Who Should Provide Public Infrastructure in Nigeria

Introduction
Satisfactory provision of those basic structures and facilities that support positive economic performance requires massive financial commitments, ability to work around the difficulty in benefit-split as well as handle the attendant high externalities. Public infrastructure touches on a wide spectrum of basic amenities which enhance the capacity of economic agents to conveniently engage in productive activities with less stress. The absence of these amenities or their un-optimal provision can equally result in complete seizure of production at economic unit levels. According to the United States National Infrastructure Improvement Act of 2006 these amenities include water supply and distribution system, wastewater collection and treatment facilities, surface transportation facilities, mass-transit facilities, airports and airway facilities, resource recovery facilities, waterways, levees and related flood-control facilities, docks or ports, school buildings and solid-waste disposal facilities. Of course electricity and communications make the infrastructure list given the Nigerian context. Provision of these amenities can be through a variety of ways which comprises: government ownership with government management, government ownership with private management, public-private ownership and joint management, private ownership and management, community provisioning etc. Oftentimes, in most developing and under-developed countries such as ours, owing to the established pattern on provision, government has always been called upon to provide these infrastructures. The most touted reason is the size of funds required. The result is that infrastructure provision has been largely characterized by government ownership and management.

Usually such source of provision has always been tied with regulation which rather than improving efficiency and lowering prices, actually produced contrary effects. The results become the entrenchment of monopolies characterized by the wastage of valuable resources in trying to maintain the monopoly status. New ideas, new and better ways of conducting exactly same business or activity are oftentimes suppressed, and consequently in the absence of competition cause severe quality deterioration. There is nothing to show that competition cannot only survive but actually produce better results in business activity areas where legal monopolies have been entrenched. The deregulation experience particularly in the area of telecommunications in Nigeria has proved that it is possible. No one holds the government fully accountable anymore for poor quality telecommunications service.

While Nigeria is still largely dependent on public provision and only beginning to follow the path of private provision, Indonesia and Thailand have been on sustained gravitation towards full private provision of public infrastructure services much earlier. Nigeria, on the other hand has been quite slow in promoting private provision and management. The resulting consequences have been that businesses are considerably offsetting the deficiencies in publicly provided infrastructure services by making huge expenditures in providing them by themselves. My candid view is that government's role should be shrank so much that it is only limited to defining the terms of fair play among competitive private bidders/providers without being intrusive and obstructive. The power of entrepreneurship driven by market competition spurs growth and positive economic performance much more than the direct regulation of government and should therefore be allowed to champion the cause of sustainable provision of private infrastructure.

Adequate Infrastructure is Key to Economic Growth
The president just like many other Nigerians recognizes and laments the level of infrastructure deterioration in the country which "remains the greatest impediment to economic growth" and which will require between $6 and $9 billion annually to solve. The deficit in infrastructure provision is very much a significant factor behind the comparatively higher cost of doing business in Nigeria relative to other countries. It equally underscores the declining rate of capacity utilisation, as well as lower quality of life for majority of our population. The reason for this is that strong growth is always a function of adequate and well functioning infrastructures that underscore both the production and free flow of goods and services within and outside the country.

Infrastructure investment, or capital, consists of large capital-intensive projects, which in most countries are largely publicly owned and regulated, and which also provide the backbone of the production and distribution system. They are often regarded as the wheels of economic activity because of the crucial role they play in providing the bulwark upon which production and distribution stands. A weak foundation cannot satisfactorily support a superstructure. Therefore without adequate infrastructure, economic activities which is invariably the superstructure cannot be successfully stand. The contrary is true. America is a good historical example. In the early days of its existence, the construction of canals and turnpikes, railroads during the first half of the nineteenth century, significantly spurred trade and development. Consequently, huge financial commitments in electricity and telephone networks equally facilitated modernization which after a little time, significantly enhanced the productivity of the average American worker. With good infrastructural base, development is both easily attainable and sustainable. Several examples abound. Adequate electricity availability ensures optimal use of modern technologies and processes. Computers can rarely be used beyond certain hours on battery without electricity to support it and give a more enduring life. So it is with big manufacturing plants. Transport infrastructure such as roads and rails permits efficient movement of goods and services across locations to where they can best be used. By so doing it facilitates exchange which is fundamental to economic growth. So it is with water, without which many production processes will be hampered such as making of soft drinks, certain pharmaceutical products etc. Efficient infrastructure development underlies the integration of the national economy and helps in spreading its benefits. For instance, the adequacy of good roads, water and electricity infrastructure in certain remote areas can serve as an incentive to attract certain levels of industrial activities in such places. In that wise, infrastructure provision facilitates investment in less developed areas. The many benefits are innumerable and can go on. It is therefore important to see how infrastructure provision is central to poverty elimination. With electricity, farmers in rural areas can easily process their harvested cassava roots into gari flour. Welding and related crafts which are typical of the rural and sub-urban economies will spring up. Infrastructure provision is therefore fundamental for successful rural transformation and agricultural development. Inadequate infrastructure conditions on the other hand has deleterious effects on health, education and the capacity of local producers.

