In the last six years, Federal Government borrowings have been heavy, not to mention the steep funding costs associated with its portfolio of local and foreign loans despite persistent fiscal slippages.
Over the period, total public debt crossed N35 trillion, excluding Ways and Means from the Central Bank which some analysts consider as a back door overdraft to the government.
The breakdown of the top rail constructions shows that the approved Lagos-Calabar coastal railway project covering 1402 kilometres was awarded $11.10 billion to CCECC.
Abuja-Itakpe-Warri rail line project with a contract value of $3.90 billion sponsored by China Railway Construction Corporation (CRCC) with EXIM Bank of China as a financier with CCECC, Julius Berger and Sinohydro Corporation –another Chinese company along with General Electric is still at the planning stage.
Also at the planning stage, 334 kilometre Ogun intercity railway line with contract value estimated at $3.51 billion Chine’s CCECC.
The Port-Harcourt to Maiduguri rail line rehabilitation project covering 1443 kilometres is under construction at a contract value of $3.2 billion. CCECC is also handling the projects. The Chinese construction company is also handling the approved Lagos-Calabar Coastal railway project at a contract value of $2.3 billion covering 650 kilometres.
MarketForces Africa reported that total public debt of N35 trillion as of June 2021 excludes recent $4 billion accessed via Eurobond in the third quarter and some $3.5 billion from International Monetary Fund special drawing rights. There is an expectation that policymakers should securitise overdrafts obtained from the apex bank to give a true position of the nation’s exposures.
In its recent report on infrastructure development in Nigeria, a member of the global rating agency, Fitch said with construction underway on the Kano – Maradi and Kano – Kaduna standard-gauge railway projects, and stalling progress on the Lagos – Calabar Coastal Railway and planned standard-gauge railway connection south of Abuja, it expects that near- and medium-term mainline construction activity will be concentrated in northern Nigeria.
It said as the northern project pipeline dries up and the rotational Nigerian Presidency will likely be assumed by a southern candidate, thus forecasting long-term upside risks for mainline rail development in Nigeria’s southern regions.
It said companies active in Nigeria’s railway sector will be exposed to high operational risks, as high criminal activity and risk of recurrent militant attacks on critical infrastructure – particularly in the Niger Delta – threaten the safety of foreign workers and business operations.
The report sees China Civil Engineering Construction Corporation dominating the railway construction sector in Nigeria, supported by Chinese financing. The recently commenced Kano – Maradi railway project, built by Mota-Engil, illustrates the potential opportunities for other foreign, non-Chinese involvement that a more diverse range of financiers may enable.
In the near and medium term, Fitch forecasts a number of recently commenced railway construction projects, including the Maradi – Kano and the Kano – Kaduna standard-gauge railway lines in the north and the rehabilitation of the eastern narrow-gauge railway between Maiduguri and Port Harcourt to support robust railway industry real growth averaging 6.1% per year between 2021 and 2025.
“As we do not currently factor these projects into our industry growth forecast, the construction of high-value projects like the Lagos – Calabar Coastal Railway would elevate the long-term railway industry real growth rates, currently forecast to average 4.9% between 2026 and 2030.
The rating said it expects that short- and medium-term rail construction activity in Nigeria’s mainline railway sector will be concentrated in the country’s northern regions. It explained that as the northern project pipeline dries up and the rotational Nigerian Presidency will likely be assumed by a southern candidate, we see long-term upside risks for mainline rail development in Nigeria’s southern regions.
Notwithstanding urban light rail projects, Nigeria’s railway infrastructure project pipeline broadly consists of four large-scale projects which included the Lagos – Kano standard-gauge railway plus extension towards Niger, Lagos – Calabar Coastal Railway (standard-gauge), Ajaokuta – Abuja standard-gauge railway completing the connection between Warri and Kaduna via Abuja and rehabilitation of the Port Harcourt – Maiduguri narrow-gauge railway.
These projects serve to connect Nigeria’s large southern cities, including Lagos, Ibadan, Benin City, and Port Harcourt, with both each other and the large urban centres in the country’s northern region, including Kaduna, Kano, and Maiduguri.
