IMPACT OF INFRASTRUCTURE FINANCING ON SUSTAINABLE DEVELOPMENT IN NIGERIA.

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ABSTRACT


The study examined the impact of infrastructure financing on sustainable development in Nigeria for a period of thirty-nine (39) years, from 1981 to 2019. The Ex-post facto research design was adopted. Secondary data was collected from the National Bureau of Statistics (NBS) for various years. The study used Real Gross Domestic Product (RGDP) as a proxy for sustainable development. Error Correction Model  multiple regression techniques and E-view statistical software 8 were used to analyze the data. The data were first subjected to pre estimation test such as unit root test and cointegration test. The unit root result showed that the variables were stationary at first difference while the Cointegration result showed that the variables have no long run relationship with RGDP. Because of the result of the Cointegration test, error correction model regression was used to test the hypotheses. The error correction model regression data results showed that telecommunication infrastructure and utility infrastructure (proxied by Infrastructure financing) have insignificant impact on sustainable development in Nigeria. Again, environmental infrastructure and transportation infrastructure (proxied by Infrastructure financing) has significant impact on sustainable development in Nigeria. Based on these findings, the study concluded that there is a positive relationship between the components of infrastructure financing and sustainable development in Nigeria. Hence, the study recommended that: Government should sustain the level of investment on transportation infrastructure, and environmental infrastructure because of their contribution to sustainable development in Nigeria. It further recommends that Government should review her investments on utility infrastructure and ensure they are well utilized for improved sustainable development in Nigeria.

 




TABLE OF CONTENTS

Tittle page                                                                                                                   i

Declaration                                                                                                                 ii

Dedication                                                                                                                   iii

Certification                                                                                                                iv

Acknowledgements                                                                                                    v

Table of contents                                                                                                        vi

List of tables                                                                                                               x

List of figures                                                                                     xi

Abstract                                                                                                                       xii


CHAPTER 1:  INTRODUCTION

1.1 Background to the Study                                                                                                  1

1.2 Statement of the Problem                                                                                                 5

1.3 Objectives of Study                                                                                                          7 

1.4 Research Questions                                                                                               7

1.5 Hypotheses                                                                                                                       8

1.6 Significance of the Study                                                              8         

1.7 Scope of the Study                                                                                                9

1.8 Limitations of the Study                                                                                       9

1.9 Operational Definition of Terms                                                           10


CHAPTER 2: REVIEW OF RELATED LITERATURE

2.1       Conceptual Framework                                                                                              11

2.1.1    Concept of infrastructure                                                                                11

2.1.2    Impact of infrastructure on the economy                                                                   13

2.1.3    Infrastructure financing in nigeria.                                                                            14

2.1.4    Assessment of infrastructure financing and growth in nigeria                                    14

2.1.5    Stylized facts on infrastructure financing and growth in nigeria                 16

2.1.6    Present state of infrastructure in nigeria                                                         20

2.1.7    Service infrastructure                                                                                     21

2.1.8    Categories of service infrastructure                                                                           22

2.1.9    Social infrastructure                                                                                                  25                                          

2.1.10  Security infrastructure                                                                                               25

2.1.11  Some practices in financing infrastructure and services in nigeria.                                     27

2.1.12  Traditional infrastructure delivery process                                                     28

2.1.13  The sustainable development goals (SDG’s) global agenda                         30

2.1.14Transforming our world: the 2030 agenda for SDGs.                                      31

2.1.15  Targets of the sustainable development goals                                                31

2.1.16 Infrastructure financing and sustainable development                                    38

2.1.17  Means of implementation:                                                                                         40       

2.1.18 Measurements of sustainable development goals                                            41

2.2       Theoretical Framework                                                                                  47       

2.2.1    Infrastructure growth theory                                                                           47

2.2.2    The Classical theory of economic development                                            49

2.2.3    The dependency theory                                                                                  50

2.3       Empirical Review                                                                                           51

2.4       Summary and Gap in Literature.                                                                    65


CHAPTER 3:  METHODOLOGY

3.1        Research Design                                                                                                        66

3.2       Area of the Study                                                                                                       66

3.3       Sources and Method of Data Collection                                                                     67

3.4       Model Specification                                                                                                   67

