Nigeria pushes ahead with Chinese railway

Nigeria pushes ahead with Chinese railway

Nigeria pushes full steam ahead with railway modernization, despite stalled legislation.

With the recent $12 billion dollar agreement signed between the Nigerian government and the China Railway Construction Corporation (CRCC), there has been increasing excitement over the potential of Nigeria’s railway sector.

In the past few years, the Nigerian government has been shopping for private investors to help modernize the sector through Public-Private Partnerships. Simultaneously, Nigeria has pursued legislative reforms, proposing an amendment to the 1957 Railway Act in the spring of 2013.

However, as with previous initiatives to lessen the Nigeria Railway Corporation’s (NRC) monopoly power, the Bill has been stalled in the National Assembly. Despite this setback, it appears the Nigerian government has pushed ahead with plans to modernize the railways, utilizing concession models for individual lines.

The potential of Nigeria’s railway sector

Once an integral aspect of the economy, Nigeria’s railways have severely degenerated over decades of mismanagement and financial neglect. The 1957 Railway Act gives the NRC complete monopoly ownership of the country’s railway infrastructure. This story is all too familiar in the region, as railways have deteriorated under state-control and lost market share to the expanding road transport sector.

Recent privatization efforts, however, have shown that railways can be more than colonial relics. Sixteen concessions for railways in Africa have been granted since the early 1990s, and these have begun to revive what was once a productive and efficient system of transporting goods.

The railway nostalgia has hit Nigeria, as President Goodluck Jonathan recently affirmed his commitment to the 25-year railroad plan. Nigeria’s railways show great promise.

In the years that the government has increased the NRC’s funding, traffic levels have risen noticeably, particularly in passenger services. Public demand for rail transport has seen an increasing trend, as trains in Nigeria are less expensive and considered safer than roads.

In 2013, five million passengers traveled on the weekly trains in Lagos and Kano, which is an 80% increase from 2009. The NRC has also increased its level of commercial traffic, hauling 500,000 tons of heavy cargo after importing 40 new wagons in 2013.

These recent statistics show there is a demand for improved rail transport. The sector has the potential to decrease traffic congestion on overpopulated routes and provide an environmentally friendly and energy saving alternative to road transport.

Despite this potential, the Jonathan administration has faced several obstacles in implementing the 25-year plan. To begin with, the NRC has operated on an average loss of about 30%, increasing from 13% in the late 1990s. The company requires public subsidies to stay in business, and it has become evident that these are still not enough to maintain the rail system.

From independence to 1994, NRC’s rolling stock levels fell by about 70%. The railway currently runs at a speed of 20 km per hour. Moreover, experts have criticized the NRC’s management of the rail system, calling pricing techniques “rudimentary.”

Can China help modernize the sector?

After increasing realization that the railway sector cannot be modernized without private sector participation, the Jonathan administration began an initiative to attract private investment. Despite outdated legislation that technically does not allow for competition in the railway sector, Nigeria has concessioned distinct rail lines and outsourced services.

Though Western companies such as GE have obtained contracts to develop the supply chain, the only companies willing to take on the development of new rail lines have been Chinese state-owned enterprises.

In what is China’s largest single overseas contract the CRCC has signed a deal with the Nigerian government valued at almost $12 billion for the development of a rail line along Nigeria’s coast. The railroad will span 870 miles, create up to 200,000 jobs during construction and another 30,000 fixed jobs, and generate demand for Chinese exports of equipment worth an estimated $4 billion.

Many believe that the line has enormous potential, as it will link Nigeria’s economic hub, Lagos, with the tourist destination, Calabar. If it is completed, that is. Chinese railway companies do not exactly have the best track record in Nigeria.

In the mid-1990s and 2000s, the China Civil Engineering Construction Corporation won two railway rehabilitation contracts valued at around $8 billion for lines that it was never able to complete.

Legislative reform stalled

Currently, the National Assembly is faced with an amendment to the 1957 Railway Act, which would restructure the NRC and introduce competition into the rail sector. The Bill made it to a second reading in the Assembly, and has since been stalled, falling prey to a similar trajectory as previous rail sector reform efforts.

Critics point to the changes made in the Bill, claiming reform has been watered down to maintain the NRC’s power.

While full privatization may not be possible for Nigeria due to politicization of the railways, the concession process can introduce competitive forces into the sector. The government’s current initiative to attract private operators to develop individual rail lines can be an effective way to modernize the sector.

However, success is dependent on a stable regulatory environment. In order to attract investors outside of China, Nigeria will need to find a way to update the current outdated framework, or offer investors enough incentive to offset the risk.

About Author

Marina Tolchinsky

Marina Tolchinsky has previous experience with economic policy research in sub-Saharan Africa and monitoring and evaluation of development programs. She has lived and worked in Liberia, Ghana, and South Africa. Marina is currently pursuing a Masters degree at the Johns Hopkins School of Advanced International Studies (SAIS) concentrating in International Economics and African Studies.