The Lagos – Kano standard-gauge railway comprises Lagos – Ibadan that was completed in 2021, after four years of construction and nine years after the contracts had been awarded, by China Civil Engineering Construction Corporation (CCECC) at a cost of USD1.7 billion and with a length of 156km.
There is also Ibadan – Ilorin rail contract awarded to CCECC, with a length of 200km; Ilorin – Minna contract awarded to CCECC, with a length of 270km; Minna – Abuja: contract awarded to CCECC, with a length of 300km; Abuja – Kaduna: completed in 2016, after five years of construction, by CCECC at a cost of USD876 million and with a length of 187km; and Kaduna – Kano construction which is underway since July 2021, built by CCECC at a cost of USD1.2billion and with a length of 204km.
Another, connecting standard-gauge railway between Kano and Maradi in Niger is currently being built by Portuguese contractor Mota-Engil, Fitch said. It noted that construction of the 284km project started in 2021 and is estimated to cost USD1.8 billion, with financing being organised by Credit Suisse, KfW-IPEX, and the Africa Finance Corporation.
Fitch said financing has not yet been arranged for the Ibadan – Ilorin, Ilorin – Minna, and Minna – Abuja sections of the standard-gauge railway, dimming prospects that construction of the segments will begin within the medium term.
In addition, the Ibadan – Lagos railway’s strong potential for passenger transport between the largest and third-largest cities in Nigeria limits the reliance of the segment’s financial sustainability on the completion of the northwards connection with Abuja and decreases the urgency to begin the latter project’s construction.
Key Railway Infrastructure Projects, Planned & Under Construction
“We remain sceptical about the near- or medium-term construction of the Lagos – Calabar coastal railway, as financing for the project remains unclear and it would traverse particularly high-risk areas, including the Niger Delta.”
Fitch said since a financing agreement with Exim Bank of China failed, the federal government has made multiple references to negotiations with different contractors and financiers, including a US company, a Russian rail company suggested by the Russian government following a 2019 meeting between the presidents of Russia and Nigeria, and most recently UK-based Standard Chartered.
“While Standard Chartered’s involvement would pose a significant upside risk for the project, the bank has not confirmed any involvement in the project and we do not currently factor any financing from the bank into our outlook for the project.
“It further remains unclear to what extent the lack of Chinese financing would impact the construction contracts that had previously been awarded to CCECC, which further mutes our view the project is unlikely to move into the construction phase within the near or medium term”, Fitch explained in the report.
Supported by a shrinking pipeline of rail projects in northern Nigeria, it expects that a shift that the assumption of the traditionally rotational Nigerian Presidency by a southern candidate poses an upside risk for the construction of more southern railway projects.
This includes the southern segments of the Lagos – Kano standard-gauge railway, the planned Ajaokuta – Abuja standard-gauge railway, and the Lagos – Calabar Coastal Railway.
In eastern Nigeria, construction activity will focus on the rehabilitation of the existing narrow-gauge railway between Port Harcourt and Maiduguri, the report noted. It noted that works on the USD3.2 billion project began in 2021 and is undertaken by CCECC, with financing from Chinese lenders.
Overall, Fitch said mainline rail construction will be supported by a strong trade outlook as the firm forecasts imports in Sub-Saharan Africa’s largest economy to grow by an average of 8.8% per year between 2021 and 2025.
Potential rail passenger traffic revenues would be supported by the size of Nigeria’s population—the largest in Sub-Saharan Africa—and the high security risks faced by road travellers.
Companies active in Nigeria’s railway sector will be exposed to high operational risks, as high criminal activity and risk of recurrent militant attacks on critical infrastructure – particularly in the Niger Delta – threaten the safety of foreign workers and business operations.
Fitch Solutions cited that previous railway construction was delayed by the kidnapping of Chinese workers. It added that the wider economic stability is highly exposed to oil price fluctuations due to the economy’s fundamental reliance on oil revenues.
It said corruption and unpredictable border control measures raise costs and legal risks for investors, noting that CCECC has dominated the railway construction sector in Nigeria, supported by Chinese financing.
However, Fitch said the recently commenced Kano – Maradi railway project, built by Mota-Engil, illustrates the potential opportunities for other foreign, non-Chinese involvement that a more diverse range of financiers may enable.