Presentation Outline 1. Nigeria’s Economic Potentials 2. Performance of the Nigerian Economy 3. Development Outcomes in Nigeria 4. Improving the Nigerian Economy
1. Nigeria’s Economic Potentials • Nigeria is richly endowed - Huge population/ human resources - Vast natural resources, particularly oil and gas with oil reserves estimated at 36.2 billion barrels - At current extraction rates, proven and probable oil and gas reserves are estimated to last more than 50 years. - Abundant mineral deposits such as tin, iron, limestone, coal, gold and sulphur - Vast fertile soil and a very pleasant climate suitable for agriculture - Population of over 140 million; the largest in Africa - Access to the sea - In sum, Nigeria has the potential to build a prosperous economy.
2. Performance of the Nigerian Economy 2.1 National Output The level and trend of real GDP and its growth overtime provide a picture of the current economic status of an economy • Growth • With 6.6% real GDP growth in the first quarter of 2013, the Nigerian economy is one of the fastest growing in the world today • Compared with an average of 2.5% between 1995 and 1999, real GDP growth has been very impressive • Economy grew beyond expectation in 2010 and 2011 but missed the target growth rate in 2012 • Real GDP growth reached 7.8% in 2010 declined continually to 7.4% in 2011, 6.37% in 2012 and 6.56% in the first quarter of 2013 (see Table 1).
2. Performance of the Nigerian Economy …………… • The structure of the economy has remained the same for over forty years. • Crude oil and gas accounted for nearly 15 percent of GDP in the 1st quarter of 2013, compared with agriculture (about 34%) • Reliance on oil and gas revenue to finance about 80% of the national budget • Crude oil proceeds accounts for over 90% of export earnings • Manufacturing contributed just 1.14% of the domestic output in the first quarter of 2013
2. Performance of the Nigerian Economy …………… Level of economic activities • Much as it is good that national output is not stagnant or declining, the key issue is how to raise national output and income close to levels comparable to the potentials of the economy. • Although Nigeria’s global GDP ranking improved from 44th position in 2010 to 36 in 2012, current GDP and per capita GDP are rather too low for a country richly endowed like Nigeria • The GDP is less than one-third of the target output level in seven years’ time. • Hence, it may be inferred that there is currently a large output gap in Nigeria. How can this gap be bridged?
2. Performance of the Nigerian Economy …………… • 2.2 Inflation • Inflation has come down from 12.4 per cent in 2011 to 9.0 per cent in May 2013. • Low inflation means that prices were rising but at a slower rate • Inflation can be reduced by policies that (i) slow down the growth of aggregate demand or (ii) boost the growth rate of aggregate supply • Current lower inflation largely the result of demand management policies • But at what cost is this single digit inflation?
2. Performance of the Nigerian Economy …………… • 2.2 Inflation • It is imperative to grow supply-side productive potentials for the economy to have the flexibility to grow without suffering from acceleration in cost and price inflation • Amend section 2 of the CBN Act 2007 (as amended) to include effective promotion of maximum employment as one of the objects of the apex bank. • The amendment will charge the CBN with the responsibility of balancing the goals of low inflation low unemployment. • Certainly, the CBN has over the years performed some developmental functions in key sectors of the Nigerian economy (financial, agricultural and industrial sectors). • This will make the CBN keener in addressing the high lending rate and wide interest rate spread in the economy.
2. Performance of the Nigerian Economy …………… 2.3 Unemployment rate • Unemployment rate increased continually from 21.1% in 2010 to 23.9% in 2011 and 27.4% in 2012. • National Bureau of Statistics (NBS) put the current unemployment rate in Nigeria at 23.9% which represents 38.24 Million Nigerians. • Unemployment is a global phenomenon. Are more people unemployed in Nigeria? • The sum of inflation and unemployment rates (32.9%) indicates the extent of economic discomfort in Nigeria.
2. Performance of the Nigerian Economy …………… • 2.4 Government Fiscal Stance • Total federally-collected revenue stood at N2,425.3 billion, representing a decline of 2.4 per cent below the receipts in the last quarter of 2012. • At N1,849.5 billion, oil receipts, constituted 76.3 per cent of the total • Oil receipts exceeded budget estimate and 4th quarter 2012 receipts by 15.5% and 1.4%, respectively. • Non-oil receipts, at N575.8 billion was below the budget estimate and receipts in the preceding quarter by 23.3 and 12.8 per cent, respectively. • Federally retained revenue was N908.1 billion, while total expenditure was N1,192.9 billion.
2. Performance of the Nigerian Economy …………… • 2.4 Government Fiscal Stance … • Thus, the of the Federal fiscal operations resulted in an estimated deficit of N284.8 billion in the first quarter of 2013 • Estimated deficit compare favourably with the quarterly budgeted deficit of N276.1 billion. • In April 2013, federal fiscal operations resulted in an estimated deficit of N50.47 billion, which is lower than the provisional monthly budget deficit estimate of N73.92 billion. • Budget deficit as ratio of GDP reduced from 3.14% in 2010 to 2.82% in 2012 and 2.9% of estimated GDP for the first quarter 2013.
