Lessons from infrastructure investment in Roman and colonial times

Last week, I came across two very interesting research papers. The first, “Roman roads to prosperity: Persistence and Non Persistence of Public Goods provision” by Carl Johan Dalgaard, Nicolai Kaarsen, Ola Olssen and Pablo Selaya, all Danish economists, was the basis of a Washington Post story by Christopher Ingraham. The research traced the roads built during the Roman Empire across Europe and the Middle East and North Africa (MENA), for their implications on modern day prosperity.

The roads were built nearly 2000 years ago, and were constructed on the basis of military strategies, wars, and conquests, rather than to facilitate trade. The authors found that the roads have driven economic development in Europe, but not in MENA. They demonstrated that the map of the roads showed how the pattern of economic development in the communities, regions and the countries has followed the construction of those roads.

In the last week also, the Centre for the Study of Economies of Africa (CSEA), here in Abuja, invited me to their bi weekly seminar. In the seminar, Dr. Dozie Okoye, from Dalhousie University, Canada, presented a very interesting paper, co-written with Roland Pongou of University of Ottawa and Tite Yokossi of the Massachusetts Institute of Technology (MIT), which looked at the role of colonial railroad construction in Nigeria’s development. By the way, the railroads, which were built between 1878 and 1930, started to collapse after independence.

The conclusions of the study are staggering. The study concluded that construction of railways had a significant impact on development in the North but not in the South. One of the underlying reasons why the South did not benefit as much from railway construction was that, in the South there were other options such as sea travel, and thus railways in the south faced competition with sea travel. Conversely, in the North, there was virtually no alternative for moving goods out of the region. The other point was that there were already significant economic activities in the South, so the building of railways, rather than being the platform for economic development, like it was in the North, merely provided complementary and additional options for moving goods in the Southern region.

Additionally, since the North was far from the sea, and railroads are competitive over long distances, the impact of railway construction in the South was not as significant as in the North because there were options, and because these options were cheaper than rail over short distances. The research also concluded that railroads in the North led to significant increases in trade in the region, with double-digit growth in trade More so, it helped to divert trade from the Sahara to the coast in the Southern region.

The policy implications are as staggering as the conclusions of the papers – optimal infrastructure investment mix cannot be determined without serious economic, social, and environmental analysis and evaluation. The construction of infrastructure such as roads, railways, and waterways should be based on thorough cost / benefit analysis, potential economic impact, and consideration for competitive analysis.

Yes, building infrastructure is critical for economic development because it provides the platform for connectivity, trade, and increasing productivity. But the underlying point of these researches is that not all forms of transportation deliver the same results over the same period of time. This heterogeneous possibility, as demonstrated in these two important researches dictates that we have to evaluate what gets built, how it is built, and how it is financed. It thus means that the determination of an optimal mix of intermodal transportation systems must take into consideration, not only the costs of building such infrastructure but also the opportunity costs of building them. Opportunity costs here refer to alternative transportation systems and the comparable impact of building the infrastructure in another location. In the current climate, we must also consider sustainability and environmental elements.

So, permit me to digress a bit from the policy implications of these researches, and address some of our own current issues in Nigeria. It is generally agreed that Nigeria needs infrastructure for the purposes I have mentioned above – connectivity, driving up economic activities and increasing productivity by lowering costs. But the government claims it has continued to drive up national debt ostensibly for the purpose of building infrastructure (never mind that majority of the debt is directed at paying salaries). The argument is that the infrastructure development will pay for itself in the future. However, there is no economic evidence that back up the assertion that the infrastructure currently being built will be able to pay for itself.

There are two peculiar reasons why we should be skeptical in the case of Nigeria today. First, unlike during the Colonial times, the current infrastructure drive, while good on its own does not contain any plan to generate the money used in their construction. Take the Abuja – Kaduna railway line for instance, it is currently subsidized, and provides no clear economic benefit that will be used to recover construction expenses. This is not an argument that these infrastructure investments should not be made but that the transport infrastructure that gets built should be based on broader economic considerations that are rarely made. This is especially true considering that the use of this infrastructure is subsidized and therefore does not provide enough for further investment, maintenance, and replications. In the end, they are not sustainable.

The second argument in favour of broader economic strategy and consideration for optimal transport policy is necessary also because while the borrowing is increasingly in foreign currencies, the receipts for their use are in Naira. This introduces interest rate and currency risks for the repayment of these loans.

As I conclude, let me mention here that Time Economics, the consulting firm I work for recently carried out a research into the potential of the Textile and Leather Clusters in Aba, Abia State. The research was funded by the Policy Development Facility of Department for International Development (DFID), UK. In our study, we found out that the three main constraints to increasing their productivity are isolation from the global leather and textile value chain, which can be overcome by foreign investment; reliable electric power; and the infrastructure for connecting and transporting these goods out of Aba. Despite the large amount of goods that Aba exports to other West African countries, over the years, no government has made a determined effort to build a world-class infrastructure that takes care of the trade routes from Aba to the West African countries and beyond. Though our analysis did not delve into the cost of building such infrastructure and whether it would pay for itself, anecdotal evidence suggest that will pay for itself over time. In any case, it is such analysis that should drive infrastructure investment and not political considerations.

I thank you.

Ogho Okiti