Wednesday, February 15, 2017 02.44 PM / Exclusive
After more than a decade of steady progress, economic growth has slowed because of both external and internal challenges. Externally, the global economy has remained fragile and flat since the onset of the global financial and economic crisis in 2008. With the slowing of growth in China, commodity prices have declined sharply with oil prices plummeting from as high as USD114 per barrel to as low as USD28 per barrel between 2014 and 2016.This has had a severe negative impact on the growth rate of Nigeria’s economy, which recovered slightly immediately after of the global crisis but fell back sharply again in tandem with crude oil prices.
The Nigerian Economy is characterized by structural challenges that limit its ability to sustain growth, create jobs and achieve real poverty reduction. The economy is highly dependent on a single commodity for economic activities, fiscal revenues and foreign exchange – oil – and must import raw materials and intermediate goods to sustain the manufacturing sector. The economy is also skewed towards consumption rather than investment, with gross domestic investment (GDI) to GDP ratio hovering at 13-14 per cent.
In the 10 years between 2005 and 2015, Nigeria’s GDP grew at an average 6.3 per cent. In 2016, the economy entered into a recession with GDP contracting by 0.36 per cent in the first quarter, 2.1 per cent in the second quarter and 2.2 per cent in the third quarter.
The forecast growth for 2016 overall is -1.54 per cent. Inflation soared from 9.5 per cent (December 2015) to 18.5 per cent (November 2016) as the combined result of currency depreciation, higher energy prices and high cost of inputs.
Nigeria’s economy is highly dependent on the oil and gas sector. Although the sector accounts for just 10 per cent of GDP, it represented 94 per cent of export earnings and 62 per cent of Government revenues (Federal and State) in 2011-2015. Foreign exchange reserves declined from USD32 billion in January 2015 to USD25 billion in November 2016(from a high of USD53 billion in 2008). As a result, the naira depreciated sharply, losing almost half of its value against the dollar. Similarly, foreign direct investment (FDI) declined sharply from a peak of USD8.9 billion in 2011 to USD3.1 billion in 2015 and did not recover in 2016.
Falling oil revenues widened the Federal Government deficit from N1.2 trillion in 2013 to N1.4 trillion in 2015, and an estimated N2.2 trillion in 2016. States in particular have been badly hit by the oil price shock; in 2015, 40 per cent of States were running a deficit of more than 30 per cent of their revenues. Fiscal sustainability is therefore a critical challenge for Nigeria. Coupled with an equally high level of social challenges, something had to be done immediately to redress the situation.
Governance as a mechanism for policy design, execution and oversight requires review. Corruption and security issues – terrorism, insurgency, piracy, oil theft – are of serious concern and are big barriers to economic growth and social development.
Since its inception in May 2015, the current Administration has made several efforts aimed at tackling these challenges and changing the national economic trajectory in a fundamental way. The earliest action was prioritization of three policy goals. These are tackling corruption, improving security and re-building the economy. The Strategic Implementation Plan (SIP) for the 2016 Budget of Change was developed as a short-term intervention targeted against these goals and provides a basis for the development of the ERGP (see box below).
The Strategic Implementation Plan (SIP)
The SIP aims to restore macroeconomic stability, grow and diversify the economy, make the business environment more competitive, and improve the country’s governance and security. In this short span of time, the Federal Government has successfully delivered on the following dimensions:
• Liberalize the exchange rate regime to ease pressure on external reserves.
•(PMS) to save USD4.5 million daily by eliminating subsidy claims.
• Disburse over N1 trillion to State governments to cover salary arrears and stimulate economic activity.
• Ensure full implementation of the Treasury Single Account to provide greater visibility on Government revenue and cash flows.
• Create the Efficiency Unit to optimize public finance management and ensure efficient utilization of Government revenues.
• Strengthen implementation of an integrated payroll system and eliminate over 65,000unjustified entries.
Economic growth and diversification
• Move Nigeria towards becoming self-sufficient in food production, particularly in rice (e.g., rice yield has increased from 3.5 to 7.5 tons per hectare with a plan to increase milled rice capacity from 3 to 10 million tons annually).
• Launch and implement the Anchor Borrowers Programme to lift thousands of small farmers out of poverty and generate millions of jobs for unemployed Nigerians.
• Promote the Made in Nigeria campaign to encourage local production and import substitution.
Competitiveness and business environment
• Set up the Presidential Enabling Business Environment Council (PEBEC). The Council is already working with various stakeholders (State Governments, Ministries, Departments and Agencies, Federal Inland Revenue Service, Nigeria Immigration Service, Nigeria Customs Administration, World Bank) to improve company registration systems, tax payment, electricity connections, construction permit systems, customs procedures and people mobility.
• Maintain capital spending at a minimum of 30 per cent in the 2016 budget to fund infrastructure spending (up from 10 per cent in 2015).
• Sign agreements with solar companies so as to add 1.1GW to the national grid.
• Complete the Abuja-Kaduna passenger rail services and sign-off the Lagos-Ibadan leg of the Lagos-Kano and the Calabar-Port Harcourt leg of the Calabar-Lagos railway projects.
Governance and security
• Intensify the fight against corruption and increase the recovery and repatriation of stolen assets.
• Relocated the Nigerian Military Command Centre to Maiduguri (May 2015) a big factor in the success of the fight against Boko Haramand commit USD100 million to the Multinational Joint Task Force for the fight against Boko Haram. This will be followed by a coordinated effort by para-military including Nigerian Police and Nigeria Security and Civil Defence Corps to maintain the peace attained. Promote the rule of law by respecting property rights and adhering to legal provisions for transparency and accountability for government procurement and spending.