Opinion
CISLAC/TI-Nigeria Presentation At World Bank/IMF Spring Meetings
By Auwal Ibrahim (Rafsanjani)
I would like to thank you all for this opportunity to speak to this large collection of advocates shaping, promoting, and championing global economic reforms.
In light of Nigeria’s current economic setbacks, drastically declining human development indices and the emergence of an incoming government, we believe that this platform would be crucial to presenting an overview of the Nation’s economic policies under the current administration in terms of the achievement of macro-economic objectives, with a view to recommending and advancing a pro-poor economic agenda for the incoming government.
As we know, it is the goal of any rational government to improve the living conditions of her populace through appropriate and effective micro-economic policies. Good policies on the other hand, should be technically sound, widely acceptable, and administratively feasible, and to achieve and sustain its macro-economic objectives.
Just as the fundamental roles of fiscal policy, monetary policy and trade policy cannot be over-emphasized in any open economy, especially in terms of economic management.
Nigeria like many developing economies has however suffered huge but reconcilable fiscal, monetary and trade deficits, if only it acts now. Fiscal, monetary and trade policies in Nigeria are characterized by profligacy, delayed implementation of key reforms, poor financial framework, which is strengthened by mismanagement of monumental oil revenue that pose a threat to macro-economic stability.
While the Nigerian economy rebounded after the difficult years of COVID-19, growing 3.5% in the first three quarters of 2022, the recovery has wrought more hardship on Nigerians, and socio-economic conditions in Nigeria have been on a steady decline ever since.
In sum, Nigeria’s economic and political transformation process since independence has been marked by progress and setbacks. However, there are reasons to be optimistic about the future of the country but only with aggressive but reasonable policy interventions, can Nigeria have a significantly brighter future.
With the conclusion of the general elections and pending outcomes of result contestations, it is instructive to spark conversations around the right economic policy choices for the incoming administration as they would have a significant impact on the country’s economic profile.
Nigeria like most other countries around the world, was greatly affected by the impact of the COVID-19 pandemic and introduced and implemented economic policies prior to, during and after the pandemic towards growth and development. We hope to review these policies and plans with respect to their short and long-term objectives for sustainable growth and development; and the stabilization of the economy in response to sudden and unpredictable economic shocks using key indicators of economic performance like inflation as a measure of price stability, unemployment, Gross Domestic Product (GDP) as a measure of economic growth and import and export as a measure of balance of payments.
Amongst these economic frameworks are its:
ECONOMIC SUSTAINABILITY PLAN (ESP)
The COVID-19 pandemic precipitated serious economic distortions in the Nigerian economy leading to a decline in oil prices, foreign reserves, GDP growth, increase in unemployment and inflation, depreciation of exchange rate as well as a fall in banks’ lending to the private sector. The Economic Sustainability Plan was a robust and well-articulated plan launched on March 30, 2020, as Nigeria’s National Economic Resilience (NER) plan in response to the outbreak of the pandemic. It aimed to inject a stimulus package of N2.3 trillion (Two trillion, three hundred billion naira) into the economy with the view to preventing businesses from total collapse and retain employment in the country; create jobs using agriculture, manufacturing, and services; invest in infrastructural facilities such as roads, bridges, solar power, and information technologies as well as invest in the poor through social investment schemes.
While the ESP was noted to have helped Nigeria exit recession in record time with more than 5 per cent growth in the economy, saved over one million jobs and forestalled the closure of over 150,000 small businesses hit by COVID-19, there were huge gaps for improvement. Despite efforts to deepen the wide variety of Social Intervention Programmes (NSIP) to help those in poverty, its attempts were clearly affected by the high presence of corruption, mismanagement, poor accountability, and unemployment that aggravated existing inequalities. The nation’s programmes are failing to adequately lower the rates of poverty and the programme have been characterized by allegations of politicization and corruption.
