Rough Start, Knocks Herald Nigeria’s Economic Recovery Plan

The recently released Economic Recovery & Growth Plan 2017-2020, (ERGP), was heralded by knocks from experts.

Daily Trust report continues:

The plan released by the Ministry of Budget and National Planning indicated that by 2020, Nigeria would have made significant progress towards achieving structural economic change and having a more diversified and inclusive economy if the provisions of the plan are implemented. 

The Federal Government is targeting to create 15 million jobs, achieve 7% inflation rate and a robust growth in the nation’s Gross Domestic Product, (GDP), by 2020 as part of its economic recovery plan spanning from 2017.

As part of the measure geared towards rescuing the nation’s foreign exchange crisis, the plan recommended that the naira should be allowed to float, a recommendation the Central Bank of Nigeria, (CBN), rejected. The rejection was an indication of a rough start for the plan and also a pointer to the possibility that more agencies saddled with implementing the prescriptions of the proposal may only implement what they like and not what the plan says.

The plan was borne out of the need to rescue the economy from the current recession and set it on the part of growth.

For instance, a recent report of the National Bureau of Statistics (NBS) revealed that the country’s Gross Domestic Product, (GDP), contracted by -1.51%, indicating real data of ₦67.98 trillion for the year.

In a rare situation, Nigeria witnessed stagflation as seen in slowing GDP and high rate of inflation, a development that rattled both the fiscal and monetary authorities in the country.

Prices of consumable goods, electronics, vehicles and mostly imported goods increased as forex scarcity persisted.

For instance, the NBS reported that the average prices of rice and garri skyrocketed by over 70% between February 2016 and February 2017.

The selected food price watch data released by the NBS showed that the average prices of beans, beef, tinned milk, frozen chicken, onion, tomato and yam also recorded unprecedented leaps in the last one year, being an indication of the ailing economy.

NBS reported that as at February 2017, inflation rate hit 17.78%, a slight drop from the 18.72%recorded in January of the year.

This was the first time the inflation rate would have a marginal drop in the last 15 months since the rate exited single digit.

The NBS reported that the average price of imported high quality rice increased by 68.1 per cent in one year, from ₦279.61 to ₦410.58 per mudu as at last month while the average price of white garri, which is most often locally produced, saw a rise in one year to be sold at ₦260.94 per mudu in February 2017 from ₦241.71 sold in February 2016.

It is worth noting that it is not only inflation and the GDP that needed urgent rescue operation by the recovery plan, but the trade sector as well. For instance, the country recorded a trade balance of ₦290.13 billion out of the total trade value of ₦17.34 trillion recorded in 2016.

To better appreciate the economic hardship being faced by Nigerians, it is important to note that as inflation rate rose, unemployment rate also kept rising.

The NBS reported that the country’s unemployment rate rose from 13.3 per cent in the second quarter to 13.9 per cent in the third quarter of 2016.

The Foreign Trade Statistics for the last quarter of last year released by the NBS showed that Nigeria imported more goods in value terms than the country exported, a development that led to a trade deficit.

Throughout 2016, Nigeria exported goods worth ₦8.53 trillion as against goods worth ₦8.82 trillion the country imported, resulting to a 6.47%trade deficit.

Analysis showed that the ₦17.43 trillion trade value recorded last year was higher than the ₦16.29 trillion in the past, a year that the country did not record trade deficit because it exported more than it imported.

Daily Trust gathered that the problem lies in Nigeria’s taste for imported exotic goods and the country’s lack of capacity to manufacture needed goods or even add value to raw materials before export. This is evident in the statistics of vehicles imported into Nigeria in 2016 that beat expectations of reduction in the market size of the auto industry in the country due to recession.

Speaking at a forum with Commercial Attaches of Embassies in Nigeria recently, the Director-General of the National Automotive Design and Development Council, (NADDC), Engineer Aminu Jalal, said a total of 256, 000 vehicles were imported into the country through the ports and their customs duty paid last year. This excluded vehicles imported through the land borders.

The recovery plan drawn by the government projects to reduce unemployment from 13.9% as of the third quarter of 2016 to 11.23% by 2020, translating to an average of 3.7 million jobs per annum. It is expected that the plan will deliver stable macroeconomic environment with the inflation rate dropping from the current level of almost 19%to single digits by 2020.

