Diversification agenda and emergence of a resilient economy

THERE IS NO DOUBT that the Nigerian economy has gone through trying times. It used to be one of the most robust and resilient in the 1960s, posting world class commodity ratings, particularly in the agricultural sector. The havoc that the discovery of crude oil in commercial quantity has wrought on the Nigerian economy has been told and retold; and the solution on every privileged lip is a return to those days when the economy was fired from multiple cylinders of agricultural produce and solid minerals; not just from crude oil and gas proceeds. The chorus has been ‘there is the need for aggressive diversification of the non-oil sector so that government will reduce the current rate of borrowing to fund its budgets.’

True! The Nigerian economy has paid dearly for the price of crude oil, just as it has reaped bountifully from it. Successive governments since after the civil war had been ensconced in the comfort of petro-dollars issuing from crude oil sales while the economy drifted down the precipice. Curiously, none of them was oblivious of the danger of over-reliance on a single commodity for its foreign earnings. They all knew, but the economy had already become hostage to the fortunes of the oil and gas sector.

Policy pronouncements of successive governments acknowledged the benefits of diversification, but little or nothing was done in terms of giving concrete expression to such pronouncements. Whenever the economy was ceased in a fit, a fire brigade approach was adopted and the economic fundamentals were reset from a default mode; and the beat goes on.

So when the Mohammadu Buhari administration also came with the diversification song, it was already a familiar circus tune. It was dismissed as a swan song which comes with seasons. It did come with a new season no doubt, but the difference this time was that it also came with a blueprint which empahsised implementation - the bane of previous policy efforts. However, even before taking over the reins of authority, the emerging All Progressives Congress (APC) had identified the state of the economy as one of the challenged areas to focus on, the other two being corruption and security.

By the time the administration settled in the saddle, it was already obvious that the country’s economy was in dire straits, in spite of the book fundamentals which suggested some favourable health pedigree. As feared, the economy relapsed into a recession in the second quarter of 2016 as it could not stand the shocks generated by the volatility in the global oil market, apparently because there were no fiscal buffers to cushion the effects. It was on life support until after the first quarter of 2017 when it came out of coma.

With the benefit of foresight, the government had started with an expansionary 2016 budget, which was to commence the laying of an infrastructure framework for a comprehensive resetting of the economy. It was guided by a short term Strategic Implementation Plan (SIP) which was followed with a medium term Economic Recovery and Growth Plan (ERGP) 2017 -2020, a successor plan to SIP.

As often indicated by the Budget and National Planning Minister, Senator Udoma Udo Udoma, the ERGP was launched with the objective of, firstly, leading Nigeria out of recession and thereafter placing the economy on the path of a truly diversified and inclusive growth; a growth that is both sustainable and resilient. Of course, Nigerians must by now be very familiar with the story of how we came to this sorry pass. Apart from the obvious mishandling of the economy over a long period of time, including mindless pillaging of the treasury, oil prices began to drop dramatically from the middle of 2014, from US$111 per barrel in June 2014 to about US$64 at the end of May, 2015 and below US$30 per barrel by January 2016. The situation was compounded by a fall in oil production levels caused by the resurgence of militancy in the oil producing Niger Delta region. So, the new administration already had a crisis of monumental proportion to contend with.

A chain of negative developments followed: the resulting foreign exchange scarcity led to a suffocation of many businesses. This caused a general reduction in economic activity, forcing some layoffs. Tax and customs collections dwindled, leading to low government revenues from the non-oil sector. Investors’ confidence in the economy waned as a result.

Consequently, oil revenue to the Federation Account declined from N4,075.5 billion in 2014 to N1,438.8 billion in 2016. Foreign reserves dropped from $37.33 billion in June 2014 to as low as $23.81 billion in September, 2016. The Capital Market went into a tail spin and balance of payments turned negative. As would be expected, growth initially slowed and then turned negative as the economy slid into recession by the second quarter of 2016, registering GDP growth of -1.49%, from where it dipped further to -2.34% by the third quarter of 2016. Inflation leaped from 9.2% in June 2015 to 18.5% by December, 2016. It was a cataclysmic state: low growth at a time of high inflation and worsening unemployment.

At this point there were no options. There was only a task: to halt the economic decline. The first move was the introduction of an expansionary fiscal budget in 2016 to reflate the economy and stimulate economic activity; and guided by the SIP which consisted of a series of short-term measures aimed at boosting economic activities. The ERGP was subsequently designed to stop the economic slide and restore the economy to the path of growth, driven mainly by the private sector.

Although the ERGP pursues three broad objectives of ‘restoring and sustaining growth, investing in our people and building a globally competitive economy,’ its Chapter 3 particularly emphasises strategies to deliver on the diversification objective. It focuses on initiatives to expand the productivity of key sectors of the economy such as agriculture, manufacturing, solid minerals, services as well as construction and real estate.

As consistently hammered by the drivers of the project, the aim of the ERGP is to change Nigeria from its present feeding bottle status to a country that grows and makes most of the products it needs and consumes; to one that runs on multiple engines of growth; to a nation of producers. This was how President Buhari put it during the launch: “To a new Nigeria where we grow what we eat, consume what we make and produce what we use”.

The focus areas of the ERGP has been that of ensuring stability in the macroeconomic environment, achieving agricultural transformation and food security, ensuring energy sufficiency in power and petroleum products, improving transportation infrastructure, and driving industrialization focusing on Small and Medium Sized Enterprises (SMEs).

