Recently commenced construction projects including various rehabilitation projects on Nigeria’s railway lines will support robust railway industry growth averaging 16.1 per cent per year between 2021 and 2025, according to Fitch Solutions.
This growth forecast is buoyed by near-to-medium term railway construction projects such as the Maradi-Kano and Kano-Kaduna standard-gauge railway lines in the north and the rehabilitation of the eastern narrow-gauge railway between Maiduguri and Port Harcourt.
“We expect that short-and medium-term rail construction activity in Nigeria’s mainline railway sector will be concentrated in the country’s northern regions.”Fitch Solutions
In the long term, however, Nigeria’s presidential candidacy— likely to be assumed by a Southern candidate in 2023— may pose an upside risk for the realisation of the well-stocked, but high-risk southern railway project pipeline, Fitch said.
“As we do not currently factor these projects into our industry growth forecast, the construction of high-value projects like the Lagos-Calabar Coastal Railway would elevate the long-term railway industry real growth rates, currently forecast to average 4.9% between 2026 and 2030.”Fitch Solutions
These projects under construction and those undergoing rehabilitation serve to connect Nigeria’s large southern cities, including Lagos, Ibadan, Benin City, and Port Harcourt, with each other and large urban centres in the country’s northern region, including Kaduna, Kano and Maiduguri.
Near-to-medium term risks Remain
This notwithstanding, Fitch said that it remained skeptical about the near- or medium-term construction of the Lagos-Calabar coastal railway, as financing for the project remains unclear and it would traverse high-risk areas, including the Niger Delta.
Since the financing agreement with Exim Bank of China failed, the federal government of Nigeria has made multiple references to negotiations with different contractor and financiers, most recent is the UK-based Standard Chartered.
According to Fitch, Standard Chartered presents upside risks for the project, however, the bank has not confirmed any involvement in the project and “we do not currently factor any financing from the bank into our outlook for the project,” Fitch said.
“It further remains unclear to what extent the lack of Chinese financing would impact the construction contracts that had previously been awarded to China Civil Engineering Construction Corporation (CCECC). This makes it unlikely to move into construction phase within the near or medium term.”Fitch Solutions
“Companies active in Nigeria’s railway sector will be exposed to high operational risks, as high criminal activity and risk of recurrent militant attacks on critical infrastructure- particularly in the Niger Delta- threaten the safety of foreign workers and business operations.” For instance, previous railway construction project that was delayed by the kidnapping of Chinese workers.
In addition to these risks, the country’s economic stability is highly exposed to oil price fluctuations due to its fundamental reliance on oil revenues. Meanwhile, corruption and unpredictable border control measures raise costs and legal risks for investors.
The China Civil Engineering Construction Corporation (CCECC) has dominated the railway construction sector in Nigeria, supported by Chinese financing.
However, the recently commenced Kano-Maradi railway project, built by Mota-Engil, shows the potential opportunities for other foreign, non-Chinese companies’ involvement in the country’s railway industry.