Economic overview and performance

With a population of 158 million people, Nigeria is the largest country in Africa and accounts for 47 percent of West Africa’s population. It is also the biggest oil exporter in Africa, with the largest natural gas reserves in the continent. With these large reserves of human and natural resources, Nigeria is poised to build a prosperous economy, significantly reduce poverty, and provide health, education and infrastructure services to its population needs.

Over the last ten years, Nigeria has been carrying an ambitious reform agenda. The most far reaching of those was to base the budget on a conservative reference price for oil, with excess saved in a special, Excess Crude Account (ECA). The economy responded with strong growth between 2003 and 2010 – averaging 7.6 percent. Nigeria was among the first countries to adopt and implement the Extractive Industries Transparency Initiative (EITI) to improve governance and oil sector.  The NEITI Act was passed into law in 2007. Nigeria became EITI compliant in 2011. The power sector reform initiative was launched in 2005, recognizing that improving power sector performance is critical to address development challenges. The challenging process of implementing reforms was revitalized in August 2010 through the 2010 Roadmap, which clearly outlines the Nigerian government’s strategy and actions to undertake comprehensive power sector reform to expand supply, open the door to private investment and address some the chronic sector issues hampering improvement of service delivery.

Resources from the ECA proved invaluable to Nigeria during the global financial crisis of 2008-2009, and financed a fiscal stimulus that maintained strong growth in domestic demand and GDP throughout this period. GDP growth expanded from 6.0 percent in 2008 to 7.0 percent in 2009.   The fiscal stimulus continued into 2010, which contributed to rapid growth in domestic demand and GDP (8.4 percent), but can also be associated with the continuation of double-digit inflation (13.8 percent), the depletion of remaining ECA reserves, and a remaining balance of payments deficit, despite the strengthening of oil prices. Gross monetary foreign reserves declined from US$ 42 to 32 billion during the year.  The draw-down of the ECA in 2010, despite the economic recovery and stronger oil prices, exposed weaknesses in the rules surrounding the management of the fund, motivating the government to establish the Sovereign Wealth Fund in 2011 with the purpose of adopting stronger rules for the responsible management of the country’s oil wealth. 

The government responded to signs of possible overheating with a new Medium Term Expenditure Framework and draft 2011 budget that prescribes considerable budgetary consolidation and a foundation for the re-accumulation of a fiscal oil reserve. Monetary policy is also being tightened gradually in line with the banking sector recovery. The planned federal budget deficit will be reduced from 6.1 percent of GDP in 2009 to 3.6 percent in 2010. The strengthening of oil prices has already eliminated the balance of payments deficit, and reserves have once again started to accumulate. Sovereign external and domestic debt remained at rather low levels in early 2011 of close to 2 and 15 percent of GDP, respectively.

The Central Bank of Nigeria and the government are taking decisive steps to overcome the recent banking sector crisis which is estimated to cost the country N1.4 trillion (US$ 10 bn). The Central Bank has taken a pro-active approach, completing a program of special audits, removing those responsible for the crisis and leading the Asset Management Corporation Act, under which a distressed asset fund (AMCON) purchased over US$ 5 billion of problem loans from 21 banks since December, 2010. The ambitious financial sector reform agenda includes the introduction of International Financial Reporting Standards (IFRS) and the strengthening of banking supervision and governance across the financial sector.

Growth continued to be broad based, oriented primarily toward the domestic market, and driven by strong performance of the agricultural, trade, telecommunications, and manufacturing sectors. Strong economic growth, however, has not translated into higher employment rates. Employment remains the major issue for Nigeria with an estimated 50 million underemployed youth. The government has expressed determination to make job creation central to its economic strategy, and has specifically targeted the sectors of ICT, Entertainment, Meat, Leather, Construction and Tourism. The government is also launching a comprehensive public works program in 2011 to augment employment.

Political context

Nigeria’s population is made up of about 200 ethnic groups, 500 indigenous languages, and two major religions ― Islam and Christianity. The largest ethnic groups are the Hausa-Fulani in the North, the Igbo in the Southeast, and the Yoruba in the Southwest. The fragmentation of Nigeria’s geographical, ethnic and cultural identity lines is effectively balanced by the country’s federal structure and the strong emphasis of the federal government on representing six geopolitical zones and different ethnic and cultural identities. Though the Nigeria’s socio-political environment is fairly stable, there are pockets of instability in various parts of the country. 

In April 2011, Nigeria held its fourth consecutive national elections, further consolidating the transition from military to democratic rule that began in 1999.  The elections signified substantial progress in Nigeria’s electoral and democratic development, and were characterized by observers as freest and fairest in Nigeria’s history. There have been, however, unrelated incidents of violence before and after the elections, calling for resolute actions in bringing sectarian strife under control and signaling the need to make more rapid progress on social inclusion, especially youth employment.  

