Nigeria's 'infrastructure gap' must be solved to reap the benefits of Brexit

14 Dec 2018, 12:00 am
Rick Lanes
Nigeria's 'infrastructure gap' must be solved to reap the benefits of Brexit

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If Nigeria is to take full advantage of global political upheavals such as Brexit, it can only do so with a focused handling of its domestic affairs.

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As the UK's exit from the European Union (EU) continues to shape global politics, financial experts in Nigeria are expressing excitement over possible new deals with Britain. However, analysts at Cowry Asset Management Limited laid out concerns over Nigeria’s infrastructural and human capital gaps, saying that these deficits will negate any possible benefits from Brexit. The issue was raised in the firm’s Weekly Financial markets review outlook.

This is in reference to Nigeria’s infrastructural deficit that is expected to reach $878 billion (320 trillion naira) by 2040. The prediction was based on a projected Gross Domestic Product (GDP) increase of 4.1% per year, and a steady rise in population, which is estimated to grow by 2.4% per year.

According to an online news report by Vanguard, it is projected that the gap will reach $3 trillion (1 quadrillion naira) in the next 26 years. The same concern has been raised by the African Development Bank, which stated that “Nigeria’s infrastructure cumulative financing needs are estimated to reach 3 trillion dollars by 2044 or about 100 billion dollars annually."

This is not to mention the chronic infrastructural issues in general. In a Financial Nigeria knowledge-based article, “Africa's need for infrastructure to fast-track development”, Efem Nkam Ubi of the Nigerian Institute of International Affairs cited lack of local expertise, need for external capital, misgovernance, and corruption as “the bane of Africa’s infrastructure development.”

Thankfully, local financial institutions have already identified key areas and projects to fast-track the country’s Sustainable Development Goals. African Investment Forum coordinator, Folarin Alayande specified that our nation needs about $22.5 billion (8.2 trillion naira) worth of investment commitments by 2020 to finance these projects.

And although there are infrastructural issues, there is optimism among Commonwealth nations about UK’s withdrawal from the European bloc. A large portion of the aforementioned investment needs are expected to be supplied by a post-Brexit British economy, which experts believe will re-establish relationships with its former trade networks. Lagos-based Financial Derivatives Company (FDC) detailed this prediction, saying, “Nigeria’s trade with Britain will increase with soft or hard Brexit; trade with Commonwealth countries will be stronger; concessioning funding from Commonwealth sources; international financing will become more expensive; companies likely to hedge on forex-denominated transactions and the Central Bank of Nigeria (CBN) may respond by tightening further – lending rates to increase further.”

The Chairman of the Commonwealth Enterprise and Investment Council (CWEIC), Lord Marland of Odstock, noted that Nigeria’s huge 202-million-strong market loves British products, and may, therefore, be a strong trading asset within the country. Nigeria’s economy is the largest in Africa and the fifth-largest in the British Commonwealth.

Brexit marked the start of significant change in the UK’s trade relationships. Seven of its top ten trading partners are part of the EU. Research by PricewaterhouseCoopers revealed that during Brexit, 44% of UK’s export was to EU member states, while 53% of imports came from EU countries. Because of this, Britain needed to form new strategies with regards to international exchange of goods and services.

FXCM recently delved into the effects of Brexit on the UK's trade deals moving forward, such as the need to designate new trade routes and borders. The British government enacted a 21-month transition period to allow affected industries to make the necessary adjustments. Within this transition period, the UK may forge new market relations with Commonwealth countries and former colonies including Nigeria.

But while Brexit is a crucial political and economic move for the UK, it would be a challenge for developing nations like Nigeria to fill in the gaps left by changes on the EU market. Moreover, Nigeria’s infrastructural problems are rooted not only to lack of foreign investment, but to a host of domestic problems as well. The nation is still dealing with the atrocities of the jihadist group Boko Haram, prompting the country to accept British military assistance. Misgovernance and corruption still remain and are seen as the root of countless rebellions in the nation. Over-dependence on foreign investment and assistance for economic development also brings up questions about financial priorities.

If Nigeria is to take full advantage of global political upheavals such as Brexit, it can only do so with a focused handling of its domestic affairs.

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