Nigeria Should Look Beyond Oil Revenue Now- World Bank Country Director

mariefrancoiseThe World Bank Country Director in Nigeria, Ms Marie Francoise Marie-Nelly is barely a year on the current post but her activities towards development of various sectors of the economy is widely felt. In this exclusive interview with the Economic Confidential magazine she talks on various issues that affect the nation’s economy and proffers practical approaches to tackle them. The excerpts:

EC: What can you say about the controversial fuel subsidy removal in Nigeria?

Let me first correct the wrong impression created by some people that the fuel subsidy removal was proposed by the World Bank. It wasn’t so but purely the decision of Nigeria’s government. Subsidy is a cost and the question is what kind of value do you get for this subsidy? When you see the structure of the Nigeria budget; you have 75% on recurrent expenditure and 25% on capital expenditure. So the government has decided to do some fiscal consolidation. In other words, it means to reduce spending so that you can have a more efficient state and be able to allocate more resources to capital expenditures. So, I think the issue of subsidy has to be put in the context of improving the performance of the budget. So, it is quite clear that it is a significant amount of resources that is being used and could be saved. We know there is a Subsidy Reinvestment Programme, SURE programme that has been put in place. We are quite pleased with the activities that have been identified because they seem to be very relevant for the needs of the country.

EC: How do you describe the Nigeria’s budget with the contributions from the World Bank?

Nigeria has an annual budget of about $30 billion for the Federal Government. If you add the amounts that go to the states; you are almost close to $70 billion. The contribution of the World Bank annually is around id=mce_marker billion, the contribution of the development partners in this country is only about 5%, it is unlike some other countries like the DRC (Democratic Republic of Congo) where the contributions of the partners represent about 40% of the budget. Secondly, you know that the World Bank reengaged with Nigeria in the early 2000, so if you look at our contribution in 2003 we had less than 600 million dollars, we moved to $3 billion in 2006 and today our portfolio is about $4.5 billion.

EC: What are the impacts of your contribution to the economy?

What the World Bank has done in Nigeria is quite significant. The transport conditions have changed in Lagos with the Lagos Metropolitan Area Transport Authority (LAMATA). That was done with the support of the World Bank. As a result of this program, 200,000 passengers in Lagos can move easily, go to work, reduce pressure because the traffic time has reduced considerably, to the extent that we actually have a second tranche of US$200 million that we are doing now jointly with other partners such as the French Development Agency. Our new approach is to strengthen our partnership with various stakeholders so we can have more impact on the ground. We also support some reforms, because, as we believe that one should not always look at the physical infrastructure only. We participated in the reforms of the port of Lagos, which I recently visited at Apapa. It was very interesting to see that as result of the concessioning of the container terminals, the handling time has been reduced significantly. It used to take two months, now it is down to 23 days, it is still not perfect, because in Singapore it takes 2 to 3 days, so you still have a long way to go, but at least private operators can see some positive movement and the government should be encouraged to complete the reform.

EC: The World Bank has given millions of dollars to some states in Nigeria for the construction of roads and bridges, yet we still see bad roads and bridges around. Can we take it that the World Bank gives out money without monitoring the projects for which the money has been given out?

We have at the moment an important programme which is called Federal Roads, which has started to pick up, I must say we had difficulties at the beginning, now we supporting the rehabilitation of a number of segments, including the Enugu – Abakaliki Road and the Ogoja Junction – Ikom Road. Again, these two road sections complement two separate road sections that are being rehabilitated under an AfDB funded project as part of the ‘Nigeria-Cameroon road corridor between Enugu and Bamenda.

A study which the World Bank completed a few years ago shows that Nigeria would need to invest about id=mce_marker4 billion per year over a 10 year period to basically reach the level that is needed to support its economic development and position Nigeria not only in West Africa but in Africa more broadly. The World Bank does have a system in place to monitor and control the programmes which it finances. First, transparent procurement procedures must be applied, then all projects are periodically supervised by our team and finally, there are internal and external auditors. However, as I have mentioned to you earlier, there is not point for the World Bank to put in place a rigorous system for the 5% that we are financing if there is not a strong system for the 95% which represent the government resources. We encourage the government to first ensure that proper sector strategies are put in place and to improve the budget system so that resources are allocated accordingly to sector priorities and needs. . For example, you don’t just wake up and say that you need a road tomorrow morning; either it will be very expensive or the road will be poorly built. Therefore you need good planning, appropriate allocation of resources each year and finally ensure that the budget is executed properly.

EC: Power failure fights against economic growth in Nigeria, hence making Nigerians poorer. What is the World Bank doing to ensure steady flow of power in the country?

The power sector is a critical sector for the country because; you need power to develop both the industrial and private sectors. The latest “Doing Business Survey” has shown that 80% of enterprises have indicated that power is the main constraint for them. Lack of power affects the social and health sectors for instance, if you don’t have power, how are you going to preserve vaccines at the right temperature to ensure that immunizations are done properly. The World Bank is supporting the government in this sector. I need to state that you don’t see results overnight as reforming the power sector is a long process. The good news is that the government has developed what we at the World Bank will describe as one of the most comprehensive power sector reforms in Africa.

EC: Are you able to identify the problem of our power sector, especially in the generation of electricity?

In Nigeria, power is 75% gas fired and 25% hydro. One issue was that there was not enough gas to service the plants. This was because the oil companies were not investing in gas production capacity because the gas price was so low that it was not attractive for them to invest. So the government has developed a gas master plan which allows price adjustments and defines a new type of contract between the oil companies and the power producers on how to provide the needed gas. We see already that the gas quantity needed has increased but much more is needed. Secondly, how do you ensure that there is enough generation capacity to meet the power demand? Nigeria at the moment as you know has a production capacity of about 4,000 megawatts, now what would be needed to fully meet the demand would be about 40,000 megawatts and that is the current capacity of South Africa. Particularly, one of the objectives of Nigeria is to become one of the top twenty world economies by the year 2020, about 40,000 megawatts of power would be needed to help Nigeria achieve this target. So you can imagine, it is a long and tough road of investment and the government has decided to privatize the existing facilities so that investment and financing of rehabilitation can be mobilized with the private sector. Also, the government has agreed to open the sector to independent power producers that can produce power and sell it to distribution companies.

EC: It seems there is also a problem of distribution of electricity in Nigeria?

That is the retail level. The government has created eleven distribution companies, and has also launched a process of privatizing these companies. This is to bring private management and investment in these companies, because it has been observed that out of 100 kilowatts that is produced everyday 50 kilowatts are lost either due to technical losses owing to network inefficiency, or to commercial losses, from people not paying. Therefore, at this level you need to bring in new management as well as new investments. There are parts of the cities that are not covered at the moment, so you need to extend the distribution network. As you can see, this power reform is a comprehensive one and to be successful, one needs to look at the entire value chain.

mariefrancoise2EC: So what is the World Bank doing to address this?

First of all we have provided $400 million to leverage both the Federal Government and the private sector’s resources. So our financial contribution is limited and our main role is basically a catalytic one to stimulate the reform and to do some investment. For instance I recently visited Karu a suburb of the FCT where we have helped connect customers and install some 120,000 prepaid meters. Customers are extremely happy as they can know how much they consume, just like you do with your telephones calls, you know what you consume and how to adjust your consumption. We have provided some financing for investment, but it is on a small scale, it is quite clear that the level of investment required is much more than that. So, the area where we are playing a more catalytic role is where we are providing credit enhancement through partial risk guarantee. This means that, we are bringing in guarantee just in case either the generation company is unable to pay for the gas or the distribution company is not capable of paying power. This will provide some kind of assurance to investors who feel more comfortable to invest. This type of instrument is very important for smooth take off and operation of the power sector. So, in summary, our contribution is threefold: Firstly, we provide some financial support for direct investment, secondly, we provide partial risk guarantee and thirdly we help bring the knowledge from other positive experiences. For example in Côte d’Ivoire they have a private company, CIE that is managing the distribution network, and which is listed on the regional Stock Exchange. The company can therefore raise funds itself as it has a 90% collection rate. In the World, Power companies are big companies, listed on stock exchanges, and which are critical to the economy. We hope that the reform process leads to strong power companies in Nigeria.

EC: Why are you not considering other alternative sources of power?

The use of alternative source of energy is quite significant because you don’t put all your eggs in the same basket, and in terms of climate change you need to reduce the level of carbon emission, hence, it is good to have low carbon sources of energy. The good thing about Nigeria is that the ecosystem is such that in the North you have good capacity for solar power, you have some areas where you have good capacity for wind power and we have been working with the government to develop a strategy to promote renewable energy and as part of the erosion control project, we will finance a component to develop alternative sources of energy. It is not just for lighting, take for instance the use of charcoal for cooking, this leads to problem of deforestation and emission of carbon, hence the need for alternative sources of energy is very important, so that the environment can be protected and I believe this component will provide that opportunity.

EC: Corruption is a major evil militating against economic development in Nigeria. What is the World Bank doing to tackle corruption in Nigeria?

The World Bank acknowledges the fact that corruption is not good for any governments, especially if it means using the public resources for personal interest. It is the case in Nigeria. It is the case everywhere. The World Bank has a new strategy for Africa; it is about the future of Africa and the World Bank’s contribution to it. It has two major pillars competitiveness and vulnerability and vulnerability and resilience and is supported by a foundation governance and public sector capacity. First of allit is important to define governance. One definition is the manner in which power is exercised in the management of a country’s economic and social resources for development. So before talking about corruption, you need to look at allocation and use of resources in a broad sense, for instance, is it clear where we are going? Is it clear where we are putting our resources? Because, if you don’t put the resources in the right place even if someone does not use the money for personal purpose, you still will not see results. We are looking at how resources are being allocated and how resources are being used, so, this means looking at how the budget prepared. At execution, proper procurement laws and systems must be put in place so that contracts can be granted transparently. The Federal Government has adopted the procurement law and has put in place the Bureau of Public Procurement (BPP). But there is the Procurement Council that will be a regulatory body to be put in place. If you bid for a contract and feel that you have not been fairly treated, you have the option to go to the body to place your complaints, you need to close the loop so that things are done properly. That is really a big part of what we are doing, you will agree with me that improving governance is a long term process, but the key thing is to get started and get attention. The final important point is to mobilize the citizens so that they look and ask for results. This is social accountability. For example, the Economic Confidential magazine publishes revenues that go to the states each month. This encourages openness and transparency in governance. The citizens of the states are in a position to ask how much the states are putting in education, health, but more importantly they need to see how much is actually spent. In summary, it has to be a joint effort, everybody has to admit that corruption is really a disease and we have to fight it together. So, a system has to be put in place to make government deliver, but at the same time the beneficiaries should be able to assess the quality of service they are getting.

We contribute to governance by putting proper financial information management system in place, for instance we are helping the Federal Government put in place Government Integrated Financial Management Information System (GIFMI), when you have a system like that, it reduces the opportunity for fraud and corruption, because when everything is automated it becomes difficult to commit fraud because you are in straight jacket. The system has just been launched; it will take 12 to 18 months to be fully on stream. This system has shown that there are so many public accounts in commercial banks, the moneys are idle there, whereas if you have a centralized treasury cash management system, then the state can say; let us use this money instead of going to borrow. So, one advantage of this system is that it has helped to identify a huge number of accounts that exist in all the MDAs (Ministries Departments and Agencies) and a strategy is now being developed to better centralize the cash management of Federal funds.

EC: What are you doing on the projects you are financing?

What we are doing at the World Bank is to put in place what we call third party monitoring and this is extremely useful to mobilize beneficiaries to assess the performance of the projects. For instance, we had a meeting with a third party monitoring team on power recently. As you know we are financing connection, a lady said to me, somebody came and told her ‘you have to pay something for the installation’, the lady replied and said ‘I read in the documentation that we are not supposed to pay for the installation, so I am not going to pay’. He realized that she knew about the system and he said ‘okay, don’t pay’. The lady responded ‘it is not just about me, but it is about everybody not paying’. What we are proposing is for the beneficiaries to respond on the quality of service and to monitor good use of the resources dedicated to the projects. Information and Communication Technology (ICT) will actually facilitate access to feedback and people can react to the quality of service they are getting through their mobile phones. It will be good to hold everybody accountable; this will create the awareness of ‘I am being watched.’

EC: What advice will the World Bank give to Nigeria in its bid to solve the problem of youth unemployment?

As I have said earlier, youth unemployment is not just a Nigeria problem but an African problem. In most countries you see a number of youths getting out of school and not getting employment. In the case of Nigeria it is about 2 to 4 million per year. This is the population of a small African country, this is about the population of Congo Brazzaville and so it is a very serious issue. It is quite clear that Nigeria has been growing, when you look at the growth performance of Nigeria compared with that of other countries, but you don’t see the growth turning into jobs, and when we looked at it more carefully, we noticed that one issue was the stagnation of Small and Medium Enterprises (SMEs), they did not create SMEs that will generate jobs for unskilled labour and so forth. That means you have to tackle this problem in a comprehensive manner: we need to look at the structural issues, such as power to boost the industrial and small sectors. Secondly, you need to look at the business environment to create better conditions to attract enterprises; you know that sometimes some enterprises are dead even before starting. Therefore the World Bank through our private arm is working with the government to address the five major constraints to creating enterprises. Clearly, the World Bank cannot replace the government, we provide advice and we see to it that they are moving in the right direction. You need to do something about the youth otherwise you have a potential bomb if you don’t address this issue.

EC: What are your major investments in Nigeria?

Nigeria’s portfolio in the Africa region is the largest one, at the moment we have $4.2 billion in the portfolio for country projects and we have another $200 million for regional projects because the bank invests more and more in multinational projects. So when we add the country window and the regional window we have about $4.4 billion. Out of that, you have 40% that have been disbursed already and 60% that is yet to be disbursed. Projects come on stream and take 6 – 8 years to fully disburse. Out of our portfolio, you have 54% that is sustainable development, what do I mean by sustainable development? You have not only the infrastructure itself; roads, energy, water, but also agriculture and urban development. I mentioned to you what we did in Lagos for the LAMATA because Lagos is really a large megalopolis that will continue to be at the centre of development of this country. Then we have human development, meaning health, education and social protection, representing 33%. We have $900 million in health to address general health sector issues but also malaria, polio and, HIV/AIDS. The rest of the portfolio covers programs to strengthen governance and promote private sector development as discussed above.

EC: What can you say about people complaining against too much borrowing?

There is nothing wrong with borrowing money, I have read about people who say; why do we borrow money? There is nothing wrong in it, but what you should be concerned about is; we borrow to do what? You can borrow, so long as the money is used for productive investments and that you comply with certain ratios. I mentioned earlier that you will need id=mce_marker4 billion per year for infrastructure, to connect roads, increase power capacity from 4000 megawatts to 40,000 megawatts. The point is to do a proper selection of investment, due diligence in terms of implementation to ensure that the project will generate the resources necessary for repayment. Take for instance, if the government should invest properly in power and the power becomes steady, the cost of most products will reduce, then you will have more growth, you will have employment, then the economy will generate the resources needed to allow for repayment. So,

EC: Can Nigeria survive without oil revenue?

So far, the government survives mainly with oil revenue which accounts for over 90 percent of exports and well over 70 percent of consolidated government revenues. As oil resources are not indefinite, it is important for Nigeria to plan now what it wants to be after tomorrow. The issue is how Nigeria can use the available oil resources to invest and prepare itself for the non-oil economy period. We think the Agricultural sector is very important for Nigeria. Today Nigeria is importing 2.5 million tons of milled rice annually. With the projected population growth, in 20 years Nigeria will need 35 million tons of milled rice. So will the country afford importing all this rice? This is why Nigeria needs to invest in Agriculture so that Nigerians can feed themselves in 20 years. Even if you continue to have oil, you may not have all the resources to import what would be needed to feed the population. You know the cost of importation of rice and wheat is very important. So I think the coming years are extremely important for Nigeria, you need to put in place not only the infrastructure, road, electricity, but you need to invest in agriculture.

EC: How can that be attained?

Again, the Government has adopted an ambitious agriculture transformation agenda. The World Bank will make a concerted effort to help the government in this area. I told my team, I want us to choose two key commodities out of the priority ones set by the Government. We want to make a big effort so that within the next 5 years we can say cocoa production in Nigeria has moved from 250,000 tons which is the current production to 500,000 tons, same thing for rice, we want to have a significant increase but that requires working on a number of factors, you need to work on yields for the production, if you have a variety that produces 7 tons per hectare, you have to move to 10 – 12 tons per hectare because, this is what Vietnam and Thailand are doing, so you need to research into that. Also, you need to have storage facilities so as to preserve your production. Then the processing, this is where power is required, the Kano region produces a lot of tomatoes, but the tomatoes are lost, so you also need good transportation system; especially good roads. So if you have enough to export, then you will not have the type of situation that I saw recently at the Port of Lagos where those containers imported famous wheat, rice and most of the containers go back empty. If they have to take something back, the unit cost of transportation would have been lower. It is very important for Nigeria’s leadership to work on the structural reforms for the infrastructure, build the human capacity and also invest on the productive sector like agriculture, but it is not just agriculture.

Which other areas should Nigeria invest in for industrialization?

Looking at the huge number of phones being imported and used in this country, you could imagine that Nigeria could produce them locally. Nigeria has current opportunities to attract inward industrial investment by harnessing its comparative wage advantage vis-à-vis China and other maturing economies, if it can address some specific constraints.

So, the country could start with what we call low manufacturing sector, for example consumer electronics where you can build phones and TVs, why would you have to import TVs? Look at the size of the market, not only the Nigeria market but the sub regional market. As I said earlier, countries like China are less competitive, because the unit cost and the wage bill has increased, now the Chinese employees may be getting $200 per month, they are now losing their wage competitive advantage and have moved up in the value chain, leaving space and opportunities for countries like Nigeria. Nigeria is actually looking at opportunities to partner with China and other maturing countries. Another potential sector is construction and housing in order to provide Nigerians with affordable housing. This has the potential to create jobs whilemeeting the housing needs of the population, particularly low income housing. We are ready to work with the government in this area.

EC: Is World Bank investing in other sector of Nigeria’s economy, like Solid Minerals?

The World Bank has invested about id=mce_marker20 million into solid minerals in Nigeria, for processing precious stones and other solid minerals. It is quite an opportunity to explore. There is also potential for activities in the tourism industry in every state in Nigeria. So there will be a need to develop a comprehensive tourism strategy. For example, a country like Rwanda generates 30% of its resources from tourism, they have gorillas, and have been able to organize the visits to the gorillas, and have set up the proper infrastructure around the sites. There is a potential for tourism but it has to be very well organized.

EC: When and what plans have the world bank put in place for the poorer nations to repay the investment and development policy loans which it has given to them?

The World Bank has several windows. First, you have the International Development Association (IDA) which is our concessional window, and under this window, we usually give grants or credits without interests to very poor countries, countries that have Revenue Per Capita of id=mce_marker175. Under this window, countries enjoy a repayment period of 40 years with a grace period of 10 years. They don’t pay interest, but only a service charge of 0.75% on the disbursed balance and a commitment charge of 0.5% on the undisbursed amount. The other window which is the International Bank for Reconstruction and Development (IBRD), there we serve what we call medium income countries, and thirdly we have the private sector window known as International Finance Corporation (IFC), which supports the private sector. Nigeria is still part of IDA and receives interest-free credits. The total external debt of Nigeria is about 2.5% of its GDP which is a very small amount since Nigeria obtained the debt cancellation some time ago. As I said, Nigeria is not paying interest on IDA loans and with the grace period I mentioned earlier, it means that our loans to Nigeria has a grant element of almost 60%.

What are the challenges facing the World Bank in Nigeria?

You see that $4.5 billion with 28 projects is a large portfolio, although I said it is small when compared to the Nigeria Government’s budget, but for the Africa region, it is in fact the largest portfolio continental wise. We go on supervision to assess implementation of programs on the ground, so we have to go to the field. It is not always easy, for example we are planning a trip to Taraba State, but I have to fly to Yola first and then drive back to Taraba which requires a full day. Secondly, working on NIgeira is like working on 37 countries as the typical state in Nigeria has the size of the smaller countries in the continent. I must say that I have been warmly welcomed by the people of the states I have visited. The State authorities seek our support in a number of areas and would like us to respond quickly; which is not always possible as we have staff for one country not for 37.

How do you see Nigeria and Nigerians?

I have been so warmly welcomed. Before you come to Nigeria, you will hear all kinds of stories about Nigeria being difficult. I was so pleasantly surprised when I arrived to see how nice the people are. Very warm, very friendly, so totally different image of what I had heard before. My advice to you is that you need to promote Nigeria; Nigerians need to promote Nigeria a little bit more outside Nigeria. In the overall I have been very happy here in spite of all the challenges. I also believe that it is one of the most beautiful challenges that I can have, because if Nigeria can really take off, it is not just Nigeria, it is West Africa and the entire continent, hence, Nigeria has to be one of the leading economies.

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