Nigeria – How Nationalization Fails

Commentary, Crown Corporations, Frontier Centre, Regulation, Role of Government, Transportation, Uncategorized

The carnage on Nigerian roads in recent time has reached an unprecedented level. While several reasons have been cited for the current rate of wreckages on Nigerian roads, the truth is that the state of the roads is extremely poor. Our so called expressways are not in anyway different from roads constructed during the regional days.

Most of the roads in Nigeria are riddled with pot holes and most of the vehicles plying the roads are poorly maintained. Many haulage trucks are made to carry goods that are heavier than the legal weight.

How did Nigeria get into this unenviable situation in the first place? At independence, Nigeria had a vibrant, efficient and flourishing railway system. The rail system was considered the best way to transport goods, including highly inflammable materials across Nigeria. Nigerians once took pride in saying that their country had the largest rail network in Africa. Ironically today, it is a show of shame, grossly inefficient and shutting doors against potential investors.

A great deal of effort has been made by successive governments to revitalize the rail system. These included a contractual agreement between Nigeria and Rail India Technical and Economic Services, 1978–82, the 1989–92 ‘Ogbemudia Revolution’ that turned around local rail transport and the rehabilitation project with China Civil Engineering Construction Corporation, 1995–99. Although there were some new leases of life for rail system during these periods, those steps did not actually succeeded in turning the rail system into an efficient one.

Many reasons are behind the failure of these endeavors. Among others, a contract of $500 million awarded to a Chinese firm, China Civil Engineering Construction Corporation, between 1995 and 1999, to rehabilitate the existing rail, supply 50 locomotives, 150 coaches, 400 wagons and 20 rail buses, and provide technical training for the railways staff. The substandard rail locomotives, wagon and coaches supplied by the Chinese firm, however, were not fit for later use. The same China Civil Engineering Constriction Company has again been awarded a whopping $8.3b contract to rehabilitate the rail system. Will the latest injection of funds by government result in an efficient rail system? Only time will tell.

The ownership of the rail transport by the federal government is responsible for the present state of rail in Nigeria. The rail system has been solely funded by government. Partnering with the private sector that could muster enough funds and invest in development of the rail has never been encouraged. Rail business in developed countries has progressed significantly leading to strategies like Design Build Own and Transfer (DBOT). This strategy has made it easier to adequately fund railway revitalization. For instance, the Bangkok's Skytrain elevated rail system, the Great Belt Fixed Link in Denmark and the joint Øresund Strait project between Denmark and Sweden.

It is quite obvious that government alone cannot shoulder the financial burden required to rehabilitate the rail. But has this been realized? The Railway Act exclusively places railway business under the domain of the federal government. This clearly excludes private investment. The Act makes it illegal for anyone without the consent of the railway corporation to construct or operate a railway for the public carriage of passengers or goods within Nigeria.

What is more, by implication the Act forecloses private investment in the rail business. However, investors are always on the look for opportunities. Five years ago, a Canadian firm put forward a proposal to construct a 3-hour Lagos-Abuja rail line. The Oodua Group had also planned to construct a 20-minute Lagos-Ibadan rail track. The Lagos state government last year signed a $240m memorandum of understanding with Lemna Incorporated, a U S-based firm, for the construction and operation of a light rail under build, operate and transfer (BOT) arrangement.

These laudable projects are bound to face the major hurdle. The Nigeria Railway Act clearly confers monopoly powers on the Nigerian Railway Corporation.

The mass transit system would have been in total chaos if government had monopolized other transport systems such as airlines and road transport.

Government involvement in road transport has not produced the expected result. Once state and federal governments embarked on mass transit programmes by buying buses. None of them were able to survive in the market for a long time as they could not compete with the private sector and their innovation.

Huge investment and competition that are vital for the rail system in Nigeria are completely lacking. Private investment is necessary if there is really a genuine desire not only to bring back the rail system but other sectors as well. Revamping and modernizing the rail system is contingent on the willingness of the government to repeal the existing Railway Act and introduce legislation that would open up rail market and makes it competitive. Doubling its funding will do little to revitalize the rail. At best what would be created is a rail system that is dependent on government funding and cannot generate enough funds to defray its running costs.

At a time when government is ceding its interests in some business enterprises into private investors, the time to repeal anti-investment law such as the Railway Act is now. That would in the long run reduce carnage on the roads; lessen the costs of haulage and burdens of the road transport and improve the standard of living for ordinary Nigerians.

Thompson Ayodele is the Executive Director of Initiative for Public Policy Analysis based in Lagos, Nigeria.