Assessing the Economic Recovery and Growth Plan
The long-awaited Economic Recovery and Growth Plan (ERGP), expected to chart the way to Nigeria’s economic prosperity, has been released. Kunle Aderinokun writes that the blueprint has been hailed by stakeholders and analysts who call for proper implement
Aweek after February, when it planned to roll out its economic reform programme, the federal government last Tuesday released the Economic Recovery and Growth Plan (ERGP). Before the launch , there were indications that the government has been running the economy without a blueprint as the fiscal policies had not been working in alignment with monetary policies. This was evidenced in the manner with which the Central Bank of Nigeria churned out policies and the ministry of finance criticises them or even openly ask for reprieve on issues of monetary policy that it was expected to have a superior knowledge and understanding about. And the economy became worse for it. When it became obvious that such frequent disagreement was taking the economy nowhere and the economy was slipping into recession, stakeholders and analysts in the economy repeatedly made calls for harmonisation between the fiscal and monetary authorities. Even Nigeria’s development partners indicated that they could not support or help in realising her aspiration without an economic programme.
Heeding the clarion call, the federal government took its time to prepare an economic programme. Called the ERGP 2017-2020, the programme was launched last week. The government has said the objectives of the plan were reinforced by a robust macroeconomic framework that showed internal consistency between the real, fiscal, monetary and external sectors. In their assessment, economic analysts, who spoke to THISDAY, generally hailed the ERGP for being a well-thoughtout and well-written blueprint, capable of thrusting the economy to recovery and growth. The political will to implement the plan, however, remains a concern.
Vision
The government stated that the ERGP was envisioned to promote a 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,” the document revealed.
Objectives
Providing a summary of selected macroeconomic indicators for 2016-2020, the government projected to grow the real GDP 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. It estimated that the Real GDP growth improve significantly to 2.19 per cent in 2017, reaching 7 per cent at the end of the Plan period.
According to the plan, “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.”
Besides, the government highlighted in the blueprint that increased growth in the non-oil sector especially agriculture, manufacturing, services and light industries would be central in overall GDP growth.
It envisaged: “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 agroprocessing, and food and beverage manufacturing.”
The ERGP also noted that,“On-going 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,” it added.
While the plan envisaged that, the government would drive fiscal stimulus through a package of spending to stimulate private consumption and investments by businesses, it pointed out that, ”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 optimising expenditure; improving debt management; and improving policy coordination,” it stated.
Outlook
According to ERGP, the expectation is that, by 2020, Nigeria would have made significant progress towards achieving structural economic change and having a more diversified and inclusive economy. As such, the plan has been designed to deliver on key outcomes.
As part of the deliverables, for stable macroeconomic environment, the blueprint has projected inflation rate to trend downwards from the current level of almost 19 per cent to single digits by 2020. Besides, the exchange rate is also projected to stabilise 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.
Similarly, with a view to restoring growth, there are plans to grow the Real GDP by 4.6 per cent on average over the targeted period, from an estimated contraction of 1.54 per cent 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. According to the plan, “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.”
As the nation is determined to transform agriculture and ensure food security, the ERGP has been designed to make the sector continue to be a stable driver of GDP growth, with an average growth rate of 6.9 per cent over the Plan period. “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.”
As for 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.
More importantly, there are also plans for improved foreign exchange Inflows. Accordingly, 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.
Analysts Speak
The ERGP has elicited reactions from stakeholders and economic policy analysts. One of them is a foremost economist and Director-General, West African Institute for Financial and Economic Management (WAIFEM) ,Akpan Ekpo.
According to Ekpo, “My take on the NERGP is as follows: The NERGP is not only timely but also addresses two important issues: ensuring that the economy exits the current recession as well as putting the economy on a positive growth path up to 2020. Because the recession affects both the demand and supply side of the economy the expenditures on capital projects such as power, road, rail etc. and the social investment programmes are necessary to get the economy out of the recession. This demonstrates the visible hand of government in reversing the recessionary and/or minimizing the adverse effects of the recession.”
He added: “Another important matter is that the 2017 budget is embedded in the NERGP. If the economic recovery aspect registers 85 per cent implementation success rate then the economy would exit the recession with marginal positive growth rate. Technically this would be a positive development compared with four quarters consecutive negative growth rates in 2016.”
He, however, cautioned that, “The exit of the recession does not eliminate the high and rising rate of unemployment, high lending rates and the dominance of the primary sector in the economy. This is where the second component of the plan remains relevant.” It stresses growth and predicts 7 per cent growth rate in 2020 based on certain assumptions, for example sustained revenue from and external borrowing.
The former CBN director noted that, the NERGP reemphasises the role of government in the economy of the country.“While the economy must be public sector led, there is role for the private sector. From the plan it is clear both government and the private sector can stimulate growth. Hence, government is going beyond just providing the enabling environment but putting in place measures to exit the recession and policies as well as strategies to restore growth. One hopes that the private sector would grab the opportunities provided by the plan.”
“It must be noted that the plan stresses growth but growth even if it is inclusive is not development. Growth, which is a necessary condition for development cannot fast-track development through the trickle-down effect. There is no doubt that the NERGP contains elements which can put the economy on the path and/or process of structural transformation if properly and timely implemented,”he concluded.
In his own analysis, Executive Director, Corporate Finance, BGL Capital Ltd, Femi Ademola, also said the ERGP is a well-written document.“The structure, the content and the depth of analysis are very good. It is a very good initiative of the government given the changing dynamics of the economic and governance environment which renders most of the earlier economic blueprint rather impracticable. A good thing about this plan is that it is very actionable giving the political will and determination of the government.”
Ademola explained that,“The principle of the plan is also very important as it focuses on implementation and touches the important areas of concern to the citizens such focus on tackling constraints to growth rather than whine about the problems; allow markets to function in addition to unleashing the private sector to drive the economy.”
“It is also heart-warming that the government recognises that importance of building a globally competitive economy hence the focus on improving the business environment and investing in infrastructure. I am very pleased the that plan recognises that the macroeconomic stability and growth plan of the government would require the cohesion between fiscal and monetary policies and the need for low inflation and market reflective exchange rate. These all agree with the current analyst views of the economy,”he added.
Ademola however, pointed that, “In my opinion, I think the growth plan is rather too ambitious within the timeline of the plan.”
“This is because the growth expectation will depend on the implementation of most of the plans especially with regards to investing in infrastructure and improving business environment.
This implies that the time lag effect may postpone the benefits of this plan to a later time than envisaged by the plan. In addition, the large economic base of the country signifies that rate of growth may not be as high as the past and hence the expectation of 7 per cent may be overly optimistic. The high level of informal economy would however help the economic growth rate if the plan motivates them to become formal and accounted for in the national production.”
Also, in hailing the ERGP, Chief Executive Officer, The CFG Advisory Ltd, Adetilewa Adebajo, noted that,“The ERGP is a well put together document which properly articulates the contemporary realities of the Nigerian Economy.”
According to him,“The solution the document proffers are also very practical and realistic.”
Adebajo, however, pointed out that,“As the document itself admits without the necessary political will, coordination and monitoring, implementation could well be the Achilles heel of the document. In summary it is a simple common sense road map to economic recovery and growth.”