NIGERIA 2017 BUDGET AS A PANACEA FOR ECONOMIC RECOVERY

INTRODUCTION

The Nigerian economy is characterized by structural challenges that limit its ability to sustain growth, create jobs and achieve real poverty reduction. The economy is highly dependent on a single commodity for economic activities, fiscal revenues and foreign exchange – oil – and must import raw materials and intermediate goods to sustain the manufacturing sector. The economy is also skewed towards consumption rather than investment, with gross domestic investment (GDI) to GDP ratio hovering at 13-14 per cent.  In the 10 years between 2005 and 2015, Nigeria’s GDP grew at an average 6.3 per cent. In 2016, the economy entered into a recession with GDP contracting by 0.36 per cent in the first quarter, 2.1 per cent in the second quarter and 2.2 per cent in the third quarter. The forecast growth for 2016 overall is -1.54 per cent. Inflation soared from 9.5 per cent (December 2015) to 18.5 per cent (November 2016) as the combined result of currency depreciation, higher energy prices and high cost of inputs (Figure 1.2).

Nigeria’s economy is highly dependent on the oil and gas sector. Although the sector accounts for just 10 per cent of GDP, it represented 94 per cent of export earnings and 62 per cent of Government revenues (Federal and State) in 2011-2015. Foreign exchange reserves declined from USD32 billion in January 2015 to USD25 billion in November 2016 (from a high of USD53 billion in 2008). As a result, the naira depreciated sharply, losing almost half of its value against the dollar. Similarly, foreign direct investment (FDI) declined sharply from a peak of USD8.9 billion in 2011 to USD3.1 billion in 2015 and did not recover in 2016(Figure 1.2).

The Federal Government has christened the 2017 Budget which was signed into law on Monday by Acting President Yemi Osinbajo as “Budget of Economic Recovery and Growth”. Osinbajo said the name reflected the commitment of the administration to ensure strong linkage between the medium-term Economic Recovery and Growth Plan (ERGP) recently launched by President Muhammadu Buhari and the annual budgets.

NIGERIA 2017 BUDGET AS A PANACEA FOR ECONOMIC RECOVERY The budget has a revenue projection of N5.08 trillion and an aggregate expenditure of N7.44 trillion. “The projected fiscal deficit of N2.36 trillion is to be financed largely by borrowing,’’ Osinbajo said. He assured those who had expressed concern about the growing public debt that “we are taking several actions to grow government revenues as well as plug revenue leakages. “This is because, notwithstanding the fact that our borrowings are still within sustainability limits, we are determined, in the medium term, to reduce our reliance on borrowings to finance our expenditures’’.

“The plan builds on the existing Strategic Implementation Plan (SIP), and contains objectives and enablers required to revive the economy.

“The objectives of the NERGP are pulling the economy out of recession, investing in the people, laying the foundation of diversified, inclusive and sustainable growth.

“The 2017 Budget Proposal reflects many of the reforms and initiatives in the SIP and NERGP and in the 2017-2019 Medium Term Fiscal Framework,’’ he said.

Giving the estimates of the budget, Udoma said that the government expected N4.94 trillion as revenue in 2017 with N1.98 trillion coming from oil sector and N1.37 trillion from non-oil sector.

A breakdown of the recurrent (non-debt) expenditure showed that personnel cost was allocated N1.86 trillion; overhead N229.81 billion; Amnesty Programme N65 billion and refund to special account of N50 billion.

SOME OF THE IMPORTANT AREA OF THE 2017 NIGERIA BUDGET TO BE CONSIDERED FOR THE ECONOMIC RECOVER ARE AS FOLLOWS

In this regard, the 2017 budget will be implemented in line with our Economic Recovery and Growth Plan.

 “Over the 2017-2020 plan period, we are focusing on five (5) key execution priorities, namely:

*Stabilizing the macroeconomic environment;

*Agriculture and Food security;

*Energy sufficiency in power and petroleum products;

*Improved transportation infrastructure; and

*Industrialization through support for micro, small and medium-scale enterprises (MSMEs).

“The 2017 budget includes provisions that reflect these priorities.

“To demonstrate our commitment to following through our Economic Recovery and Growth Plan, the 2017 budget allocates over N2 trillion to capital expenditure, principally infrastructure.

 “For instance, we are committing over N200 billion to improve transport infrastructure such as roads and rail; over N500 billion for investments in works, power, and housing; and N46 billion for Special Economic Zone Projects to be set up in each geopolitical zone.

Following the Strategic Implementation Plan, SIP, formulated for the short-term objective of executing the 2016 ‘Budget of Change’, the government recently unveiled the comprehensive ERGP to pursue the medium to long-term objectives of realizing certain national targets in the economy between 2017 and 2020.

THE OBJECTIVE OF THE PLAN

1. Enhance the contribution of tourism to GDP

2. Increase the number of visitors to Nigeria by 10 per cent a year (from 2017).

3. Increase the volume of domestic tourism

4. Promote and encourage patronage of local agricultural, creative industry and manufactured products by operators in the tourism industry and strengthen backward and forward linkages as  well as conserve foreign exchange

.

BELOW ARE THE THINGS NIGERIANS SHOULD KNOW ABOUT THE PLAN.

1. The ERGP has three broad strategic objectives: restoring growth of the economy, investing in the Nigerian people, and building a globally competitive economy;

2. It targets the growth of Nigeria’s gross domestic product, GDP, by 2.19 percent in 2017 and 7.0 percent by the end 2020;

3. It envisages reducing inflation to single digit by 2020 and increasing federal government’s revenues from N2.7 trillion in 2016 to N4.7 trillion in 2020;

4. It prioritizes key turnaround interventions and enablers to generate concrete, visible impact by 2017 and articulates medium term economic policies for implementation between 2017 and 2020;

5. It focuses on achieving macroeconomic stability; economic growth and diversification; competitiveness and business environment; and governance and security;

6. It builds on the short-term Strategic Implementation Plan, SIP, for the 2016 ‘Budget of Change’ towards sustainable accelerated development for 2017-2020;

7. It is a multi-pronged agenda to tackle corruption, improve security and re-build the economy;

8. It is consistent with the Sustainable Development Goals, SDGs, as it addresses economic, social and environmental sustainability issues;

9. It is different from previous plans, as there appears to be a strong political determination, commitment and will at the highest level to realize the objectives;

10. It has a delivery unit in the presidency to drive implementation of economic priorities;

11. It outlines initiatives to boost oil production to 2.5 million barrels by 2020, privatise selected public enterprises/asset, and revamp local refineries to reduce petroleum product imports by 60 per cent by 2018;

12. It builds on the National Industrial Revolution Plan and the Nigeria Integrated Infrastructure Master Plan;

13. It seeks to promote effective collaboration and coordination between the federal and state governments’ work towards achieving national objectives;

14. It emphasises improvement on public and private sector efficiency towards increased national productivity, sustainable diversification of production, food and energy security.

15. It focuses on tackling constraints to national economic growth, by leveraging the power of the private sector towards economic recovery and transformation;

16. It has five execution priorities to kick-start economic recovery: stabilization of the macroeconomic environment, achieving agriculture and food security, ensuring energy sufficiency in power and petroleum products, improving transport infrastructure, and driving industrialization through local and small business enterprise;

17. It is a blueprint for recovery in the short term and a strategy for sustained growth and development in the long term.

18. It merges the budget and planning functions into one ministry to create a better and stronger link between annual budgets and the national economic plan;

19. It seeks to help improve oil revenues earnings from N700 billion in 2016 to N1.3 trillion per year in 2017 and N1.45 trillion per year by 2020;

20. It aims to boost oil production from 1.4 million barrels per day in 2016 to 2.2 million barrels per day in 2017 and 2.5 million barrels per day by 2020.

21. It aims to boost efficiency in savings of N50 billion per year and reducing government overhead expenditures by 25 per cent.

PRINCIPLES OF THE ECONOMIC RECOVERY

Several principles have driven the thinking and the development of this Plan:

 Focus on tackling constraints to growth. Economic growth in Nigeria faces various supply constraints including fuel, power, foreign exchange, and business unfriendly regulations. In addition, there is a shortage of requisite skills and appropriate technology necessary to drive growth. This Plan focuses on overcoming and resolving these challenges.

 Leverage the power of the private sector. Economic recovery and transformative growth cannot be achieved by the government alone. It is essential to harness the dynamism of business and the entrepreneurial nature of Nigerians, from the MSMEs to the large domestic and multinational corporations to achieve the objectives of this Plan. The Plan prioritizes the provision of a more business friendly economic environment.

 Promote national cohesion and social inclusion. Nigerians are the ultimate beneficiaries of more inclusive growth and therefore, the initiatives set out in this Plan are aimed at ensuring social inclusion and the strengthening of national cohesion.

 Allow markets to function. The ERGP recognizes the power of markets to drive optimal behaviour among market participants The Plan prioritises the use of the market as a means of resource allocation, where appropriate. However, the Plan also recognises the need to strengthen regulatory oversight to minimise market abuse.

 Uphold core values. The ERGP is rooted in the core values that define the Nigerian society as enshrined in the 1999 Constitution, notably discipline, integrity, dignity of labour, social justice, religious tolerance, self-reliance and patriotism. It requires all citizens and stakeholders to adhere to these principles.

BROAD OBJECTIVES OF THE PLAN

The ERGP has three broad strategic objectives that will help achieve the vision of inclusive growth outlined above: (1) restoring growth, (2) investing in our people, and (3) building a globally competitive economy.

