Africa’s Infrastructure Deficit, a Drawback to the AfCFTA

Image: www.railway-technology.com

It is no longer news that the African Continental Free Trade Agreement (AfCFTA) became effective May 30, 2019 with 54 of the 55 African Union nations agreeing to a borderless and tariff-free trade agreement. The number of signatories to this agreement makes it the largest in the world in terms of participating countries, since the formation of the World Trade Organization (WTO) in January 1995.

Low Intra-African Trade

According to the United Nations Conference on Trade and Development (UNCTAD), at the continental level, inter-regional trade was highest in Europe, followed by Asia and North America. Inter-Europe trade, as at 2017, stood at 68% while inter-Asia and Northern America trade were 59% and 31%, respectively. Within the same period, inter-Africa trade recorded 17%, the lowest of any region globally. With an estimated population of 1.2 billion people and gross domestic product (GDP) in excess of US$3.4 trillion, Africa not only has the market but the potential for organic growth through strategic, complementary and mutually-reinforcing trade partnerships.

Benefits of the African Continental Free Trade Agreement

AfCFTA promises the diversification of Africa’s industrial export by encouraging a transition away from extractive commodities such as oil and minerals through continental economic integration, harmonization of customs/border checks and free flow of human and material resources. The agreement also advances the African Union Agenda 2063 which envisages a single African air transportation market. Besides the direct economic benefits to airline operators and the revenue gains to governments within the region, the air transport liberalization is expected to reduce the cost of air transportation. The welfare gains therefrom could be channeled to other alternative uses to increase the quality of life of Africans. However, for AfCFTA to realize its full potential and for Africa to possibly catch-up with the Western world, the continent must address, as urgent and important, its infrastructure deficit which the African Development Bank (AfDB) estimates to be about US$170 billion annually.

Infrastructure Development, a Necessary Condition for AfCFTA’s Effectiveness

Why is infrastructure important to AfCFTA? The Economist argues that good ports are perhaps more important to Africa than any other region since 90% of trade happens by sea. A report by the United Nations Office of the Special Adviser on Africa (UN-OSSA), has it that poor port facilities add 30-40% to intra-African trading costs and Foreign Direct Investment (FDI). This additional but avoidable cost to trade could more than offset the potential gains of a tariff-free continental trade agreement such as AfCFTA. Empirical evidences suggest that, “the poor state of infrastructure in Sub-Saharan Africa cuts national economic growth by 2% points every year and reduces productivity by as much as 40%”, while “the output elasticity of infrastructure in South Asian countries ranges between 0.24 and 0.26 percent”. The implication is that investment in infrastructure contributes about a quarter to the growth outcomes in South Asia while the dearth of infrastructure in Sub-Saharan Africa acts as a growth inhibitor.

Africa’s Pulse, a biannual analysis of African economies by the World Bank, reports that closing the infrastructure quantity and quality gap relative to the best performers in the world could increase per capita GDP growth by 2.6% per year.

What can Africa do to address this infrastructure shortage? Just like France, Spain, Italy, Germany, Austria, Sweden, Belgium, the Netherlands, Russia and the United Kingdom are connected to a cross-border high-speed railway through the Trans-European high-speed rail network, sub-regional economic giants like Nigeria, South Africa, Egypt and Ethiopia/Kenya should be connected through a Trans-African high-speed rail network with connecting stations through other African countries on the rail link as shown on the map below.

Created by the Author using mapchart.net

This proposal is based on the size and contribution of countries along the high-speed rail network to Africa’s overall GDP as shown on the chart below. Investment on the Trans-African high-speed rail network is expected to not only reduce the cost of cross-border transportation and transaction costs but also ease the pressure on seaports and airports.

Source: International Monetary Fund/Reuters/World Economic Forum

Financing Africa’s Huge Infrastructure Deficit: Challenges and Opportunities

Following the first Africa Investment Forum in Johannesburg, South Africa in May 2018, where discussions were held as to how to further strengthen Africa-led response to the continent’s infrastructure-financing deficit, the AfDB in November 2018 approved an equity investment of US$50 million in African Finance Corporation (AFC). According to the AfDB, “the equity investment is aimed at strategic partnerships with some Development Finance Institutions (DFIs) that have comparative advantage at regional or sub-regional levels in certain strategic sectors”. Given that bridging Africa’s infrastructure deficit would require about US$170 billion annually (which is 5% of the continent’s GDP), the reasonable question before policy makers at the regional level is where will the money come from? Should Africa rely on Nigeria, South Africa and Egypt that cumulatively account for more than 50% of the continent’s GDP? Can Africa fund Africa’s infrastructure need with Africa’s resources or should we seek external assistance?

What financing options can Africa explore? AfDB is expected to lead the charge here by structuring loan syndication partnership deal with other multilateral development banks (MDBs) like the World Bank, European Investment Bank, International Development Association, Asian Development Bank and Inter-American Development Bank. Loan syndication with a consortium of MDBs has the added advantage of risk diversification. This consortium of MDB lenders with the ratification of the African Union (AU) can select through competitive bidding, a concessionaire with expertise in rail construction and management to guarantee the viability of their investment. The elegance of structuring concession contracts that bundle construction and service-provisions together with a single private operator is that it is generally believed to be incentive-efficient and yields the best outcome.

Alternatively, Africa could also explore financing through Sovereign Wealth Funds (SWFs). With a global cumulative asset of over US$7 trillion, SWFs are better placed to finance large scale infrastructure of this magnitude. Policy Analysts tend to prefer SWFs to institutional investors like Pension Funds because SWFs have longer investment horizon and they do not have substantial explicit liabilities (specific obligations created by law or contract, that government must settle). Additionally, SWFs are not subject to the “prudent person” investment regulation, which prevents large exposure to long-term infrastructure projects.

Africa Infrastructure Bond Market could also be a financing option where the AfDB together with sub-regional and national development banks like ECOWAS Bank for Investment and Development (EBID) and Development Bank of Nigeria (DBN) create infrastructure development bonds with different tenors and yield. This would encourage Africans (within and outside the continent) to invest in Africa and with “strength in numbers”, Africans can build the Africa of our dreams.

Although the United Nations Economic Commission for Africa (UNECA) has estimated that AfCFTA could potentially boost intra-Africa trade by 52% by 2022, but to realize that estimate, the task of addressing Africa’s infrastructure deficit must be accorded the urgency and importance it deserves. Until then, like Jaramogi Oginga Odinga titled his 1967 Classic, it is “not yet uhuru” (freedom in Swahili) for Africa.

 

 

Life Lessons from The Last Dance

Let me start by saying whether you’re a basketball fan or not, ‘The Last Dance’, a Netflix/ESPN documentary which focuses on the blazing run of the Michael Jordan led Chicago Bulls to Six NB championships is a must watch. Simply put, it goes beyond basketball and we can learn a lot from the leadership skills displayed by Michael Jordan to the crucial roles played by his coach, Phil Jackson as well as team mates such as Scottie Pippen and Dennis Rodman just to name a few.

As I watched each episode, thrilled by the triumphs, rivalries and drama on and off the court, I found myself reflecting on the following lessons from the Last Dance that I could apply to my life. Perhaps some of these thoughts previously had a place in my heart but watching one young talented man make such a difference to his team, sport, nation and world made them resonate even more.

Work ethic is the ultimate talent

How did this young man who was cut from his high school basketball go on to be the greatest basketball player ever? One recurring thread throughout the series was Michael Jordan’s work ethic. It was highlighted over and over again by his coaches from high school, college, to the NBA and even his stint in baseball! He always put in more work than was required, that approach never changed whether as a rookie or a Six time NBA Champion. I believe that’s what made him stand out amongst some of the most talented players in NBA history. No matter the accolades and recognition he got, he kept working harder than everyone else around him. For me, this demonstrates that as long as we keep working on what we believe, we can keep getting better every day.

Leadership requires sacrifice

As the series unfolded, there were several accusations by Jordan’s team mates. The infamous Jordan Rules characterized Jordan as a bully who rode rough-shod over his team mates. There was a scene where Steve Kerr described standing up to Jordan and exchanging blows with him. Clearly bullying is not an acceptable behaviour and it does seem like there could have been elements of such in Jordan’s character. However, his teary, emotional response to the interviewer’s question indicates that this was a man taking up this role only to try and get the best out of his team mates. His response ‘I never asked them to do something I wasn’t willing to do’ reflects a leader showing the way and asking his followers to come along regardless of their ability to keep up. His painful response also showed that he was aware of the way he had been characterized but chose to continue pushing because he was more committed to winning than being seen as a good guy. This is where sacrifice comes in. What are we willing to sacrifice for our goals? Perception? Friendships? Every situation will be different but the constant is simply that leadership requires sacrifice.