Infrastructure is much better in industrialized countries and is one of the major reasons for the economic differences between them and the developing countries as they are naturally empowered to be more productive. The impact of infrastructure inefficiencies in Nigeria has been severe and has lasted for several decades and is reflected in constrained domestic growth, impaired international competitiveness, and poor foreign investment.

State of Nigerian Infrastructures (selected cases)
On average, virtually all aspects of Nigeria's infrastructure is in deplorable condition. The power sector for instance is marked by low generating capacity relative to installed capacity. At present electricity generation ranges from between 2,500 megawatts to about 3,000, even with the inclusion of three gas-powered independent power projects in the Niger Delta region, while estimated national consumption is in excess of 10,000 megawatts. Potential demand in the next few (say three) years is estimated at about 15,000 megawatts. Saddening enough is that Nigeria is endowed with massive reserves of hydro energy, petroleum reserves and one of the largest gas reserve. Government policy for the sector during the 1980s and the 1990s and until recently did not properly anticipate national needs. For example, the last major electric generation installation in Nigeria was in 1990 when the shiroro power station was commissioned. Since then no new units have come on stream and none of the existing ones have had a major overhaul for 15 years. The kainji Hydro electric plant in operation since 1968, for instance, was designed to generate 960mw of power out of its 12 turbines, but only 10 of those turbines have been installed. Today the kanji plant can only generate 760mw of power. The per capita consumption of electricity is 0.054kw only about 5% of our hydro electric capacity has been developed.
Table 1: Existing Power Station Projects: http://www.martinoluba.com/publications.jsp

Recently, the government mandated a committee with creating a blueprint for raising power generation capacity to 6,000 megawatts in the next 18 months and 11,000 megawatts by 2011. Following the recommendations of the committee, the Nigerian government appears to be interested in substantially reducing its role in power provision while creating a major role for the private sector. By this move if pursued conclusively the successes achieved in the GSM telecommunications area will be repeated. But the challenge remains the how of attracting the investing public. Who wants to make equity investment in government in government owned projects? Only very few indeed because the profitability incentive which is behind the investment in the first instance is absent. The GSM experience shows that Nigerians are willing to pay higher rates for critical infrastructure provided they get value for their money. What currently obtains (and has been happening) is situation where government's electricity-tax collecting authority generally collects tariffs without the provision of any electricity.

On the other hand, our roads are begging to be saved across the entire country. The south east- south west road network for instance evokes the most heart-rending picture of the extent of damage and deterioration that are the features of our roads. In the past decade or earlier, it takes about three hours to travel from Lagos to Benin. In recent times, this can take as long as six hours if there is no slight obstruction. Motorable roads that are well maintained is critical for the smooth and efficient exchange of goods and services across different parts of the country as the rural areas and hinterlands are also connected. The length of roads in Nigeria is about 195,200 kilometres out of which about 15.3% is paved. About 28% of these paved roads are bad and un-motorable. How can our road infrastructure optimally support economic growth when it is obvious that the totality of road network within a country, approximates the degree of mobility of people, goods and services within the same country. The quality of the roads in turn shows the extent to which people, goods and services can easily move across the country.