Recall that the NSIP was at the centre of the 2019 presidential election and the subsequent judicial litigation process as its Trader Moni scheme was alleged to be used as a tool for voter inducement. Being the poverty capital of the world is not only impacting Nigeria, but it is also impacting the whole world. At the end of the ESP implementation period in 2020, thirty-three-point three (33.3) percent of the labour force in Nigeria persons were unemployed. There was an inflation rate of 13.25%, growing by 1.85% from the previous year and Prices escalated with food inflation at 19.57%, an increase in electricity tariff, and increase in the price of Petroleum Motor Spirit (PMS), amongst other growing financial obligations. These figures are currently higher. Nigerians across various disposable income brackets, were financially pressured and strained. Nigeria’s economy grew by 3.6% in 2021 from a 1.8% contraction in 2020. In 2020, Nigeria’s GDP per capita stood at just about two thousand dollars, ranking 17th on the list of African countries. In the same vein, Nigeria’s Gross National Income (GNI) per capita for 2020 was $2,020, a 1.46% decline from 2019. According to the United Nations Development Programme (UNDP), Nigeria dropped three spots to 161 in 2019 from 158 in 2018 among 189 countries in the 2020 Human Development Index (HDI).
NATIONAL DEVELOPMENT PLAN (2021-2025)
Nigeria’s National Development Plan for the period 2021 and 2025 was expected to succeed the Nigeria Vision 20:2020 Economic Transformation Blueprint, Economic Recovery and Growth Plan (ERGP) 2017-2020 and the Economic Sustainability Plan 2020 that elapsed in the year 2020.
To achieve its objectives in building a vast infrastructure development, promoting macro-economic stability, improve living conditions among others, an investment of about N348.1 trillion from both the public and the private sectors is estimated between 2021-2025 to fund 31 sectoral priorities classified under five thematic areas- Economic growth and development, Infrastructure, Public administration, Human Capital Development, and Social Development.
All the afore-mentioned policies, namely ERGP, ESP, and the NDP 2021-2025, were all geared towards sustainable growth, jobs creation, and real poverty reduction with broad strategic objectives and a defined time frame. Unlike the previous plans, the NDP 2021-2025 sectoral objectives target by 2025 is not limited to the micro-economic level. All specific sectoral programme objectives have their specific targets at the end of the implementation period (i.e., 2025). This is an innovation by the NDP National Steering committee during the preparation stage. It was aimed at linking the plan with various sustainable development goals. This is not the case with previous plans. There is nowhere in the ERGP and ESP where the target was designed for each of the programmes’ objective at the end of the implementation period. This policy approach allows the government to determine which programmes strategy is working and which one is not working at the end of the implementation period. Indeed, it allows flexibility. The issue then remains a legitimate public concern for its effective implementation.
FISCAL PROFILE
On the country’s fiscal profile, general government interest/revenue is extremely high (47% in 2022 by Fitch’s estimate) and is expected to remain so given constraints on revenue mobilisation, increasing debt and monetary policy inconsistencies. Structurally low non-oil revenue, spending pressures and weak economic growth imply substantial fiscal financing needs.
REVENUE MOBILIZATION
The current revenue problem is worsened by an over-dependence on oil revenues which is further compounded by leakages such as an increase in oil theft and petrol subsidy, both of which have significantly reduced the revenue from oil sales that used to account for the bulk of government revenue.
Nigeria’s crude oil output rose to 1.3 million barrels per day (bpd) in February 2023, still short of the 1.8 million barrels per day quota set by the OPEC. Current production figures are the highest in 13 months since January 2022 when production averaged 1.39 million bpd, according to the Nigeria Upstream Petroleum Regulatory Commission (NUPRC) production report. Despite the enactment of its Petroleum Industry Act (PIA) since August 2021, production shortfalls occasioned by non-functional refineries, production measurement inaccuracies, theft, sabotage force majeure; and questionable fuel subsidy payments, continue to present challenges in oil revenue underperformance and maximizing extractive resource benefits.
According to the NUPRC’s forensic audit on crude theft numbers, conducted by the commission covering the period from January 2020 to November 2022, about 40 per cent of the volumes of crude oil losses in the Nigerian petroleum industry are due to measurement inaccuracies and not theft. You would recall that In April 2022, the Nigeria National Petroleum Corporation (NNPC), disclosed that Nigeria lost $4 billion to oil theft at the rate of 200,000 barrels per day in 2021. Last September, the NNPC said that the country loses 470,000 barrels of crude oil monthly amounting to $700 million to oil theft. This claim was however faulted by the Nigerian Navy.
