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Nigeria moves to modernise rail transport

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Plans to overhaul Nigeria’s transport links are gaining pace, spearheaded by a major railway expansion project.

In August, Rotimi Amaechi, minister for transport, announced the government would be investing billions of dollars in upgrading and expanding the rail network, a move seen as key to plans to boost production in strategic sectors.

Headline projects under the expansion plans include construction of two new railways connecting Nigeria’s busiest urban centres and ports.

The first, an 1100-km line for freight and passengers, will provide a second rail link between Lagos, the nation’s commercial hub, and the northern city of Kano, Nigeria’s most populous city, while the second is a coastal line that will link all seaports from Lagos to Calabar in the east.

Financing for the new lines, which are expected to cost $20bn in total, will be provided through a loan from the Export-Import Bank of China, which has so far made $5.9bn available.

Construction will be carried out by China Civil Engineering and Construction Corporation, with work slated for completion by the end of 2019, Amaechi told local media, following the project’s announcement.

Under the initial agreement, 90% of construction workers employed on the projects will be Nigerian, with the project expected to generate 7000 new jobs, according to government forecasts.

Rail links between all 36 regional capitals
The government’s expansion plans also envisage new rail routes linking all 36 regional capitals, along with Maradi, a city in neighbouring Niger. Planning for this project is still in its early stages, however, Amaechi did disclose to local media that the government was investigating public-private partnership (PPP) options for funding and has allocated $16bn to it.

The minister also confirmed that the government is prioritising the completion of an ongoing $3bn project to link Abuja, the political capital, to the oil-rich southern city of Warri – and has expectations of finishing the project in 2018. A memorandum of understanding for the construction of the Abuja-Warri line was signed between the federal government and the China Railway Construction Corporation in August 2016.

Railways operation and management shifts towards PPP model
Alongside expansions, the government’s approach to modernising the rail network includes encouraging private investment through PPPs and concessions for the management of the existing network.

In May a $2.2bn concession was granted to a consortium led by US firm General Electric (GE) to manage and rehabilitate two existing narrow-gauge railways from Lagos to Kano and from Port Harcourt to Maiduguri in the south.

The group – which also comprises China’s SinoHydra, South Africa’s Transnet and the Netherlands’ APM Terminals – is also expected to deliver 100 wagons and 20 locomotives by the end of 2017 and modernise rail stations and signalling systems.

The contract follows on the back of the passing through the Senate last year of the Nigerian Railway Corporation Bill, which if passed into law, will make the signing of PPP agreements easier.

Prior to this, the state-owned Nigerian Railway Corporation, which is both the owner of rail assets and the industry regulator, had been in charge of operating and maintaining all rail routes.

Improving infrastructure key to economic development
Historically low investment in the rail system has resulted in a fall in overall freight capacity to 15,000 tonnes per year in 2005 from nearly 3m tonnes four decades ago.

According to the Africa Finance Corporation, a multilateral development finance institution, the country will need to spend $3trn over the next three decades on infrastructure to bring the system up to standard.

However, the government has identified probable difficulties in finding the resources to meet the anticipated growth in demand for infrastructure in the coming years. The Nigeria Economic Growth and Recovery Plan (EGRP) 2017-20, which seeks to guide the country’s mid-term economic strategy, forecasts a N7.6trn ($21.2bn) deficit through to 2019.

As a solution, EGRP proposes a number of options for the government to help close the infrastructure gap, including leveraging private capital in a variety of ways, through the use of PPPs, investment funds and guarantee arrangements.

This Nigeria economic update was produced by Oxford Business Group.



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