Friday, 10 March 2017 01.24M / Preston Consult
Nigeria’s GDP performance improved slightly in the 4th quarter of 2016, and showed us a route to recovery. The current recession has affected all of us. But the root causes of it are deep, and they must be addressed if we are to build a more sustainable and competitive economy. We must understand the causes of our economic malaise in order to implement solutions that are sustainable.
Status of the Nigerian Recession
Nigeria’s economy continued its decline, ending 2016 with a full year GDP contraction of 1.5 percent. Coming into 2017, Nigeria still finds itself in the woods, plagued by record levels of inflation which reached 18.7 percent in January 2017, and a murky Foreign Exchange (FX) policy which continues to deter investment inflows and stall economic revival. Foreign Direct Investment (FDI) which peaked at US$8.8 Billion in 2011 has been on a steady decline, reaching its all-time low of US$1.6 Billion in 2016.
Gross international foreign reserves have however ticked upwards by 15 percent since December 2016, to $30 billion in March this year, its highest level in 19 months, as oil prices rose globally, coupled with the CBN policy of rationing FX. The exchange rate spread has narrowed slightly, following a series of interventions by the CBN. The country’s fiscal deficit has increased, so also has State governments’ indebtedness, which has risen by 10 percent, as their revenues declined by 8 percent between 2011 and 2015.
The Government's Proposed Solution: Economic Recovery and Growth Plan (ERGP)
The Nigerian government has launched the economic recovery and growth plan, an initiative which is expected to lead to the growth of the nation’s economy by 2.19 percent in 2017 and 7 percent by the end of the Plan period in 2020. It prioritizes key turnaround interventions and enablers in order to generate concrete, visible impact by 2017 year-end and articulates medium term economic policies to implement over 2017 to 2020. The all-inclusive economic policy document is expected to help put the economy back on track, following the effects of the recession. For the Strategic Implementation Plan, attention will be given to four broad areas namely: macroeconomic stability; economic growth and diversification; competitiveness and business environment; and governance and security.
Click Here to Download Economic Growth Plan 2017 – 2020 (PDF) Report
ERGP’s Strategic Objectives
The ERGP is based on 3 strategic objectives supported by enablers and a clear delivery plan. The inclusive growth plan involves promoting national prosperity by ensuring that the following measures are put in place:
a. Restoring growth - Monetary and fiscal stability, external balance, economic growth and diversification;
b. Investing in the Nigerian people - Health, education, social inclusion schemes, job creation and youth employment schemes;
c. Building a globally competitive economy – Improving the ease of doing business, investing in infrastructure and promoting digital led growth.
These strategic objectives are supported by enablers, which include developing sound industrial and trade policy, digital-led strategy, cross sector strategies as well as a clear delivery plan for implementing and financing projects.
The 5 Big Execution Priorities
The ERGP envisages that for the above objectives to be achieved, the FGN will need to focus on five (5) big execution priorities to kick start the economic recovery. These include:
a. The stabilization of the macroeconomic environment: This seeks to achieve alignment of monetary and fiscal policies, acceleration of non-oil revenue generation, drastically cut costs and privatization of selected assets.
b. Achieving agriculture and food security: The goal here is to deliver on the agricultural transformation that was kick-started by the Jonathan Administration.
c. Ensuring energy sufficiency in power and petroleum products: This entails urgently increasing oil production, boosting local refining for self-sufficiency and expanding power sector infrastructure.
d. Improving transport infrastructure: Here the government is seeking to boost the nation’s transport infrastructure stock by partnering with the private sector and delivering on targeted high priority transportation projects.
e. Driving industrialization through local and small business enterprise: The focus here is on improving the ease of doing business and accelerating the implementation of the National Industrial Revolution Plan.
The aim is to target with a clear strategy each stakeholder group including the public and private sector, general public, CSO’s, development partners, national assembly, rating agencies and the media.