Restoring Growth: To restore growth, the Plan focuses on achieving macroeconomic stability and economic diversification. Macroeconomic stability will be achieved by undertaking fiscal stimulus, ensuring monetary stability and improving the external balance of trade. Similarly, to achieve economic diversification, policy focus will be on the key sectors driving and enabling economic growth, with particular focus on agriculture, energy and MSME led growth in industry, manufacturing and key services by leveraging science and technology. The revival of these sectors, increased investment in other sectors, less reliance on foreign exchange for intermediate goods and raw materials and greater export orientation will improve macroeconomic conditions, restore growth in the short term and help to create jobs and bring about structural change.

Investing in our People: Economic growth is beneficial for society when it creates opportunities and provides support to the vulnerable. The ERGP will invest in the Nigerian people by increasing social inclusion, creating jobs and improving the human capital base of the economy.

 Social inclusion. The Federal Government will continue to provide support for the poorest and most vulnerable members of society by investing in social programmes and providing social amenities. Targeted programmes will reduce regional inequalities, especially in the North East and Niger Delta.

 Job creation and youth empowerment. Interventions to create jobs are a core part of the ERGP, which aims to reduce unemployment and under-employment, especially among youth. The ERGP accordingly prioritizes job creation through the adoption of a jobs and skills programme for Nigeria including deepening existing N-Power programmes, and launching other public works programmes. The partnership for job creation will also focus on the policies required to support growth and diversification of the economy by placing emphasis on Made-in-Nigeria, public procurement which takes account of local content and labour intensive production processes. All initiatives under job creation would prioritize youth as beneficiaries. Accordingly, all capacity building and skills acquisition interventions will be targeted at youth-dominated sectors such as ICT, creative industries, and services. Furthermore, concerted efforts would be made to encourage youth to venture into other labour intensive sectors such as agriculture and construction.

 Improved human capital. The Federal Government will invest in health and education to fill the skills gap in the economy, and meet the international targets set under the UN’s Sustainable Development Goals (SDGs). The ERGP will improve the accessibility, affordability and quality of healthcare and will roll out the National Health Insurance Scheme across the entire country. It will also guarantee access to basic education for all, improve the quality of secondary and tertiary education, and encourage students to enrol in science and technology courses.

Building a Globally Competitive Economy: Restoring Nigeria’s economic growth and laying the foundations for long-term development requires a dynamic, agile private sector that can innovate and respond to global opportunities. The ERGP aims to tackle the obstacles hindering the competitiveness of Nigerian businesses, notably poor or non-existent infrastructural facilities and the difficult business environment. It will increase competitiveness by investing in infrastructure and improving the business environment.

 Investing in infrastructure: The ERGP emphasizes investment in infrastructure, especially in power, roads, rail, ports and broadband networks. It builds on ongoing projects and identifies new ones to be implemented by 2020 to improve the national infrastructure backbone. Given the huge capital layout required to address the massive infrastructure deficit in the country, the private sector is expected to play a key role in providing critical infrastructure, either directly or in collaboration with the Government under public private partnership (PPP) arrangements.

 Improving the business environment: Nigeria’s difficult and often opaque business environment adds to the cost of doing business, and is a disincentive to domestic and foreign investors alike. Regulatory requirements must be more transparent, processing times must be faster, the overall economy must be more business-friendly. The ERGP will build on the efforts of the Presidential Enabling Business Environment Council (PEBEC) and track progress using the metrics of the World Bank’s Doing Business Report. The target is to achieve a top 100 ranking in the World Bank’s Doing Business index by 2020 (up from the current ranking of 169).

 Promoting Digital-led growth: To make the Nigerian economy more competitive in the 21st century global economy, its industrial policy must be linked to a digital-led strategy for growth. The ERGP will build on The Smart Nigeria Digital Economy Project to increase the contribution from ICT and ICT-enabled activity to GDP. The overall goals of a digital-led strategy for growth centre on the establishment of an ICT ecosystem in Nigeria. This is enabled through significantly expanding broadband coverage, increasing e-government, and establishing ICT clusters, starting in the SEZs. Government will also drive a programme to build the skills in this sector, focusing on training IT Engineers in software development, programming, network development and cyber security.

Conclusion

Unlike previous government policies and plans, this Plan outlines a proposed delivery strategy which, amongst other things, establishes clear accountability, sets targets, allocates resources to established priority areas, creates enabling policy and regulatory environments, monitors and drives progress and ensures effective communication. Whilst the market continues to wait on the implementation of the Plan, it remains to be seen if the ERGP can deliver on its promise given its relatively ambitious timeline, delay in passage of the 2017 budget and the many other challenges to overcome. What appears to be clear however, is that the ERGP, if successfully implemented, would have tremendous effect in almost every sector of the Nigerian economy while leveraging on science, technology and innovation. Although the timeline for achieving most of its priority objectives appear ambitious, the Plan undoubtedly presents significant trade and investment opportunities for both local and international investors and businesses at a time when this is sorely needed.