Economic Recovery and Growth Plan 2017-2020 | Nigeria | Overview

OVERVIEW OF NIGERIA ECONOMIC RECOVERY AND GROWTH PLAN 2017-2020

Following the downward trend in Nigeria's economy within the last three years which culminated in the recession that the country has been battling with since the second quarter of 2016, a number of actions have been taken by the government to bring Nigeria back on the path of growth. One of these actions is the collaborative development of a medium-term plan, namely the Economic Recovery and Growth Plan (ERGP) 2017-2020.

The Executive Summary of the ERGP Document is given in the overview below while the full document is available at http://nigeriandocuments.blogspot.com/economic-recovery-and-growth-plan

INTRODUCTION

Nigeria has the potential to become a major player in the global economy by virtue of its human and natural resource endowments. However, this potential has remained relatively untapped over the years. After a shift from agriculture to crude oil and gas in the late 1960s, Nigeria’s growth has continued to be driven by consumption and high oil prices. Previous economic policies left the country ill-prepared for the recent collapse of crude oil prices and production. The structure of the economy remains highly import dependent, consumption driven and undiversified. Oil accounts for more than 95 per cent of exports and foreign exchange earnings while the manufacturing sector accounts for less than one percent of total exports. The high growth recorded during 2011-2015, which averaged 4.8 per cent per annum mainly driven by higher oil prices, was largely non-inclusive. Majority of Nigerians remain under the burden of poverty, inequality and unemployment. General economic performance was also seriously undermined by deplorable infrastructure, corruption and mismanagement of public finances. Decades of consumption and high oil price-driven growth led to an economy with a positive but jobless growth trajectory.

After more than a decade of economic growth, the sharp and continuous decline in crude oil prices since mid-2014, along with a failure to diversify the sources of revenue and foreign exchange in the economy, led to a recession in the second quarter of 2016. The challenges in the oil sector, including sabotage of oil export terminals in the Niger Delta, negatively impacted government revenue and export earnings, as well as the fiscal capacity to prevent the economy from contracting. The capacity of government spending was equally constrained by lack of fiscal buffers to absorb the shock, as well as leakages of public resources due to corruption and inefficient spending in the recent past.

The current administration recognizes that the economy is likely to remain on a path of steady and steep decline if nothing is done to change the trajectory. It is in this context that since inception in May 2015, Government has made several efforts aimed at tackling these challenges and changing the national economic trajectory in a fundamental way. The earliest action was the prioritization of three policy goals: tackling corruption, improving security and re-building the economy. Consequently, the Strategic Implementation Plan (SIP) for the 2016 Budget of Change was developed as a short-term intervention for this purpose. Visible successes and achievements have been recorded. However, it is recognized that more needs to be done to propel the country towards sustainable accelerated development.

The Economic Recovery and Growth Plan (ERGP), a Medium Term Plan for 2017 – 2020, builds on the SIP and has been developed for the purpose of restoring economic growth while leveraging the ingenuity and resilience of the Nigerian people – the nation’s most priceless assets. It is also articulated with the understanding that the role of government in the 21st century must evolve from that of being an omnibus provider of citizens’ needs into a force for eliminating the bottlenecks that impede innovation and market-based solutions. The Plan also recognises the need to leverage Science, Technology and Innovation (STI) and build a knowledge-based economy. The ERGP is also consistent with the aspirations of the Sustainable Development Goals (SDGs) given that the initiatives address its three dimensions of economic, social and environmental sustainability issues.

ERGP’S NEW APPROACH

The ERGP differs from previous plans in several ways. First, focused implementation is at the core of the delivery strategy of the Plan over the next four years. More than ever before, there is a strong political determination, commitment and will at the highest level. Whilst all the MDAs will have their different roles in implementing the Plan, a Delivery Unit is being established in the Presidency to drive the implementation of key ERGP priorities. The Ministry of Budget and National Planning will coordinate plan-implementation and for this purpose will, amongst other things, build up its capability for robust monitoring and evaluation.