Internationally, Nigeria continues to be a leading player in the African Union, the New Partnership for Africa’s Development (NEPAD), and in the Economic Community of West African States (ECOWAS).

Development Challenges

Despite Nigeria’s strong economic track record, poverty is significant, and reducing it will require strong non-oil growth and a focus on human development. Constraints have been identified to enhancing growth, including the investment climate; infrastructure, incentives and policies affecting agricultural productivity; and quality and relevance of tertiary education. In spite of successful initiatives in human development, Nigeria may not be on track for meeting most of the Millennium Development Goals (MDGs) (more will be known after the analysis of the recently completed NLSS).  Underpinning these challenges is the core issue of governance, in particular at the state level. Fiscal decentralization provides Nigeria’s 36 states and 774 local governments considerable policy autonomy, control of 50 percent of government revenues, and responsibility for delivery of public services. Capacity is weak in most states, and improving governance will be a long term process.

 

The FY2010-2013 CPS focuses on three themes to transform and diversify Nigeria’s economy: (i) improving governance; (ii) maintaining non-oil growth; and (iii) promoting human development.

To achieve better governance, the CPS determines how the Bank can help the government strengthen its own systems over the long term (beyond fiduciary control over IDA funds given that the Bank is a small player in Nigeria). Governance is both a core theme and a cross-cutting theme, that is, an integral part of virtually every form of support. Each partner focuses on these three areas, with varying degrees of emphasis. The partnership also provides support to the government to deal with the global crisis.

Governance support covers five areas: transparency and accountability; participation; sector governance; capacity development; judicial reform and democratic governance. All partners take part in strengthening government systems to improve outcomes in human development and growth; but only DFID and USAID focus on judicial reform and democratic processes.
In order to help Nigeria maintain non-oil growth development partners will concentrate on sector governance and targeted interventions in the following areas: infrastructure to support growth clusters; greater private sector involvement by streamlining the bureaucracy in such areas as land registration, planning approvals, and building permits; technical and vocational education to address the skills gap in employment-intensive value chains (sub-sectors); and reducing import bans and high tariff barriers.

Support for human development will work to improve access and utilization of services. Support to education will focus specifically on girls’ education in the North. In health, the priority will be to support maternal and child health. Partners will also support vertical disease programs on a more modest scale than in the past and with greater emphasis on health systems.

Partnership assistance at the federal level spans all three pillars. In governance, for example, support will continue for initiatives to strengthen procurement, public financial management, civil service reform, and statistical capacity building. Under non-oil economic growth, the partnership will engage in policy dialogue and projects such as DFID and the Bank’s joint Growth and Employment in States (GEMS) project and USAID projects, including MARKETS II and Trade Capacity Development.

Under human development, the partnership focus on the social safety net agenda, both to respond to global crises and to improve targeted programs such as the Youth Empowerment and Employment Program.

Fadama II project contributed to agricultural growth. The productive assets component enabled the beneficiaries to acquire 75,599 pieces of equipment through 7,766 subprojects involving 3.4 million beneficiaries. By end of project, average increase in real income of project beneficiaries was 63 percent.  

The CDD projects provided boreholes and motorized pumps, rural/feeder roads, rural electrification, rural markets, crop processing benefitting over 6 million poor people. Maternal and child mortality reduced on average by about 10percent in 500 communities through construction and provision of equipment to primary health care centers. Literacy rate improved by 25percent through construction and provision of equipment to primary and secondary school class rooms in over 1000 communities. The CDD-based projects also have ensured beneficiary participation in project implementation, empowered poor communities to make decision on resource allocations and strengthened local governance by sensitizing the lowest tier of government to the needs and priorities of the people. More than 20 Local governments in the CDD States have started incorporating community development plans into their annual budgets. The CDD projects have also ensured transparency and accountability in project management and built capacity at all levels.

The Bank’s Medium Small and Micro Enterprise project reached 385,000 borrowers and 1.2 million customers and catalyzed more than $30 million in private capital to support the growth of commercial microfinance in Nigeria. The project improved the investment climate with the establishment of commercial courts and the licensing of three Credit Bureaus that are now operational and starting to improve consumer credit history. An impact study of Business Development Services concluded that firms that received the services increased their employment by more than 40percent.  More than 88percent paid for the services received and more than 60percent had a repeat purchase after the initial project support, which bodes well for sustainability. Growth performance also benefited from the wide range of macroeconomic reforms implemented by the government informed by Bank’s AAA and policy notes.

The State education project supported improved access and quality education In Kano, Nigeria’s most populous state, access to quality education increased by 25percent from 2006 to 2010. More importantly, over the same period, the ratio of girls to boys increased from 75percent to 90percent.  In Kaduna, the primary completion rate tripled from 2006 to 2009. The IDA credit provided grants to schools based on school development plans, introduced school based management committees, provided new text books, improved the supply of class rooms and trained the teaching force.