Unfortunately our roads have been overwhelmed by myriads of problems which have substantially minimized their value. The road system is largely in disrepair and is not useable in any value-adding way. Traumatic traffic congestions are commonplace in the populous cities of the country. Aside long delays in the movement of goods, highway accidents and deaths are frequent. These include faulty designs, absence of drainage systems, washing away of pavements, fallen bridges, gullies/potholes as well as non-existent culture of maintenance. Collectively these undesirable road characteristics have clogged the stream of exchange of goods and services across the country as it has become expensive and more arduous to move products and services from producers to consumers, farm produce from rural to urban centers with lots of man-hour losses. Consequently, this weakens the purpose of desirable time bound, destination bound, cost bound and purpose bound operational efficiencies which should underscore effective transportation. Generally the conditions of our roads substantially affect the cost of production and overall national productivity.

The railway infrastructure evokes even more self-pity than the roads. As a country, we have not been able to improve upon railway system which we inherited from the colonialists. It is virtually moribund and archaic with no upgrade and maintainance. In the pre and post-independence era, Nigerian railway system actively supported economic activities as a bridge between the North and South. That no longer exists. Two decades ago we had 3,500 kilometres of narrow-gauge (1.067-meter) rail track. The system's basic elements were two main lines running inland from the coast: one, in the west from Lagos to Kano, opened in 1912, and the other, in the east from Port Harcourt to a conjunction with the western line at Kaduna, opened in 1926. Three major extensions were subsequently constructed. One was a branch line from Zaria to Kaura Namoda, an important agricultural area in the northwest, completed in 1929. The second was a branch from Kano to Nguru, a cattle-raising region in the northeast, completed in 1930. The third, a 645- kilometer branch from the eastern line to Maiduguri, was completed in 1964. A short spur to the mining area at Jos and two short branches from Lagos and Kaduna rounded out the system (Adejumo; 2006). Unfortunately, inadequate maintenance and funding and a host of other ancillary causes contributed to the severe deterioration of the Nigerian rail system. The many problems of the Nigerian railway system include poor communications, government interference with management structure, worn out infrastructure, under-funding, absence of maintenance etc.

On a more general note, Nigeria's infrastructure has almost totally crumbled. In many urban areas, water supply, sewerage, sanitation, drainage, roads, electricity, waste disposal are virtually non-existent. Maintenance of the partially existing ones is zero. All these are being compounded by the twin problems of rapid population growth and urbanization.

How Sustainable is Government Provision?
Many people are of the opinion that we need the state to provide public goods. The arguments usually posited to justify government provision often revolves around issues of adequacy of infrastructure provision particularly when huge capital outlay is required for which individual or market financial capacity cannot cope. Sometimes it follows the 'stimulationists' idea that increased public expenditure will stimulate consumption, aggregate demand and economic growth. Another reason includes the positive externalities and free-rider problems which are helpless in the face of the so-called market failure theory. Cited cases here include the provision of street lights or some other services which seemingly provide benefits to society over and above those that accrue to the individual. On the other hand, negative externalities may justify government intervention to reduce their occurrence. Then there is the issue of potential growth of natural monopolies requiring that government intervenes. All these arguments notwithstanding, in our very eyes as Nigerians, we see the consequences of government ownership and management of public infrastructure since Nigeria's independence in 1960. What has largely happened was that successive government's enabled the rapid deterioration of the infrastructures which were inherited from the colonialists and missionaries without replacing them with new ones or at worst keeping them the way they met them. In instances where attempts were made, such purported infrastructure projects served as mere conduits to enable the various regimes and their cronies detestably meaningful shares of the so-called national cake irrespective of how it hurt the economy. Government's scorecard can be put side-by-side with the evidential rapid progress made in areas where there have been private ownership and management. Economies run by private people are considerably more efficient in resource allocation and faster in achieving economic development than the ones that are not. The best areas for government should be those historically traditional roles of public policing, justice administration, defence of property rights, enforcement of contracts etc. It is therefore largely rhetorical to ask whether government provision of public infrastructure is sustainable. The answer from experience and evidence is a capital NO. But we may need to invoke additional substantiating evidence.