At between three and four per cent of the country’s Gross Domestic Product (GDP), Nigeria’s non-oil revenue mobilisation remains one of the lowest in the world, reflecting weaknesses in revenue administration systems and systemic non- compliance. One of the major hindrances to improved internal revenue is the political will to widen the tax base, enforce taxes, over-dependence on Pay-As-You-Earn (PAYE) from public sector employees, while direct tax assessment is almost zero per cent. The Government has also failed to maximize the huge potential for its largest sector- the agricultural sector- which has accounted for 24% of the GDP in the past decade. Two years after the implementation of the African Continental Free Trade Area Agreement (AfCFTA), which came into force on January 1, 2021, Nigeria continues to lag in making the trade agreement operational owing to structural challenges, lack of consensus on trade protocols and strategy among stakeholders. This is despite the expected benefits to foster agricultural transformation and advancement in Africa to promote food security and competitiveness through the improvement of regional agricultural value chains and investments in production and marketing infrastructure. While the AfCFTA has huge implications for productivity and competitiveness. Nigeria also continues to maintain a low position of 126 out of 133 countries in the global complexity index, according to the Economic Complexity Index (ECI).
The over thirty-nine million Micro, Small and Medium Enterprises (MSMEs) operating in Nigeria that account for 96.7 percent of businesses, 87.9 percent of employment, and 49.7 percent of national GDP do not have the enabling environment and access to needed support opportunities for business optimization and the improvement of their livelihoods. A financing gap of about 617 billion naira before the pandemic, according to 2020 MSME survey by the Price Water House Coopers, presents huge growth limitations for these important contributors to employment, output growth, and trade expansion in Nigeria.
UNSUSTAINABLE DEBTS
With limited access to further financing on concessional terms, and with a growing presence and influence of private creditors in its debt profile, Nigeria’s national debt is growing and increasingly putting the country in a precarious situation, with significant implications for human rights, including to education and health. The country’s total public debt stock as of September 2022 was N44trillion (103 billion dollars) and the incoming administration would inherit a debt burden of N77trillion by June 2023, if the proposed N23.7 trillion CBN loan is securitized.
This will only worsen with the poor revenue generation and endemic effect of exchange rate volatility. While the Nigeria Debt Sustainability Analysis (DSA) and Stress Tests suggest that Nigeria’s debt to GDP remains at moderate risk of debt distress, they remain vulnerable to revenue and export shocks which are major determinants of borrowing capacity. A more objective analysis of the extent of the crisis assessed based on debt service to revenue ratio to determine debt repayment ability without impeding national development goals, however, shows that Nigeria is in breach of its external debt to revenue ratio limit of 18 percent and stands at 21.7%. Nigeria spent N2.3 trillion, an equivalent amount to its ESP in 2019 on debt servicing and for the first time in its history, debt servicing surpassed its revenue in April 2022, when retained earnings were just N1.6 trillion but spending on debt servicing reached N1.9 trillion, representing 118.7% of the total retained revenue for the period.
In addition to this, there are plans by the government to spend about $800 million as part of the post petroleum subsidy palliatives. It is reported that Nigeria plans to use this fund which is the first tranche of the palliatives as cash transfer to 50million Nigerians. It is important that this be investigated and for all stakeholders to be sure that this is the best use of this funds which is a loan from the world bank to be paid back by Nigeria in the future.
Further to this, the increasing dominant role of private creditors in the international finance scene seems to have set the stage for a new dimension of debt crisis that is now playing out particularly among emerging and developing economies like Nigeria. As at September 2022, debt servicing to commercial creditors was $451.4 million, implying that it took over 56% of the entire external debt servicing costs.
The World Bank’s World Economic Outlook for 2020 showed that Nigeria with a revenue to GDP ratio of 6.3 per cent was ranked at 194 out of 196 countries covered.
