The last three years have been anni horribilis for the Nigerian economy – virtually everything that could go wrong, did. In the face of mounting social tension, Nigeria’s Vice-President Yemi Osinbajo released the anticipated economic recovery plan while President Muhammadu Buhari was receiving treatment abroad. Vinesh Parmar analyses the plan to see if it can do the trick and if the state can actually implement it.
In the time Nigeria’s president Muhammadu Buhari was away receiving treatment for an undisclosed illness the government released the highly anticipated Economic Recovery & Growth Plan (ERGP). The language in the document speaks quite damningly of Africa’s second largest economy in honest recognition of the economy’s position.
The ERGP is aimed at ‘increasing national productivity and achieving sustainable diversification of production’ after the economy contracted by 1.5% last year, its worst performance since 1991. ERGP’s grand vision hopes to achieve growth of 7.8% by 2020, bringing 15 million more people into work, an optimistic reach in context of their current position.
At the helm of this plan was Buhari’s Vice President Yemi Osinbajo, who has injected vigorous leadership in Buhari’s absence. John Ashbourne of Capital Economics believes that this may have been the only reason the revival plan was rolled out, “Indeed, it is possible that reformist officials – including, perhaps, the vice president, were only able to release this document because the president is away. If this is true, then the scheme may only last as long as Buhari’s convalescence.”
ERGP details an increase in output of Nigeria’s most important commodity, oil, from 1.6m barrels a day (b/d) to 2.5m b/d. The prospect of producing at capacity will rely on proposed sale of pipelines in the Niger Delta and successful peace talks with rebels who have caused havoc in the region, bombing pipelines and sabotaging operations. Osinbajo has been heading the pacification process.
Central to the plan of economic recovery is not only oil production, but refinement too. Petroleum products account for 15% of imports, squeezing ever-diminishing foreign reserves, and the government hope to reduce this to 6% by 2018 by restoring debilitated refineries, which have suffered from under-investment. This seems like a necessary step for an industry where petrodollars make up 70% of state revenue and contribute to all but 5% of export earnings.
The collapse in the oil price beginning in 2014 has forced the government’s hand, restricting access to foreign currency on items not deemed essential. As such the bi-product of inflationary pressures have increased consumer prices by 19% with household utilities bearing the brunt of this. As purse strings of locals are tightened and employment rates toiling off, animosity towards the government is building. Electricity prices could rise further as Buhari eyes a move to get rid of state subsidies. By making prices cost reflective he hopes to attract investors and grow the power sector, aiming to optimise 10GW of energy.
Effects of inflation and restricted imports has placed emphasis on food self-sufficiency. Although questions hang over the feasibility of other aspects of the plan, the government are taking meaningful strides towards this. At the end of 2015 the government had to foot a bill of a reported $6.5bn on food imports, which drove up the domestic price of rice by 60%. The Central Bank set aside $201m to increase the involvement of small-holder farmers by supplying fertiliser and equipment through the Anchor’s Borrower Programme. Areas where this scheme was piloted saw a 20% increase in rice production.
Investment in other industries is vital. Like his predecessors before him, Buhari has been banging the drum of ‘diversification’ and ‘human capital investment’ without tangible efforts to show for. Nigeria’s non-oil economy grew by 6.2% a year between 2010 and 2015 but the former military general has presided over a decline in this figure, which contracted 0.2% last year. The landscape now call for these to be more than just promises. Manufacturing adds just a solitary percent to total GDP and with an expected population boom, training and education of people should feature higher on the agenda.
Of more concern to some analysts was the silence on exchange rate policy. The tame devaluation of the exchange rate in February left investors startled, feeling it was not bold enough to attract money back into the economy. Regardless, the decision was viewed as undermining Buhari’s stance. A market-determined approach may leave the Naira in limbo for a while, losing value and hurting pockets of Nigerians. But Ashbourne sees this as a positive, “For a government that has previously described FX liberalisation as a scheme to kill the naira, this is a huge step forward.”
The EPRG is viewed as an important marker in the lead to the 2019 elections. Now that economic recovery can be placed front and centre without the nagging influence of populist politics this will provide a clear indication of President Buhari’s political will and ability to see through an ambitious plan.