It is unwise to borrow for infrastructure

A power official fixing a troubled pole

A power official fixing a troubled pole

The Federal Government’s budget for the year 2016 is N6.06 trillion. Of this amount, the government planned to borrow N1.884 trillion from domestic and external sources. All of the borrowed money would be used to finance capital projects; N99 billion would be used to boost power. Do you think that the budget would produce the desired growth in the Nigerian economy; why is the economy not getting better? This article explains why it is unwise for a developing nation to invest large amounts of money on infrastructure or borrow large amounts, especially from foreign sources to erect infrastructure and why the 2016 budget would not make the economy better.

Although investments in infrastructure may increase construction activities in an economy, create some temporary/casual jobs and probably lead to increase in GDP, many research works have demonstrated that investments in infrastructure (capital investments), do not increase the competences of individuals and a nation and lead to Competence-Building Growth and Industrialisation (CBGI). The Nigerian economy is not getting better because there are no activities aimed at increasing the competences of its citizens and the nation, continuously.

All structures are Depreciating Assets (DAs). That is, the intrinsic values of all capital assets decrease with usage and time. This also means that an agricultural/artisan nation emphasising the erection of infrastructure invests in decreasing investment functions. Putting this in another context, we can say that an artisan/agricultural economy investing large amounts in complex infrastructure may be likened to a person filling water into a profusely-leaking water tank. In Nigeria, the complex infrastructure erected over the years lasts for only a few years, whereas they are erected with long-term loans paid over decades. So, much of the loan is unpaid when the structures break down and are unable to provide the service for which they were erected. Nigeria will not be able to pay back a loan of N1.884 trillion in four years. Repair of the short-term lasting infrastructure and building new ones again involve securing other long-term loans. It is, therefore, unwise to borrow large amounts of money to invest on infrastructure because it does not promote CBGI, yet accumulates large debts rapidly.

Industrialisation took Europeans and Asians 2000-3000 years to achieve. What role could emphasis on erection of infrastructure play in a 2000-year endeavour? It is clear that the emphasis on erecting infrastructure Nigeria and other African nations cannot be considered a wise approach toward promoting rapid industrialisation. African leaders and the international community must stop promoting the concept of “infrastructure deficits” which has no antecedent and no scientific basis. It is the basis the GENCOS (electricity generating companies), DISCOS (electricity distributing companies) and TCN (transmission company of Nigeria) as structures for establishing regular electricity in Nigeria. Considering the analysis about the nature of all structures, DAs, the GENCO, DISCO and the TCN cannot and will not establish regular electricity in Nigeria, because they would not be there tomorrow. Reliable infrastructure, including regular electricity in any nation is invariably the fruit or aftermath of industrialisation.

How then does a nation achieve industrialisation? The region occupied by the modern Western Europe was harnessed into the Roman Empire in 55 BC. The western portion of the empire broke-up in 406 AD. England and other modern nations of Western Europe were clearly defined in the period between the 10th and 13th century. England, the most progressive nation in Europe then, achieved the first modern Industrial Revolution (IR) in the period 1770-1850 (Gregg, 1971).

When England achieved the first modern IR, the roads in the nation were still those left by the Roman Empire, showing that England did not build roads and telecommunications networks and other structures as prerequisites to promoting CBGI. But immediately England achieved the modern IR, good roads, railways and tubes, canals and other infrastructure were developed rapidly as aftermath of industrialisation (Gregg, 1971). The original 13th colonies in the New World (Confederation-United States of America) declared independence in 1776 and fought the War of Independence 1775-1783 with Britain. At the end of the war, the Americans wrote and adopted the popular American Constitution in 1789 and declared the new nation, the United States of America. The Americans did not award contracts to its colonial master, Britain, to erect complex infrastructure as a prerequisite to achieving rapid growth and industrialisation. Americans reasoned that it would require a lot of resources to build roads; also roads would continuously demand resources for their maintenance. They then resort to building canals to connect the rivers in the United States of America and used water courses as transportation infrastructure for a long time as alternative to roads (Morrison, 1974). Similarly, when Mao Zedung became the leader of Communist China in 1949, the nation did not begin to award contracts to the more technologically advanced nation, Russia, to erect complex infrastructure in China as a prerequisite to promoting sustainable growth. Mao Zedung focused on developing the people that would enable China to address its problems, including building the relevant infrastructure. Objective sources suggest that the existence of the Chinese people dates back to 1000 BC (Eberhard, 1950). So, China was already about 3000 years by 1949 when Mao Zedung became the leader. China had depended on Russia for a long time as an ally to build its railways, bridges and other structures. But China and Russia quarreled and Russia stripped Manchuria, the most built-up city of all the structures it had helped China to erect (Stokes and Stokes, 1975).

History, therefore, demonstrates that Britain, America, China and other technologically advanced nations of today had to develop the people and the Knowledge, Skills and Competence (KSC)-framework for solving the problems of their nations before building the relevant infrastructure, because that is what nature and wisdom suggest. The hibiscus flower like other flowering plants, has root and shoot systems. Whereas the root system is buried in the soil, the shoot which bears the beautiful flowers is usually above the ground. The root system is always established before the shoot system. The beautiful bright-red 5-petal flowers are borne by the shoot system. The shoot system expresses and announces the healthy status of the root system. Once the root system is cut off from the shoot system, the beautiful flowers wither. So, no root system, no shoot system and the beautiful flowers the shoot bears. This explains why a nation should not and cannot erect complex infrastructure before developing the necessary knowledge, skills and competences (KSCs) for building and maintaining the structures.

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1 Comment
  • Red Eagle

    This article creates an unnecessary false dilenma. It needs not be infrastructure or capacity development. It can actually be both and should be both.

    It also shows some very ahistorical thinking, wrongly construing key moments in history and avoidng those moments that would have easily invalidated its claims.

    You also overstated Mao’s part in building capacity in China. China’s big break was actually after Mao left the stage for Deng.

    Look at FDR’s New Deal, infrastructure development was a huge part of it, even America’s progresive era involved a lot of work on the roads. The reason no one developed roads (and rails) from Roman era till after the IR is actually more simple than you think. Cars had not been invented yet (and trains were not widespread) so the roads needed for horse travel did not need to be improved upon.

    There are so many cases where infrastructure preceded new industrialization booms or a change in the scale of earlier booms.

    Development involves a strategic mix of infrastructural investment, capacity building, enterprise policies e.t.c that will lead to sustained growth. None of the above is a panacea on its own and countries that seek to develop fast try to get all the ingredients together. This is why the countries who have boomed in the latter part of the 20th century have done so in record time. They learnt from those who took 1000 years of trial and error to build and put the ingredients they learnt together as quickly as possible.

    If our government can borrow sustainably to build while we skill up, they should. The issue is, is there a good plan for this?