November 3, 2022/United Capital Research

Recently, the National Bureau of Statistics (NBS) released the Q2-2022 Rail Transport Data report, which revealed sharp drop-in activities in the sector in Q2-2022. The data showed that income receipts recorded by the Nigerian Railway Corporation in H1-2022 totaled N2.9bn (+41.2% y/y). Despite the solid year-on-year growth recorded in the period under review, narrowing down on Q2-2022 standalone data reveals renewed challenges facing the rail transport sector as total income receipts fell 66.7% q/q and 36.9% y/y to N734.5mn.

Breaking down the numbers further, passenger revenues printed at N2.7bn (+35.4% y/y), accounting for 91.1% of total income in H1-2022.  The remainder of the income came from cargo revenues (N157.8mn, +67.6% y/y) and other income receipts revenues (N107.7mn +853.1% y/y). The decline in revenue earned was underpinned by a steep decline in passenger patronage. For context, total passengers carried fell 55.7% q/q and 25.3% y/y to 422,393 (Q2-2021: 565,385 & Q1-2022: 953,099). We reckon the steep drop-in activities on Nigeria’s rail network in Q2-2022 was largely a product of passenger apathy caused by resurgence of insecurity, worsened by the Kaduna train attack in Mar-2022. Interestingly, prior to Q1-2022, number of passengers lifted per quarter had increased consistently for six consecutive quarters, post the pandemic dip (in Q2-2022). Thus, this steep decline (lowest passenger count since Q4-2020) represents a major setback.

Admittedly, the Nigerian rail sector has undergone major developments under the Buhari administration with significant capex spend on building & redeveloping rail tracks, purchasing new trains and modernizing ticketing platforms. However, recent security challenges has dampened willingness of Nigerians to use the rail transport system. In addition, we note that rail transport coverage in Nigeria remains sub-par due to inability of the FG to fund the necessary infrastructure. Meanwhile, investments made by the FG are yet to bear fruits as the government service debts taken to fund existing infrastructure while receiving next-to-nothing from the National Railway Corporation (NRC). Thus, we believe, lack of funding, operational inefficiencies, security challenges and sustained passenger apathy are issues that will hinder the prospects of the sector in the coming years.