Infrastructure Investment: The Pathway for Sustainable and Economic Transformation in Nigeria

Abstract

This work X-rays the multidimensional relationship that occurs between infrastructure and economic development, evidence from Nigeria. The work develops an intuitive theory with a framework which examines this relationship by recognizing various channels through which infrastructure possibly affects development: as a factor of production, as a complementarily significant factor of production, a stimulus to factor buildup, a stimulus to aggregate demand and an instrument to industrial policy. A framework is developed for evaluating and analyzing the theory of this relationship, which explores the implications of diverse definitions and measures of infrastructure on economic development. Empirical literature is then evaluated against this framework.

Keyword s: Africa, Economic development, Infrastructure, Nigeria, Trade

1. Introduction

Investment in modern infrastructure lays the foundation for economic development and creation of sustainable economic growth for most successful economies. There is a popular Chinese adage which says, “To get rich, first build a road.” The implication of the proverb is that, without infrastructure, economic development can’t happen. In other words, the realization of economic development depends on creation and building of infrastructure.

A binding constraint on Nigeria’s development is the country’s crippling infrastructure deficit. As explained by Foster and Brice n o-Garmendia (2010) and UN-HABITAT (2011), infrastructure should be provided to foster economic development and to break out from poverty. Providing infrastructure is one of the means of achiving the objectives of the Millennium Development Goals. As part of the literature put forward by UN-HABITAT (2011), the organization believes that the development of infrastructure brings about economic growth and productivity effects. In developed nations, infrastructure is sufficiently provided but not in developing countries, especially in Sub-Saharan Africa.^[1] Economic development can only come from a significant role been played by a country’s infrastructure development. A faster growing economy needs an even faster development of infrastructure for sustainable economic growth.

Infrastructure and economic development relationship have been a vital topic in recent years both in economic and academic policy arena. According to UN-HABITAT, 2011, governments in African countries spent on average 6-12 percent of their gross domestic product (GDP) on infrastructure. There are some international studies that were carried out by Aschauer (1989a, 1989b, 1989c) and Munnell (1990) and they found a strong positive relationship between infrastructure and growth, sparking considerable academic interest in the study. However, their findings have been widely criticized as relying on inappropriate techniques (Gramlich, 1994) and much attention has now been paid to some recent studies by Calderón and Servén (2004) and Estache et. al., (2006), these experts uses an appropriate statistical methodology. In addition, through the joint Aid for Trade Initiative led by the World Trade Organization (WTO) and supported by OECD, donors have become more aware of African countries’ lack of infrastructure as a limitation to their ability to trade and access global markets^[2]. The initiative has also resulted in recognizing the need to increase capacity building and technical assistance for infrastructure development.

The organization of this paper follows this order: The first part deals with a broader view of the relationship between infrastructure and economic development with evidence from Nigeria. Part 2 explores certain questions about the meaning of infrastructure. Part 3 introduces the connection that exists between infrastructure and economic development. Part 4 explores the well-organized usage of infrastructure and its outcome on productivity. Part 5 deals with the Urban and Rural situation in Nigeria. Part 6 deals with trade facilitation initiative in Nigeria. Part 7 deals with the opportunities that result from regional infrastructure projects and investment in Nigeria and finally part 8 ends with conclusion, policy direction and recommendations.

2. Notion of Infrastructure

Infrastructure is an important issue because it makes policy interventions meaningful. Infrastructure does not have any standard definition when viewed across economic studies. Tinbergen (1962) introduces the distinction between infrastructure (for example, roads and education) and superstructure (manufacturing, agricultural and mining activities) without neither precise definitions nor any theoretic references of these terms.

Finding a general meaning of infrastructure can sometimes be difficult even though initial works conducted by economists specified the important role of transport infrastructure for economic growth. Infrastructure is mainly understood as elementary public infrastructure, which forms the basis for people and economics. According to a World Bank report (2006), infrastructure is an umbrella word for numerous activities, it plays a vital role for built-up in the overall economy. On the other hand, Buhr (2003) believes that the widest economic form of the term “infrastructure” – speaking of the works in Jochimsen (1966) - dates back to - Listed (1841) and Malinowski (1944) books on the theory of infrastructure in which the authors aimed to present preparatory studies for a modern theory of the development of a market economy based on the study of infrastructure endowment.

Although an official and comprehensive meaning of infrastructure is not essential for the purposes of this paper. It will be noteworthy to develop an intuitive understanding of the features and kinds of infrastructure. This part develops such understanding, although at the same time presenting certain issues of infrastructure measurement. Several explanations from experts about infrastructure and its characteristics have generated potentials to analyze infrastructure in diverse ways that brings about diverse outcome and barely comparable conclusions. Infrastructure clarity is vital when evaluating its possibilities, impact and meaning.

Although the vast body of urban planners and experts provide the analysis of scientific literature in order to build the most explicit explanation of infrastructure for further study. Conventionally they broadly distinguish infrastructure into two categories: social and economic infrastructure. They referred to economic infrastructure as promoter of economic activity, such as roads, telecommunication, water supply, sea ports, airports, railway, sanitation, electricity and highways. On the other hand social infrastructure was referred to as hospitals, libraries, clinics, museums, schools, theatres, parks, universities and courts. However, some experts included recreational facilities and cultural standards (DBSA, 1998).This classification carries important growth implication because it promotes education, health and cultural standards of the population which impact on their welfare directly and indirectly.

3. Infrastructure and Economic Growth

As Mr. Shengman Zhang, former Managing Director of the World Bank, but now the Chairman of Citigroup Asia Pacific Region reportedly said: “I know of no country that has achieved continuous development without a corresponding development of infrastructure. It would be like trying to drive a car without fuel”. (Quoted in The Bank should Invigorate Infrastructure Lending)

When considering infrastructure as a general input in production most economists consider the published results on productivity effects of infrastructure as ambiguous (Stephen, 1997). Damaskopoulos, Gatautis, Vitkauskaite 2008, argues that infrastructure is an attribute of productivity. The findings of Demetriades and Mamuneas (2000) suggests that public infrastructure capital has significant and positive effects on profit as well as the demand for private inputs and the supply of output that was run in all 12 OECD countries. The results of estimations made by Mentolio, Solé-Ollé (2009) supported the idea that productive public investment in road has positively affected relative provincial productivity performance in Spain. Button (1998) echoes this same opinion.

[...]

^[1] As shown by UN-HABITAT (2011), in Sub-Saharan African countries, paved roads are 11 : 9% of all roads (2006), access to electricity is available in only 18% of households (2004), water with improved water sources is accessible to only 58% of population (2006), and only 31% of the population has access to improved sanitation facilities (2006).

^[2] See Aid for Trade Case Stories: Infrastructure http://www.oecd.org/dataoecd/15/38/48323850.pdf.