Clement A. U. Ighodaro
Keywords: Road, Granger causality, VECM and Economic growth.
By lowering the cost and reducing the time of moving goods and services to where they can be used more efficiently, road development adds value and spurs growth. Over time this process results in increasing the size of markets which is a precondition for realizing economies of scale. Good road projects clearly contribute to poverty reduction by improving the living conditions of people and by augmenting the opportunities available for trade and employment. The economic development of Nigeria has reflected the development of her transport systems. This is particularly true of the road transport system, which is by far the most widely used mode of transport in the country. Of all commodity movements to and from the sea-ports, at least two-thirds are now handled by road transport while up to 90% of all other internal movements of goods and persons take place by roads (Onakomaiya, undated).
Transport can contribute to the economy directly through addition to capital stock via increases in transport infrastructure. Transport provides the arteries through which the economic life of the people, information and raw materials as well as finished products can be moved from one place to the other. This therefore helps to build and maintain the society thereby leading to economic growth. It is in that context that the paper considers road development and economic growth in Nigeria.
Road development in Nigeria
1904 when Lord Laggard attempted the construction of a mule road linking Zaria and Zungeru both in the Northern States of Nigeria. The road was later extended from Zaria to Sokoto, Katsina and Maiduguri. However, the road linking Ibadan and Oyo constructed in 1906 is recorded to be the first motorable road ever constructed in Nigeria. At independence in 1960, the Nigerian landscape was dotted with a skeletal network of trunk roads as well as secondary and feeders roads that exhibited the characteristics which reflected the purpose of their construction. They were narrow and winding, being simply meant to facilitate the evacuation of agricultural produce from the interior to the ports for exports in addition to serving as links between scattered human settlements thus permitting ease of administration.
In 1925, the central government of Nigeria set up a Road Board. By 1926, H.E. Walker proposed a skeleton trunk road system to link the major administrative centres in the country. These roads were designed as a frame upon which the network of secondary roads could be built thus enabling the general road system to be considered as a co-coordinated whole-rather as a jigsaw of small disjointed sections. The total length of roads maintained by the government rose soon from 6,160 km (5,875 miles) in to 9,453 km (5,875 miles).
Data from the various publications of the Federal Office of Statistics in Nigeria show that as at
1951, out of the total of 44,414 km of road in Nigeria, 1,782 km were surfaced, though the roads were lacking in standard designs and were single lane with sharp bends and poor drainage system. Total road length increased from 44,414 km in 1951 to 114,768 km in 1980. While tarred road increased in length from 1782 km in 1951 to 28632 km in 1980, earth/gravel road increased from 4232 km in 1951 to 86136 km in 1980. The Central Bank of Nigeria (2003) documented that the estimated current total road network in Nigeria is about 200,000 km.
Classification and investment in road development in Nigeria
Table 1: Structure of road ownership in Nigeria
Source: Central Bank of Nigeria (2003)
From table 1, it is obvious that the local government roads ownership accounts for about 67%. This therefore shows that local government controls about 130,600 km roads, state government 30,500 km and federal government, 32,100 km.
As regards investment, the various governments in Nigeria have given priority attention to road development over the years. From table 2 below, during the first National Development Plan, 1962-68, a total of N150.6 million was allocated to road development. The votes for the road sub-sector ranged from 7% in the then Western Region to 25% in the Northern Region and a
national average of 11% for all projected investments. In keeping with the objective of rational allocation of scarce resources, the federal allocation of N70.8 million was meant to provide for a minimum, essential road development programme which had been enveloped on the basis of a system of priority rating (Onakomaiya, undated).