3.5       Description of Model Variables                                                                                 68

3.5.1    Dependent variable                                                                                        68

3.5.2    The independent variables                                                                              68

3.6       Method of Data Analysis                                                                                            69

3.7       Decision Rule                                                                                                 71


CHAPTER 4: DATA PRESENTATION, ANALYSIS, AND DISCUSSION OF FINDINGS

4.1 Data Presentation                                                                                                  72

4.1.1 Trend analysis of environmental financing in nigeria                                                                                                                            76

4.1.2 Trend analysis of telecommunication financing in nigeria                                                                                                                            77

4.1.3 Trend analysis of transportation financing in nigeria                                                                                                                            77

4.1.4 Trend analysis of utility financing in nigeria                                                                                                                            78

4.1.5 Trend analysis of real gross domestic product (RGDP) of nigeria                                                                                                                            78

4.2 Pre-Estimation Tests                                                                                             82

4.2.1 Stationarity/ unit root tests                                                                                 82

4.2.2 Cointegration test results                                                                                   83

4.3 Test Of Hypotheses                                                                                               86

4.3.1 Decision rule for hypotheses’ tests                                                                    87

4.4 Discussion of Findings                                                                                                     92

4.4.1 Impact of transportation infrastructure financing on sustainable development               92

4.4.2 Effect of environmental infrastructure financing on sustainable development               93

4.4.3 Impact of utility infrastructure financing on sustainable development                         93

4.4.4 Effect of telecommunication infrastructure financing on sustainable development   94


CHAPTER 5: SUMMARY, CONCLUSION, AND RECOMMENDATIONS

5.1 Summary of Findings                                                                                            95

5.2  Conclusion                                                                                                                  96

5.3 Recommendations                                                                                                96

5.4 Contribution to Knowledge                                                                                              97

5.5 Suggestion for Further Studies                                                                                         98

 

   References                                                                                                              

 

   Appendices                                                                                                         

 

 

 

 

 

 

LIST OF TABLES


 2.1 Types and components of Infrastructure                                                                                     12

 2.2: Growth of Recurrent & Capital Budget Estimate on Infrastructures in Nigeria            17

 2.3: Contributions of Selected Infrastructures to Growth in Nigeria, 1970-2019                18

2. 4: Electricity Generation and Consumption in Nigeria, 1970-2019                                 19

 2.5:  Health Expenditure in Nigeria: 1995-2019                                                                   20

 2.6: Summary of Investments Outlay in Infrastructure from 1980 to 2016                            26

 2.7:  Sources of Infrastructure Funding in Nigeria                                                                28

 2.8: Reviewed Empirical Literature.                                                                                                                                                             60

 4.1: Sectoral Infrastructure Financing from 1981 to 2019                     73

 

 4.2: Descriptive Statistics                                                                                          79

 

4.3: Augmented Dickey Fuller (ADF) Test                                                               83

4.4: Cointegration Test                                                    84

4.5: The Error Correction Model                                                                                85

4.6: Error Correction Model Regression                                                                    86

4.7: Ranking Of the Infrastructure.                                                         91

 

 

 

 

 

 

 

LIST OF FIGURES


 2.1: Conceptual Framework                                                                    47

4.1 Trends of Infrastructure Financing Data Used for the Study                               74

 

 


 

 

 


 

 

 

CHAPTER 1

 

INTRODUCTION


1.1 BACKGROUND TO THE STUDY

Infrastructure is perhaps the most important factor for the attainment of sustainable development of emerging nations including Nigeria. As such, many developing countries keep seeking the most effective methods of financing infrastructure. Furthermore, public funding challenges are compelling both public and private clients to rethink the orthodox methods of funding infrastructure development. Consequently, it is critical to seek and tap into alternative methods of funding crucially needed infrastructure in our country. In recent years, the need for the development of infrastructure and public facilities, as a very significant factor of economic growth, has increased in developing and developed economies. Unfortunately, governments' budgetary allocations are perhaps not sufficient to allow keeping pace with these needs (Rabiu, 2017).