Market failure is an argument which is fast gaining intellectual disrepute because it lacks merit and is fallacious in that it is built on the wrong neoclassical premise of perfect market competition as well as interpersonally measurable utility scales. Perfect competition is in fact no competition. And utilities can only be subjectively - and imperfectly - measured by the individual concerned. Many scholars have shown that the market does not fail but is in a constant process of discovery. Thus many hitherto considered non-excludability backed reasons for government intervention shows that the market can actually resolve them on case-specific basis depending on their peculiar dynamics. Let us consider the case of street lights, its consumption can be tied to other goods that are excludable such as charging for its use at the entrance to the street. This really happens when for instance a community provides its own security. In some instances rates are sometimes collected at the points of entry. While the market failure argument is used to justify the possible intervention of government, even with vast literature which exists on the many imperfections of government in allocating resources, some economists and advisors still recommend government intervention to correct market failures without regard to the failure of government itself. Our governments have failed in meeting the infrastructure needs of the Nigerian people. If therefore an alternative provision-source is to be sought when there is the supposed market failure, an alternative provision-source ought to be sought now that it is evident that our government has failed. It is therefore in considering the many possibilities of government failure that full private sector intervention is recommended.

Entrenched public sector corruption particularly in Nigeria is a major factor distorting decision making and implementation processes as regards the acquisition of public sector assets. Government does not invest. Yet even in the acquisition of public assets, the primordial self interest motives of the various individual players comes up. Whereas the typical bribery incentive that characterize our system can on one hand lead to either increased quantity of infrastructure or huge spending on public infrastructure even when the resources may not be enough to conclude the projected asset acquisition or on the other hand account for the deplorable quality of built infrastructure. The US$16 billon purported spending on electricity infrastructure during the life of the previous administration is a good case. Many cases of impropriety and shocking revelations show the scale of corruption within the Nigerian public sector and clearly indicates that the Nigerian government is not a good candidate to be credibly entrusted with any further infrastructure development. Nigeria's government, police, civil services, and businesses are plagued by extortion, bribery, and other forms of corruption which undermines the capacity of government to successfully handle and deliver high quality infrastructure for the people. This is also not likely to be wiped off overnight as political corruption is not a recent phenomenon and has permeated the Nigerian state since its creation with many cases of official mis-use of resources for personal aggrandizement.

Aside that public provision serves as an incentive for increased large scale official corruption by presenting immense self-aggrandizement opportunities to government officials, it also puts pressure on public finances. In spite of the high possibility of mis-use of the budgeted project funds, there is the other side of crowding out of the important expenditure on the traditional areas where government has chances of performing better. One-tenth of the US$16 billion squandered in unseen power projects by previous administration could have been meaningfully deployed in the acquisition of infrastructure for policing and justice administration. Although there is no guarantee that this will equally be carried out without blemish. The need to review and redefine the role of the government and to evolve appropriate policy, legal, and regulatory frameworks for private sector participation in infrastructure development has become most urgent.

Furthermore, the joke that government is better in mobilizing huge capital required for large scale infrastructure has become even more ridiculous considering the trillion dollar transactions being packaged and executed by investment banks globally. The power of global financial interconnectedness makes it possible and even easier for the financial markets to raise massive amounts of capital in order to finance infrastructure acquisition requiring huge financial outlay. The Nigerian infrastructure can be and is suggested to be 100% financed and managed by the private sector, because the global financial system is proven to have the capacity and required flexibility to achieve all the expectations. As a matter of fact, Nigerian government on the contrary has been guilty of under funding infrastructure development due to either poor estimation of acquisition or maintenance costs or sheer mismanagement of funds allocated for such. However the huge size of abandoned projects points to the fact that the myth of government's inexhaustible capacity to handle projects requiring massive financial outlay is really giving way for more positive thinking. Government abandons its infrastructure projects - all things being equal - because it lacks the financial capability to finish it. This situation rarely arises in the case of the entrepreneur who is in pursuit of profit. The motive is clear: provide and maintain the infrastructure and reap attendant financial and other rewards. All stakeholders in the process are happy.

