Agenda for Nigeria’s Economic Prosperity

As Nigeria grapples with slowdown in economic growth with a projected gross domestic product (GDP) growth of 2.1 per cent in 2019 after a 1.9 percent downgrade in 2018, Afrinvest says an annual double-digit growth is achievable, if government is ready to implement some vital structural reforms. In its recent report christened, ‘An Economic Agenda for a New Government’, the research and investment firm unveiled a seven-point agenda for Nigeria’s economic advancement. Bamidele Famoofo reports

Summary

After extensive, but careful analysis of Nigeria’s current economic challenges, Afrinvest, one of the country’s leading research and investment company, proffered possible solutions to speedy economic growth in Africa’s leading economy. As contained in its report titled ‘An Economic Agenda for a New Government’, implementing structural reforms is key to building a strong and sustainable foundation for growth. As far as Afrinvest is concerned, an annual double-digit growth which is required for sustained employment creation and poverty eradication in Nigeria is not impossible if critical reforms are passed.

“We reiterated the need for wide-scale infrastructure deployment but also affirmed that substantial and sustained improvements to the quality of human capital through investments in education and health is required to effectively utilise physical capital and achieve strong economic performance”, the report said.

In addition, the firm constructively assessed FG’s current poverty eradication efforts through cash transfers, as well as its plan to provide affordable financing for credit deprived sectors and programmes targeted at boosting youth employment.

The report went further to cover sector-specific strategies to boost competitiveness and drive growth & investment in critical sectors such as power and oil & gas. “Finally, we propose a rethinking of current approaches to trade and import substitution, and we shed light on uneven growth and development in Nigerian states with socio-economic evidence, elevated insecurity, and weak agricultural productivity.”

Oil & Gas

Though the Petroleum Industry Bill (PIB), which had been in the pipeline for over a decade gained increased traction between 2015 and 2016, Afrinvest lamented in its report that almost three years after, none of the bills is yet to reach a close. While the Petroleum Industry Governance Bill (PIGB) has gained the most traction as consultations have been concluded and the revised bill is awaiting presidential assent, there is little hope of success before the elections, given that the executive has reservations about areas such as the powers of the minister of petroleum and the split of NNPC. Currently, it is unclear how the legislation will proceed, as elections take centre stage over the next six months. Potentially, going forward, we see the bills gaining more traction if the incumbent wins the election and a potential setback, if a new party emerges and decides to tweak terms.

But there is hope for reduced importation of petrol, according to Afrinvest, if local refining capacity expands by 2019 as planned. “As the private refineries reach peak capacities, we believe sourcing challenges will ease. What remains unclear and will continue to be a militating factor if unresolved is the pricing of petroleum products. Deregulating the downstream sector will allow private operators to develop the local value chain and even serve regional markets.”

Power

Afrinvest in its report believes the power industry in Nigeria is in search of bold and tough reforms. Though it says the reforms may not guarantee quick fixes, it can offer a promising future. The report alleged that there were significant deficiencies across the value chain of the power industry.

“Value-chain specific challenges include gas pricing & supply shortages, centralisation of the transmission grid and poor metering in distribution. Decentralisation of transmission is necessary to avoid grid collapse”. But says with decentralisation, mini-grids can be introduced to enable effective and efficient management of the transmission network as transmission losses and grid collapse in one network will not affect other mini-grids. But while decentralisation heralds promise, its regulation, framework and implementation remain contentious.

For metering, NERC’s proposal of a new regulated operator, Meter Asset Provider, with a view to hastening the deployment of meters to close the current over 60 per cent metering gap is seen as a step in a right direction as it will enhance additional investment into the industry.

The report suggests that the expiration of the performance agreement guiding the privatisation of Discos in 2019, presents to government the best opportunity to take stock of progress and to re-strategise.

Competitiveness

Afrinvest asserts that Nigeria is on the lower rung of the ladder of trade and investment in Africa, despite bright growth prospects due to its attractive demographics. “To be certain, this has persisted for an extended period, and it is a sign of the lack of strong will to turn the tide. Academic literature and historical evidence have demonstrated that trade and investment are necessary to create jobs, raise incomes, upgrade domestic supply chains for efficiency and effectiveness, develop expertise, and make cheaper goods and services available. These are all important for advancing human development.”

The report recommends that to participate in this ecosystem of trade and investment. there is a need for competitiveness. This entails having good infrastructure and institutions that enable strong business growth. Nigeria ranks 125th of 137 countries on the competitive index. The index measures basic requirements such as institutions, infrastructure, macroeconomic environment and health & primary education, as well as select efficiency enhancers such as innovation and sophistication.

Transportation and Infrastructure

The infrastructure gap in Nigeria is massive, and this has continued to widen. In the past two decades, population has increased by more than 50 per cent and yet there have been no noteworthy infrastructure upgrades. “As population has expanded, especially in urban areas, the infrastructure stock has failed to catch up. The consequence is revealed in slow travel times, frequent accidents, high cost of transport – especially for businesses – and high cost of residential and commercial buildings in cities such as Lagos, Abuja and Port Harcourt”.

Public Private Partnerships (PPPs) have been recommended as a tested and worthy method to close the infrastructure gap, particularly in road infrastructure. But policy inconsistencies and political instability, amid weak enforcement of contracts and slow judicial processes are the bane of PPPs in Nigeria, which government is expected to address.

Human Capital

Afrinvest says developing a strong healthcare system and promoting education are crucial to economic development. “Building a healthy and educated workforce is especially important for accelerating economic development. A healthy workforce is also important to harness labour, as less time off work frees income and time for productive use. Countries with a healthy workforce are more productive.”

“To realise Nigeria’s demographic dividend, there is need for a quick turnaround in these sectors, otherwise, the next generation of workforce will be ill-prepared to advance economic prosperity. The lack of a coherent and practical policy to tackle this, resulting from weak political will and poor leadership vision, continue to be fundamental issues. The experience of countries that have rapidly improved health and education outcomes are models Nigeria can learn from, and tweak for local fit,” the report recommended.

Security

While the report acknowledges that there are no automatic fixes to insecurity because the incidents differ fundamentally as well as the ideologies behind them, it berates government’s indecisive approach to security issues until they have reached untenable levels. “Government’s slow response to insecurity is a militating factor, as well as its refusal to go beyond the surface in dealing with insurgency beyond the deployment of military forces. This results in escalation rather than ease.

“There is a need to rethink the current approaches to dealing with unrests. Creating a framework for engagement, building the capacities of public sector workers to respond, strengthening security and legal institutions and abiding by the dictates of the laws are critical success factors,” the report said.

Democratic Institutions

Afrinvest says a painful reality that underlies governance, regulation and ultimately development in Nigeria is weak institutions. “In Nigeria, there is lack of openness in public institutions as procurement, licenses and permits, recruitment and contract bids are couched as “Top Secret” information. Even when these are advertised, the information is usually insufficient, thus creating a situation where there is a lack of meritocracy in government processes, which constitute a drag on productivity. Public institutions are also not accountable, as funding, projects, annual reports, are not made public – and even when these are available, they are not timely and exhaustive”, the report alleged.

Afrinvest believes that in the economic agenda of the current government, public sector reform was touted, but the role of institutions and development of institutions especially as it relates to regulation, policy, transparency and accountability, have not been considered a priority, and no clear policies back this up. The report, however, recommends transparency in governance and sound institutions to enhance public trust, thus generating support that make passing tough reforms slightly easier.