Through Bank water projects, water was delivered to 2.6 million people in six states between 2004 and 2009.  Projects support rehabilitation of water facilities in those states, including building 16 water treatment plants, laying approximately 1,200 km of pipes, development of state water policies and engagement of the private sector to manage delivery of water services.  The result is 40,000 new and 121,000 rehabilitated household water connections.

The HIV/AIDS I project

In addition to strengthening the Nigerian government’s capacity to plan and implement HIV/AIDS programs, the project also focuses on behavior change and access to counseling, testing and care services to reduce the transmission of the infection and its impact. The project has contributed  to the reduction in the national HIV prevalence of 5.2 percent in 2003 to 4.6percent in 2008 and an increase in the percentage of women (15-49) reporting the use of condom the last time they had sex with a non-marital, non-cohabiting sexual partner from 6.5 percent in 2002 to 33.4 percent in 2008.

The percentage of households with at least one insecticide treated bed net (ITN)/long lasting insecticide treated nets increased from 2.4 percent in 2006  to 89.7 percent in 2010 in the seven project states covered under the Malaria project. The percent of children under 5 years with fever treated with an effective anti malarial medicine within 24 hours from onset of systems increased from 3.7 percent in 2006 to 6.9 percent in 2010 and percent of children less than 5 that slept under an insecticide treated bed nets increased from 3.6 percent in 2006 to 41.8percent in 2010. The increase in coverage stem from the 12.4 million bed nets and 7.5 million doses of malaria medicine procured and distributed through project funds. In additions the project support the strengthening of health systems in the seven project states particularly procurement and supply chain management, monitoring and evaluation and communications.

The Sustainable Management of Mineral Resources project has been a pacesetter in terms of achievement of similar projects in other countries: First, airborne geophysical surveys of the entire country have been completed and Nigeria now has arguably the best and most modern geophysical coverage of any country in Africa. This information is of inestimable value to companies wishing to explore for minerals and we will be following up on this with new and more detailed airborne geophysics (as well as geochemical surveys). Second, there is emphasis on training the next generation of Nigeria leaders for the mining sector. This is exemplified in the Nigeria Institute of Mining and Geoscience which is now operational and which has gone well beyond what was originally envisaged in the Project. This emphasis on training the next generation is also exemplified in courses we are supporting on mining accounting, governance, taxation and finance which courses have as an objective the training of lecturers at various universities in the country. Third, the small grants program for artisanal and community based miners has had good success in improving the productivity, safety and working conditions, and livelihoods of the beneficiaries. Fourth, there has been significant achievement in the development of new mineral product lines, for instance, gemstones and dimension stone.  Marked progress has been made to put Nigeria on the map in respect of the former and to develop local commercial and residential construction markets for the latter.

The Lagos Urban Transport project, blends institutional and regulatory reform with specific investments, and encompasses all elements of successful public-private partnership. Among other outcomes, this has produced 25 concession agreements at 25 port terminals, leading to reduced import clearances times, a 30 percent reduction in average bus fares, a 40 percent reduction in journey time, and a 35 percent cut in average waiting time.  

IDA analytical and advisory work at the federal and state levels has prompted several operations and informed policies in public sector financial management and governance, agriculture, health, energy, education, water financial sector, investment climate, and ICT.  IDA has collaborated with local academia, government, development partners, civil society, and other stakeholders to build capacity while maintaining high analytical standards. After the dissemination of the World Bank Employment and Growth Study in early 2010, the Economic Management Team (EMT) has indicated its commitment to intensify efforts to create employment in identified key sectors of the Nigerian economy. A growth & employment pact summit was held in August 2010 which brought together stakeholders in the identified value chains/sectors to articulate specific employment-generation measures. The study also demonstrated the positive impact on the economy of replacing import bans with tariffs and was a very significant tool in influencing government’s thinking in this area.

The FY2010-2013 CPS includes the African Development Bank (AfDB), USAID, DFID, and the World Bank Group. The partners account for over 80 percent of Nigeria’s development assistance. By agreeing to a single joint strategy, partners will strengthen the likelihood of development effectiveness.

Partners will continue to work closely with Nigeria’s other main development partners, including the UN funds, programs and agencies, Japanese International Cooperation Agency, the French Agency for International Development, Canadian International Development Agency, and the European Commission. Some of these partners expect to join the partnership during the CPS period.

DFID will focus on infrastructure and policy advice, investment climate and business enterprise programs, health systems, immunization, girls’ education, and strengthening of National Assembly.

USAID priorities are state-level fiscal policy and public procurement reform, human resource development, agriculture value chain development, food security, trade reform, energy, and climate change investments.

AfDB will target energy, transportation, water supply and health systems. In many areas, partners will work jointly: DFID, USAID and the Bank in investment climate, enterprise development, health systems, HIV/AIDS, girls’ education in Northern Nigeria; and with AfDB in energy and transportation.  Further integration of trust fund activities will be expanded over the CPS period.