Second, the Plan outlines bold new initiatives such as ramping up oil production to 2.5mbpd by 2020,
privatizing selected public enterprises/assets, and revamping local refineries to reduce petroleum product imports by 60 percent by 2018. Other initiatives include environmental restoration projects in the Niger Delta, which demonstrate the Federal Government’s determination to bring environment sustainability to the forefront of its policies. As part of this Plan, oil revenues will be used to develop and diversify the economy, not just sustain consumption as was done in the past. The economy will run on multiple engines of growth, not just the single engine of oil. The Plan focuses on growth, not just for its own sake, but for the benefits it will bring to the Nigerian people. This Plan also places importance on emerging sectors such as the entertainment and creative industries.

Third, the ERGP builds on existing sectoral strategies and plans such as the National Industrial Revolution Plan, and the Nigeria Integrated Infrastructure Master Plan. Rather than re-inventing the wheel, the ERGP will strengthen the successful components of these previous strategies and plans while addressing challenges observed in their implementation.

Fourth, the ERGP is innovative in that it signals a changing relationship between the public and private sectors based on close partnership. In implementing the Plan, the Government will collaborate closely with businesses to deepen their investments in the agriculture, power, manufacturing, solid minerals and services sectors, and support the private sector to become the engine of national growth and development. In addition, science and technology will be effectively harnessed to drive national competitiveness, productivity and economic activities in all sectors.

Fifth, the current Administration has merged the Budget and Planning functions into one Ministry to create a better and stronger link between annual budgets and the ERGP. This has facilitated the ERGP’s preparation process and will also expedite its implementation. It also strengthens the macro framework which underpins the ERGP, ensuring that budgets are properly aligned with planning, thus promoting effective implementation. Finally, the ERGP provides for effective collaboration and coordination with the States to ensure that the Federal and State Governments work towards the same goals. The States have a significant role to play in the success of the ERGP and some have already adopted a number of the initiatives being promoted in this Plan.

THE VISION OF THE ERGP 

The vision of the ERGP is one of sustained inclusive growth. There is an urgent need as a nation to drive a structural economic transformation with an emphasis on improving both public and private sector efficiency. This is aimed at increasing national productivity and achieving sustainable diversification of production, to significantly grow the economy and achieve maximum welfare for the citizens, beginning with food and energy security. This Plan is a pointer to the type of Nigeria that the people desire in the short to medium-term, and encourages the use of science, technology and innovation to drive growth. It also provides a blueprint for the type of foundation that needs to be laid for future generations, and focuses on building the capabilities of the youth of Nigeria to be able to take the country into the future.

PRINCIPLES OF THE ERGP 

Several principles have driven the thinking and the development of this Plan:

• Focus on tackling constraints to growth. Economic growth in Nigeria faces various supply constraints including fuel, power, foreign exchange, and business unfriendly regulations. In addition, there is a shortage of requisite skills and appropriate technology necessary to drive growth. This Plan focuses on overcoming and resolving these challenges.
   
• Leverage the power of the private sector. Economic recovery and transformative growth cannot be achieved by the government alone. It is essential to harness the dynamism of business and the entrepreneurial nature of Nigerians, from the MSMEs to the large domestic and multinational corporations to achieve the objectives of this Plan. The Plan prioritizes the provision of a more business friendly economic environment.
   
• Promote national cohesion and social inclusion. Nigerians are the ultimate beneficiaries of more inclusive growth and therefore, the initiatives set out in this Plan are aimed at ensuring social inclusion and the strengthening of national cohesion.
   
• Allow markets to function. The ERGP recognizes the power of markets to drive optimal behaviour among market participants The Plan prioritises the use of the market as a means of resource allocation, where appropriate. However, the Plan also recognises the need to strengthen regulatory oversight to minimise market abuse.
   
• Uphold core values. The ERGP is rooted in the core values that define the Nigerian society as enshrined in the 1999 Constitution, notably discipline, integrity, dignity of labour, social justice, religious tolerance, self-reliance and patriotism. It requires all citizens and stakeholders to adhere to these principles.

BROAD OBJECTIVES OF THE PLAN 

The ERGP has three broad strategic objectives that will help achieve the vision of inclusive growth outlined above: (1) restoring growth, (2) investing in our people, and (3) building a globally competitive economy.

