Major threat to economic recovery

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At long last, the much-awaited Economic Recovery and Growth Plan of the Federal Government, which contains the road map for Nigeria’s economic development, has been unveiled by the Ministry of Budget and National Planning. The four-year plan (2017-2020), envisages that by 2020, “Nigeria would have made significant progress towards achieving structural economic change with a more diversified and inclusive economy”. Real GDP is projected 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 reaching seven per cent at the end of the Plan period while inflation rate is projected to trend downwards to a single digit by 2020.

The Plan outlines bold initiatives such as ramping up oil production to 2.5mbpd by 2020, privatising select public enterprises/assets, and revamping local refineries to reduce petroleum product imports by 60 per cent by 2018.The country is expected to become not only a net exporter of refined petroleum products by 2020 but also a net exporter of key agricultural products such as rice, cashew nuts, groundnuts, cassava and vegetable oil that take up a lot of foreign exchange. Following the implementation of the Plan, unemployment is expected to reduce from 13.9 per cent as of Q3 2016 to 11.23 per cent by 2020 which translates to the creation of over 15 million jobs during the Plan horizon or an average of 3.7 million jobs per annum. By 2020, it is hoped, Nigeria will have become a well-diversified economy having multiple streams of revenue.

Without any shred of doubt, the 140-page document has been well-packaged just like similar previous Plans considering that the development of the Plan according the Minister of Budget and National Planning, Senator Udoma Udo-Udoma, “went through a rigorous process, including wide consultations and robust engagements with stakeholders from a range of relevant fields, economic experts from the public and private sectors, academia, organised private sector, civil society groups, organised labour, sub-regional governments, international development partners, the National Economic Council and the National Assembly”. Similar Plans in the past toed the same path. In recent time, Vision 2010, NEEDS as well as Vision 20:2020 readily come to mind. This time round however, the minister assures the story would be different citing sufficient “Political Will” on the part of the government to drive the process. This assurance is comforting but there are considerable threats. Mindful of these risks, the ERGP document in section 8.1 (pg 112) highlights the “downside risks” associated with the Plan to include “the uncertainty in the current global economic environment” which could jeopardise Nigeria’s ability to achieve its high growth projections. It recognises that the “challenging global economic conditions associated with rising interest rates and protectionism in developed country markets or a continued slowdown in emerging markets such as China, could reduce the attractiveness of Nigeria as an investment destination”. Adding that “if the measures being put in place by government to address disruptions to oil production resulting from crude oil theft, pipeline vandalism and Niger Delta militancy are ineffective, then the nation may face the challenge of not achieving the crude oil production forecast in the Plan and this would create additional implementation risks for the ERGP.”

Indeed, numerous other vulnerabilities remain but the biggest threat to the ERGP, in my view, is the political risk which received no mention under the section. Nigeria’s experience over the years has shown that implementation of Development Plans suffers neglect whenever there is a change in government. This point was recently buttressed by Chief Philip Asiodu who blamed the country’s lack of economic development on the abandonment of Development Plans by successive regimes. Against this backdrop, the “Political Will” argument holds water only in the context of stability in government which is guaranteed where the Visioner (the President) is in office throughout the Plan period. This condition must be met for any National Plan to succeed.

During the occasion ofthe annual Daily Trust Dialogue which held on January 19 2017 in Abuja, Chief Asiodu told the audience that Olusegun Obasanjo was a member of the Yakubu Gowon Administration which approved the Third National Development Plan (1975 to 1980) and was therefore in a good position to superintend the implementation process but this Plan, which was aimed at diversifying the economy, went up in flames after the Gowon Administration was toppled. By implication, a Plan can be jettisoned once there is a change of baton even within the same ruling party.

By releasing the timetable for the 2019 general elections two years before the conduct of the polls, the Independent National Electoral Commission seems to be telling politicians to be on their marks and get set. Expectedly, the country will enter into an election mode soon after this administration clocks three years in office on May 29, 2018, barely one year from now.

A review of key economic variables over the years indicates that penultimate and ultimate election years impact economic performance. Government spending usually goes up in an election year which tends to fuel inflation rather than spur growth, suggesting that the extra public expenditure ahead of polls was largely wasteful. In its communiqué No 77 of July 2011, the Monetary Policy Committee of the Central Bank of Nigeria observed that inflationary pressures remained elevated during the first quarter of 2011 largely on account of “high expenditure levels associated with the April 2011 general elections”. In March 2015 also (another election year), the MPC had “noted withconcern, the gradual increase in the year-on-year headline inflationduring the first two months of the year from 8.0 per cent inDecember 2014 to 8.2 per cent in January and further to 8.4 per centin February 2015,” pointing out that the major risks to inflation in 2015 was the “elevated aggregate spending in the run-up to the 2015 general elections”. By extension, the forthcoming election poses a threat to the ERGP goal of subduing inflation to a single digit level by 2020. In fact, the economy typically slows down every time there is a general election. The ERGP acknowledges this fact by stating that “the slight dip in growth in 2019 is projected to result from the general election in that year”.

As earlier pointed out, the success of the ERGP will depend not only on how well it is implemented through the penultimate and ultimate election years (2018 and 2019), but also on the commitment of the succeeding administration to see it through to the terminal year. If President Buhari does not run for a second term or power slips from the ruling All Progressives Congress, chances are that the ERGP will go the way of the National Confab report which was jettisoned not least because the government that conceived it left office. Many agree that the 2014 National Conference involving 492 delegates was one of the boldest attempts in recent times in appraising the operational structure and system on which the country is run. Understandably, the PDP which is the major opposition party will not be disposed to continuing with the ERGP hook, line and sinker, in the event that it clinches power at the centre come 2019.

From a broader economic and political perspective, the following question is pertinent in relation to the ERGP: will the Federal Government receive the cooperation of the state governments if a majority of states become controlled by the opposition party in 2019? Allied to this is whether the National Assembly will continue to play a supportive role if majorities in the House and Senate are held by the major opposition party.

Having identified political risk as the major threat to the ERGP, what then is the safeguard? A cursory look at Puerto Rico’s Fiscal and Economic Growth Plan provides the answer. In order to ensure the success of the country’s FEGP, the National Parliament of Puerto Rico passed the Fiscal Responsibility and Economic Revitalisation Bill into law. The FRER Act established a Board independent of government, with oversight authority over most government entities having powers to levy sanctions for non-compliance with measures contained in the FEGP. By the same token, Nigeria needs an enabling law to back up the ERGP. With elections in 2019 fast approaching, the government seems to be racing against time given the fact that the ERGP was late on arrival. The idea of setting up a Delivery Unit in the Presidency to assist the Ministry of Budget and National Planning in overseeing the ERGP implementation is good but not sufficient. If the Delivery Unit is not a creation of the law, it lacks the capacity to discharge its duties.

To this end, the Federal Government as a matter of urgency, should forward a bill to be known as the “Economic Recovery and Growth Bill” to the National Assembly. This bill should take care all issues specific to the ERGP distinct from the current Fiscal Responsibility Act of 2007 which focuses on annual budgets and the three-year Medium Term Expenditure Framework. The government has barely one more year to prove that the ERGP will not go the way of its forebears. One of the key deliverables of the Plan is to reduce petroleum product imports by 60 per cent in 2018. Quickly putting in place an enabling law as well as passing the Petroleum Industry Bill is one sure way of safeguarding the country against the major threat to the Economic Recovery and Growth Plan.

Uwaleke, a Chartered Banker and Fellow of ICAN, is an Associate Professor of Finance and Deputy Director of Research at Nasarawa State University Keffi

 

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