Table 2: First national development plan 1962-68: highway development
Source: First National Development Plan (1962 – 1968)
In this first national development plan, emphasis was placed on the development of the:
After the civil war, under the Second National Development Plan, the general policy on transport was to promote coordination and rationalization of investment decisions in transport sector (Federal Government of Nigeria, FGN, 1970). The road development programme was to focus on the creation of a national road network of primary and secondary arteries which would outcross the existing Trunk ‘A’ and ‘B’ network. The primary roads would be those connecting the prominent cities of the country with each other and with the ocean terminals (Lagos, Warri, Port-Harcourt and Calabar) and main border crossing. The secondary road network would connect important centers within the primary and secondary roads network. The states would concentrate principally on minor roads within the primary and secondary roads.
Table 3: Allocation to road development during the Second National Development Plan, 1970-74
Source: Second National Development Plan (1970 – 1974)
From table 3 above, under the second national development plan, the total projected investment was N2,050,738 million while total allocation to transport was N485.189 million. The focus of road development under this plan was the rehabilitation of the roads that were adversely affected by the civil war.
Under the third national development plan, total public investment was N32,855.016 million. The allocation to road transport was N5,430.436 million while allocation to roads as percentage of transport sector was 73.12%. Roads as a percentage of all public investments were 16.25%. A total of N7.303.068 million was allocated to the transport sector out of the total of N32,855.016 million for total investment. Out of the amount allocated to the transport sector, allocation to road was N5,340.436 million representing a total of 73.12% allocated for road development. Table four below reflects this:
Table Four: Allocation to road development in the Third National Development Plan, 1975 – 1980
Source: Third National Development Plan (1975 – 1980)
In the fourth national development plan (1981-1985), the sum of N7,457.912 million was allocated to road development out of a total of N10,706.616 million allocated to transport sector development. The other transport modes; rail, air and water shared 30%.
Inspite of government efforts at encouraging road development the contribution of road transportation to gross domestic product has not been encouraging. According to the Central Bank of Nigeria (2004), as at 1981, the total contribution of road transportation to gross domestic product was N6718.5 million representing 3.27%. This fell to N4852.3 million in 1991, representing 1.83% contribution to gross domestic product. It however increased to N6667.7 million in 2001 representing a contribution of 1.94%. This further increased to 2.03% representing a contribution of N8407.9 million to total gross domestic product.
Problems of road development in Nigeria
A survey on the state of the road was carried out by the Central Bank of Nigeria between 11th to
13th December 2002 along the six geopolitical zones in the country (South-South, South-East, South West, North-East, North-West and North Central). The survey indicated that most of the roads especially in the Southern and Eastern parts of the country were in a very poor condition and required complete rehabilitation. The report documented that some of the roads were constructed over 30 years ago and had not been rehabilitated for once. The survey of the Central Bank on road status in Nigeria further showed that from February 1997 to December 2001, a total of 96 road contracts, mainly rehabilitation, reconstruction and expansion were awarded by the Federal Ministry of Works at a total contract sum of N186.999 billion. Of the total, 20 contracts worth N20.24 billion were for the South-South zone, 19 contracts worth N55.346 billion in the South-West, 18 contracts valued at N45.122 billion in the North Central, 14 contracts worth N26.774 billion in the North-East, 13 contracts valued N21.603 billion in the South-East and 12 with the contract sum of N17.915 billion in the North. At the end of 2002,
only 23 of the projects have been completed; 9 in the South-West and in the South-South, 2 each in the North Central and North-West as well as one each in the South-East and North-East. The survey indicated that the state of the roads in Nigeria has remained poor for a number of reasons which include: faulty design, lack of drainage system and very thin coatings that are easily washed away. Others are excessive use of the roads network given the underdeveloped nature of railways and water ways which could serve as alternative means of transport, absence of an articulated road Programme and inadequate funding for road maintenance.
Estimated losses to the Nigerian economy arising from the poor state of roads is about N450 billion yearly (Vanguard, 2008).
