Weak Policy Framework Stifles Nigeria’s Economic Growth –W/Bank
The World Bank Group has said that Nigeria’s policy framework which it considers weak is responsible for stifled economic growth despite strong resource endowment and market opportunities.
Nigeria’s economic performance has remained unimpressive despite her resources endowment and market opportunities.
In a report, World Bank group said that Nigeria is uniquely placed for strong economic growth, noting the policy framework remains an impediment to growth.
Explaining further, the world bank group said that Nigeria is rich in agricultural and mineral resources among other resource deposits.
Speaking to large market opportunities which pundits have always been factored as giving the country a positive rating, the report noted the nation’s population of about 200 million people presents a huge market.
This has always been considered as the largest in Africa and could support for domestic production.
In addition, a large segment of Nigeria’s labor force is young and entrepreneurial—5.3 million people entered the labor force in 2018 alone, the report reads.
Moreover, IFC noted that market access to other member countries of the Economic Community of West African States (ECOWAS) and the wider African region offers opportunities to Nigeria’s private enterprises.
“However, Nigeria’s resource endowments and opportunities have not translated into sustained economic growth and shared prosperity for its citizens”, the report reads.
Experts explained that Gross domestic product (GDP) growth, which averaged 8.4 percent per year in the first decade of the 2000s, has slowed considerably, to around 2 percent in 2018, well below the average for many of Nigeria’s peers.
Also, Poverty has increased, with nearly half of the population living in extreme poverty (that is, below US$1.90 per day).
The World Bank group agreed that Nigeria now hosts the largest number of poor people in the world—surpassing India in 2018.
The rate of unemployment has also risen, reaching 23 percent in 2018. In the second quarter of 2020, National Bureau of Statistic data showed that unemployment has skyrocketed to 27.1%.
Likewise, underemployment of labor is rising.
Indeed, World Bank said Nigeria’s economic performance and development outcomes are diverging from regional averages and on its current trajectory the country is expected to further lag.
Compounding Nigeria’s challenges is the strong regional disparity in development outcomes, including poverty rates, and human capital indicators—such as adult literacy, primary school enrollment, and health outcomes—in the northern zones of the country are significantly worse than those in the southern zones.
“The prediction for development outcomes is worrisome and creates a case for urgent action for faster economic growth and job creation”, it was noted.
The group said prior to the COVID-19 pandemic, the number of people living in extreme poverty was projected to reach 120 million (or 45 percent of the population) by 2030.
However, the report indicates that the pandemic and impending recession could further increase the poverty rate and reduce Nigeria’s economic and development outcomes.
Estimates suggest that Nigeria needs investments worth 6–8 percent of GDP and 40 to 50 million higher-income and higher-productivity jobs by 2030 to reduce poverty and to help create a more prosperous Nigeria, the report reads.
World Bank however noted that high dependency on crude oil exports has contributed to increasing poverty and inequality.
According to them, Nigeria’s oil and gas sectors generate on average more than half of fiscal revenues and nearly 90 percent of the nation’s exports.
Although, report indicates that a series of reforms in the early 2000s helped to raise productivity and growth (especially in the services sector) and increased non-oil contribution to GDP to 90 percent (compared with 68 percent in the late 1990s), the oil and gas sectors continue to dominate Nigeria’s economy.
The group then explained that high dependency on oil exposes the country’s growth performance to the boom and bust cycle of oil prices, which creates economic uncertainty and dissuades investment.
It was also noted that the shock of the unprecedented collapse in oil prices during the COVID-19 pandemic comes on the heels of a weak recovery from the 2014–16 oil price crash, which led to dramatic revenue shortfalls and debt buildup and precipitated the recession of 2016.
Experts consensus remained that oil dependency will deepen the imminent recession from the fallout of COVID-19.
Moreover, the World Bank group said the challenging governance framework of Nigeria’s oil industry, together with increased competition in the global oil industry, and traction with curbing the use of fossil fuels because of climate change effects, will diminish the oil sector’s long-term contribution to the economy.
In the absence of adequate fiscal buffers and low non-oil revenues, the report reckoned that public finance will become increasingly vulnerable to oil price shocks, hampering the government’s ability to invest in needed infrastructure and to provide vital services.
It said the recent oil price crash during the first quarter of 2020 reinforces the argument that an over-dependency on oil exports creates substantial risk to Nigeria’s public finances.
Recalled that oil crisis was precipitated by the failure of two major producers Saudi Arabia and Russia to reach an agreement on production cuts and the subsequent oil price war.
The situation then was compounded by the outbreak of the COVID-19 pandemic, which has devastated global oil demand
Equally, experts believed that Nigeria’s weak economic policy framework has impeded growth and development.
Explaining further, it said government policies and programs in the real sector (for example, the 2011–15 Agriculture Transformation Agenda and the 2007 National Integrated Industrial Development Strategy) that were developed to promote growth, drive non-oil exports, and create jobs have been poorly designed, inconsistent or short-lived, and weakly implemented.
Taking this further, the international finance agency said important reforms under the 2017–20 Economic Recovery and Growth Plan (ERGP) have been delayed.
As a result, targets for output diversification, growth, and job creation have not been met.
For example, the international organisation explained that manufacturing value-added (MVA) has fallen dramatically during the past 20 years and is well below the MVA of regional peers.
It mention countries like Côte d’Ivoire and Ghana, while GDP growth—projected under the ERGP to average about 4.6 percent a year (2017–20) and to peak at 7 percent by 2020—is well below this target.
In addition, the World Bank group explained that the 3.75 million new jobs expected to be created annually under the ERGP have not materialized.
“These policy challenges, which also reflect weak institutions, are eroding the social contract between the government and the private sector and are creating a difficult business environment in Nigeria”, the report reads.
The report stated that Nigeria lacks strong institutions that can deliver public services and economic opportunities efficiently and effectively and this has led to a high cost of doing business—to the detriment of the private sector.
Consequently, the trust between the government and the private sector has eroded over the years.
While improving, Nigeria’s business environment ranks 131 out of 190 countries on the 2020 World Bank Doing Business Index, well below its aspirational peers.
Also, foreign direct investment (FDI) to Nigeria has progressively declined since 2011, reaching about US$2 billion in 2018—the lowest level since the early 2000s.
The group detailed that Ghana has now overtaken Nigeria as the largest recipient of FDI in West Africa.
The report stated that the country must focus on a wider private sector–led growth strategy based on its considerable factor endowment and market opportunities.
To address the deficiencies in Nigeria’s policy framework and its infrastructure sector that are stifling growth would enable the private sector to create millions of quality jobs for its rising population, mitigate economic vulnerability by diversifying exports, and reduce inequality and instability by driving economic activity in underdeveloped regions.
It mentioned three key features of Nigeria’s economy uniquely position for a strong non-oil sector growth that leverages the private sector.
First, it stated that the country’s rich agricultural and mineral resource base provides the opportunity to significantly expand food manufacturing and resource-based manufacturing, especially in the lagging North.
Second, IFC and World Bank recognised that Nigeria’s relatively large, fast-growing, and urban domestic population, and regional integration with ECOWAS, provide a ready market base for Nigerian food products, consumer goods, building materials, and services (such as financial, transportation, and digital).
Third, the report stated that with a large, young entrepreneurial population, Nigeria is well-positioned to increase productivity and innovation through digital entrepreneurship.
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Weak Policy Framework Stifles Nigeria’s Economic Growth –W/Bank
