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Hydro: Every tiny drop should count

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Hydroelectric power plant

The federal ministry of water resources has released its medium to long term strategies in the form of a roadmap. This is a good step forward given that over the past several years, Nigeria’s hydro sector has been neglected. The under-investment within the sector is reflected in the national accounts produced by the NBS. Last year, the sector which is classified as water supply, sewerage and waste management, contributed just 0.2% to total GDP yet managed to grow by 9.3% y/y amid the macroeconomic challenges.

Nigeria boasts 250bn cubic metres of freshwater (both surface and ground). This is sufficient for industrial, agricultural, domestic, hydropower and recreational usage. However, the country is ranked as an economic water scarce country.

According to UNICEF, as at four years ago, 38% of Nigerians lacked access to safe drinking water, and over 60% lacked access to improved sanitation, meanwhile open defecation rates stood at 28.5%. This poses as a public health risk. Industry sources suggest that the economic impact of poor sanitation and hygiene costs to Nigeria is about 1.3% of gross domestic product.

Historically, this sector has not been a key beneficiary of the FGN’s public funds. Last year, the ministry of water resources was allocated N53.3bn (less than 1% of the total budget). Given the number of projects under its purview, the ministry secured N46.1bn from the allocation for capital expenditure. These projects include irrigation, the rehabilitation and construction of dams and solar powered borehole installations.

For this year, the budget allocation to the ministry from the proposed budget increased by 59% to N85bn. The increment is not worth celebrating given that it still accounts for a low proportion of the proposed budget (i.e. 1.2%). The increase is largely reflective of a similar increase seen in the headline expenditure on the back of the fiscal expansionary plan. However, it seems that the ministry is looking to invest more in projects under the River Basin Development Authority.

For water resources management, Singapore adopted a plausible model. Singapore is one of the few countries to have addressed its water supply in its totality by adopting an innovative four-pronged approach (known as the four national taps) to establish sustainable water supply. These include local catchments, imported water from Malaysia, recycled water and desalination. Singapore’s performance is laudable given that it is a water resource-scarce country.

Away from Singapore, Brazil accounts for 20% of global water supply. However, it still faces sustainable hydro supply challenges due to growing demand within the country. There are specific economic sectors which are highly dependent on water to thrive. For example, 62% of Brazil’s energy is generated through hydropower plants. Additionally, irrigation consumes 72% of Brazil’s water supply.

In developed countries, the motivation for advanced wastewater treatment is usually to sustain environmental quality or to supply alternative water sources during periods of water scarcity. In developing countries, the release of untreated wastewater remains common practice. On average, high-income countries treat about 70% of the municipal and industrial wastewater generated. That ratio drops to 38% in upper middle-income countries and to 28% in lower middle-income countries. In low-income countries, only 8% undergoes treatment of any kind.

According to the OECD, farming accounts for around 70% of water used globally. Nigeria has an irrigable land potential of 3.1 million hectares (ha); yet the actual irrigated area is only 70,000 ha. The national irrigation development programme within the sector roadmap reveals that the FGN is targeting 78,000 ha of planned irrigation by 2019, which would require an average yearly investment of N59bn. Going by the FGN’s estimates, it would cost around N7.4m to irrigate a hectare of land.

Meanwhile, its long-term target of 500,000 ha by 2030 would require a total investment of N1.5trn. With dam projects spread across the country, there is a huge potential for irrigation farming. However, most of these dams are either abandoned or less than 50% utilised.

State governments are making an effort to rehabilitate dams; Katsina State recently disbursed N250m for the rehabilitation of Daberam irrigation project. Additionally, Ruwan Sanyi and Masari dam projects received N118 million and N30 million respectively. These should assist with improving agricultural yield within the state.

On a national scale, the roadmap reveals that the ministry has prioritised 38 projects which are grouped into irrigation & drainage (10 projects), dams (13) and water supply (15). The total funding requirement for the aforementioned is N338bn, with irrigation & drainage accounting for 57% and dams 32% of the total funding requirement.

Given that the power sector struggles to meet the estimated national demand of c.18, 000MW, alternative sources of energy (such as hydro) will give the power sector a leg up. Needless to say, power shortages feature as a major roadblock for SME growth as well as manufacturing and industrial development. As such, the benefits of employing alternative energy sources would have a ripple effect across the economy.

On a broader note, hydropower generation would shore up non-oil revenue via increased company income tax collection on the back of improved profit margins from companies. Additionally, a rise in the volume of non-oil exports will also add to higher non-oil receipts.

Another area within the non-oil economy worth exploring is the major role freshwater supply can play in improving recreational activities. For example, in Oman, water bus services are a big tourist attraction. Canada also cashes in from its Niagara Falls resort. Dubai boasts of a few water parks.

A survey carried out by World Travel and Tourism Council revealed that in Nigeria the direct contribution tourism makes to GDP was NGN1.6trn (1.7% of total GDP) in 2014; while investments towards the industry hit N889bn (6.6% of total investment) in the same year. Littoral states such as Lagos, Ondo, Delta, Rivers, Akwa Ibom, Imo, Kogi and Benue could consider developing water parks or resorts, not just to attract foreign tourists but to also promote local tourism amongst Nigerians.

Essentially, the FGN has to be deliberate with pushing policies that would enable sustainable freshwater supply. In the oil producing states, oil spillage still poses as a major concern, prohibiting access to potable water as well as fishing activities by local artisanal farmers.
Although it is a resource which can be easily neglected, water is a significant contributor to both socio-economic development as well as general economic growth.


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