GDPR represents growth rate of real gross domestic product (Proxy for economic growth)
Unit root tests
is our variable of interest; is the difference operator, t is time measured chronologically and is the white noise residual of zero mean and constant mean and constant variance; is a set of parameters to be estimated. The null and the alternative hypotheses in the unit root tests are:
The test reveals that all the variables are integrated in order one except the growth rate of GDP which is I(0) and capital stock which is I(2) as shown in table 5 below.
Table 5: Results for ADF unit root test
where is; a column vector and with is a lag operator. is the white noise residual of zero mean and constant variance. The order of lag of the model is determined in advanced by Akaike Information Criterion (AIC). The test statistics strongly reject the null hypothesis of no cointegration in favour of at least one cointegrating vector at 5% significance level in the equation. This is shown in table 6 below.
Table 6: Results for Johansen cointegration test
Pairwise Granger causality test
Table7: Pairwise Granger causality tests
Vector error-correction model (VECM)
Where ECM is the error correction term (lagged residual of static regression) and ‘∆’ stands for first difference, L are lag length and X is a vector of the independent variables, LRADL, LEXPT and LCASPK. All the variables are as earlier defined.
From the estimation, controlling for total exports and capital stock, the long run estimate shows that all the independent variables are significant in the determination of economic growth. Only export has a contrary sign. The negative sign may result from the use of total exports for the estimation rather than either oil or non – oil exports. It shows that a 1% increase in road length will increase GDP by more than 5%; the same percentage increase in capital stock increases it by only about 1%.
The short run dynamics of growth rate of gross domestic product reveals that only the error correction term and its associated t-statistic of second lag value of road development and the first lag value of exports are significant in the determination of economic growth in Nigeria. However, the error correction term of the second lag of capital stock was weakly significant in the determination of economic growth. The result further reveals that all the variables are jointly significant in the determination of economic growth in Nigeria considering the F-statistic and the R2 values. Table 8 shows the vector error correction results.
Table 8: Results for VECM
The impulse response function shows that a one standard deviation shock on growth rate of gross domestic product induces a positive economic growth in the first year; this fell in the second year and became negative in the third year. A shock to growth rate of gross domestic period has a long lasting effect to its self after the fourth year. Unfortunately, a one standard deviation
shock on road development has a negative impact on growth rate of gross domestic product through out the period. The result further shows that a one standard deviation shock on total exports and capital shock only induces slightly positive impact on growth rate of gross domestic product between the second and the third period. The result is shown in figure one below.
Figure 1: Result of impulse response function
Table 9: Variance decomposition
Conclusion and policy implication
empirical part of the study, no causality was found between road development and economic growth in Nigeria. There is indirect causality via capital stock. The long run part of the VECM estimation shows that the lag value of road development variable is very significant in the determination of economic growth in Nigeria. The short run dynamics of growth rate of the economy revealed that the error correction term
of road development variables as well as its lag values is not significant in the determination of economic growth in Nigeria. It is therefore recommended that rather than construct new roads, policy makers should adequately maintain the existing roads as this will further reduce cost of transportation of goods and services therefore reducing poverty and boost economic growth in Nigeria.
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Nigeria: First National Development Plan, 1962 – 68
Nigeria: Second National Development Plan, 1970 – 74
Nigeria: Third National Development Plan, 1975 – 1980
Nigeria: Fourth National Development Plan, 1981 - 1985
Onakomaiya, S.O. (Undated), “Highway development in Nigeria: a review of policies and programmes 1900-1980” NISER Monograph Series No.5, Nigerian Institute of Social and Economic Research.
The author, who derived this work from a Ph.D. thesis submitted to the Department of Economics and Statistics, University of Benin, Benin City, Nigeria, is grateful to M.A. Iyoha for earlier comments; C.E.E. Okojie and M.A. Anyiwe his supervisors; and to Paul Collier, Robert Bates, and Anke Hoeffler for guidance at the Political Economy arm of the AERC bi-annual workshop of May / June 2006 for comments on an earlier draft, and to the AERC, Nairobi, for sponsorship.