Restoring Growth: To restore growth, the Plan focuses on achieving macroeconomic stability and economic diversification. Macroeconomic stability will be achieved by undertaking fiscal stimulus, ensuring monetary stability and improving the external balance of trade. Similarly, to achieve economic diversification, policy focus will be on the key sectors driving and enabling economic growth, with particular focus on agriculture, energy and MSME led growth in industry, manufacturing and key services by leveraging science and technology. The revival of these sectors, increased investment in other sectors, less reliance on foreign exchange for intermediate goods and raw materials and greater export orientation will improve macroeconomic conditions, restore growth in the short term and help to create jobs and bring about structural change.

Investing in our People: Economic growth is beneficial for society when it creates opportunities and
provides support to the vulnerable. The ERGP will invest in the Nigerian people by increasing social inclusion, creating jobs and improving the human capital base of the economy.

• Social inclusion. The Federal Government will continue to provide support for the poorest and
  most vulnerable members of society by investing in social programmes and providing social amenities. Targeted programmes will reduce regional inequalities, especially in the North East and Niger Delta.
• Job creation and youth empowerment. Interventions to create jobs are a core part of the ERGP, which aims to reduce unemployment and under-employment, especially among youth. The ERGP accordingly prioritizes job creation through the adoption of a jobs and skills programme for Nigeria including deepening existing N-Power programmes, and launching other public works programmes. The partnership for job creation will also focus on the policies required to support growth and diversification of the economy by placing emphasis on Made-in-Nigeria, public procurement which takes account of local content and labour intensive production processes. All initiatives under job creation would prioritize youth as beneficiaries. Accordingly, all capacity building and skills acquisition interventions will be targeted at youth-dominated sectors such as ICT, creative industries, and services. Furthermore, concerted efforts would be made to encourage youth to venture into other labour intensive sectors such as agriculture and construction.
• Improved human capital. The Federal Government will invest in health and education to fill the skills gap in the economy, and meet the international targets set under the UN’s Sustainable Development Goals (SDGs). The ERGP will improve the accessibility, affordability and quality of healthcare and will roll out the National Health Insurance Scheme across the entire country. It will also guarantee access to basic education for all, improve the quality of secondary and tertiary education, and encourage students to enrol in science and technology courses.

Building a Globally Competitive Economy: Restoring Nigeria’s economic growth and laying the foundations for long-term development requires a dynamic, agile private sector that can innovate and
respond to global opportunities. The ERGP aims to tackle the obstacles hindering the competitiveness of Nigerian businesses, notably poor or non-existent infrastructural facilities and the difficult business
environment. It will increase competitiveness by investing in infrastructure and improving the business environment.

• Investing in infrastructure: The ERGP emphasizes investment in infrastructure, especially in power, roads, rail, ports and broadband networks. It builds on ongoing projects and identifies new ones to be implemented by 2020 to improve the national infrastructure backbone. Given the huge capital layout required to address the massive infrastructure deficit in the country, the private sector is expected to play a key role in providing critical infrastructure, either directly or in collaboration with the Government under public private partnership (PPP) arrangements.
   
• Improving the business environment: Nigeria’s difficult and often opaque business environment adds to the cost of doing business, and is a disincentive to domestic and foreign investors alike. Regulatory requirements must be more transparent, processing times must be faster, the overall economy must be more business-friendly. The ERGP will build on the efforts of the Presidential Enabling Business Environment Council (PEBEC) and track progress using the metrics of the World Bank’s Doing Business Report. The target is to achieve a top 100 ranking in the World Bank’s Doing Business index by 2020 (up from the current ranking of 169).
   
• Promoting Digital-led growth: To make the Nigerian economy more competitive in the 21st century global economy, its industrial policy must be linked to a digital-led strategy for growth. The ERGP will build on The Smart Nigeria Digital Economy Project to increase the contribution from ICT and ICT-enabled activity to GDP. The overall goals of a digital-led strategy for growth centre on the establishment of an ICT ecosystem in Nigeria. This is enabled through significantly expanding broadband coverage, increasing e-government, and establishing ICT clusters, starting in the SEZs. Government will also drive a programme to build the skills in this sector, focusing on training IT Engineers in software development, programming, network development and cyber security.