Budget estimates to sustain the available infrastructures have been on the increase between 1977-1986 and 1997-2006. Transportation and Communication infrastructure grew from a negative 1.84% to 79.6% and declined sharply to 7.03% during 2007-2014. During the same period, education, health, construction and water infrastructure grew from 8.78%, 11.1%, 18.8% and 38% to 33.1%, 44.1%, 57.1% and 73.2% respectively. Between 2007-2014, the growth of education, health, construction, and water infrastructure stood at 13.3%, 13.3%, 4.96%, and 4.96% respectively, (NBS, 2019). The increase between 2015 -2019 stood at 15.9%, 15.6%, 17.2%, and 17.8 for education, health, construction, and water infrastructure respectively (NBS, 2019). The National Integrated Infrastructure Master Plan (NIIMP) stipulates that Nigeria will need an average of about US$25billion per annum i.e. (5% of GDP) investment for 5 years from implementation to meet the infrastructure need (Rabiu, 2017). With this reality, it is, therefore, necessary to find alternative modes to raise finance to close the gap of budgetary provisions with actual performance (Rabiu, 2017).

Conceptually, it has been argued that infrastructure may affect aggregate output in two main ways: (i) Directly, considering the sector contribution to GDP formation and as an additional input in the production process of other sectors; and (ii) Indirectly, raising total factor productivity by reducing transaction and other costs thus allowing more efficient use of conventional productive inputs (Sawada, 2015). Infrastructure can be considered as a complementary factor for economic growth.  How big is the contribution of infrastructure to aggregate economic performance? The answer is critical for many policy decisions. For example, to gauge the growth effects of fiscal interventions in the form of public investment changes, or to assess if public infrastructure investments can be self-financing (Agenor and Moreno-Dodson, 2016).

It has long been recognized that an adequate supply of infrastructure services is an essential ingredient for productivity and growth in any economy. In recent years, the role of infrastructure services has received increased attention (Agenor and Moreno-Dodson, 2016). Much of the current international debate on ways to spur growth, reduce poverty, and improve the quality of human life in low-income countries has been centered on the need to promote a large increase in public investments in infrastructure. A report by the United Nations Millennium Project (2015), the Blair Commission (2015), and the World Bank (2015) have dwelt on the importance of a “Big Push” in public investments in core infrastructure, financed by generous debt relief and substantial increases in foreign aids (Agenor and Moreno-Dodson, 2016).

A common argument for a large increase in public spending on infrastructure is that infrastructure services may have a strong growth-promoting effect through their impact on the productivity of private inputs and the rate of return on capital. According to Agenor and Moreno-Dodson (2016), in Sub-Saharan Africa for instance, only 16 percent of roads are paved, less than one in five Africans has access to electricity, and transport costs are the highest of any region. Infrastructural development has been on the top of the priority list for governments all over the world. Policymakers believe that appropriate infrastructural investment holds the key to sustainable development. Improving infrastructure in the world is key to reducing poverty, increasing growth, and achieving the Sustainable Development, (World Bank, 2017).

The financing of infrastructure has important implications for macroeconomic stability. As a countercyclical tool, infrastructure investment can generate employment and consumer demand in the short term as well as in the longer term. Infrastructure has become a ubiquitous theme in a variety of areas of the policy debate. For instance, there is persuasive evidence that adequate financing of infrastructural facilities is a key element in the agenda required for sustainable development.  However, some studies (Agenor and Moreno-Dodson, 2016; World Bank, 2013; Adesoye, Maku and Atanda, 2010) have argued that infrastructural financing plays a key role in helping reduce income inequality and sustained development. 

According to Adesoye, Maku and Atanda (2010), there is a general view that public infrastructure expenditure, either recurrent or capital expenditure, notably on social and economic infrastructure like transportation and communication can be growth-enhancing. The need for infrastructure financing is indeed crucial for developing countries, especially Nigeria. Perhaps, lack of modern infrastructure financing has been regarded as an impediment and a major constraint not only on poverty reduction but also on the attainment of the Sustainable Development in Sub-Saharan Africa (SSA) countries (Habitat, 2011). Also, Ondiege (2013) attributed the rise in the transaction costs of business in most African countries to inadequate infrastructure development.