You can’t do it alone

Regardless of how great a star player is, they need a good team around them to succeed. Michael Jordan joined The Chicago Bulls in 1984 but it took seven years of building the right team to win their first championship. Other great players like Scottie Pippen and Horace Grant had to join the team and come into their own to make winning the first championship a reality. It’s a reminder that as star players in our lives, we need the strength, skills and experience of other people on our team to truly succeed. Now, it’s also important to realize that people will play different roles on your team- for instance in the later years the team GM, Jerry Krause was disliked by the players for his plans to replace them with younger, more affordable players. This motivated the players to show him and the team owners that they were still at their prime. The episode where an unwitting Tony Kukoc was outplayed by Scottie Pippen and Michael Jordan at the Olympics comes to mind. At that point, Jerry Krause was touting Kukoc as the next Michael Jordan, and the players decided to go all out and show their prowess over the new golden boy even before he joined The Chicago Bulls. But even while some motivation from your team will be negative, it’s important to keep the bulk of it as positive as possible.

No One’s Perfect

We all have our flaws. This is what makes us human. Whether Jordan liked it or not, he was a role model to millions across the world and with that kind of power there was bound to be media scrutiny. Soon the search light into his life turned up a vice- gambling. While the show played it off as an extension of his ultracompetitive nature and desire to always win, it’s clear that this was an embarrassment to Michael. In the end however, I believe we have to look at it from the point of view that we have various aspects of our lives and while we should constantly work to improve every aspect, we can’t expect perfection across board. In Michael’s case I do not believe he saw his gambling as a flaw and that also begs the question- if it’s not illegal and it hasn’t cost him financial harm, then who are we to say it’s a flaw. In our own lives however, the important thing is to identify our flaws, accept them as such and work on correcting them.

Stay open minded

This lesson is perhaps the most subtle I picked from the show yet I believe it is the most profound. As a rookie in 1984, Jordan wanted to sign a shoe deal with Adidas which at the time was more culturally connected with African-American and hip hop culture. He was not interested in hearing a counter offer from Nike but his mother interceded and he went. While Adidas was not willing to offer Jordan his own shoe line, Nike was. They also offered him $500,000 upfront which was more than Adidas had offered. Today the Air Jordan brand has made Michael Jordan more money than he earned from all his time playing basketball. In fact, he is a billionaire today because of the Air Jordan brand. Being open minded to new information is a virtue that will help us navigate our world.  If we approach all our dealings with a rigid mindset, we miss the opportunity of being blessed by new information and enriching our lives.

I am sure there are many more lessons from this 10-part series and I would implore you to check it out on Netflix. It’s entertaining, inspiring, dramatic and motivational and I can guarantee you would get some insights on winning in life!

Nigeria, wasted generations, wasted opportunities

Several years ago, I met this person in the home of a friend and mentor. He was from Rivers state in the Southern Eastern part of Nigeria; that was before Bayelsa State was carved out so you have an idea how far back this chance meeting was. We got talking, and soon the discussion turned to life and career opportunities (or lack of it) in Nigeria. It soon became clear this person was frustrated with life and was very bitter. He was bitter because he could not get a job in NNPC (Nigeria National Petroleum Company), because he was from the “wrong” part of the country, worse, that “wrong” part of the country was his home state that produce the oil that made the country rich. He could not get employment in the multinational oil companies either, because he didn’t know someone from the “right” side of the country.

To complicate issues, his home country of Ogoni land was seriously decimated by oil spill and other environmental disasters that made people unable to fish or self employ in other areas. This was the story of the average Nigerian that grew up in the late 70’s to early 90’s. To borrow Professor Wole Soyinka’s words, it was a “wasted generation”. That was when people look forward to the NYSC (the one year compulsory national service for all college and university graduates) as a gap year to pray for a job, not really to serve the nation, because life could be seriously terrifying if you don’t get a job before the end of that one year.

If our generation is wasted, I wonder what we should call the generation Prof. Soyinka referred to as wasted; in comparison; they are privileged. When you now look at the generation that followed ours; theirs is worse than wasted. It seemed life has left Nigeria behind. Nigeria seemed to be a big village that pretends to be a city. Nigeria is like a sad story that refused to be rewritten, a bad dream that refused to go away. Nigeria is a country of squandered riches and wasted opportunities per Onyeka Onwenu’s classic documentary of 1984. You can still see it on YouTube; you will appreciate the visible pain on her face as she faced the camera and narrated the sad story that was Nigeria. (https://www.youtube.com/watch?v=p6ZSq9CQnIo). We never realized it was going to get worse.