KEY EXECUTION PRIORITIES 

To achieve the objectives of the ERGP, the key execution priorities, as illustrated in Figure A of the ERGP Document, are:

• Stabilizing the macroeconomic environment
• Achieving agriculture and food security
• Ensuring energy sufficiency (power and petroleum products)
• Improving transportation infrastructure
• Driving industrialization focusing on Small and Medium Scale Enterprises

Macroeconomic Stability: To achieve the growth aspirations, the first requirement is a stable macroeconomic environment with low inflation, stable (market reflective) exchange rates and sustainable fiscal and external balances. This requires that monetary, trade and fiscal policies are well aligned to ensure coherence and effective coordination. The CBN will continue to work towards improving the operations of the foreign exchange market to enhance its liquidity. Non-oil revenue will be accelerated through improved tax and Customs administration, including introduction of tax on luxury items. This would ensure a more diversified fiscal revenue base away from the current dependence on crude oil and gas. Fiscal consolidation will also be pursued through cost cutting measures that include rationalization of overheads and recurrent expenditures and sub-national fiscal coordination. Selected public enterprises/assets will be privatized to optimize their operational efficiency and reduce the fiscal burden on the government.

Agriculture and food security: Agriculture has contributed to GDP growth in Nigeria in a consistent manner. The sector grew by 4.88 percent in Q3 2016 and by as much as 13 per cent in previous years, suggesting immense unrealized potential. Investments in Agriculture can guarantee food security, have the potential to be a major contributor to job creation, and will save on the foreign exchange required for food imports. Successful harvests will also help to reduce inflation and promote economic diversification. ERGP focuses on the needs of the people by prioritizing food security as a critical national objective, and plans are already in place for national self-sufficiency in rice by 2018 and wheat by 2019/2020.

Energy (power and petroleum product sufficiency): The Energy sector is fundamental to development across all other sectors of the economy. The ERGP will address issues of energy from the perspective of electric power and the petroleum sector. With regard to the power value chain, efforts will be concentrated on overcoming the current challenges which relate to governance, funding, legal, regulatory, and pricing issues across the three main power segments of generation, transmission and distribution, and ensuring stricter contract and regulatory compliance. The ERGP aims to optimize the delivery of at least 10 GW of operational capacity by 2020 and to improve the energy mix including through greater use of renewable energy. The Plan also aims to increase power generation by optimizing operational capacity, encouraging small-scale projects, and building more capacity over the long term. Government will also invest in transmission infrastructure. With regard to the oil and gas sector, the intention is to increase the production of crude oil and gas while adding value in the downstream petroleum sector. The objectives are as follows:

• Urgently increase oil production: Restore production to 2.2 mbpd in the short term and 2.5 mbpd by 2020 to increase export earnings and government revenues by an additional N800 billion annually.

• Expand power sector infrastructure: Optimize the delivery of at least 10 GW of operational power capacity by 2020 to boost economic activity across all sectors and improve the quality of life of the citizenry.
   
• Boost local refining for self-sufficiency. Reduce petroleum product imports by 60 per cent by 2018, become a net exporter by 2020, save foreign exchange and prevent reversion to the fuel subsidy regime. 

Transportation Infrastructure: Nigeria’s transport infrastructure stock is inadequate for the size of the economy and constitutes a major cost and constraint for both large and small businesses. Investments in strengthening Nigeria’s infrastructure will make a significant contribution towards building a competitive economy. Given the scale of the investment required, partnering with the private sector will be critical, and significant effort will go towards attracting private sector investment, and ensuring agreed execution priorities and timelines are effectively delivered.

Industrialization focusing on Small and Medium Scale Enterprises: The strengthening of small-scale businesses & the promotion of industrialization are priorities for economic recovery. Nigeria’s manufacturing sector has been particularly vulnerable to the stagnant economic conditions. It contracted by 4.38 per cent in Q3 2016 largely due to the difficulty of accessing foreign exchange to import intermediate goods and raw materials, and falling consumer demand. This contraction is as a result of infrastructural bottlenecks and an uncompetitive business environment. The sector is expected to contribute to growth in the short term through policies to improve the usage of existing capacity, through increased availability of foreign exchange and greater domestic value addition. One major strategy is to accelerate implementation of the National Industrial Revolution Plan (NIRP) through Special Economic Zones (SEZs). The focus will be on priority sectors to generate jobs, promote exports, boost growth and upgrade skills to create 1.5 million jobs by 2020.

