Abuja’s Policy Response
In response to the 2016/17 economic downturn, the Federal Government of Nigeria come up with the Economic Recovery and Growth Plan (ERGP), a three years medium term planned to help restore Nigeria’s economic growth while leveraging the resilience and ingenuity of the Nigerian citizens. The plan was a reaction to the negative growth recorded by the country that 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:
- To restore growth through macroeconomic stability and economic diversification.
- To build a globally competitive economy through investment in infrastructure, improvement in business environment and promotion of digital-led growth.
- To invest in the Nigerian people through programmes on social inclusion, job creation, youth empowerment and improved human capital
Did we achieve the objectives set out in the plan? Not really.
Although the ERGP enable Nigeria to come out of economic recessions, the country did not grow more than 0.75 percent and 3.19 percent on average during 2017-2020 and 2010-2020 respectively. This could also be attributed to our collective inability to address domestic growth constraints. The plan implementation was also affected by political and policy changes, less emphasis on inter-sector collaboration, the weak link between the plan and annual budget, and the absence of coordinating institutions for plan implementation. We had issues with poor business regulations, over-dependence on oil, bad governance, and policy design failures
For example, to restore growth in the macroeconomic stability and economic diversification the ERGP targeted an 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.
Available data from the Ministry of Finance and the National Bureau of Statistics shows the disparity between the projected macroeconomic variables and the actual figures. The best GDP result was in 2019 with 2.27%. But this indicated less than half of the target was met.
By 2020 the actual figure regressed to 1.87% Q1’20), and with the impact of COVID-19, analysts, as well as the federal government and the World Bank, have projected that the economy would slide back into recession, at levels worse than the situation which had led to ERGP.
Forecasts by the FG, the World Bank, and the analysts see 2020 GDP at -4%, -5%, and -5.5% respectively, as against -1.54% recorded in the 2016 recession that led to ERGP.
The other key macroeconomic variable that is now under pressure is inflation. Against the ERGP targeted single-digit inflation rate of 9.9% the inflation rate as of year-end 2019 was 11.98% majorly attributed to increasing in food prices which manifested through the closure of the border in August 2019.
A major part of the ERGP expectations includes major changes in the trajectories of the oil industry performance across upstream (output and price expectations) and mid-stream in terms of local refining to eliminate importation and hence save foreign exchange.
In spite of all efforts in the petroleum sector, the target of reducing petroleum products to about 30% of local consumption by 2018 failed woefully, as current reports from the Nigerian National Petroleum Corporation, NNPC, indicated that about 90% of local petroleum products consumption is imported.
Although daily crude oil production increased compared to the 2016 levels, it was still low when compared to the 2019 projections. Hence, the growth in oil production could be ascribed to fewer militant activities in the Niger Delta as well as the OPEC waiver of oil production cut for Nigeria in the wake of the economic recession in 2016.
In terms of the 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.
Similarly, another core target of the ERGP was to reduce the unemployment rate from 13.9% in the third quarter of 2016 (Q3’16) to 11.23% in 2020, translating to the creation of over 15 million jobs during the planning horizon (an average of 3.7 million jobs per annum).
However, the 2019 “Unemployment Report” of the National Bureau of Statistics, NBS, shows that by the first anniversary of the ERGP the employment situation worsened in 2018 with the Q3’18 at 23.13% and 20.17% underemployment rate, when compared to the level in 2016.
Within the same period, 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, the available date of the Ministry of Finance shows that with government revenue of N4.77 trillion and nominal GDP of N144.16 trillion in 2019, FG revenue as a percentage of nominal GDP was 3.31% in 2019. The actual deficit in 2019 at N4.62 trillion was 148.39% higher than the budgeted deficit of N1.86 trillion, as such, even though the budgeted deficit as a percentage of GDP was -1.29%, the actual deficit as a percentage of GDP was higher at -3.20%.
Economic diversification was a key target in the ERGP profile. However, available data from the NBS show that about 65% of the revenue to the federation account came from the oil sector, and the oil sector also contributes more than 70% of Nigeria’s export trade.
In the first quarter of 2020 (Q1’20), the crude oil sector accounted for 72.12% of total exports. Between Q2’17 and Q2’19, total crude oil export was N31.65 trillion compared to the agricultural total export value of N557.66 billion, indicating a huge imbalance in favor of oil sector contribution.
The implication is that though the economy is diversified production-wise, Nigeria is far from diversified in terms of revenue generation and earnings.
The ERGP also had an objective of increasing the contribution of the agricultural sector to the GDP by 31.25%, from N16 trillion in 2015 to N21 trillion in 2020, but the available data showed that with a real GDP of N71.34 trillion in full-year 2019 agriculture contribution was 25.16% to the real GDP, translating to about N17.95 trillion to total real GDP in 2019.
Hence, for the agricultural sector to achieve a total contribution of N21 trillion in 2020, it needed to grow by 17% in real terms in 2020 given the same level of total real GDP. But with the disruptive impact of COVID-19.
The ERGP had also envisaged building a globally competitive economy with the upgrading of infrastructure. Unfortunately, Nigeria still ranks low compared to its peers in Africa.
If we are to go by the 2019 World Economic Forum (WEF) Global Competitiveness Index (GCI) report, Nigeria had a GCI score of 31.6 points in transport infrastructure 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.
The report also highlighted that while infrastructural stock as a percentage of GDP is 35% for Nigeria, it was 87% in South Africa, 47% in Brazil, 58% in India, and 76% in China.
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. There are no financial projections in the Ministry of Finance indicating a likelihood that such an amount could be raised by the country in any foreseeable future.
So, what’s the Way Forward?
As mentioned previously, there are some emerging challenges of Nigeria’s macroeconomic crisis such as the infrastructural deficit, low-quality human resources, policy uncertainty, over-reliance on oil revenue, large informal sector, corruption, etc. These challenges impact negatively productivity and competitiveness as well as sustainable economic growth in the long term. Although Nigeria cannot do everything at once to address her crisis due to a limitation of resources and competence, it can however identify and prioritize what and how each challenge will be addressed. Furthermore, addressing the macroeconomic crisis is a large scope concept relating to many areas of an economy. In this article, we propose some recommendations to solve some key issues, which are considered to be the most urgent, to help address Nigeria’s challenges in the coming years. They are as follows: