The Federal Government through the Ministry of Budget and National Planning is currently in the process of developing a National Economic Recovery and Growth Plan (NERGP). The plan targets key economic and social issues for the coming three years. The plan sets out a comprehensive agenda on monetary and fiscal policies, economic diversification, competitiveness and growth, as well as social cohesion, job creation, improved governance and combating corruption. The plan presented to the state governors on 15th December 2016 sets out an ambitious GDP growth target of 7% by 2020. This comes against the backdrop of the Nigerian economic downturn in 2015 and subsequent recession in 2016 for the first time in over 20 years. The question is: Will the plan succeed?
The NERGP proposes several initiatives to identify and harness potential revenue sources that will address the growing fiscal budget deficit. It sets out goals to reform varying economic sectors that will not only take the country out of recession but that will foster long term sustainable growth.
Other goals such as the desire to achieve better governance are of great significance and should be pursued aggressively. It is no secret, that many government ministries, departments and agencies (MDAs) are over-staffed and that a process of staff rationalization is needed to reform and improve efficiencies within the civil service.
The NERGP anti-corruption and transparency plans are also encouraging. Amongst other measures, the NERGP envisages the establishment of whistle-blower hotlines, incentivizing the reporting of corrupt officials and enhancing centralized identity management. If implemented successfully, these initiatives will be incredibly beneficial.
An effective whistle-blowing policy can only be sustained when protection of whistle-blowers is institutionalized by enactment of relevant laws. Therefore, a bill to this effect must be submitted to the National Assembly and given expeditious priority in hearings, debates and eventual passage into an Act.
Another positive objective of the NERGP is the desire to take a decision to move from the current fixed exchange rate regime to a regime of flexible exchange rates. In the short and medium term, it is likely to lead to a further significant devaluation of the Naira, which will worsen the already rampant inflation and place further stress on the import-dependent and consumption-oriented Nigerian economy.
In the light of current macroeconomic instability, the planned adjustment of the foreign exchange policy needs to be supported with the elimination of the rationing system that distorts the market while fiscal and monetary policies must be synchronized to rein in inflation that hit 18.72 per cent (year-on-year) in January 2017. In addition, the current strategy adopted by CBN to rebuild the country’s foreign exchange reserves to $40bn is a step in the right direction as this will undoubtedly further boost investors’ confidence.
A worthy initiative is the proposal to establish a Delivery Unit to drive implementation of the NERGP.
Historical evidence suggests that implementation of major reforms is better served with a small and efficient task force, staffed with the best professionals in their fields. The unit should submit regular reports to the President and spearhead the reform process by streamlining the implementation of the plan initiatives by the MDAs. Mishandling of this critical step could stall and even derail the entire reform process.
The NERGP proposes the expansion of social safety net programs. As Nigeria currently ranks low on poverty and inequality, expanding the social safety net is an important goal in addressing this problem. The plan proposes conditional cash transfers (CCTs) as a major tool of achieving this goal. CCTs have worked well in countries in Latin America, Asia and even in Africa (Ghana, Malawi, Uganda, etc.).
The NERGP goal of increasing customs and excise revenues by reducing leakages is desirable. The introduction of a single window for duty collection has proved effective in neighboring countries such as Ghana.
It is therefore critical that the government keeps track of achievements in the reduction in known leakages such as importation of vehicles through land borders. In these circumstances, if the Nigerian Customs Service is able to indicate and make comparison in their volume of car imports and revenue collection on the imports through the ports alone in Q1 2017 as compared with Q1 2016, this could provide a good indication on the policy’s ability to address revenue leakage in duty collection. In this regard, this can then serve as a template for further policy direction, especially in clearly identifying that all possible revenue leakages in duty collection are clearly identified, plugged and documented through appropriate policies and processes.
The NERGP also targets agricultural transformation and the acceleration of the Nigeria Industrial Revolution Plan (NIRP) with a focus on agro-processing and industrial hubs. Nigeria has a high potential for agricultural output but current agricultural productivity is very low. Intensification of agricultural output through increased early and effective distribution of farm inputs such as fertilizers and provision of better extension programs should be the key to boosting productivity.
Similarly, the plan to further boost agricultural output via construction of major agri-processing hubs should lead to improvement in the agriculture value chain and give more value for farm produce to the farmers. However, recent studies show that it is far more difficult to promote clusters in developing countries than in developed ones. In addition, establishing more export-processing zones may not be a desirable pathway.
In addition to significantly eroding tax revenues derived from agri-business, they may block the advancement of a sizeable local market for processed agricultural products. It should be recognized that there is a significant local market for processed agricultural products in Nigeria. So, the focus for creation of these agro-processing and industrial hubs should be not only for the export market but the local market as well.
