PROPERTY NEWS

The managing consultant and chief executive of Afolabi Adedeji & Associates (AA&A), Afolabi Adedeji, takes a broad look at the subject of infrastructure provision and its close link(s) with national development, wealth creation and the enjoyment of quality life by the people.

The General Nature And Importance Of Infrastructure

The development and adequate maintenance of any nation’s infrastructure is the unarguable catalyst and single most important factor necessary for nation building and economic self-reliance. Most developed countries in the world today, especially the Asian Tiger economies were able to fast track / jump start their development process through the benefit of having a sound infrastructural base, which continues to be ‘friendly’ towards Manufacturing & Industrial activity, education, technology and research.

Infrastructure generally has to do with the fixed provision of tangible assets on which other intangibles can be built upon. It has a very wide scope and revolves around housing, provision of power (i.e. electricity from the public mains), the creation, improvement and protection of the communal environment, provision of facilities for living, industry and transportation, including apartment blocks, office buildings, roads, highways, bridges, canals, railway coaches & rail tracks, airports, seaports, water supply systems, irrigation, drainage & sewerage schemes, harbours, docks, aqueducts, tunnels and other engineering constructions, hospitals & healthcare facilities, educational establishments, information & communication technology [i.e. ict], security of life, property & investments, etc., etc. The importance of infrastructure cannot and indeed must not ever be underplayed by any serious Government or employer of labour.

Infrastructure has been defined as social overhead capital (SOC): the whole gamut or scheme of indirectly productive facilities that would have to precede [efficient] economic activities. SOC faces the problem of indivisibility and hence it has external economics on the supply side. Whereas its services are only indirectly productive and become available only after long gestation periods, its most important products are investment opportunities created in other industries. The installation of social overhead capital or Infrastructure is characterised by sizeable initial lump (sums) and low variable costs. Since the minimum size in these basic industries is large, excess capacity will be unavoidable over the initial period. To further expatiate, social overhead capital (SOC) or infrastructure is characterised by four indivisibilities: -

(i.) It is indivisible [or irreducible] in time, i.e. it must by necessity precede other directly productive investments.

(ii.) Its equipment needs very high ‘minimum’ durability requirements and/or standards. Lesser durability is either technically impossible or much less efficient. For this latter reason, it is very lumpy.

(iii.) It has a long gestation period.

(iv.) An irreducible minimum social overhead capacity industry mix is a condition for getting off the dead end.

Infrastructure may also be broadly classified into public utilities and social infrastructure. It is incontestable that infrastructure constitutes the "engine" and / or the "wheels" of economic activities, growth and development.

For advanced nations of the world like the United States of America, Great Britain, Germany, France, Japan, etc., where workable and effective input - output Tables have been developed and are readily available; it is easily seen that telecommunications, electricity and water are used [inputs] in the production process of nearly every sector of the economy and transportation is an input for every commodity. Infrastructure is demanded for direct consumption and is indirectly required for increased efficiency in time allocation to gain access to goods and services. Growth of Gross Domestic Product (GDP) and Infrastructure are causally related.

In the case of rural dwellers, lower transportation costs increase the Farmer’s access to Markets & outlets for his/her Farm Produce, which fosters considerable agricultural expansion, whilst modern Irrigation Methods have brought forth higher yields and reduced the effects of seasonality/weather variability on agricultural output.

Management of infrastructure has traditionally rested on the Public Sector that provided it, but this is gradually changing with the introduction of the Private Finance Initiative (PFI), Public Private Partnership (PPP), etc. Equity demands that individuals should pay for social services according to their ability and needs. This justifies application of progressive pricing system(s). The agency that provides infrastructure should also benefit from revenue received from users of the facility. As an aside, some ultra-conservative antagonists of Progressive Pricing & Progressive Taxation Systems in the United States of America have recently coined the following slogan (or maxim): "Spread my work ethic and not my wealth"!

The present government of President Umaru Musa Yar’Adua, seems to be making strenuous and conscientious efforts at improving Nigeria’s Infrastructural Facilities, but hardly anyone will disagree that the cumulative effects of years of neglect of Maintenance cannot easily be undone completely in his stay of barely 900 days in office so far as our potentially great country’s helmsman. Rapid population explosion and Urbanization in Nigeria have also led to significant ‘under-capacity’ of many of these infrastructural facilities, not forgetting the problem of ageing and obsolescence.

Current Trends Influencing The Infrastructure Sector Worldwide

This world is one full of rapid changes. Changes in the current economy over the past decades and in the recent past have been presenting new challenges to the infrastructure sector. The ability of the different tiers of government as well as other providers of infrastructural services to respond to them will have significant implications for the users and beneficiaries. Challenges of course almost invariably come hand in glove with opportunities. If I remember correctly, it was Charles Darwin (one of the founders of the theory of evolution) who said, "In life, it is not usually the strongest or the most intelligent (person/species/organisation/government " my own modification) that survives) and thrives " still my own modification), but rather the most adaptive to change"! The trends that have relation to the infrastructure sector include:

• Globalisation
  
  Globalisation has twofold meaning for the providers of infrastructure facilities and services. First, infrastructure is becoming an increasingly global and all pervasive business. Second, a globalised market provides opportunities for Infrastructural Service Providers to go global.
  
  Globalization means opportunities and threats coexist or are in juxtaposition for various levels (and tiers) of Government in Nigeria.
  