The telecommunications story is a rare case of the difference that can exist when private provision supplants government provision of public infrastructure. With a population of about 40 million people, Nigeria had approximately 18,700 telephone lines at independence in 1960. Telephone facilities had been established about 76 years earlier. Based on that that calculation, the telephone density was about 0.5 telephone line per 1,000. By 1985, the overall quality of service and telephone infrastructure had become so unreliable, congested, expensive and customer unfriendly. This caused the split of the then posts and telecommunications department into two: Postal and Telecommunications divisions. The telecommunications division was later merged with NET to form Nigeria Telecommunication Limited (NITEL), a limited liability company. By 2003, NITEL had about 500,000 lines which were available to more than 100 million Nigerians. The summary is that the available telecommunications infrastructure could not serve the Nigerian people. As a national carrier with sector monopoly, telecommunications services were punctuated with epileptic services and bad management.

This monopoly was broken with the deregulation of the sector which was marked by the granting of operating licences to GSM service providers as well as initiating the process of privatization of NITEL. With this step alone, more than 50% of Nigerians have access to GSM telephones in addition to other fixed wireless telephony. These have increased teledensity and made communication effective and efficient in Nigeria. At present a wide range of telecommunication services are offered in the country: Telephony; Telex; Cellular Mobile Telephony; Facsimiles; high speed data transmission telegraphy, Public pay phones etc.

The consequence of public provision oftentimes particularly is almost the assurance of government failure which therefore imposes tremendous hardship on businesses. Experience has shown that the hitherto considered government solution to the non-excludability and non-rivalrous consumption characteristics of public goods is in fact no solution, but additional and unwarranted burden on national economic enterprise. The response of businesses in Nigeria to deficiencies in government's provided infrastructure such as electricity, water, transport etc is to undertake significant expenditures to offset them. This naturally severely affects the prospects of these businesses as it has same type of damaging effect as income tax particularly in a multi-tax environment of ours. My paper on justifying resistance to tax payment in Nigeria is an eye-opener in that respect. Private substitutions for inefficient public service divert capital and raise costs. Marginal companies pay the greatest penalty and are often the first group to be forced out of operation. Unlike the big companies, the small companies that cannot provide their own infrastructure become victims. This hampers overall economic performance.

Are We Moving in the Right Direction?
Increasingly, Nigerians are able to identify with Adam Smith by observing that no two characters seem more inconsistent than those of trader and sovereign. The former representing the market based entrepreneur and the latter, the all-powerful government. It is obvious that humans on average are more careless about the wealth of others than theirs. This has also been evidenced over the many decades of the life of this country. Government ownership and management of infrastructure is characterized by negligent and wasteful outcomes because public employees are not substantially motivated by the commercial outcome of their actions whether positive or not. Evidences abound to support the fact that private firms are more cost-effective than public firms in the provision of goods and services. The direction of government in going private in the area of private provision of public infrastructure is welcome. The idea of the privatization-focused reform of the previous administration was indeed noble. But this nobility was flawed by the corruption that allegedly attended to them which made them fail the test of fair competition that should mark such activities. Fair play, openness and equality under clearly defined rule of law is most important for the market to truly exhale and yield abundant benefits. The absence of these characteristics charades and frauds prevail. But whatever the case, the way of the market is the only way to go. Although there are many caveats arising from the many so-called public-private partnerships in which there is merely a disguised ownership by the government or in which the partnership is burdened by government powers. Many variants of this relationship abound which still gives the government the leeway to impose itself on the ability of the market operating structure to deliver satisfactorily. Government has no business being in business and should not be involved in the so-called partnerships. Its role should be strictly limited to creating the enabling environment for competition on equal and fair grounds as well as the protection of private property rights.

Public-private sector business relationship is like a relationship between a tiger and a goat in some instances because many times, the government being the tiger can just turn-round and devour the goat by running foul of the terms and conditions upon which the relationship was based on in the first instance. It might also be outright reversal or cancellation of the business relationship at will without recourse to the partner. When this happens, the goat is devoured or severely wounded. Much of this have also happened in this country and nothing says that it cannot persist as the signs are replete even in this present administration. Recently, some airlines cried foul as they alleged that government was either reneging or violating the agreed terms and conditions under which they were to make use of Murtala Mohammed airport. The sovereign by its name can do anything and work away because its major instrument is coercion or the threat of it. Such relationships are also problematic. The power of the sovereign corrupts absolutely and in such relationships oftentimes corrupts the private sector in many ways. There is no doubt that sometimes such relationships are well intentioned. However the mixture of business with politics usually leads to corruption and offer incentives to the partnering private groups to latch on to the gravy train of government.