Expectations from the ERGP
a. Growth in GDP
ERGP projections suggest that GDP growth could possibly reach 7 percent in 2020, way above the 3.8 percent growth projected by the IMF. The main drivers of this forecasted growth are: improving oil revenues from N700 billion in 2016 to N1.3 trillion/year in 2017 and furthermore to N1.45 trillion/year by 2020. The Plan hopes to achieve this growth in revenue by increasing production from 1.4mbpd in 2016 to 2.2mbpd in 2017 and 2.5mbpd by 2020. Other drivers of this growth include: doubling tax compliance for non-oil sector; eliminating leakages at Customs; and, reviewing rules for remitting surplus funds to FGN from independent revenue sources. These drivers have the potential to almost double FGN’s revenues from N2.7 trillion to N4.7 trillion, which is sufficient to bridge the budget deficit.
b. Efficiency Savings
Further savings of N50 billion/year can be realized by reducing government overhead expenditures by 25 percent through the implementation of the 5 Efficiency Unit’s strategies. These include efficiency in the use of administrative tools, financial tools, procurement process, shared services and maximized use of government buildings. A projected 10 percent of FGN’s capital expenditure can be saved through optimization programs, which represents approximately N50 – N100 billion.
c. Monetary Stability
Increased financial stability can be expected, induced by a strengthened supervisory framework of the financial institutions and shoring up of capital by banks. The alignment of monetary, trade and fiscal policy can also be expected by the maintenance of a flexible market-determined exchange rate and the use of trade policies to reduce demand pressures for the current 41 prohibited items.
ANALYSIS OF THE ERGP
A Critical Look
The ERGP is expected to take Nigeria out of recession, however, questions have been raised about its ability to deliver on that promise. Nigeria’s development efforts have over the years been characterized by lack of continuity, consistency and commitment to agreed policies, programmes and projects, as well as the absence of a long-term perspective. This has resulted in rising unemployment, inequality and poverty, and has highlighted the need for a holistic transformation of the Nigerian State.
The previous administration responded to this need through its Transformation Agenda, which covered the period 2011 – 2015. The ERGP aims to ensure continuity of some aspects of existing policies, which should help promote stability and growth in affected sectors such as agriculture. However, the ERGP is coming relatively late in the life of this government, already at its mid-point. With the 2019 elections around the corner, it is likely that focus may shift from delivering on the Plan to election campaign efforts.
The projected outcome of the growth and recovery plan may also be too ambitious given the limited time period of 4 years. On what basis has the projected 7 percent growth rate been calculated, such that it is almost twice as optimistic as the IMF projection of 3.8 percent for the same period? Furthermore, eliminating leakages from Customs will require data interoperability with the Nigerian Ports Authority, which will demand the application of modern ICT, software and hardware. This exercise may require the entire 4 year Plan period for execution and training of officers, before the rewards of stopped leakages can begin to materialize.
It is once again becoming evident from the 2017 budget defense that expenditure provisions may have been inflated, with some Ministers alleging that some projects were smuggled into their Ministry’s budgets without their knowledge. Some NGOs and CSOs have also suggested that as much as N151 billion can be further saved in the 2017 budget if wasteful line items are expunged.
The government’s efforts to broaden the tax base by enhancing tax collection for the non-oil sector is commendable, and is sure to generate sustainable revenues in the long term. Its initiative of setting up an Efficiency Unit with the objective of ensuring a reduction in overhead expenditures by as much as 25% is also commendable. However, there is need for the achievement of tangible results, which are measurable and relevant within the Plan period.
There is also need for the Executive to keep working closely with the National Assembly to expedite action on some priority legislation needed to spur economic growth. These include the Petroleum Industry Bill, Land Use Act, Companies and Allied Matters Act, Federal Competition and Consumer Protection Bill, Secured Transactions in Movable Assets Bill, National Development Bank of Nigeria Bill, Customs and Excise Management Act, Investment and Securities Act, Nigerian Ports and Harbours Authority Bill, National Transport Commission Bill and Nigeria Railway Authority Bill, among others.
The ERGP has brought more clarity with respect to the government’s policy direction, the absence of which was partly responsible for the nation’s current economic woes. If consistency in the execution of the ERGP can be achieved, it will signal a bold commitment to business-friendly economic policies which will help to attract local and international investors, generate employment and diversify the economy.
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Click Here to Download Economic Growth Plan 2017 – 2020 (PDF) Report