Growing up, my father told me stories about pre independence politics, elections, and the infamous 1964 census, that was heavily rigged in favour of Northern Nigeria. In the words of the late Emeka Ojukwu, “Nigeria is the only country in the world where people living in the desert are more than those living by the coast line”. As irrational as that may seem, even plants and animals gravitate towards sustenance, but not Nigeria. Nigeria is an irrational creation of non rational human beings who thought only of their comfort and convenience; otherwise there was no way the North and South of “Nigeria” would be in the same country. Nigeria today is not a nation, but a collection of incompatible nations forced together by the 1914 amalgamation.

Not only did Nigeria wasted opportunities after independence to become a united prosperous nation, we also wasted political opportunities to grow into a powerful nation as the North had this idea they are superior to the South, and this idea still subsists till today. This was not only frustrating, but became one of the reasons that set off the chain of events that led to the unfortunate civil war of 1967 to 1970 that wasted over one million lives.

After the 1966 coup, the military moved in and abolished the regional governments, and replaced them with an ill advised unitary form of government that effectively truncated regional initiatives and tied the legs of those regions that wish to fly to those that still want to crawl in the 16th century. The twin policies of retard the south, for the North to catch up; variously called “Federal character and quota system” practically destroyed the Federal Civil Service. Capable hands took flight either abroad or to the private sector leaving the bureaucracy in the hands of morons.

Federal character ensures a Northerner with a first degree in Islamic studies get a job in NNPC while a southerner with an engineering degree will never get considered. The quota system ensures the North has a larger representation in any institution because of the various rigged censuses. Today there are more states in the North; more local government areas in the North, more representatives from the North, thereby getting more allocations from the Federation account than the South that produces the bulk of the revenue. The current government of President Buhari has not helped a bit, it’s like the federal character policy is on holiday, as it always is when the North occupies the presidency. But this time around it is horrible; we never saw nepotism on the current scale. Most of all senior positions in the Federal civil service are occupied by the North, 99% of management positions in the state owned NNPC is occupied by the North, while the South that produce the oil got next to nothing.

The principle of “let the North catch” up was at play when Buhari, then Military Head of State, in 1984 cancelled the Lagos Metro line rail project despite advanced initial work done. Nigeria eventually paid a huge penalty enough to almost complete the project. Yet the Abuja sinkhole project continued at breakneck speed. Cancelling the Lagos Metro line project was very myopic, wicked and criminal. The act was nothing but a reflection of the inborn desire to see the South retarded. The effect is what Lagos is still battling with today. It seemed no price will be too small and no stone too huge to overturn to keep the South destroyed and incapacitated. For the same reason, the then Central Bank of Nigeria Governor Lamido Sanusi, the recently deposed emir of Kano destroyed Intercontinental Merchant Bank and the Oceanic Bank, because they were owned by the wrong people from the wrong side of the country.

The current problems of Nigeria did not start in a single day, they started even before independence. It seemed some critical parameters of nation building were got wrong from the beginning. The then Northern Premier, Sir Ahmadu Bello  was quoted to have said, the aim of the North was to dip the Quran in the Atlantic Ocean, meaning to conquer and subjugate the Southern states; that was not a good mindset for a progressive nation. That policy was vigorously pursued through the various Military governments and surprisingly, with the help of gullible Southern leaders.

The self appointed conquerors had no idea of what to do either. A onetime Military Head of State said, (I quote my father) “money is not our problem, but how to spend it” I would not believe that statement if I heard it from another source. In a nation that had no modern transportation system, no world class research institutions, no top of the line manufacturing plants, yet someone still wandered what to do with money. Now that we know what to do, we no longer have the money, we have wasted it all.