In September 2015, 193 UN Member States gathered at the institution’s headquarters in New York and agreed to take transformative steps to shift the world on to a sustainable path. They adopted a new global agenda committed to people, to the planet, to promoting peace, prosperity, and partnerships: the 2030 Agenda for Sustainable Development. The 2030 Agenda includes 17 Sustainable Development Goals. The SDGs, which in turn target and are aimed at a universal, integrated and transformative vision for a better world. The SDGs were built on a participatory basis, building on the successful experience of the Millennium Development Goals (MDGs), responsible for major advances in promoting human development between 2000 and 2015 (UNDP, 2018).

The Sustainable Development Goals and their targets challenge all countries to be ambitious and innovative to establish inclusive, efficient, and transparent means of implementation to bring to reality this complex development agenda, from the global to the subnational level. These means of implementation, as recommended by the document “Transforming Our World: the 2030 Agenda for Sustainable Development” include, among others, the mobilization of financial resources, capacity-building, international public funding, and the availability of high-quality, up-to-date, reliable, and disaggregated data. That is multidimensional solutions to multidimensional challenges. Thus, for the 2030 Agenda to be effectively implemented, governments have the primary responsibility to follow up and review, at the national, regional, and global levels, the progress made in implementing the Goals and targets by 2030. (www.sustainabledevelopment.un.org).

Rabiu (2017), opined that African countries (which Nigeria is among) exhibit the lowest levels of productivity of all low-income countries and are among the least competitive economies in the world.  This according to him is the result of poor infrastructure financing. It is on this ground that this study intends to examine the effect of infrastructure financing on sustainable development in Nigeria.

 

1.2 STATEMENT OF THE PROBLEM

Infrastructure is a heterogeneous term, including physical structures of various types used by many industries as inputs to the production of goods and services (Chan, Chen, and Dasu, 2009). This description encompasses “social infrastructure” (such as schools and hospitals) and “economic infrastructure” (such as network utilities). The latter includes energy, water, transport, and digital communications. They are the essential ingredients for the success of a modern economy and the focus of this thesis.

Infrastructural financing is very important to the development of every economy, either underdeveloped, developing, or developed country. Nigeria spends a huge amount every year on infrastructure financing to enhance sustainable development in the country. Unfortunately, the money spent on these infrastructures does not translate to sustainable economic development. Nigeria is experiencing stunted growth perhaps due to sluggish infrastructure development. Resources directed to the provision of infrastructural services are either inadequate, embezzled, or out rightly diverted to less productive needs which are susceptible to corruption Rabiu, (2017). The average growth rate of federal allocation to infrastructure in Nigeria increased from 26% to 34% between 1970 and 1999, (NBS, 2017). The increase was sustained by a high revenue inflow from the oil sector. However, the rise in the growth rate did not reflect on decreasing Nigeria's infrastructure development needs. Similarly, the GDP growth rate declined substantially from 24.2% to 8.48% during the period 2012 and 2017 respectively, (NBS, 2017). The downward trend in the growth rate could be attributed to the declining revenue available to give out. Every economy has two major development questions to answer. The first question is, how would the economy make available the basic core needs of the people? The second question is; how would the economy achieve higher growth rates and sustainable development? There are only a few studies found to have investigated infrastructure financing using varieties of infrastructure outcomes to gauge growth temperature and sustainable development.

Agenor & Moreno-Dodson, (2016), carried out a study on the relationship between infrastructure investment and economic growth. The empirical results confirm that both public and private infrastructure investments have positive but insignificant effects on economic growth. This is contrary to the findings of Imobighe and Awogbemi (2016), who analyzed the effects of infrastructural financing on economic growth in Nigeria between 1970 and 2015. Their result revealed that government community service infrastructure spending, private infrastructure investment, broad money supply, and total population, exert a positive influence on economic growth. Owolabi (2015), investigated the infrastructural development and economic growth nexus in Nigeria from 1983 to 2013. His empirical results reveal that infrastructure (measured by Gross Fixed Capital Formation) has a positive and statistically significant impact on Nigeria's economic growth. Sawada (2015), analyzed the effect of public and private investment on infrastructures and its impact on economic growth in Nigeria during the period 1970 to 2014. The empirical results confirm that public and private investment in infrastructures have a positive impact on economic growth. More so, Abu and Abdullah (2010), analyzed the relationship between government expenditure and economic growth in Nigeria from the period ranging from 1970 to 2008. The empirical result revealed that government total capital expenditure, total recurrent expenditure, and education hurt economic growth.

