Despite a slow down after coming out of recession in 2017, the economy looks good to return to the path of inclusive, diversified and sustainable growth. Analysts are optimistic that with the sustained implementation of the Economic Recovery and Growth Plan (ERGP) and the 2019 Budget, the economy will maintain its recovery this year, with real GDP growth hitting 3.01 per cent, up from 0.8 per cent in 2017. This, they say, will depend on improved infrastructure and proper coordination of fiscal and monetary policies and exchange rate stability, among others. Assistant Editor CHIKODI OKEREOCHA reports.
The prognosis for the economy is heart-warming. From a meagre 0.8 per cent real Gross Domestic Product (GDP) growth in 2017, when it emerged from a debilitating recession, Nigeria’s economic growth trajectory may have turned the corner, as real GDP growth is projected to increase to 3.01 per cent this year, after it hit 2.1 per cent last year.
With this favourable outlook, economic experts and financial analysts are upbeat that the economy will continue to maintain its recovery this year, encouraged largely by hopes of the sustained implementation of the Economic Recovery and Growth Plan (ERGP), the 2019 Budget Proposal as well as increased allocation to infrastructure provisioning.
Minister of Budget and National Planning Senator Udoma Udo Udoma personified this growing optimism when he said with the sustained implementation of the ERGP, the economy will continue to maintain its recovery in this year as the real GDP growth is expected to increase from 0.8 per cent in 2017 to 2.1 per cent in 2018 and 3.01 per cent in 2019.
The ERGP is the Federal Government’s medium-term economic recovery plan launched by President Muhammadu Buhari in April 2017. It charts a course for the Nigerian economy over a four-year period, 2017–2020. Its vision is to restore economic growth, invest in Nigerians, and to build a globally competitive economy.
The plan aims to achieve these by focusing on five execution priorities: stabilising the macroeconomic environment; achieving agriculture and food security; ensuring energy efficiency (especially in power and petroleum products); improving transportation infrastructure and driving industrialisation primarily through Small and Medium Enterprises (SMEs).
The ERGP specifically set an ambitious target to grow the economy by 2.19 per cent in 2017 and subsequently, seven per cent in 2020. The 140-page document also seeks to reduce unemployment from 13.9 per cent as at the third quarter of 2016, to 11.23 per cent by 2020. This translates to the creation of over 15 million jobs or an average of 3.7 million jobs per annum.
In its second half of its implementation, the ERGP, which excited both the government and members of the Organised Private Sector (OPS), also projected that inflation rate will trend downwards to a single digit by 2020.
On the strength of this, Udoma said with the continuation of the prudent management of foreign exchange reserves by the Central Bank of Nigeria (CBN), inflation is expected to trend downwards to single digit of 9.98 per cent in 2019, from 11.44 per cent as at December 2018.
The Minister, who spoke at the recent Deloitte Dialogue on Nigeria’s Economic Outlook for 2019, in Lagos, also hinged his optimism on the improved coordination of fiscal and monetary policies, exchange rate stability, improved oil export earnings and capital inflows.
Why sustaining the ERGP
implementation is key
It is easy to see why Udoma and indeed, other analysts and stakeholders are upbeat that the sustained implementation of the ERGP will steer the economy to the path of diversified, inclusive and sustainable growth capable of creating jobs.
Despite initial doubts over the realisation of its objectives within its stipulated timeline, some milestones have been recorded, fuelling hopes that if sustained, the medium term plan may be the tonic to turn around the fortunes of the economy.
For instance, one of the milestones was the launch of the ERGP Focus Labs to fast-track the plan’s implementation.
The ERGP Focus Labs is a targeted six-week intervention that brings together all stakeholders to identify bureaucratic bottlenecks impacting medium-scale and large-scale investments projects in Nigeria and then generate ideas and resources to resolve them.
The first phase of such labs was held in Abuja, from March 12 to April 22, 2018. At the sessions led by Vice President, Professor Yemi Osinbajo, investors were said to have left the focus labs convinced that they were the better for it.
Investors received all the assistance they require to overcome the teething problems that are usually associated with business start-ups.
For instance, one of the outcomes of the focus labs was investors’ realisation that the transformation of the agro-allied sector for the objective of achieving self-sufficiency in food production and export was possible.
Investors in this sector were said to have formed strategic partnerships that would boost their businesses in terms of identification of funding opportunities, increase in capacity utilisation and marketing.
Similarly, investors in manufacturing, especially Micro, Small and Medium Enterprises (MSMEs) were exposed to opportunities that exist for them to unlock their potential, grow their businesses and contribute to building an economy that would compete with the industrialised economies of the world.
The focus labs identified projects that can boost commercial and industrial development, employment generation with positive impact on families, local sufficiency and export for the much needed foreign exchange, and also contribute to GDP growth.
Osinbajo summed up the success of the exercise when he announced that it had identified private-sector projects worth about $22.5 billion – and with a potential for 500,000 jobs (in agriculture, transportation, manufacturing and processing, power and gas) – for unlocking by 2020.
Turning to proposed 2019 budget
Udoma was emphatic that the proposed 2019 Budget was intended to further reposition the economy on the path of faster, inclusive, diversified and sustainable growth, and to continue to lift a significant number of Nigerians out of poverty.
