TERIBA: Efficient Rail System Is The Key
Mr. Ayodele Teriba is the chief executive officer of EA Economic Associate. In this interview with TEMILOLUWA ADEOYE, he spoke on the need for government to improve transportation network and fix energy sector.
What is the way out of the downturn in the economy?
OIL accounts for 12 per cent of the economy; there are non-oil activities that account for about 87 percent of the economy, so, why should we be struggling if oil prices are falling? Oil is a very small fraction of the economy. Nigeria produces more crops than oil, has more trading going, and a host of other activities that are bigger, but Nigeria is a mono export economy. Nigeria exports basically oil and government depends on these natural resources for foreign exchange revenue.
That is where the problem comes from. The economy is not dependent on oil, it is just government that is dependent on oil for foreign exchange. But that has declined. There are a whole lot of significant non-oil activities that can be relied on for government revenue. To diversify, government needs to turn to non-oil activities and retain some of the revenue that we already generate from there.
Considering the power situation, don’t you think that it would slow down the economy ?
I don’t think that power is part of what is required; power is by no means the most important. There are more important considerations than power; transportation. I am not talking of road transportation. There are two types of transportation that are most important for growth, productivity and competitiveness: road and water transportation. Internationally, shipping is a source of competitiveness.
Locally, rail is a source of competitiveness. The Nigerian growth model is wrong in relying on roads. Most developed countries rely more on rail than on road. Road plays a supportive role to rail. When England colonised Nigeria, they built rail before they built roads, as long as Nigerians rely on road, the economy for so long will not grow, particularly, the manufacturing and industry sectors. The country requires a functioning rail system to grow.
Even agriculture requires a well functioning rail system. The number one requirement for export and manufacturing boom across sectors, cities and states, is rail transport. The colonial regime understood that, but we allowed the rail network sector to die. Right now, it is outdated, and we need to build new rail lines. It is urgent; it is something that we should start today. The second most important is energy supply, not just power, but power, petrol, and gas. If you fix energy supply, in addition to rail, you can just sit back and watch the economy grow.
If you have steady supply of energy, and rail transport, prices will drop, as we have seen in the telecoms sector, and you would have reduced two significant element of production cost, which will allow businesses to grow.
I think some efforts have been made on power; we should wait for the government to audit the situation and tell us what can be done. But for refineries, I think government should give priority to refining Nigeria’s crude, domestically. The government is doing well in Liquefied Natural Gas (L NG) exports. If they can be so successful, by relying on incorporated joint venture arrangement, I think the government should consider using the same arrangement for local refineries.
Government should enter into incorporated joint venture with technical partners to build new refineries and produce in excess of local requirement, so that we could begin to export refined products, rather than crude. I also think we should use the same joint incorporated venture arrangement for the pipelines too. It has worked in LNG; I don’t see any reason why it would not work in refining and pipelines, so that gas can be distributed to the homes.
What role will the manufacturing sector play in the whole process of diversifying the economy?
Manufacturing is about competitiveness, while competitiveness is about cost. Right now, manufacturing is shifting away from Nigeria, because of high cost. Reduce the cost, and you’ll find manufacturers arriving, staying and producing. Unless you want to deal with transport cost and energy cost, don’t think about manufacturing. The biggest type of manufacturing we have today in Nigeria is food, beverage and tobacco. I mean, more beverage than food. You can bottle water and use a truck for transportation, when the distance is short. You will go and locate your bottling plant close to a river, bottle them and distribute in the neighbourhood. If you have to transport anything for long distance, it won’t work, and that is why manufacturing isn’t thriving.
Nigeria has vast untapped solid minerals, how can this help diversification?
Solid minerals, like the manufacturing sector, cannot thrive in the absence of rail transport. Fix rail, and you will see those sectors spring up. How do you want to transport coal or steel? You want to transport them in a period when global commodity prices are falling? Growth is about the difference between the unit transport cost and the unit market price.
The current Nigeria transportation system ensures that the unit market cost of many agricultural produce, manufacturing output, and much of the solid minerals will be higher than the unit market price. It is not that you cannot produce solid minerals for the export market, but only countries where domestic transportation cost is low that it can make it to the world market at the prevailing market prices. Market prices are low, so you need transportation cots to be low, to be able to produce these items profitably. This is the reform priority to pursue.