Thus, though empirical studies on the impact of infrastructure financing on sustainable development in Nigeria abound, the results are mixed hence creating a gap that this study purpose to fill.

 

1.3 OBJECTIVES OF THE STUDY                                                       

The broad objective of the study is to investigate the impact of infrastructure financing on sustainable development in Nigeria. The specific objectives are to:

(i)             Evaluate the impact of transportation infrastructure financing on sustainable development in Nigeria.

(ii)           Determine the impact of environmental infrastructure financing on sustainable development in Nigeria.

(iii)          Ascertain the impact of utility infrastructure financing on sustainable development in Nigeria.

(iv)          Estimate the impact of telecommunication infrastructure financing on sustainable development in Nigeria.

 

1.4 RESEARCH QUESTIONS

The following research questions guided the study.

(i)             In what ways does infrastructure financing impact sustainable development in Nigeria?

(ii)           How does environmental infrastructure financing affect sustainable development in Nigeria?

(iii)          What is the impact of utility infrastructure financing on sustainable development in Nigeria?

(iv)          How does telecommunication infrastructure financing affect sustainable development in Nigeria?

 

1.5 HYPOTHESES

The following hypotheses were tested.

H01: Transportation infrastructure financing has no significant impact on sustainable development in Nigeria

H02: Environmental infrastructure financing has no significant effect on sustainable development in Nigeria

H03: Utility infrastructure financing has no significant impact on sustainable development in Nigeria

H04: Telecommunication infrastructure financing has no significant effect on sustainable development in Nigeria.

 

1.6 SIGNIFICANCE OF THE STUDY

The study will be useful to the following in the ways specified.

i.               Government: The findings of this study will enable the government to know the impact of infrastructural financing (such as telecommunication, environmental, transportation, and utilities) on sustainability in Nigeria. In other words, it will guide them on the direction or area(s) of infrastructure that needs adequate financing for them to increase its expenditure on those sector(s) to achieve sustainable development of the economy.

ii.              Policymakers:  The study will serve as a guide to policymakers in decision-making. This is because policymakers need to know the level of efficiency at which infrastructural financing can achieve sustainable development and how best to sustain it. Having access to this work will help them to achieve that goal.

iii.            Academician: This work will contribute to the existing literature on the impact of infrastructure financing on sustainable development in Nigeria. It will serve as a basis upon which further research can be built on.

 

1.7 SCOPE OF THE STUDY

The study focuses on the impact of infrastructure financing on sustainable development in Nigeria for the period ranging from 1981 to 2019. The choice of the base year 1981 is based on the fluctuation in infrastructure financing on sustainable development in Nigeria since 1981. Also, the data published in the National Bureau of Statistics (NBS) bulletin where the data were generated from, started from 1981 and ends in 2019 as at the time of this research.

 

1.8 LIMITATIONS OF THE STUDY

This study was not without limitations, as there were constraints in the course of the investigation. One of the challenges was the difficulty in accessing data for the analysis. Also, the unavailability of the fund at the time it was needed and other engagement that demanded time, were part of the constraints in this study.

The above problems were overcome through the help of vast online sources and my supervisor who guided and assisted me to gain access to critical data sources for the study.

 

1.9       OPERATIONAL DEFINITION OF TERMS

Economic Development: This is the process by which the economic well-being and quality of life of a nation, region, local community, or individual are improved according to targeted goals and objectives.

Economic Growth: This is an increase in the production of economic goods and services, compared from one period of time to another.

Sustainable Development: This is the organizing principle for meeting human development goals while simultaneously sustaining the ability of the natural system to provide the natural resources and ecosystem services on which the economy and society depend.

Sustainability: This simply means focusing on meeting the needs of the present without compromising the ability of future generations to meet their needs.

RGDP: Real Gross Domestic Product (RGDP) is a macroeconomic measure of the values of economic output adjusted for price changes (Inflation or Deflation).

 


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