The Former Minister of Finance and Coordinating Minister for the Economy, Mr Olawale Edun, recently disclosed that Nigeria has a $14bn annual infrastructure investment gap, for which it continues to seek both domestic and foreign investment.
To development economists for whom these issues are bread and butter, this news is not new. Decades of underinvestment in infrastructure has led to the present predicament and with Nigeria’s population growing by about 3% annually, the infrastructure deficit could balloon to about $20-$25bn by 2035. Nigeria risks slower growth, higher poverty, and reduced competitiveness, if it does not close this gap.
There are a handful of areas that make up the majority of the infrastructure gap. They are:
- Power and Energy – Power is responsible for like 40% of the gap. That comes to about $5.5 bn. Key issues here are chronic electricity shortages, underinvestment in generation and transmission, reliance on outdated grids, and insufficient renewable energy projects.
- Transport – This is responsible for like 30% of the gap, amounting to about $4.2bn. Key issues here are poor road networks, congested ports, limited rail connectivity, and inadequate aviation infrastructure.
- Housing and Urban Development – This is responsible for about 15% of the gap, roughly $2.1bn. Key issues here are rapid urbanization, housing deficits (estimated at 17–20 million units), weak mortgage systems, and poor urban planning.
- Water and Sanitation – This is responsible for about 10% of the gap, roughly $1.4bn. Key issues here are limited access to clean water, poor sanitation facilities, and aging infrastructure in rural and urban areas.
- ICT and Digital Infrastructure – This is responsible for about 5% of the gap, roughly $0.7bn. Key issues here are broadband penetration gaps, weak rural connectivity, and insufficient investment in data centers and digital platforms.
The key issues enumerated above aren’t abstract. They have a direct and measurable impact on poverty rates and living standards, because weak infrastructure raises costs, reduces productivity, and limits access to essential services. Infrastructure gaps perpetuate a vicious cycle that keeps living standards low and makes it harder for Nigeria to achieve inclusive growth, thus locking millions of Nigerians into poverty.
It is clear from the breakdown above, that Power and Transport require the most attention. Businesses spend up to 40% of operating costs on diesel generators. Poor roads and rail cause post‑harvest losses of up to 40% in agriculture. Better logistics would reduce food inflation, directly easing poverty. Closing the Power and Transport gaps alone would lift 30–40 million Nigerians out of poverty over the next decade.
Scaling up infrastructure financing in Nigeria, given its population trajectory, will require an extraordinary level of effort. Nigeria’s population is projected to exceed 250 million by 2030 and approach 400 million by 2050, making it one of the fastest‑growing populations globally. This demographic pressure magnifies the $14 billion annual infrastructure gap and means financing needs will rise significantly. Nigeria must double or triple current infrastructure spending to keep pace with demand.
Achieving that increase in infrastructure spending is going to require very bold, and innovative financing schemes. It is clear that government finance alone will not be able to meet up the shortfall, so well thought out Public Private Partnerships would be required to pick up the slack. Innovative debt instruments like diaspora bonds to tap Nigeria’s large diaspora for infrastructure financing, are also a possibility.
Even more innovative than the diaspora bonds, is the concept of public asset securitization, that is converting future revenue streams from public assets (e.g., toll roads, airports, power plants, ports etc.) into tradable securities. This unlocks liquidity from existing assets without immediate budgetary strain, but requires strong governance and transparent cash‑flow management to build investor confidence.
Yet another funding option is leveraging blended finance. This involves combining concessional finance (from multilateral finance institutions, development agencies) with commercial capital (banks, pension funds, sovereign wealth funds). This reduces financing costs and makes projects bankable.
In a situation where government cannot deploy its own capital, it still has the option of creating a regulatory environment that makes the private deployment of capital less risky. This encourages long‑term private participation in infrastructure projects.
Of course, it should go without saying that maintaining fiscal discipline and anti‑corruption measures are necessary to ensure funds are not wasted.
Closing the infrastructure gap is no doubt a big challenge, but closing it is a critical step on the road to achieving mass prosperity, thus must be faced resolutely.