Where Nigeria is today is a consequence of years, nay decades of abuse of political and economic process. We neither planned for the future, nor anticipated it. We believed the common saying “tomorrow never comes”. What we did not realize was that tomorrow actually comes; only when it does, it comes under another name, “today”. The “future” came “today” and we were not ready. I visited Lagos as an adult for the first time in 1978, and moved to live and work there in 1983. I left in 2000. In twenty two years the only major road built in Lagos was the third mainland bridge, Governors Fashola, and Ambode had built some since then, but a single bridge in 22 years is not a good barometer of progress, it’s nothing to be proud of. I returned to Nigeria in 2012 after 12 years away since 2000, the Lagos/Ibadan expressway was under repairs; 8 years after in 2020 it’s still not completed. I wandered how long it would take if it was a new road project entirely; it possibly will take a century, by then maybe there would be no need for such roads anymore, because cars will be flying. The Lagos light rail system has been under construction for years now, when will it be completed? We seem to do things in retrospect, not in anticipation.

Something needs to done fast about Nigeria. It has become frustrating to explain what is happening there. One colleague downloaded an article on Nigeria from the internet, apparently he wanted me to see it, and I was not on seat, so he left it on my chair. The title of the article: “Nigeria; worse than a banana republic”. It is not fun when you read such things, but the politicians do not care. All they want is their time at the till. Just immediately after one election, instead of settling down to governance, they are talking about the next elections. Now they are talking about 2023 elections, when nothing tangible has been done to address urgent problems confronting the people. The political class is “fantastically corrupt” and unbelievably ignorant of their role in governance. What is the purpose of these elections anyway? Some ex Governors have robbed their states bankrupt while on holiday in the Senate, collecting unbelievable pension from the states and double dipping in the senate collecting another pay as Senators. The “till” will soon run dry; you don’t need to be a prophet to say that accurately. As Nigerian leaders do not anticipate the future, they are behaving as if oil is still what it used to be. Nigeria is sitting on kegs gunpowder.

Any developing nation (a politically correct name for under developed nations) that spends more than 40% of its budget on recurrent expenditure, is asking for trouble, because there won’t be enough for capital projects that actually stimulates the economy. The compensation package of a Nigerian Senator is N13.5 million monthly. Multiply that by three Senators for each of the thirty six states, plus one for the Federal Capital territory (109). The House Representatives (360 of them) earn N12M each monthly; for doing what?

The house of Reps looks like a boarding school and most of them are dozing when the house is in session, why we need such over bloated, over compensated national assembly is still a mystery? It is a sink hole, something needs to be done. The cost of governance is a huge problem of the current system; aside of the National Assembly, there are 36 state governors, 36 deputy governors, and 36 legislatures with numerous uncountable aides, some with dubious titles. The national assembly purchase sleek vehicles every time a new legislature is inaugurated.

It has been said for a long time that Nigeria is on the brink of a precipice, the nation is there today, and the tipping point could be anytime. May it not be violent like the Arab Spring of 2010/2011. The Arab spring did not give any warning, it flared up in Tunisia because a poor peasant got fed up with the system and self immolated. The pent up frustration of the people erupted like a volcano. There is need for political, economic and social reforms in Nigeria to avoid such violent eruption.

Many ethnic nationalities, like the Yorubas of the South West, the Igbos of the South East have been agitating for self determination for some time now; it is wise to look closely into this while it is still peaceful. Just recently, the middle belt broke away from the Northern political union; saying they too have been oppressed for long by the Fulanis; this was unthinkable a year ago. All those sitting pretty in the national assembly and the various government houses will not be safe when the eruption happens, because it is those armed security guards protecting them that will shoot first.

Politically, Nigeria need to restructure before it is too late (some say it is too late already). There is need to go back to true fiscal federalism. Each region should determine their pace and run their race. No need to hamper one region so that another region can catch up, that never happens. The crawling regions will never catch up, because the south has never slumbered despite all the frustrations to slow it down. The agitation today is to restructure, let this be done before the 2023 elections, otherwise there may not be any election at all. May this not become a self fulfilling prophesy.

There also need to be a new social reorientation. It is sickening to see how much money is wasted on parties and “spraying” that still goes on in the country when some are starving. Let Nigeria prioritise her social values. It is disgraceful that Bill Gates spends more in Nigeria, on Nigerians than the Nigerian rich. The billionaires rarely do anything for their communities, other than for themselves; our people never give back to the society, partly because the government has not given anything anyway. Each household is like a local government, generating self electricity, water and provides own security; however that should not be a reason not to give back to the society.

We need to look forward to a better society, it could be better than this. We have the potentials to be a great nation. Nigeria must wake up before it is too late. The waste must not continue, otherwise there may be nothing left to waste.

God bless Nigeria.

Oludare Ayeni