MONETARY POLICY INCONSISTENCIES
The macro-economic and monetary policies of the Central Bank of Nigeria (CBN) have brought untold hardship to the productive and service sectors of our Nigeria’s economy with consequential negative effect on the lives of its citizens. The Apex Bank has floated multiple exchange rate regimes and has been accused of facilitating arbitrage between the parallel and official foreign exchange markets, providing huge financial patronage, and extending forex-based favours to allies. Under the Anchor Borrower’s Programme (ABP), the CBN would bear 50% credit risk after satisfactory evidence that every means of loan recovery has been exhausted.
One can only suspiciously project what could possibly happen under the CBN’s new forex repatriation “Race to $200bn” scheme, where it intends to provide concessionary and long-term loans for business people who are interested in expanding existing plants, or building new ones for the sole purpose of adding significant value to the non-oil commodities before exporting same.
Also, there has been a pervasive dollar scarcity, with an estimated One-Billion-dollar ($1b) backlog of unmet dollar demands. This scarcity which started in early 2020, in the early weeks of the pandemic and after it stopped its open market operation (OMO) policy of giving out high interest rates in exchange for foreign portfolio inflows, has forced manufacturers and businesses alike to rely on creative ways to access needed forex through the official window (when available), black markets, dollar receipts, import substitutions, related parties or by reducing imports of raw materials inputs.
The numerous missteps in statements, intents, or contexts of monetary policies by the leadership of the Apex Bank has been worrisome. The decision to redesign and reissue new 200, 500 and 1000 notes, while within its mandate, was not an economic priority and barely a solution to addressing Nigeria’s poor monetary policy challenges and growing economic woes. Various comments and responses from concerned Nigerians, showed that many Nigerians were worried about the misplacement of priorities of the Apex Bank to make such a decision that comes with possibly huge logistics costs and avoidable dislocations to small businesses, most of whom are in the informal sector. This was especially at a time when the country was grappling with huge fiscal deficits, a free fall of the naira, soaring inflation rates, multiple forex rates and rising borrowing costs. The reasons for this decision seemed no different from those given for the forex demand management strategy which resulted in a non-satisfactory conclusion as the artificially low exchange rate failed to be as reflective of the market as possible to improve supply, but this time it only threatens damning economic consequences for Nigerians. The starting point for such an adventure should be a vibrant electronic payment platform powered by healthy investment in the software packages and the needed high-level manpower by the deposit money banks and other financial institutions to drive it.
RECOMMENDATIONS:
We have a long way to go towards revitalizing the economy, but the incoming government needs to demonstrate the political will to at least ensure the transparent and accountable implementation of strategic and sustainable developmental policies. The Nigerian economy must at least grow at 7-8 per cent a year for five to ten years based on an investment-led strategy to avoid the possibility of multi-dimensional poverty, debt, and insecurity consuming us in the next decade.
Over the last decade, the country has spent over N10 trillion on fuel subsidies, about 15.5 trillion on Capital Expenditure, 2.5 trillion on Health, and about 3.9 trillion on Education. In its latest National Multidimensional Poverty Index report the National Bureau of Statistics (NBS) said that 63 per cent of Nigerians were poor due to a lack of access to health, education, living standards, employment, and security. The 133 million poor Nigerians recorded by the NBS, exceeded the World Bank’s projection for Nigeria in 2022. The incoming government needs to sustain strategic policies with the potential of driving economic growth and development.
Moving forward, deliberate efforts must be made to avert them is placement of priorities and reverse some of the current policies and sustain and effectively implement new ones. All leakages associated with Government revenue must be blocked (oil theft, skewed concessions, fuel subsidy, etc.), and a wholesome review of the Tax administration to make it more equitable and investor friendly. The nation seems to be behind in all economic growth fundamentals, except a large market, which if not harnessed might become a curse as the implementation of the Africa Continental Free Trade Area (AfCFTA) agreement swings gains more steam.
To satisfactorily finance development, the incoming government must focus on debt sustainability, maximising revenue generation from oil and non-oil resources through fair, transparent, equitable and progressive taxes and complementary policies, and reduce leakages and wastes through strong transparency and accountability mechanisms and a reduction in the cost of governance. The latter can be largely achieved by the implementation of the recommendations of the Oronsaye Report.