From 2016, budgetary allocations have been made to reflect these priorities. For instance in Agriculture, from a capital allocation of N8.8 billion in 2015, it improved to N46.2 billion in 2016, N103.8 billion in 2017 and to N149.2 billion in 2018. That of the Ministry of Water Resources whose activities impact on agriculture also increased from N15.78 billion in 2015, to N46.08 billion in 2016, N104.25 billion in 2017 and N147.2 billion this year.

Through the Anchor Borrowers’ Programme, over N120.6 billion has been disbursed as concessionary loans to more than 800,000 farmers for the cultivation of 12 different commodities including rice and wheat. Already 11 Fertilizer Blending Plants with the capacity to produce 2.1 million metric tonnes have been revitalized, leading to a significant drop in the price of fertilizer in the local market and consequent rise in the production of agricultural products. Emphasis has also been on value-chain orientation.

A number of initiatives in the plan bordering on infrastructure development to support processing, evacuation, manufacturing and allied activities have been pursued vigorously and the ERGP emphasises the need for industrialisation policy to be focused on SMEs. To reduce the country’s dependence on crude oil for foreign exchange, the government set up a National Committee on Export Promotion in 2017 to implement the Zero Oil Plan (ZOP) to expand exports of other goods and services. This Committee, working with State Governments, is promoting the establishment of Domestic Export Warehouse and Aggregation Centres in each of the six geo-political zones of the country; and promoting Project MINE Made-in-Nigeria for Export.

Project MINE uses the Special Economic Zones as mechanism for making Nigeria the pre-eminent manufacturing hub in sub-Sahara Africa and a major exporter of Made-in-Nigeria goods and services regionally and globally. It has already secured commit- ments from domestic and foreign investors in textile and garments as well as agro-processing. Government is also reactivating the Export Expansion Grant (EEG) and the Export Development Fund (EDF) schemes. N13.28 billion was provided in the 2018 Budget.

The prioritization of improvements in the business climate is basically to make Nigeria an attractive place to do business. The Presidential Enabling Business Environment Committee (PEBEC) was set up to focus attention on this. The last two World Bank reports on global ease of business ranking (2018 and 2019) indicate that there have been some significant improvements on this score; and recent surveys conducted by the Nigeria Investment Promotion Commission (NIPC) also indicate that there has been a significant rise in investment interest in Nigeria.

According to the reports, between January and September 2018 a total of $73.08 billion worth of proposed investments were announced for 65 projects in 18 states and the FCT. These include 11 sectors of interest with mining and quarrying accounting for 43% of the total value, construction 25%, manufacturing 23%, electricity, gas, steam and air conditioning supply, and transportation and storage, each 3%, and the remaining sectors accounting for 2%.

In the first quarter of this year, the Budget and Planning Ministry conducted Sector Specific Focus Labs in Agriculture and Transportation, Manufacturing and Processing and in Power and Gas to address bureaucratic issues investors in these sector areas might have been facing in setting up projects in Nigeria. Some of the early successes recorded in the first set of Focus Labs include the development of a National Gold Development Policy and the establishment of a Federal Gold Reserve Scheme.

Although the economy is not fully out of the woods yet, there is no doubt that some significant progress has been made in resuscitating and diversifying the economy. At least Nigeria is out of recession and the economy is beginning to grow again particularly in the non-oil sector. The sector grew by 2.05% by the second quarter of 2018. This represents the strongest growth in the sector since the fourth quarter of 2015. Except for Q4 2015, the manufacturing sector had experienced consistent quarterly contraction since Q1 2015, but it has started growing again, although still quite low at 0.68% (Q2, 2018). The textile sub-sector improved from 0.2% in Q2 2017 to 2.73% in Q2 2018, while cement which contracted by -4.16% in Q2 2017 grew at 3.84% by Q2 this year.

By October 2018, the manufacturing sector had expanded for the 19th consecutive month. The expansion was driven by improvements in business activities, production and employment across most sectors. The Purchasing Managers’ Indices (PMI) which had consistently stayed below the 50 points threshold between January 2016 and April 2017 rose to 56.8 index points in the month of October 2018.

Other pointers include inflation rates which have maintained their declining trend from 18.7% in January 2017 to 11.14% in July 2018. Although it went up slightly to 11.28% in September 2018, it dropped to 11.26 in October. External reserves have nearly doubled since September 2016, from $23.81 billion to $41.79 billion by early November this year. The exchange rate gap has narrowed, and confidence in the economy is returning. Also, capital inflows have risen from $710 million in the first quarter of 2016 to $5.5 billion by the second quarter of 2018. Supported by a gradual recovery in oil prices, as well as the level of oil production, exports have grown by 59.5%, from N8,527 billion in 2016 to N13,598 billion in 2017, and trade balance has grown from a deficit of N290.1 billion in 2016 to a surplus of N4,035.5 billion in 2017. And this includes a significant increase in non-oil exports.

However, while the oil and gas sector constitutes less than 10% of the country’s GDP, it still represents a large percentage of foreign exchange earnings, a development which emphasises the need to grow non-oil exports to overtake oil in terms of foreign exchange earnings.

Given the trend of the indicators in just 18 months of implementation of the provisions of the ERGP, there is no doubt that the policy prescriptions and efforts are in the right direction. Continuous faithful implementation might see Nigeria becoming an economic production powerhouse; having enough at home and extra for export.

Policy pronouncements of successive governments acknowledged the benefits of diversification, but little or nothing was done in terms of giving concrete expression to such pronouncments