When it comes to policy initiatives, the trend in Nigeria has been for new governments to jettison the initiatives of previous administrations, be they good or bad. This plan to improve agricultural output is one example where a departure from this practice must be made. The Federal Government should be able to harness the positive aspects of the truncated land reform program of the Yar’Adua administration and the agricultural transformation program of the Goodluck Jonathan administration and include these as part of the agricultural growth plan of the NERGP.
Another good NERGP goal that currently appears to lack specifics is the desire to leverage public-private partnerships (PPPs) to invest in infrastructure projects. Attracting private capital to finance critical infrastructure projects is important to stabilize the country’s budget and improve economic growth. Unguarded statements from public officers in both the executive and legislative arms threatening to revise or cancel the privatization programme of the power sector concluded by the previous government send the wrong messages to potential investors, making the PPP initiatives risky and uncertain.
Another goal that could be difficult to realize is the promotion of the ICT sector and creative industries. ICT has produced the most significant productivity gains over the last half century and is rightly viewed as one of the engines of growth for many now-developed economies. The idea of investing in the development and deepening of broadband Internet in Nigeria is commendable.
A welcome though arguably contentious NERGP initiative is the goal of reducing government ownership stakes in oil and non-oil assets. A key objective of the plan is to reduce government share in joint ventures by 5 percent and divesting other Federal Government owned assets such as refineries and pipelines. It is also important to set realistic privatization goals and ensure that investors’ property rights are protected.
The NERGP failure to fully address the growing fiscal deficit and the fact that its implementation is likely to lead to an accumulation of foreign debt is cause for concern. The plan itself relies heavily on revenues from increased oil production as a key means of funding a projected rising budget deficit in 2017–2020.
The acting President’s recent visits to the Niger Delta States is an encouraging start but is not a replacement for a comprehensive plan. Even if the Niger Delta crisis is resolved and increased crude oil production is achieved, there is always the possibility of another global crash in crude prices, which will erode any gains realized. Oil prices are notoriously volatile and the fundamentals driving crude oil prices have been altered significantly in recent times. In a world where the dynamics and fundamentals of the crude oil market have changed and where Nigeria does not assert control on global crude oil prices, the crude oil production and revenue targets on which the NERGP is based might be challenging to achieve.
The NERGP measures to optimize Nigeria’s debt strategy may need a rethink. For example, the NERGP proposes optimizing the country’s debt strategy by rebalancing its external debt portfolio and issuing N2 trillion bonds for contractors’ debts. However, the country’s ability to borrow on the international markets may be hampered by Nigeria’s declining ratings from international credit agencies, although the prospects look brighter following the apparently successful but relatively small $1bn Eurobond fund raising and the gradual rise in the country’s foreign reserves.
While the NERGP does propose some good steps towards improving the quality of electric power supply, such as introducing cost-reflective electricity tariffs for electricity and restructuring utilities’ debt, it is hard to see how it will achieve a complete turn around in the power sector in just two to three years without addressing transmission capacity limitations!
The Federal Government should resist the urge to engage in spending on potentially wasteful projects such as operationalizing the Family Home Fund with N1 trillion to stimulate rapid expansion of the construction industry. While improved access to housing is a desirable goal, establishing a multi-milliondollar housing fund, in a country where the construction industry is notoriously inefficient may result in a waste of public resources.
There is also little need to create a Development Bank of Nigeria (DBN), as there are already several development finance institutions (DFIs) in place. Instead, the existing DFIs should be restructured for greater efficiency and service delivery.
In conclusion, there has been a groundswell of criticism both at home and abroad of the APC led government’s slow response to the prevailing economic crisis which has led to a massive devaluation of the Naira, increase in inflation, massive job losses, growing unemployment, and until recently, non-payment of salaries in both the public and private sectors. The lack of clarity about the vision and direction of the Federal Government’s economic policy has not been good for Nigeria. The Federal Government should be applauded for at last signaling through the NERGP, its determination to take the economy out of recession and place it on a growth trajectory by committing to a clearly defined economic reform process.
The plan seeks to reset expectations and it should be praised for seeking to combat corruption directly and strengthen public services – both of which are major obstacles to sustainable growth. While the plan contains many good goals, it contains a few elements that are either of uncertain quality, overly ambitious or devoid of specifics. The NERGP also relies heavily on oil revenue as a major driver and though this is risky, it is probably inevitable. Unarguably, it will lead to an increase in foreign debt and though this is not necessarily harmful because it is mainly directed towards much needed infrastructure development, it is still a major concern for Nigerians given past experiences and previous chronic inefficiency in public sector management of expenditures.