Transportation sector in Nigeria

This post is a section of a recent report I did " Investing in Nigeria", this article is also available at ssainsights.com.
Please view the full report for more information on the subject and references for this article.

Nigeria’s government is facing a lot of pressing matters in its economy, there is a need to free-up resources. This has led to privatization of the transportation assets. These assets are expensive to maintain, the Federal Ministry of Transportation has estimated the costs at N500bn ($2.5bn at the current rate) annually to reconstruct or build the road network to international standards. Investors can make returns by tolling the roads as there is a demand for well-maintained roads, considering the domestic logistics industry.

The roads and road networks face multiple challenges however, as there are 36+1 states, with each state entitled to their own transportation ministry and policies. There have also been records of disputes between state and federal governments on who owns a specific road.

There is a pressing need to link up the regions of the country by roads. Most of the agricultural production happens in the North. Around half of the tomato produce spoils before it gets delivered to the markets and the roads have unpredictable delivery times. This has led to increased importation levels for many products that can be domestically produced. There is a lot of talk from the government for regional connectivity, but not much has been done and there are no main directions agreed upon.

Each transportation type has a different governing body and different regulations and agendas. This is leading to un-even developments of the different types of transportation, such as roads, rails, ports and others. The effect of such an un-even development is well seen in ports, where the gate volumes have increased, but the roads outside of the ports have not, resulting in a never ending traffic jam.

The government is looking to put everything under one body, but this plan is just in the development. There are also agencies whose sole purpose is to remove government from being involved in the given sector in any way. There is a strong understanding in the governing bodies of Nigeria that the way forward with infrastructure is with Public Private Partnerships.

Roads

Nigeria’s roads measure at 200,000km – the largest in West Africa and it’s a burden to maintain. There is pressure by the growing population to develop and build new roads.

Types of roads:

Federal – 17.6% of the roads, estimated asset value – $15bn*;
State – 15.7% of the roads, estimated asset value – $8.7bn*;
Local and rural – 66.7% of the roads, estimated asset value – $7.5bn*.

* – the figures are estimates, as they might not reflect the Naira fluctuations in 2014 and 2015

The federal roads carries 70% of cargo volumes and 90% of the socio-economic activities of the nation. The railways are not maintained well, the volume of cargo on the railway is decreasing yearly, resulting in more trucks on the roads, as roads are the alterative to railways.

There is a Federal Roads Maintenance Agency (FERMA), it was established in November 30, 2002. The agency started operation in 2003, the mandate of the agency is to ensure efficient and effective maintenance of all federal trunk roads nation-wide.

For investors in road projects, it’s important to recognize and understand the disputes between state and federal government’s on road ownership, the different legislative bodies and all the different state transportation ministries. Recognising the common transit destinations and analysing them based on the overlaps will indicate great opportunities for investments in roads for tolling.

Railways

The colonial powers relayed on railways to transport goods between their European bases and the African colonies. This resulted in long, multi-national railways. Nigeria hasn’t done anything with its rail system since independence in 1960. The lack of maintenance has led to decreased activity of the railways. In the 1960’s 11 million passengers were carried yearly, this figure had decreased to 2 million in 2008. The same period has seen a decrease of 3 million tonnes to 150,000 in the cargo volumes.

There is a Nigerian Railway Corporation, founded in 1995. It invested $10bn in the rails between 2007 and 2013. A railway bill has passed through the senate to remove the NRC from running the rails, as it has a monopoly. The bill suggests NRC as a technical regulator and for the existing assets to be sold. The bill is on hold due to delays in converting it to law. The bill is also considered highly generic, it might not be implemented any time soon. The instability with this bill will likely result in short term stagnation of the railway development.

There is a 25 year rail system masterplan, with the goal to establish a high-speed railway system. The master plan will find a lot of challenges, due to the nature of railway development – the rolling stock and gauge often needs to be ordered years in advance. With the instability the country is perceived to have, it might be challenging to find suppliers.

With increasing urbanization rates, the demand for short distance transit lines is increasing. Such lines have a predictable and stable commuter bases and fall under one state, providing a safe investment opportunity.

Ports and rivers

There is competition between West African nations to establish a regional leader in port capacity, this is driving the development plans for ports – there are 7 new proposed port plans at the construction stage.

The development of bigger ports is viewed as good for the logistics industry – costs can be saved due to fuel economies of the bigger ships. The savings can go toward expenses of private road tolls, encouraging new roads to be built around the port to service the freight leaving the ports. The ports are also important for positive logistics industry evolutions on other aspects – at the moment, many of the shipments to the country are made inland through the neighbours.

Overall, in the last decade there have been a lot improvement with the ports. Yard management has improved greatly due to better use of physical space. There are issues with congestion on the roads around ports.

There are great developments with free zones. Nigeria has 11 operating free zones, 9 under construction and 4 declared. 16 out of the total 25 free zones are either privately owned or a PPP deal.

Thanks to the River Niger and other rivers, there is potential for inland river transfers. River transfers have limited capacity, but they are considered to ease the burden on land networks. River transfers are fast and cost-effective solutions, they’re less capital intensive than traditional infrastructure.

There are great opportunities in ferries for urban transfers. Ferry transportation is a part of Lagos transportation masterplan. Ferries are recognized as a great way to transfer commuters from the islands to mainland.

Conclusions

The Nigerian transportation terrain is complicated, with many government agencies, overlapping state and government interests, bills and upcoming regulations. The PPP’s provide many opportunities for firms and investors in the transportation infrastructure.

The market is full of opportunities, from small distribution companies developing warehouse networks for bridging the infrastructure deficits, to free zone port project worth hundreds of millions.