Following the release of its five-year assessment on the achievements and shortcomings of President Muhammadu Buhari’s anti-corruption drive, the Centre for Democracy and Development (CDD) has released a similar report called Fluctuating Fortunes: A 5-year Economy Assessment under the Buhari Administration. The assessment attempts to answer key questions on the President’s handling of the economy. Relying on a vast array of data sources, the assessment interrogates the core issues which have underpinned conversations around building an economy which would create jobs and pull a sizeable number of Nigerians out of the trap of poverty.
In proffering solutions, the report suggests that Buhari should focus on a few key areas: reducing the quasi-fiscal role of the CBN, improving credit infrastructure, leveraging digital technologies to embrace open governance principles, and making good on plans to invest significantly in human and physical capital, while addressing long-term bottlenecks to growth.
The report firstly contextualizes the position of the economy before the Buhari administration mounted the saddle in 2015. It recalls how on assumption of office in May 2015, the new administration inherited an economy in decline in terms of growth rate of the nation’s Gross Domestic Product. To further solidify the contextual analysis, the report informs that between 2013 and 2014, the economy grew above 6 percent which was more than double the annual estimated population growth of 2.6 percent. As has been the case in previous boom cycles, the buoyancy experienced in the 2013 to 2014 period was connected to improved receipts from sale of crude oil. However, the unpredictable crude oil market soon got disrupted hitting Nigeria hard with economic growth reported to have declined from about 6.0 percent in Q4 2014 to 4.0 percent in Q1 2015 and further to 2.4 percent in Q2 2015.
With this situational context in mind, the CDD five-year assessment goes on to analyse the various actions or inactions, which have shaped Nigeria’s current economy. The report notes that the “inability of the federal government to implement robust policies to salvage the fiscal situation paved the way for an economic crisis in 2016. “Amid inherited challenges, the six months delay in deciding the cabinet constrained federal government capital expenditure releases; created an atmosphere of uncertainty that slowed down private sector investment decisions, increased outflow of foreign investments, all with negative consequences on economic activities,” it stated.
Also, the report makes the point that in spite of some reforms introduced by the administration, there still remained some key issues in the regulatory environment which served as obstacles to a business-friendly environment. According to the assessment, these issues include the limited access to electricity and credit as well as inadequate measures towards resolving insolvency. It noted that “power cuts remain relatively frequent as substantial progress, particularly in the distribution network, has not been made towards providing better power supply to customers. As a result, businesses continue to provide their own electricity supply through generators with some businesses going completely off-grid, thus increasing the cost of production and reducing their profit margin.” Notwithstanding the many structural and policy implementation challenges, which hobbled Nigeria’s economy to the point of sluggish growth, the assessment refrained from dwelling exclusively on the negative. It highlighted some of the bright spots in terms of policy initiatives, and the push by the government to get things going for the economy. One of such promising areas in terms of policy is what the Presidential Enabling Business Environment Council (PEBEC) has been doing in the area of ease of doing business.
The assessment similarly gives the due credit that owing to reforms in the business environment, Nigeria was named as one of the top-ten economies across the world with the most notable improvements in doing business in both 2019 and 2020. The other area of good scoring for the administration on the economy, according to the report, is the Finance Act 2019, which was described glowingly as a policy game changer implemented by the administration. “The Act provides Companies Income Tax (CIT) and Value Added Tax (VAT) exemptions for small businesses (those with a gross turnover of ₦25 million annually); reduces the tax rate for medium-sized businesses (those with a gross turnover of between ₦25 million to ₦100 million annually) from 30% to 20%; exempts the profits of small businesses earned from dividends within their first five years of operation from being taxed; and provides a five-year initial tax exemption period for businesses engaged in agricultural production which may be renewed for additional three years.”
Yet another bright spot the administration can celebrate is the result of sector-specific policies of the administration like the Anchor Borrowers,’ scheme which reportedly contributed to the improvement in food availability across the country. The report reads: “With the programme supporting over 1.5 million farmers in cultivating 16 agricultural commodities in its four-year existence, it has been celebrated as one of the milestones in the much talked about push for the diversification of the economy.” In terms of delivery and impact however, there are objections in the report that that key processes for the delivery of such programmes have not been efficient, including unsavoury reports such as non-repayment of loans and diversion of input, which should go to farmers who need them the most. In the report therefore, worries were expressed that if key processes are not firmed up, there could be large scale loan default, which in turn could have adverse the sustainability of the programme and lead to its termination.
On the less cheery side is the low score the administration got for job losses and the increasing poverty in the land. Data referenced in the report have it that about 4.04 million persons lost their jobs in 2015, as unemployment and underemployment rate increased from 6.4 percent and 17.9 percent in Q42014 to 10.4 percent and 18.7 percent in Q42015. The assessment informs that in the period under review, unemployment rate was high among youths, as about 5.3 million youths within the age bracket of 15-24 could not get a job in 2015. The report put it on record that “the high rate of unemployment and increased poverty partly triggered the security challenges in the country, which was a key campaign promise of the President. These challenges set a slow start for President Buhari’s administration.”