A revitalized manufacturing sector will create jobs, stimulate foreign exchange earnings and grow micro, small and medium enterprises (MSMEs). The involvement of small businesses in the service sector is a major lever for economic recovery. The service industry accounts for 53 per cent of GDP and contains key sectors that can contribute to short-term economic growth and longer-term structural change. While the telecommunications and information and communications technology services (ICT) sector grew in absolute terms by 9.26 per cent in Q3 of 2016, it offers huge scope for further growth, especially from opportunities in the digital economy. Creative industries, especially music and film, also have great growth potential, as do both financial services and tourism.

These five priorities are to be underpinned by a focus on governance and delivery, which have been identified as crucial to the successful implementation of the Plan. Transparent, effective and fair governance is being deepened through the continued fight against corruption, strengthening the security system, public service reform, and reinforcing sub-national coordination.

Across all of these areas, the ERGP lays out a total of 60 strategies that will collectively bring about the overall objective of inclusive growth through structural economic transformation. Each strategy has a clear set of activities associated with it and a budget allocation for which the responsibility lies with a Ministry, Department or Agency of the Federal Government.

The delivery mechanism will be a major determining factor in the successful implementation of the Plan. To this end, the implementation strategy focuses on prioritising the identified strategies, establishing a clear system of accountability for well-defined assignment of responsibilities, setting targets and developing detailed action plans, allocating resources to prioritised interventions, creating an enabling policy and regulatory environment, developing an effective monitoring and evaluation system to track progress, and using effective communication strategy.

MACROECONOMIC FRAMEWORK 

The objectives outlined in the ERGP are underpinned by a robust Macroeconomic Framework that shows internal consistency between the real, fiscal, monetary and external sectors. A summary of projected selected macroeconomic indicators for 2016-2020 is provided in Table A of the ERGP Document. 

Real GDP is projected to grow by 4.62 per cent on average over the plan period of 2017 – 2020, from an estimated contraction of 1.54 per cent in 2016. Real GDP growth is projected to improve significantly to 2.19 per cent in 2017, reaching 7 per cent at the end of the Plan period. This growth will be driven by a fiscal stimulus helped by an expected increase in oil prices, an increase in non-oil federal receipts, an increase in oil production, and resolution of payment arrears especially joint venture cash calls. In addition, increased growth in the non-oil sector especially agriculture, manufacturing, services and light industries will be central in overall GDP growth. The slight dip in growth in 2019 is projected to result from the general election in that year with a quick recovery the following year. The strong growth during the Plan period will be driven by agriculture and industry, and in the later parts of the Plan period by the services sector as well.

Industry in particular will benefit from the strong recovery and expansion of crude oil and natural gas
production, as challenges in the oil-producing areas are overcome and investment in the sector increases. The average price of crude oil is expected to be USD42.50-52.00, while crude oil output is forecast to rise from about 1.8 mbpd in 2016 to 2.2 mbpd in 2017 and 2.5 mbpd by 2020. Electricity, gas and construction are also expected to fuel growth. The Government plans substantial infrastructure investment over the Plan period.

Strong recovery and growth in the manufacturing sector is also anticipated, particularly in agro-processing, and food and beverage manufacturing. Ongoing strategies to improve the ease of doing business will boost other manufacturing sector activities, including light manufacturing. From the estimated negative growth of 7.84 per cent in 2017, its growth is expected to rebound in subsequent years with annual average growth of 8.48 per cent over 2018 to 2020. Lastly, services will continue to grow at the rate of 2.5 per cent on average during the Plan period.

The Government will drive fiscal stimulus through a package of spending to stimulate private consumption and investments by businesses. This will also include dedicating at least 30 per cent of federal budget spending to capital expenditure. Implementing this stimulus will require enhancing the revenue base, including restoring oil production and accelerating non-oil revenue generation; consolidating and optimizing expenditure; improving debt management; and improving policy coordination. In addition, there are on-going initiatives to increase revenue via privatization of public enterprises/assets as well as tax review initiatives aimed at expanding the tax to GDP ratio. Both of these initiatives when completed will increase revenue and consequently reduce the financing deficit over the Plan period. Monetary stability will be promoted by curbing inflation, reducing domestic interest rates, strengthening the financial system and improved implementation of a flexible foreign exchange rate regime to support growth. Finally, the external balance will be tackled through expenditure switching policies to promote exports, support local production and reduce reliance on imported goods.