The plan sets out strategies for the exchange rate to stabilize as the monetary, fiscal and trade policies are fully aligned, allowing the real GDP to grow by 4.6 per cent on average over the plan period, from an estimated contraction of 1.54 per cent recorded in 2016 to 2.19 per cent in 2017.

The GDP is expected to hit 7 per cent at the end of the Plan period in 2020 as crude oil and natural gas production recovers and expands in the oil-producing areas. 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,” the report stated.

The plan prioritizes the agricultural sector to boost growth by expanding crop production and the fisheries, livestock and forestry sub-sectors as well as developing the value chain. 

The plan said investment in agriculture will drive food security by achieving self-sufficiency in tomato paste in 2017, rice in 2018 and wheat in 2020.

Also, the plan aims to achieve 10 GW of operational capacity by 2020 and place Nigeria as a net exporter of refined petroleum products by 2020 and prioritizes infrastructure and industrialization with an average annual growth of 8.5% in manufacturing, rising from -5.8%in 2016 to 10.6%by 2020. 

Besides, it stated that reduction in the importation of petroleum products resulting from improvement in local refining capacity following the implementation of the plan is expected to increase inflows of foreign exchange into the country.

To achieve the projections, the federal government plans to increase non-oil revenues by improving tax compliance, broadening the tax net, employing appropriate technology and tightening the tax code as well as introduction of tax on luxury items and other indirect taxes to capture a greater share of the non-formal economy.

Furthermore, the Federal Government will undertake major reforms in the budgeting for State Owned Enterprises, which will include legislative amendments of the laws establishing many of the SOEs. 

The plan sets to increase the VAT rate for luxury items from 5 to 15% from 2018, while improving CIT and VAT compliance to raise ₦350 billion annually.

As promising as the plan appears, experts at Preston Consults, a management consulting firm, told the Daily Trust on Sunday that the projected outcome of the growth and recovery plan may be too ambitious given the limited time of four years.

The experts were rattled that the inflation rate projection was twice that which IMF put at 3.8%for the same period.

The Head of the Economics Department, University of Abuja, Professor Sarah Olanrewaju Anyanwu, called to question Nigeria’s political will and capacity to implement the plan.

She told reporters that three years would be sufficient to rescue the ailing economy. According to her, Nigeria has never lacked good policies, programmes and plans as the current one but implementation always stalled such plans.

On the issue of will and capacity to implement the plan, the Budget Minister, Senator Udoma Udo Udoma, said the federal government has the political will and execution capacity to drive the implementation of the ERGP to achieve the desired objectives.

A statement from the Ministry indicated that the Minister said the 2017 Budget is aligned with the ERGP. “Right from the beginning, it was clear that this is where we are going; that we are going to have planning as an important focus and then the budget rolls out of the plan,” the Minister was quoted in the statement.

In addition to the alignment of budget and planning which sets the tone for effective realization of set objectives, the Minister said, government has set up task forces to drive programmes and projects in very critical sectors of the economy. 

As part of the implementation plan, Ministries, Departments and Agencies, (MDAs), are required to meet clear goals for project execution while the task forces have the responsibility to monitor and ensure compliance.

However, the President of the Abuja Chamber of Commerce and Industry, Tony Ejinkeonye, also corroborated Professor Anyanwu on the need for the Federal Government to focus on implementation. “The plan is workable. But there has to be the political will to implement it,” he said.

Ejinkeonye said the parameters set for the economy to recover and attain single digit inflation and 7% GDP growth rate are achievable.

He said the private sector, which he represents, was part of the process of the plan and government had shown sufficient passion for its implementation. “If it is implemented judiciously, there is every hope that we will get out of this recession,” the industrialist assured.

However, he raised a caveat that if Ministries, Departments and Agencies, (MDAs), which should drive the policy, work at cross purposes, the plan will stall and the purpose would not be achieved.

He said the recent directive by the Nigeria Customs Service for vehicle owners to obtain customs duty for their vehicles negates the economic recovery plan as the plan hopes to increase not just foreign direct investment but local direct investment as well.

He said such directive was capable of raising fears in Nigerians as it relates to policy inconsistency, calling on government agencies to consult properly before rolling out policies.