Of the 51 years between 1961 and 2011, the federal government only recorded fiscal surplus in 15 years, 9 of which were in the 9 years before the oil boom of 1970 (see Figure 1). Figure 1: Federal Fiscal Deficit in Nigeria, 1961-2011 External debt stood at US$6,670.72 million at the end of the first quarter of 2013.
2. Performance of the Nigerian Economy ………. • 2.5 External Reserves • Foreign reserves increased continually from US$32.64 billion in 2011 to $43.83 billion in 2012 and $47.67 billion on July 2, 2013. • The external reserve position can finance 11 months of imports • Overall balance of payments 6.65% of GDP as at the end of the 1st quarter of 2013
2. Performance of the Nigerian Economy ………. 2.6 Crude Oil Production • The oil sector recorded an average daily production of 2.29 million barrels per day in the first quarter of 2013 • Underperformance of crude oil output was attributed to: - Disruptions as a result of pipeline vandalization - Bunkering incidents and - force majeure declared by some oil companies. • Improvements recorded in crude oil production in 2009-2010 seems to have been reversed (see Table 2)
Effects of lower crude oil output cushioned with the relative stability in international crude oil market price and the exchange rate of naira against the dollar The world crude oil price was well above the oil price benchmark of $80.00 a barrel in the first half of 2013 (see Figure 1). Figure 2: Bonny Light Crude Oil Price Movement, 2010-2013
2. Performance of the Nigerian Economy ………. 2.7 Exchange Rate Performance • The exchange rate has been relatively stable, averaging N157.49:US$1 in 2012 and appreciating to 155.76:US$1 on July 3, 2013. • The stability and appreciation of the naira reveals • the relative effectiveness of CBN’s monetary policy • substantial foreign exchange earnings from crude oil sales and • increased foreign investment inflows. • Accordingly, the deleterious effects of exchange rate instability on the economy was prevented
2. Performance of the Nigerian Economy ………. 2.8 Resilience of the Economy • In the aftermath of the 2008/09 economic crisis, considerable interest is being shown on the resilience of economies • Economic resilience comprises two main dimensions: extent to which shocks are dampened and the speed with which economies revert to normal following a shock. • Nigeria’s exposure to shocks manifests in • fluctuations in export earnings • reliance on imports to service substantial part of expenditure needs - energy, food or industrial supplies - and • reliance on exports to finance import bill • dependence on a narrow range of exports and lack of diversification
2. Performance of the Nigerian Economy ………. 2.8 Resilience of the Economy ….. • A 2009 study by Lino Briguglio and others ranked Nigeria 84 out of 87 countries in macroeconomic stability, microeconomic market efficiency, social development, good governance, and economic resilience. • Nigeria was among the worst cases with high vulnerability and low economic resilience. • Fiscal buffers (ECA/SWF) is reported to have improved from $2.0 billion in 2010 to $9.5 billion in February 2013
3. Development Outcomes in Nigeria • Nigeria's growth performance has had little impact on the welfare of Nigerians considering key human development indicators • Poverty remains widespread as 68.0% of Nigerians are stated to be living below N200.00 ($1.25) daily. • Number of Nigerians living in poverty more than 75 million • Using life expectancy, Nigerians are expected to live for an average of 54.1 years. • Nigeria now ranks 153rd out of 187 countries and territories in the 2013 United Nations Human Development Index. Surely, this is an improvement from the 157th position in 2011.
4. Improving the Nigerian Economy • The public sector is central to the performance of the Nigerian economy. • Efforts aimed at improving economic performance must take public financial management reforms seriously • Public investments have been very low and result of studies indicates these have been largely unproductive. • Understandably, efforts are geared towards reducing federal recurrent expenditure from 74% in 2011 to 68% in 2013. However, 32% capital spending is inadequate, especially with poor capital budget implementation. • Key among the reforms are: • Ensuring a strong link between planning, budgeting, treasury management and M&E
4. Improving the Nigerian Economy …….. • Ensuring institutional collaboration/cooperation in planning, budgeting, treasury management and M&E • Adopting program budgeting and performance management systems - If the Nigerian economy is to be turned around, annual budgets must focus on programs and projects, and prioritize those that address issues of poverty, unemployment and insecurity of lives and property. • Streamlining capital projects in the national budget • Presently, resources are thinly spread on projects. For instance, about 13,000 capital projects were in the 2012 federal budget. Of this, over 3,000 were new projects while about 10,000 were on-going projects.
4. Improving the Nigerian Economy ….. • Only aspects of projects that can be completed within the fiscal year considering fund availability, procurement process, weather etc. need to be included. • Effective implementation and monitoring of the national budget. • Completing the IPPIS – what is the timeline? • Completing Government’s Integrated Financial Management and Information System GIFMIS • Reviewing the current revenue allocation formula and allocating lion share of resources to the local government. 30:30:36 ; 4% for stabilization, ecology etc.
4. Improving the Nigerian Economy …… • Ensuring local government autonomy – Since States and Local Governments are closer to the people, they are better able to implement projects that directly impact the community and households. • There is much cynicism in the land. Hence, it is imperative for governance to be more transparent, inclusive and accountable. • However, the society has the responsibility to demand good governance, transparency and accountability. This will compel those governing to make choices that will improve the performance of the Nigerian economy and enhance the welfare of Nigerians.