If on the other hand that the fear of natural monopoly rising from the dominance of most competitive firm under a market arrangement is the argument against market provision of public infrastructure, public-private partnership is even worse as it has more potentials for throwing up legal monopoly. Whereas naturally monopoly is efficient and driven by entrepreneurial energy because the underlying power which disciplines the private sector and makes it pay attention to customer service and efficiency is competition, natural monopoly has been proved to be characterized by inefficiencies because it is noncompetitive and tax- supported. Legal monopoly is all too often the result of government/industry partnerships. A public-private partnership that is intended to immediately within a very short period relinquish both ownership and management to market power can be allowed only to the extent that such transfers of ownership and management is 100% guaranteed and that it happens within a very short time period.

There is an increasing awareness and consequent global gravitation towards privatization of hitherto government owned infrastructure. This has caught us here albeit the alleged underlying fraud which underlay the process and made them less credible since such corruption weakens competition and undermines private property rights. The idea of privatization of hitherto government owned infrastructure affects the ownership as well as the management of these infrastructure. This also means that increases to the size of infrastructure available will be made by the private sector that is operating within the market governance contexts. Efficient and sustainable provision of infrastructure in Nigeria can really be achieved through the complete privatization of all government owned assets except those that are committed to the maintenance of law and order, making of laws as well as minimal executive operations. Lessons from many parts of the world have shown that even privatizing such infrastructure as roads would solve some of the problems endemic to public roads, namely, poor maintenance, high accident rates, congestion, and pollution.

Sufficient empirical evidences support privatization of hitherto government owned infrastructure because it increases efficiency and profitability. Complete privatization obviously has more benefits than partial privatization. Aside efficiency and profitability advantages, it equally offers many benefits to government itself. Privatization of infrastructure enables governments in a period of budget deficits and an environment of fiscal restraint to move major capital expenditures on new infrastructure off-budget or to capitalize existing infrastructure by sell-offs to the private sector. Another political attraction is the extraction of commitment over a range of policy related risks that are related to financial viability. For instance an ongoing commitment to maintenance of the infrastructure can be built into the privatization arrangement. Privatization generally permits employment creation in depressed labour markets without committing additional public resources to this objective.

How Do We Transit to Full Private Provision?
Private provision of public infrastructure is desired because of the high prospects of value for money which it engenders through the market mechanisms. The transition from public sector provision of public infrastructure in Nigeria to private provision requires the understanding of the fact that the public are desirous of value for money and therefore projects should create a genuine business opportunity, which is likely to attract a sufficient number of private parties and create an effective and competitive bidding process. This means that the level of government involvement in pre and post transitions will be non-intrusive and limited to creating a level playing ground as well as rules for competition among private sector participants.

The starting point of this transition is for the legislature to permit the immediate privatization of all hitherto owned government investments from steel rolling mills and power to government schools and hospitals and slim down the power of the executives to ensuring that rule of law truly prevails and private property rights are strengthened and protected. This will be supported by the review and removal of all laws and legislations that directly or indirectly work against the future privatization of any property of government that can ever possibly be more efficiently run by private people. Private people should be given franchises to construct and maintain roads and take tolls on them. Ditto for electricity generation, transmission and distribution as well as water supply. Examples as well as stupendous array of evidence show that Nigerian government can use the power of the market place to turn-around the appalling state of its infrastructure. Market innovations such as user fees and tolls provide substantial advantages to the society by requiring potential users to consider costs when they decide whether to use particular infrastructure type and by not using taxpayers' money. Moreover, the involvement of private ownership and franchises in infrastructure improves efficiency and reduces government's financial risk. Thus Hanke (2008) wrote: "most nations face daunting infrastructure problems. To solve them, well-tested methods of private provision must be embraced. Private infrastructure franchises that are properly designed and strictly policed hold the key for infrastructure provision". The technical details and situation-specific methodologies of infrastructure franchising are beyond the scope of this essay.

By Oluba Martin, Email: martin@martinoluba.com ; Mobile: 08033148722; http://www.martinoluba.com/publications.jsp