  
• Privatisation
  
  A renewed enthusiasm for private enterprise and the ceiling on government spending [due to budget constraints] have led to enhanced claims for privatisation - the provision of public services by the private sector. This is more widely known as the Private Finance Initiative (PFI) or Public Private Partnership (PPP).
  
  
• Deregulation
  
  
• Information Technology and Telecommunications
  
  Developments in information processing and communication technologies allow firms and governments to operate and collaborate internationally.
  
  
• Environment Protection
  
  The increasing community concerns about the sustainable prospects of the environment has been affecting the many aspects of implementation of infrastructure Projects, building, construction and operation.
  
  
• New Project Delivery Methods
  
  New project delivery approaches have been emerging, such as BOO (Build, Own & Operate), BOOT (Build, Own, Operate & Transfer), partnering and project alliance.
  
  
• International Market Change
  
  Economic and population growth, and increasing per capita income, as well as the urbanisation in Asia have created huge demand for infrastructural services & construction, including building and non-building construction, a demand that can not be satisfied by local Providers in terms of technology and management skills as well as capital. Likewise, the increased energy consumption levels needed to power the industries as well as transportation networks of even India, China, Pakistan, Indonesia, the two Koreas, Singapore and Malaysia if we are to consider just these emerging ‘powers’ on the Asian continent, I suspect may soon start giving more "headache(s)" and "nightmares" to President Barrack Obama of the United States of America than the war on "terror".
  
  
• The Current Contraction In The Global Economy Or Global Financial Meltdown
  
  Although it is not the primary objective of this write-up to make a "diagnosis" of the causes and origin of the current global economic crisis, it may form a useful prologue if we attempt to pin-point (especially for the "lay" reader) the fact that the boom-bust cycle has been a normal part of socio-economic and political history since ancient times. Students of history will readily recall (and/or are familiar with) the maxim: "Empire rises, empire falls!" Where for instance I will ask is the famous Roman Empire today? The Aztec Empire, Songhai Empire, Kanem-Bornu Empire, Mali Empire, etc., etc., also went the same way. Sometimes it is decadence, sometimes complacence, Mismanagement, new/superior weapons technology and armaments falling into the hands of neighbours with territorial ambitions, "marauding" neighbours or a host of other reasons that are behind the "down - slide" of things in the affairs of great nation - states and their economies. However, the current "contraction" in the global economy can be easily traceable to the United States of America’s pursuit of an "expensive" military solution to the lingering Middle-East Problem and the war in Iraq, which at a recent count/audit was found to be costing a whopping US$15 billion per month apart from the ‘unquantifiable’ loss of the lives and limbs of U.S. service men and women, not forgetting the equally costly losses on the Iraqi side, in the debilitating war. Of course, even an infant anywhere in the world knows that when America "sneezes", the whole world catches not just "catarrh" but a severe bout of "pneumonia"! My late father, who had the privilege of attending the world-renowned LSE (London School of Economics & Political Science in England, UK) used to tell me during our regular evening and weekend chats that.... "Afolabi my son, the economic problem will always persist". Even at times of economic boom and prosperity, Man’s wants and desires have always been insatiable and usually outstrip his/her Financial (& Economic) means. It is now up to a prudent and rational human being to prioritise his/her needs and allocate his/her scarce resources wisely amongst competing choices. During an economic "Slump" such as what we are witnessing now worldwide, where it is obvious that most economic units/entities (i.e. Families, Corporate Organizations, Governments, etc.) cannot exactly control or determine their income inflows, the best that one can do in such circumstances is to make judicious use of the little money (or other resources) that are at hand and avoid wastage/profligacy.
  
  In the afore-described circumstances and scenario(s), even those with only an elementary knowledge of economics can easily understand that budgetary allocations to infrastructure projects [whether new capital, recurrent or maintenance] by all tiers of government, the private sector and even individual households, will be among the first "casualties" during frequent Budget "cutting" exercise(s). But then, the continued provision and maintenance in a good condition of infrastructure remains a sine qua non for economic growth and the Sustainable Development of any nation.

• Component failure within projected life span.
• Vandalism / Terrorism.
• Maintenance failure.
• Human error.
• Damage.

• Maintenance - the work necessary to maintain the original anticipated useful life of a fixed asset. It is the upkeep of property and equipment. Maintenance includes periodic or occasional inspection, adjustment, lubrication, cleaning (non-janitorial), painting, replacement of parts, minor repairs and other actions to prolong service and prevent unscheduled breakdown, but it does not prolong the life of the property or equipment or add to its value.
  
  
• Repair - work to restore damaged or worn-out property to a normal operating condition. As a basic distinction, repairs are curative, whilst maintenance is preventive. Repair can be classified as minor or major.
  
  
• Replacement of building-related components or systems - the act of replacing an item of permanent investment or plant equipment. It is the exchange or substitution of one fixed asset for another having the capacity to perform the same function. The replacement may arise from obsolescence, wear and tear, or destruction. In general, as distinguished from repair, replacement involves a complete identifiable item.

• what is sustainable development? ~ Environmental factors / Social factors / Economic factors.
• what are the drivers for implementing a sustainable programme? ~ Legislative requirements and compliance / Stakeholders and supply chain pressure; cost savings, image and reputation.
• what are the implications for Facilities Managers? ~ Building Services; energy procurement; water consumption; communications; waste disposal; purchasing; other services.