Can the Economic Recovery Plan Succeed? By David Edevbie
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 questions are: Will the plan succeed? What will the implementation of the plan portend for the Nigerian economy and its people?
Whilst a welcome development, many would argue that it should have been in place much sooner. 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. A related goal, is the reduction of public expenditures on what is considered a bloated and inefficient civil service. It is no secret, that many government ministries, departments and agencies (MDA’S) are over-staffed and that a process of staff rationalization is needed to reform and improve efficiencies within the civil service.
Equally important are the overdue plans to improve the management of the MDAs, the eradication of ghost workers and the implementation of e-government initiatives. Over time, these changes should lead to a much-needed redirection of funds away from recurrent to capital expenditure which is required at all levels of governance.
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. However, the Federal Government must also show a real commitment to addressing corruption issues in an unbiased and non-partisan manner with clearly defined and measurable targets.
An effective whistle-blowing policy can only be sustained when protection of whistle blowers is institutionalized by enactment of relevant laws. The US had a Whistle-Blower Protection Act, enacted in 1989 with similar laws enforced in Japan, South Korea, Iceland, South Africa, Brazil, and most recently, India. 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. While this is likely to improve Nigeria’s export competitiveness, it will not be without significant costs. 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.
Low productivity in much of Nigeria’s non-oil export sectors makes it difficult for Nigeria to benefit from a further devaluation of its national currency at this time, so any move to a flexible exchange rate regime must be carefully managed. Undoubtedly, this is an inevitable outcome of the faulty foreign exchange management policies pursued over the last 18 months.
The earlier decision to delay devaluing the naira coupled with an opaque foreign exchange rationing system made a bad economic situation even worse. Over the period in question, many businesses struggled to secure foreign exchange to pay for essential imports, leading to a cooling effect on the entire economy that ultimately led to its contraction. This was further exacerbated by uncertainties in the market that impacted negatively on foreign investment flows resulting in net outflows.
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. Monetary tightening and bringing inflation under control are now absolute prerequisites to sending the exchange rate into full float. 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 in the Nigerian economy and the country’s ability to meet its foreign obligations.
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. It is important that staffing of the task force should be established on merit and not on a “job for the boys” basis. 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 (CCT’s) 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.). However, the peculiarities of Nigeria’s demography, the determination of a meaningful amount derived from empirical study rather than political rhetoric and the costs of these transfers need to be taken into consideration and weighed against the possible benefits of the program.
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. However, implementing this reform will require strong political will should it be met with resistance from devious importers and colluding customs officials trying to circumvent payment of full and accurate duties. The policy may also have the unintended effect of raising the costs of customs clearance, which will affect the competitiveness of Nigerian ports.
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.
However, there should be major reforms in land and property rights that are critical to boosting the low agricultural productivity. Experts at the 11th African Economic Conference held in Abuja in December 2016, identified how improvements could be made in this area by providing improved land rights to women since they contribute massively to agricultural productivity in many nations such as Nigeria. Land reforms should also move towards enabling land owned by smallholder farmers to be used as assets that can be collateralized in securing credit.
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 (see http://www.fao.org/docrep/012/i1560e/i1560e.pdf).
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
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. While this is likely to improve Nigeria’s export competitiveness, it will not be without significant costs. 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