The business of infrastructure development is not as simple as the general public tends to understand or project. The required skills to deliver a sustainable asset devoid of contractual bottlenecks is rare in this market. Infrastructure development as I sometimes call it is a ‘monster’ but I am here to ensure that you understand every detail of it article by article so you are better informed and can improve on the quality of your conversation regarding the subject matter.

The truth about Funding is that there are excess monies pursuing the few projects, and bankable ones at that, in the market; whether from private equity firms, pension funds, banks, Infrastructure funds, Development Finance Institutions, sovereign wealth agencies and other institutions.

Bankability refers to a project that has adequate security/guarantees, acceptable returns or cashflow, proper structure and adequate risk mitigation, to be acceptable to institutional lenders for financing - Margaret Oghumu.

Nigeria, which is fondly called the Giant of Africa, has always being attractive to investors because of its population and disposable income advantage. However, it was hard-hit by a recession which was induced by the global collapse in oil and commodity prices; a situation which was not helped by the government’s foreign exchange policy and sluggish steps in improving the business climate.

Consequently, investor’ interest in the country waned with massive capital flights, currency devaluation and increased inflation. More importantly as it concerns Infrastructure Investment, Nigeria has been saddled with political uncertainty, macro-economic unpredictability, delays in implementing policies/reforms, and an unenforceable legal/contractual system. All of these and more have not given investors, especially the commercial ones, the confidence to invest in the country. The result of this is that funds are targeted at other African countries.

Financing infrastructure projects is not exactly straightforward, but I will explain all the technicality involved as we go along.

Final words on Infrastructure Development 101

The United Nations released a blueprint called the Sustainable Development Goals (SDGs) aimed at achieving a better and more sustainable future for all, and Investment in Infrastructure is one of it - SDG 9. Beyond the SDG 9, it is clear that infrastructure investment has a ripple effect of most of the other SDGs. This goes to show you that there’s serious global efforts geared towards reducing the infrastructure deficit impeding growth, and to this effect, in 2015 all multilateral development institutions agreed on a same set of objectives, which is the Sustainable Development Goals.

SDG Goals.PNG

In Nigeria, more specifically, the demand for infrastructure is growing at an unprecedented rate. Though the link between economic growth and infrastructure has been well-established, the government is almost handcuffed with its inability to finance infrastructure development off the budget, hence the need for innovative ways of seeking funding; either from private financiers, Public Private Partnerships or the famous Chinese loans (which I briefly discussed here).

Having said that, what the Nigeria Government should focus on is addressing the issues I mentioned above and create enabling conditions to attract private investors and funding.

Thankfully you have learned a thing or two today and at the minimum I hope you are able to demand the right things from the government.

N.B I took the profile picture at the Johannesburg Airport Gautrain, which is said to be Africa’s first high speed train.

Till my next article, free feel to share your thoughts or ask me any questions in the comment section below.

Margaret.

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