Infrastructure Deficit as a Constraint to Economic Development


Sunday, March 21, 2021, 07:00 AM / by FDC Ltd/Header Image Credit: Future Agenda


Infrastructural development plays a pivotal role in enhancing economic growth, improving living standards, reducing poverty, and contributing to environmental sustainability. Between 2009 and 2013, Nigeria invested a paltry $664 per capita per annum in infrastructure (3% of GDP), compared with an average investment of $3,060 (5% of GDP) in developed countries.


This has widened the country's infrastructure gap and has been a major impediment to economic growth. According to Moody's, a leading rating agency, Nigeria's infrastructure gap is estimated at $3trn, which is six times the size of its annual GDP. This poses a major funding challenge in the face of the current fiscal imbalances. Besides, the country is currently grappling with the hydra headed problems of inflation (17.33%), unemployment (33.3%) and rising debt.


The good news is that the Federal government has reiterated its commitment to tackle the infrastructure challenge with a combination of initiatives ranging from the PPP model, concessioning and privatization of state owned enterprises. A reduction in the country's infrastructure gap will not only boost economic growth, it will also give the country a competitive advantage under the African Free Trade Continental Area (AfCFTA) agreement.


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How closing the infrastructure gap will help the economy and engender industrial development


Foster industrial development

The level of capital formation and an increase in productivity are key variables in determining the optimal levels of industrial development. Infrastructure development helps to reduce the constraints to growth. The industrial sector accounts for about 21.59% of Nigeria's GDP. South Afri-ca is a great example. The country is one of the top five countries in Africa with the best infra-structure and it is the most industrialized and technologically advanced country on the continent.


Provision of employment opportunities

Anecdotal and empirical evidences have shown a positive correlation between infrastructure development and employment generation. Countries with adequate infrastructure seem to attract more investment, which in turn helps in creating more employment opportunities. According to the African Infrastructure Development Index, Nigeria ranks 23 out of 54 African economies in Infrastructure development. The country has the 2nd highest unemployment rate in Africa (33.3%) after Namibia (33.4%).


Catalyst for growth

Infrastructure development plays a crucial role in the economic development of a country. Invest-ing in key infrastructure projects such as transportation and communication networks, and reliable electricity infrastructure will impact positively on growth and development. This is because im-proved infrastructure helps to lower production costs and has positive impact on the ease of doing business.


The solution - public-private partnerships

It is evident that the government has taken steps to bridge the country's infrastructure deficit. The President recently approved the establishment of InfraCo, a PPP infrastructure company with an initial capital of N1 trillion to tackle the deficit problem. However, more needs to be done to quickly address the challenge as it would spur output growth, attract more investment and boost employment levels.


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 Proshare Nigeria Pvt. Ltd.


 Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.


 Proshare Nigeria Pvt. Ltd.

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