In addition, the report refers to how lower government revenue resulting from the “twin shocks” (COVID and Oil) will further saddle Nigeria with a huge debt burden. The point is made with clarity about how the federal government borrowing has grown by more than 100 percent since 2015. “Although federal government’s current debt stock of about N22 billion is less than 20 percent of GDP, the continuous accumulation of debt appears unsustainable as servicing of the debts is already accounting for more than 60 percent of government revenue.” The wobbly shape of the economy, according to the report is further underscored by the recent downgrade in Nigeria’s credit rating by key international credit agencies (S&P and Fitch) in the first half of 2020. It was argued that with the twin shocks resulting from global oil glut and the COVID-19 pandemic, the country’s debt burden is expected to further increase in 2020 especially if government fails to be more decisive in its debt management policies.
The full report can be downloaded on HERE.
Another key issue from the report is the extrapolation made about the tendency for modest economic gains to be easily reversed when the administration should be moving to consolidate those quick wins. For instance, it was noted that economic growth picked-up in 2018 and 2019 for the first time since the recession of 2016. Unfortunately, those gains were soon wiped out because of lower per capita income and increased unemployment. “The growth rate which stood at average of 1.9% in 2018 and 2% in the first half of 2019 continued to remain below the estimated population growth rate, thus lowering per capita income and increasing both unemployment and poverty rates.”
Similarly, the double-edged impact of the decision to close the borders in August 2019 was described as an attempt to boost local production, yet the closure had undesirable effects in terms of stifling the trade sector and causing inflation. The assessment notes for instance that food inflation increased from 11 percent in August 2019 to 15.03 percent in April 2020; while trade, which is a major component in the services sector and the second-largest employer of labour, contracted by 1 percent in the second half of 2019.
The report equally provides a critique of several other issues relating to the management of the economy. It discussed extensively the role of the Central Bank of Nigeria (CBN), which is now very much involved in fiscal stimulus to prop up the ailing economy. It also situates the impact of the social investment programme and the interlinked nature of other critical sectors such as health and education to the economy. Beyond these however, the assessment provided some important pointers and recommendations for the good of the economy.
Firstly, the report canvassed a reduction of the CBN’s quasi-fiscal role and improving credit information and sharing. This it argues is critical to enhance the effectiveness of existing credit facilities. According to the perspective, while the development finance operations by the CBN has improved the flow of credit to targeted sectors at single digit interest rate, it is crucial for the apex bank to reduce its involvement in quasi-fiscal operations.
“The involvement of the CBN not only reduces the transparency of these expenses but also creates an inappropriate attitude from beneficiaries with some viewing the credit facilities as grants. This not only affects the effectiveness of the facilities but also threatens their sustainability.” The assessment also forcefully makes the point that although commercial banks play a significant role in managing and disbursing the credit, under the supervision of the CBN, it wants the collateralization requirement for the loans to be withdrawn.
“To achieve this, more has to be done to ensure that information on potential borrowers exist. Presently, the Nigeria’s largest credit bureau, CRC Credit Bureau Limited, only provides credit scoring services covering 14% of the adult population which hinders access to finance to most of the population.”
The assessment also stressed the importance of open government by taking advantage of new digital technologies to better package programme strategies as well as during implementation. Adoption of these technologies, the assessment argues will improve accountability, transparency and citizens participation. It therefore encouraged the government to engage in peer learning from countries such as Rwanda, which have been successful in deployment digital technology for effective governance.
Subsequently, the assessment admonished the government to come to terms with the fact that key reforms in the human capital sectors are important in achieving success in overall economic development. It said: “While the government has laid down its plans to reform the sectors such as introducing a new skills-based curriculum in secondary schools focused on coding and robotics as well as doubling the number of practicing physicians, not much has been done to achieve them.
“It is important to note that the quality of the labour force influences the productivity of both private and public sectors and in turn the level of economic growth. The private sector can play more a more active role in both the education and health sectors as they bring on innovation, technology and financing that can boost the productivity 0f these sectors and achieve significant returns.”
The call was also made for the authorities to decisively address other regulatory and structural issues, which stifle the growth of the economy. Challenges such as bureaucratic bottlenecks, corruption, subversion of the rule of law, and the non-enforcement of contracts were mentioned as some of the issues that must be addressed. The report noted that “while finance remains a key issue that hinders the growth of the private sector particularly small businesses, and is vigorously being addressed by the government, these structural issues also pose a barrier to their growth. Additional finance without addressing these issues will not bring about the gains envisaged by the government. Legislative reforms as well as a more business-friendly attitude has to be put up not only for local businesses but also to attract foreign investment.”
Finally, the report called for lasting solutions to the age-long infrastructure challenges that hinders economy growth. Particularly, the crisis in the power sector, which exponentially increases the cost of doing business was flagged as one area to urgently address. The assessment points out that the deficit in infrastructure “increases the cost of doing business and affects their bottom line, with some having to shut down.
“If not within Nigeria, enormous capital exists outside the country which can be deployed to deliver the much-needed infrastructure. However, projects will need to be bankable with clear and agreed-upon means of obtaining the returns on investment,” it said.
The full report can be downloaded on www.cddwestafrica.org.