Investing in Rail is back in vogue.
Everyone is doing it – well, everyone in Africa sharing corrupt funding sources and willing to offer an outlet to steel manufacturers looking to dump excess supply amid depressed steel demand and prices.
China’s one belt one road policy, got it all kicked off.
The Sino strategy of investing in infrastructure in countries in order to revive the old silk road and secure commodities is stretched to cover Nigeria.
Perhaps implausibly stretched.
Kenya has announced a significant enhancement and upgrade to its rail infrastructure and rolling stock.
This will be completed by Chinese companies and funded by the Chinese government with a favourable loan to the Kenyan government.
This deal is eyebrows raising.
It has one of the highest per kilometre prices of recent times (more than Morocco recent project for instance) causing observers to consider that perhaps senior figures have siphoned significant amounts off to their trousers.
The deal is a dream for Chinese steel manufacturers who have been swimming in excess supply and have been dumping the steel at lower than cost prices on any market they can find.
The Kenyan railway deal means there is a large market to off load at cost plus extra – a rarity in recent years.
Kenya is on the edge of the one belt one road geographic target area.
To some degree it is consistent with it’s country’s policy but one also senses opportunism – a chance to rehabilitate the Chinese domestic steel industry while give rolling stock manufacturers a boost and secure long term return on investment in Kenyan interests.
All this whilst recouping the principal almost immediately by Kenya sourcing all requirements from China.
So far so simple.
It looks like a bad deal for Kenya.
The argument has been made that road infrastructure improvement would benefit the whole population, cost less and be completed much faster.
The benefit of moving freight quickly by rail does not matter as much because freight can move slowly while not having a great effect on the market, the seller or the buyer.
Now we move to Nigeria.
Much has been made of Chinese investment in rail in our nation.
Now the news comes that global giant GE has struck a deal with the Federal Government for a $5bn investment in our nations rail infrastructure and rolling stock.
Simply huge figures should attract huge scrutiny.
This will undoubtedly not happen.
What counts for Kenya counts for us too.
The opportunity for siphoning funds is huge and we all know that any self respecting official or the Minister for Transport himself would ensure that their foreign bank accounts get full to the brim.
However, the mainstream media looks like it will clap like seals as the FG announces a huge foreign investment in the country instead of scrutinising the government’s actions and assessing the value of the deal for our fellow citizens.
So far the details of the deal are not clear.
But true to form the photo opportunity has been taken (see Naira Insider article grin, Shake, grab).
Regardless of the obvious flaws and the opportunity GE has seen to earn interest on its investment and utilise it’s surplus steel, it appears to this writer, that the case for railways in Nigeria is currently flawed.
Rail was successful in the European Industrial revolution as a method of transporting people and goods along set routes when there was no motor engine that could move people and goods more specifically from point A to point B.
Bulk goods and commodities are still moved along established rail lines slowly but relatively cheaply as the network is established.
In Nigeria, the context is different.
We have no operable or extensive existing network, so the cost per mile of moving freight must include a 20 to 30 year payback of the network construction .
This business case could never be made to stack up.
In addition, there are not sufficient goods or commodities produced to keep the rail network busy.
It might be argued that Rail is an enabler to industrial growth by supporting movement of goods and raw materials, but in reality there are many bigger blocks to efficient production and markets, that have to be removed before a rail network would become a material benefit.
Finally, according to all state governors, as all states wish to be multi industrial production centres, the rail network would have to cris-cross the country to support this, something that will never be financially viable.
Given the choice of road, air or rail, consumers in most countries choose a combination of road and air.
So if the movement of consumers, raw materials and goods could be efficiently and more flexibly supported by a road and air network and supporting logistics industry, why is the FG hell bent on rail?
The answer must lie in the gaping depths of the trouser pockets of officials.
$5bn of investment would go a very long way when applied to roads.
But rail is less transparent and can attract a huge opaque lump sum financing deal.
Lack of transparency and opacity are the friends of hungry officials.
When you add to this the shear size of the chop it appears that rail is impossible to resist.