June 15, 2020/ 03:30PM /PFI Capital / Header Image Credit: Deloitte Nigeria
The Economic Recovery and Growth Plan (ERGP) is a medium term planned for 2017 to 2020 developed to restore Nigeria's economic growth while leveraging the resilience and ingenuity of the Nigerian citizens. This plan was a reaction to the negative growth recorded by the country in 2016, as the current administration recognizes that the country was likely to remain on a path of steady decline if nothing was done to change the negative trajectory.
It therefore followed that the ERGP rests on three broad objectives:
1. To restore growth through macroeconomic stability and economic diversification.
2. To build a globally competitive economy through investment in infrastructure, improvement in business environment and promotion of digital-led growth.
3. To invest in the Nigerian people through programmes on social inclusion, job creation, youth empowerment and improved human capital.
Restoring Growth through Macroeconomic Stability and Economic Diversification
A major objective of the ERGP is to ensure that there is macroeconomic stability and that growth is restored in the economy. As such, the ERGP targeted annual average real GDP growth rate of 4.62% between 2017 and 2020, as well as bring the inflation rate to a single digit of 9.9% by year end 2020.
Table 1 Macroeconomic Projections vs Actual Performance
Recent data shows the disparity between the projected macroeconomic variables and their actual figures (see table 1). For example, the ERGP targeted inflation rate of 13.39% but the inflation rate as at year end 2019 was 11.98% majorly attributed to increase in food prices which manifested through the closure of the border in August 2019. Furthermore, we project the 2020 inflation rate to average 12.84% with the rate crossing 13% mark in year-end 2020 (31.3% greater than the projected inflation rate for year end 2020).
We also highlight that although daily crude oil production has increased compared to the 2016 levels, it is still low when compared to the 2019 projections. And we ascribe the growth in oil production to fewer militant activities in the Niger-Delta as well as the OPEC waiver of oil production cut for Nigeria in the wake of Economic recession in 2016. Nigeria was first granted exemption by the Joint Ministerial Monitoring Committee (JMMC) of the OPEC in November 2016 and this was further extended in May 2017. In terms of oil production benchmark, the ERGP was able to pass this test as the 2019 oil price benchmark as stated in the budget ($60/barrel) was 20% greater than the $50/barrel projected in the ERGP and 57.89% greater than the 2016 benchmark. Oil price averaged $65.49/barrel in 2019 and Ytd (29th May), it has averaged $40.59/barrel which is 21.94% less than the ERGP oil price benchmark for 2020 ($52.00/barrel) and 62.36% greater than the revised budget benchmark of $25/barrel.
With the implementation of the ERGP, the state house noted that it plans to reduce the unemployment rate from 13.9% in Q3 2016 to 11.23% in 2020, translating to the creation of over 15 million jobs during the plan horizon (an average of 3.7 million jobs per annum). However, the Q3 2018 Unemployment report of the NBS showed that the employment situation worsened in 2018 (23.13% unemployment rate and 20.17% underemployment rate) when compared to the level in 2016. And in 2019, we modelled the unemployment and underemployment rate to be 52.47% which is worse than the level in 2018 as well as the 2019 ERGP projection (29.65%). With COVID-19 induced disruptions, the unemployment and underemployment situation in the country in 2020 is therefore expected to be higher when compared to the previous rates.
Government revenue as a percentage of GDP in 2016
was 3.95%. It was projected to be 4.61% and 4.46% in 2019 and 2020 based on the
ERGP. However, with government revenue of
trillion and nominal GDP of N144.16
trillion in 2019, FG revenue as a percentage of nominal GDP was 3.31% in 2019
while the revenue as a percentage of real GDP was 6.68%. Actual deficit in 2019
( N4.62 trillion) was 148.39% greater
than the budgeted deficit ( N1.86
trillion), as such, even though the budgeted deficit as a percentage of GDP was
-1.29%, actual deficit as a percentage of GDP was greater at -3.20%.
In terms of the diversification of the economy, we believe that the economy is diversified enough. This is because the oil sector contributes roughly 10% to the economy while the non-oil sector contributes about 90% to the economy. In 2019, oil sector contributed 7.32% to the economy while the non-oil sector contributed 92.68% to the economy. In the non-oil sector, the contribution of agriculture to the economy was 21.96% while industry contributed 23.65% and services contributed 54.39% to the economy in Q1 2020.
We however note that about 65% of the revenue to
the federation account comes from the oil sector, and the oil sector also contributes
more than 70% of Nigeria's export trade. In Q1 2020, the crude oil sector
accounted for 72.12% of total exports. Between Q2 2017 and Q2 2019, total crude
oil export was
N31.65 trillion compared
to agricultural total export value of N557.66
billion. Hence, we note that though the economy is diversified production wise,
it is far from diversified in terms of revenue generation and earnings.
The ERGP also had an objective of increasing the
contribution of Agricultural sector to the GDP by 31.25%, from
N16 trillion in 2015 to N21 trillion in 2020. The plan was also to
ensure the country achieves self-sufficiency in tomato paste by 2017, rice by
2018 and wheat by 2020 as well as ensuring that the manufacturing sector grows
by 10.6% in 2020 from negative growth in 2016.
We were able to note that with a real GDP of
N71.34 trillion in FY 2019 and agricultural
contribution of 25.16% to the real GDP, it shows that the agricultural sector
contributed N17.95 trillion to total
real GDP in 2019. For the agricultural sector to achieve a total contribution
of N21 trillion in 2020, then it needs
to grow by 17% in real terms in 2020 given the same level of total real GDP. We
also highlight that a major reason for closing the country's land borders in
August 2019 was due to the high rate of importation of rice into the country
which cripples the activities of local rice producers.