“Government is committed to growing the economy and accordingly, the 2019 Budget Proposal has been designed to continue to provide the stimulus and support required to spur growth in the economy,” he stated, at the Deloitte Dialogue.
The Minister indicated that the 2019 Budget was another step in the country’s journey to ensure diversified, inclusive, sustainable growth, creating jobs for the teeming population and prosperity of Nigerians.
He noted that although, the current real GDP growth performance is still sluggish, it was expected considering that the economy was just recovering from recession. He added that it however, indicates a positive momentum, especially with regard to the growth of the non-oil sector.
“Our aim is to take all measures necessary to ensure that we increase the growth rate whilst maintaining fiscal sustainability,” Udoma assured.
Explaining the basis for the oil price projections in the budget, he said oil prices depend on the interaction between supply and demand for oil in international markets. He, however, said it is the supply-side factors that have been mainly responsible for the price increase in 2018 and the recent decline.
Although, crude oil price soared in the second half of 2018, rising as high as $81.20/b on September 24, 2018 – a four-year high – it declined towards the end of 2018, falling below the 2019 budget benchmark of $60/b.
While the government is obviously concerned about this recent trend, most analysts believe the price will recover in the course of 2019, and so the Federal Government has not seen any need to adjust its benchmark price of $60.
However, the Minister assured the gathering that if at any time prior to the passage into law of the 2019 Budget by the National Assembly (NASS) there is strong reason to believe that this benchmark price of $60 is unlikely to be realised, then the Executive will, of course, engage with the NASS to agree on a lower benchmark price.
On oil production levels, the Minister said President Buhari has directed the Nigerian National Petroleum Corporation (NNPC) to work hard to achieve the 2.3 million barrels per day (mbpd) budget target.
“The ERGP oil production target for 2019 is 2.4mbpd, NNPC production submission is 2.45mbpd. We have revised the ERGP target and NNPC forecast downwards to 2.3mbpd for the 2019 Budget proposal,” Udoma said.
He explained that the 2019 proposed budget size is smaller than the 2018 Budget because of the need to contain the size of the deficit so as to keep borrowing within prudent limits.
The Minister pointed out that the proposed deficit of N1.859 trillion in 2019 is about 1.33 per cent of GDP, which is within the three per cent threshold stipulated in the Fiscal Responsibility Act (FRA) 2007.
He indicated that even though government has been increasing allocation to infrastructure, government spending alone will be insufficient to address the infrastructure needs of the country.
The huge infrastructure deficit
Of all the issues hurting the ERGP’s implementation and making the realisation of its set objectives almost impossible, the nation’s huge infrastructure deficit particularly inadequate electricity supply is perhaps, the most formidable.
Although the ERGP recognised the fundamental role of power to the development of all sectors of the economy, Nigeria has not made much progress in boosting electricity supply to homes and businesses.
The country’s plan to expand the power sector infrastructure and achieve 10, 000MW by 2020 has come under threat. For instance, the nation’s installed power generation capacity is put at 12,000MW, but actual output stood at about 5,207.57MW as at December 26, 2018.
This is barely enough to power an economy as big as Nigeria’s, particularly one that recently exited a debilitating recession, requiring an adequate, steady and reliable electricity supply to boost the real sector’s productivity and competitiveness.
The Lagos Chamber of Commerce and Industry (LCCI) Director-General, Mr. Muda Yusuf, put the situation in perspective when he said the power crisis has continued to pose severe challenges to private sector operators, impacting adversely on their productivity.
“Throughout last year, we received complaints across sectors about high energy costs especially high expenditure on diesel, higher cost of and scarcity of gas, and payment demand by electricity distribution companies (DisCos) for power not supplied,” he said.
Yusuf further stated that the situation continued to take its toll on the bottom line of investors and SMEs, adding that some real sector companies reported that they spend as much as 20-25 per cent of their total operating cost on provision of alternative power supply and payment to DisCos.
The LCCI chief, who emphasised that the provision of power remained at the heart of the ease of doing business in Nigeria, however, noted the government’s efforts in addressing the perennial power supply shortage and the deeper commitment to alternative sources of power including off-grid initiatives.
To get round the infrastructure challenge, Udoma said the government was encouraging Private-Public Partnerships (PPPs), while tax incentives are being provided to encourage private sector investment in infrastructure.
He also said the Executive Order 007 on Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme was signed by the President on January 25, 2019.
“The scheme seeks to leverage private sector capital for the development and refurbishment of road networks in industrial clusters and key economic areas in the country.
“It entitles private investors to full recovery of the cost incurred on the road project(s) in the form of a Road Infrastructure Tax Credit, which can be utilised against participants’ future CIT payable to the Federal Government”, he explained.
The Minister also said government will continue to provide improved access to funding and supporting infrastructure to encourage small businesses, in particular.
“Government will also continue with the current emphasis on power, roads and rail. We shall continue to expand generation, transmission and distribution of power from the national grid while developing innovative off grid solutions for schools, hospitals and markets,” he promised.
According to him, efforts to improve hard infrastructure will be complemented by expanding reforms in the ease of doing business. “We will continue to remove obstacles, reduce costs and ensure timely delivery of services so as to improve the environment for the private sector,” he assured.
However, the consensus is that if government fails to make good its promises and also keep faith with proper coordination of its fiscal and monetary policies while maintaining exchange rate stability, the envisaged inclusive and sustained growth will come the way of the economy.
