Nigeria on the brink of a new railway era

These days if was announced that the opening of the new Abudja-Kaduna railway line will shift into June. At the same time, Muhammadu Buhari has assigned 60bn Naira, or 260 million EUR, in the 2016 budget for the great costal railway. As an outsider, it does not seem to be fully clear what monies are assigned to which project in what timespan. This is why I had a look at what projects are actually at the moment in the focus of the country.

Background

Nigeria has an estimated 182 million inhabitants and is one of the fastest growing countries in Africa, economically and population wise.

Its major cities are Lagos, with a population of about 8 million at the coast, Kano with close to 4 million and Ibadan close to Lagos.

An old cap-gauge (1067mm) line connects Lagos with the North, Port Harcourt with the inland and a standard gauge (1435mm) line from Warri. The railway lines are old and where in bad shape when rehabilitation started in 2006.

The growth of the country has led to various transport related problems, many and long traffic jams and increased cost and time for transport. The government has reacted by initiating and building road and some railway projects.

The Plan

The overall plan is to connect the major centers of population, commerce and industry with railbound transportation. The first line is the Abuja-Kano railway line, now in standard gauge, will build a major axis in the center of the country. The project started in 2006 and a first part (Abuja-Kano) is expected to commence operations in summer 2016.

Another major project is the connection of Lagos with Port Hartcourt and Calabar along the coast. This major line would connect the strong industrial cities along the coast and should be built by a Chinese consortium. So far, only limited funds have been allocated in the relevant governmental budgets.

Furthermore, a metro project in Lagos, regional trains in the region of Lagos, Light rail in various cities and some Monorail projects are in progress or in the pipeline.

The government intends to privatize the railways in Nigeria to lessen the capital investment burden. At the moment, there are various variants in discussion but if the ownership would go to the far east, it would be the second project after Tazara which would be run by China in Africa.

Exemplatory for the other projects, the Calabar Monorail shows that some ideas are not thought through and might even not meet international standards necessary for project financing. The business mechanics, design, environmental impact assessment and demand studies are often been less considered than the political intentions of the proposers.

Business Mechanic

The key objective of the railway line is to take traffic from the roads and provide reliable transportation for the growing industry. I could not find any reliable figures on pricing for freight and passengers, but from the broader perspective, most Nigerian railway project seem to be economically sustainable.

The big question will however remain how the projects are structured and financed. If the government focuses on providing the infrastructure at a reasonable price but allows competition on the level of the railway operators, the capital expenditure and possible costs for maintenance of the infrastructure can be borne by the government. However, if Nigeria seeks to create new private monopolies on the transport by giving the whole projects out as PPPs, a large portion of the benefits will be privatized and not available for future expansion or quality improvement.

Concluding remarks

Nigerian railways will certainly enable the country to grow in a fast and sustainble manner. But if procurement cannot be optimized to have optimal budget allocation (doing the right projects), better design (planning the projects the right way), improved implementation and procurement (reduce overall costs), the development will be impeded. All financial institutions interested in investing in the country should take a close look at the business plans, the cost models and the respective outcome before granting financing.

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