OUTLOOK FOR THE PLAN 

By 2020, Nigeria will have made significant progress towards achieving structural economic change and having a more diversified and inclusive economy. Overall, the Plan is expected to deliver on the following key outcomes:

Stable Macroeconomic Environment: The inflation rate is projected to trend downwards from the current level of almost 19 per cent to single digits by 2020. It is also projected that the exchange rate will stabilize as the monetary, fiscal and trade policies are fully aligned. This outcome will be achieved through policies that seek to remove uncertainty in the exchange rate and restore investors’ confidence in the market.

Restoration of Growth: Real GDP is projected to grow by 4.6 percent on average over the Plan period, from an estimated contraction of 1.54 percent recorded in 2016. Real GDP growth is projected to improve significantly to 2.19 per cent in 2017, reaching 7 per cent at the end of the Plan period in 2020. The strong recovery and expansion of crude oil and natural gas production will result as challenges in the oil-producing areas are overcome and investment in the sector increases. Crude oil output is forecast to rise from about 1.8 mbpd in 2016 to 2.2 mbpd in 2017 and 2.5 mbpd by 2020. Relentless focus on electricity and gas will also drive growth and expansion in all other sectors.

Agricultural transformation and food security: Agriculture will continue to be a stable driver of GDP growth, with an average growth rate of 6.9 per cent over the Plan period. The Agricultural sector will boost growth by expanding crop production and the fisheries, livestock and forestry sub-sectors as well as developing the value chain. Investment in agriculture will drive food security by achieving self-sufficiency in tomato paste (in 2017), rice (in 2018) and wheat (in 2020). Thus, by 2020, Nigeria is projected to become a net exporter of key agricultural products, such as rice, cashew nuts, groundnuts, cassava and vegetable oil.

Power and petroleum products sufficiency: The ERGP aims to achieve 10 GW of operational capacity by 2020 and to improve the energy mix, including through greater use of renewable energy. The country is projected to become a net exporter of refined petroleum products by 2020. 

Improved Stock of Transportation Infrastructure: By placing transportation infrastructure as one of its key execution priorities, effective implementation of this Plan is projected to significantly improve the transportation network (road, rail and port) in Nigeria by 2020. Given the scale of investment required to deliver this outcome, strong partnership with the private sector is expected to result in completion of strategic rail networks connecting major economic centres across the country, as well as improved federal road networks, inland waterways and airports.

Industrialized Economy: Strong recovery and growth in the manufacturing, SMEs and services sectors are also anticipated, particularly in agro-processing, and food and beverage manufacturing. Ongoing strategies to improve the ease of doing business will boost all manufacturing sector activities. Overall, the ERGP estimates an average annual growth of 8.5 per cent in manufacturing, rising from -5.8 per cent in 2016 to 10.6 per cent by 2020.

Job Creation and youth empowerment: The implementation of the Plan is projected to reduce unemployment from 13.9 per cent as of Q3 2016 to 11.23 per cent by 2020. This translates to the creation of over 15 million jobs during the Plan horizon or an average of 3.7 million jobs per annum. The focus of the job creation efforts will be youth employment, and ensuring that youth are the priority beneficiaries. 

Improved Foreign Exchange Inflows: The reduction in the importation of petroleum products resulting from improvement in local refining capacity following the implementation of the ERGP is projected to reduce demand for foreign exchange. The economic diversification focus of the Plan is also projected to translate into enhanced inflows of foreign exchange from the non-oil sector.

On the whole, Nigeria is expected to witness stability in exchange rate and the entire macroeconomic environment. The country should also witness a major improvement in economic performance which should result in the following, amongst others: a) reduction in importation of food items and refined petroleum products, b) improved power supply, c) higher quality transport infrastructure, d) expansion in the level of industrial production, e) improved competitiveness, f) greater availability of foreign exchange, g) job creation, h) reduction in poverty and i) greater inclusiveness in the spread of the benefits of economic growth.

NOTE: The full ERGP Document is available at http://nigeriandocuments.blogspot.com/economic-recovery-and-growth-plan