After decades of the federal government’s regressive monopoly, Nigeria’s electricity and railway sectors are finally set for a transformation, thanks to a recent constitutional amendment that opened up the industries to state governments. Now, it’s state governments that should avoid monopolising these crucial sectors. Without private sector participation and progressive policies like tax relief, the benefits of this historic reform may remain elusive for many of the country’s states.
For over five decades, the Nigerian government has maintained a monopoly on electricity and railway services, stifling competition and progress in these vital sectors. The consequences have been low investment, outdated infrastructure, and inadequate service delivery. Today, only 55 per cent of the population has access to electricity, and power outages are a regular occurrence in those places with access.
The monopoly on these sectors had resulted in unintended regression, with Nigeria lagging behind many of its peers in Africa and other parts of the world. The significant challenges in accessing electricity and transportation have contributed to the country’s low rank in the World Bank’s Ease of Doing Business. All of this is why the constitutional amendment has been hailed as a game-changer for Nigeria’s economy.
Rectifying the decades of damage caused by the federal monopoly is going to take huge financing from the states. But with rising debt in some of these states, financial resources to fill the existing infrastructure gap are almost non-existent, making private sector participation essential to unlocking the potential of the electricity and railway sectors.
According to the Association of Nigeria Energy Distributors (ANED), Nigeria’s power sector is generating about 4,000 megawatts (MW) of electricity, which is grossly inadequate and far behind the 30,000 required for the country’s population of over 200 million people. In the same vein, the railway sector has been hampered by low investment, resulting in inadequate and poorly maintained infrastructure. Nigeria has a total of 3,505 kilometres of rail tracks, many of which are already abandoned or damaged and grossly inadequate for a country the size of Nigeria at over 930,000 square kilometres.
With private investors in the electricity sector, power generation is expected to increase significantly, bringing about a reduction in the cost of energy and an improvement in the quality of life for Nigerians. The way that private sector investment in the railway sector can lead to increased investment in infrastructure, resulting in better transportation services, greater economic growth, and improved living standards for Nigerians.
This is not a matter of speculation, as private sector participation in infrastructure development has proven to increase investment and enhance service delivery. Countries like Kenya have leveraged private sector investment to build critical infrastructure and drive economic growth in the country’s energy sector, which has increased from 4 per cent in 2004 to over 80 per cent in 2015, resulting in improved service delivery and enhanced access to electricity.
For an example of the good that the private sector has already done for Nigeria, look at the country’s telecoms sector. Between 1985 and 1992, Nigerian Telecommunications Limited (NITEL), a government-owned telecommunications company, operated as a monopoly in the industry. All this time, phone subscribers in the country were below 30,000. As of 2020 — less than two decades after the government finally got fed up with the dysfunction in the sector and de-monopolised the industry for private investors to come in — phone subscribers in the country have risen to 204 million.
Nigeria is already behind civilization in the electricity and rail sectors, and development in these industries is existentially urgent. The state governments would be required not only to open up the industries for the private sector but also to provide incentives to attract private investment. Tax relief, for instance, can provide investors with a financial incentive to invest in the electricity and railway sectors, while other incentives such as regulatory ease and a reduced bureaucratic burden can further attract private investment.
The potential benefits of allowing the private sector to thrive in the electricity and railway sectors are immense. According to the World Bank, increasing access to electricity can boost economic growth by up to 1.5 per cent per year, while improving transportation infrastructure can reduce transportation costs and improve access to markets, boosting economic activity and creating jobs.
The recent constitutional amendments create an opportunity for state governments to bring about much-needed transformation in the electricity and railway sectors. However, for this to happen, the state governments must create a conducive environment for private sector participation to thrive. By doing this, Nigeria can look forward to a brighter future characterised by improved electricity and transportation services.