To encourage long-term development, the government should also ensure that borrowing is done on conditions that are consistent with entrenching debt sustainability and that borrowed funds are wisely invested in the economy’s value-added sectors. There is also a need for Nigeria to operate an efficient tax administration that would ensure greater compliance to remittances devoid of all forms of evasions in the system to tackle revenue challenges. Incessant increases of taxes are probably because of revenue shortfall, but it is detrimental to the economy. There is a need for the incoming government to restructure the tax system, enlarge the tax base, eliminate harmful tax expenditures (waivers, reduced rates, special deductions, and tax credits).
1. Boost Government revenue generation and improve inter-temporal budget constraints: poor revenue generation has been identified as a major driver of debt accumulation and therefore there’s a need to improve revenue generation through taxes. All over the world taxes have been acknowledged as the most sustainable sources of government revenue, so the Nigerian government must see and explore progressive taxation as a means of boosting revenue and ensuring current and future tax revenues can meet the current and future government’s people-cantered expenditure. The incoming government should prioritise engagement and enlightenment of taxpayers to educate them on their obligations; adoption of special tax drives and campaigns; aggressive anti-corruption policies and implementation; creating incentives to increase exports.
2. Reduce reliance on borrowings from the international capital market or commercial loans. There is a need to strictly adhere to the provision of the law on maintaining concessional loans as this pose limited debt risk and incorporate a mechanism to work out effective restructuring and negotiate debt relief initiatives which are quite impossible with commercial creditors. Private creditors’ loans are expensive for a nation such as Nigeria that struggles with revenue generation and as such this frontier of borrowing should be discouraged.
3. Strengthen the Foreign Exchange Policy to reduce the impact of volatility on loan repayment and thereby reduce the public debt burden that arises from local currency devaluation.
4. Improve public borrowing transparency and accountability. The need for public debt transparency is born out of the imminent danger of public debt crisis as brought to the fore by the high sovereign debt figure and the roles of private creditors in the scheme of things. Public disclosure of critical information such as terms and conditions of loans, particularly those of private creditors will help the country stay alert to any hidden danger in exploring such loan frontiers. The Debt Management Office should include on its website sectors where loan terms and conditions can be proactively published including names and details of bondholders.
5. Establish an independent committee that comprises Civil Society representatives, the Auditor General Office, the Ministry of Finance, and the DMO to carry out an independent review of all future loan requests with the view to determine their variability and importance.
6. Adhere strictly to regulatory and legal frameworks such as the Fiscal Responsibility Act (FRA) 2007, which provides a framework for prudent spending that does not justify taking loans for recurrent costs, subsidies and poorly designed or inflated capital expenditures to ensure that borrowing entities stay in single digit rates, following variable considerations.
7. Effective implementation of the Petroleum Industry Act, including its provisions for the removal of subsidies and the implementation of open data reforms like beneficial ownership transparency and contract transparency requirements; and the rehabilitation of oil refineries to boost local refining capacity towards meeting self-sufficiency. Accurate accounting of production in the sector is critical in view of its economic significance as the country’s major foreign exchange earner.
8. Drive investment in the agricultural sector to increase productivity to meet local demand and ensure food security, while supporting product standardization for export-value addition.
9. Advance efforts in implementation of AfCFTA to ensure that Nigeria is advantageously positioned to reap its substantial benefits to enhance the country’s productivity and competitiveness.
10. Address the infrastructure gap by creating an enabling environment for private-sector-led infrastructure development.
11. Implement reforms to deepen economic and export diversification, focusing on manufacturing, starting with improving the business climate and macroeconomic stability.
12. Strengthen ease of doing business and block leakages for corruption.
We call on Nigerians locally and in diaspora, as well as well-meaning members of the international community, to join their voices in calling on the incoming government for sincerity of purpose in the prioritization of planning, formulation and implementation of policies and programmes that would drive inclusive and sustainable growth and development for Nigeria, Africa, and the World by extension.
Thank you.
Auwal Ibrahim Musa (Rafsanjani)
Executive Director,
CISLAC/TI-Nigeria
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