Since then, there have been various efforts by
states and the Federal Government in ensuring there is mass production of rice
in the country, which will reduce the import bill of the nation. One of such
partnership agreements was between Lagos state and Kebbi state for the
production of LAKE Rice, as well as intervention programmes of the CBN to rice
farmers in the country. For example, the CBN has maize, rice, cassava,
tomatoes, poultry, sorghum, and cotton under its Anchor Borrowers' Programme
(ABP). Based on the 2018 data obtained from the CBN, we saw that a total number
of 11.23 million direct and indirect jobs have been created under the ABP since
its inception. We also note that since the establishment of the ABP in 2015, a
cumulative amount of
has been disbursed under the programme with 902,518 farmers as beneficiaries and
935,925 hectares of land being cultivated. In 2018, N118.96 billion loans was disbursed to 646,313 beneficiaries.
Under the ERGP, active mobile broadband subscription would increase to 50% in 2020 from 20.95% in 2016. However, we note that broadband penetration in Nigeria was 33% as at 2019, attributable to the expansion of network operators to cities such as Lagos, Abuja, Rivers, Kano and Ibadan.
Building a Globally Competitive Economy
In ensuring Nigeria becomes a globally competitive economy by 2020, the ERGP planned on improving Nigeria's access to electricity, complete the construction of rail projects (Lagos-Kano and Lagos-Calabar), dredge 1000km of inland waterways and reinforce riverbanks, and make the business environment more competitive (see table 2).
Table 2 Nigeria's Rank in Global Competitiveness Index (2016 vs 2020)
We are able to note that based on the 2017 WEF Global Competitive Index (GCI), Nigeria ranked 127th out of 138 countries. In 2018, the country ranked 115th out of 140 countries and by 2019, Nigeria ranked 116 out of 141th countries in the index. In terms of ease of doing business, the ERGP aimed at making Nigeria rank 100 by 2020 in ease of doing business compared to 169 in 2016. This led to the establishment of the Presidential Enabling Business Environment Council (PEBEC) to oversee reforms to make it easier to start, formalize and operate a business, simplify and clarify regulations, and simplify the processes to put them into practice. We highlight that Nigeria ranked 146 out of 190 countries in the 2019 World Bank ease of doing business with a score of 52.89 points. In the 2020 ease of doing business report, Nigeria ranked 131 which is an improvement from the 2016 and 2019 levels but still below the 100 target benchmark for 2020 based on the ERGP.
Chart 1 Comparative Transport Infrastructure
Chart 2 Comparative Trade Openness Index
In terms of transport infrastructure, Nigeria still ranks low compared to her peers in Africa. Based on the WEF GCI, Nigeria had a GCI score of 31.6 points in transport infrastructure in 2019 compared to Egypt which had a score of 59.1 points, South Africa with a score of 58.7 points, Kenya with a score of 47.2 points, Algeria with a score of 43.4 points and Ghana with a score of 32.7 points. We are also able to highlight that while infrastructural stock as a percentage of GDP is 35% for Nigeria, it is 87% in South Africa, 47% in Brazil, 58% in India, and 76% in China. In order to address the huge
The National Integrated Infrastructural Master Plan puts Nigeria's infrastructural investment needs to $3 trillion over the next 30 years, translating to $100 billion to be spent on infrastructure annually.
We further note that the FEC approved the Lagos-Kano rail project in Q3 2019 and was scheduled to start in Q1 2020 with an expected completion date of 2023 and at an estimated cost of $5.3 billion. Also, we highlight that Lagos-Ibadan rail line project which is 90% complete based on the President's Democracy day speech, started trial operations in December 2019 but has so far been suspended due to movement restrictions.
Investing in the Nigerian People
The ERGP planned to invest in the Nigerian citizens by improving the health and education system, increasing social inclusion, job creation and youth empowerment as well as addressing severe land degradation and desertification while eliminating gas flaring by 2020. Key to achieving these objectives were implementing social safety net programmes targeted at the vulnerable, boost job creation and place emphasis on Made-In-Nigerian goods, improve teachers' quality and expand the coverage of the NHIS.
We highlight that part of Nigeria's agreement with countries in repatriating the Abacha's loot was in spending the money on the vulnerable, hence the coming up of a National Social Register for the poorest households in Nigeria. We also note the establishment of N-Power programme which employs 549,000 youths according to the SSA to the President on job creation; 480,682 beneficiaries of the Conditional Cash Transfer Programme and 2,2368,340 beneficiaries of the Growth Enhancement and Empowerment Programme.
In terms of Made-in-Nigeria, we highlight that there has been improvement in patronizing Made-in-Nigerian goods and services. For example, Nigerian forces and fire fighters make use of cars and trucks produced by Innoson Motors. In fact, the Nigerian Army entered into partnership agreement with the indigenous car makers in 2018 to manufacture motors for war vehicles. In terms of gas flaring, we note that it is far from over in Nigeria. The World Bank's Global Gas Flaring Reduction Partnership (GGFRP) in 2018, ranked Nigeria 7th largest gas (7.44 million cubic meters of upstream gas flared) flaring country globally, with Russia topping the list.
From the foregoing, we note that although the current situation is not near the projections of ERGP, we however believe that the country has recorded improvements in some segments when compared to the levels in 2016. One of such is in the area of ease of doing business which we believe the PEBEC is doing a good job if the global rankings are to go by. We also highlight that the country needs to improve in terms of job creation and fast-tracking infrastructural development which in our view have a great impact on improving the revenue generation of the government. With COVID-19 ravaging the global economy, we expect a set-back in the achievement of the objectives of the ERGP and project the macroeconomic variables to suffer a set back from their levels in 2019. For instance, we expect the Nigerian economy to contract by -2.56% in FY 2020 while average inflation rate to rise to 12.84% and oil price averaging $45/barrel in 2020.