Udoma to IMF: Nigeria’s Economy is moving in a Positive Direction
The Minister of Budget and National Planning, Senator Udoma Udo Udoma on Thursday in Indonesia told a global audience that the implementation of the Economic Recovery and Growth Plan (ERGP 2017 – 2020), is moving Nigeria’s economy in a positive direction.
Senator Udoma, who was speaking at the presentation of the International Monetary Fund (IMF) Regional Economic Outlook Report for Sub-Africa, said actions taken since the launch of the Plan in early 2017 have helped to build buffers and appropriate measures to safeguard the economy from any external shocks.
He recalled that following the collapse of crude oil prices from 2014, which culminated in the country’s economy sliding into recession in 2016, government developed a robust Medium-Term Plan – the ERGP, which was launched in early 2017, which focuses on five strategic areas: Macroeconomic Stability, Economic Diversification and Growth Drivers, Competitiveness, Social Inclusion and Jobs, as well as Governance and other Enablers.
The Minister said the positive trends recorded in the country’s economic indicators since the launch of the ERGP indicate that the Plan is working. Among others, he listed that:
- • We have been able to bring down inflation from 18.7% in January last year to 11.2% by August this year. Our aim is to bring inflation down to single digits by the end of the Plan period in 2020.
- • The exchange rate market has been stabilized through the introduction of the Investors and Importers foreign exchange window. We have also been able to build up our external reserves from $27 billion in 2016 to $43.9 billion by early this month.
- • Our current account, as a ratio of GDP, has moved from a deficit of 3.2% in 2015 to a surplus of 2.8% by end of last year. And this is built on export growth, including significant growth in non-oil exports, that has resulted in the country recording a consistently positive trade balance since the fourth quarter of 2016.
- • The ERGP targets both oil and non-oil. With specific reference to the oil sector, it would be recalled that due to disruptions by militant activity, at some point in 2016, oil production was as low as 1 mbpd. Through positive engagements with the communities in the Niger Delta, we have improved the environment for oil production. Apart from technical hitches, from time to time, we are now able to produce up to 2 mbpd and take advantage of the more favourable international oil prices. Our target is to produce 2.3 mbpd.”
He pointed out that the implementation of the various initiatives in the Plan resulted in moving the country’s economy out of recession to a positive growth path. “Our GDP grew from -1.6% in 2016 to 1.5% by the second quarter of this year, with the non-oil sector growing at 2.05% – the highest growth in the sector since the fourth quarter of 2015”.
He was confident that the country’s growth projection of 2.1% by the end of the year will be realized. Noting that the IMF’s projection for Nigeria is 1.9% this year, slightly lower than Nigeria’s projection, the Minister however pointed out that given Nigeria’s growth for 2017 which was only 0.8%, even if Nigeria achieves the IMF projection of 1.9% this year, it is a significant improvement on the 2017 numbers. The direction of movement in Nigeria is clearly very positive.
“As you have seen, these actions that we have taken have helped us to build buffers and appropriate measures to safeguard us from any external shocks,” he stressed.
Referring to the recent IMF Report which indicated that one of the downside risks to growth prospects in the sub-region is security, the Minister said the Buhari Administration had long listed tackling security as one of its three policy thrusts.
“Government has been able to degrade the capacity of the Boko Haram insurgents and bring stability to the affected region. We are implementing a humanitarian response plan to resettle the victims and return them safely back to their homes. Schools have re-opened and farming and other activities are being restored,” he explained. The Nigerian government is also strengthening cooperation with its neighbours to deal with the security problems, including trans-border crimes, he added.
Addressing the issue of debt-vulnerabilities, the Minister agreed with the IMF that it is an issue that requires constant monitoring. “Even though we, in Nigeria, have one of the lowest debt levels among our African peers, we realise that we need to improve our revenues to bring down our debt service to revenue ratios to more comfortable levels.”
To address the issue, he explained that the Nigerian Government is intensifying efforts on domestic revenue mobilization and maintaining fiscal discipline. “We are broadening our tax base through policy reforms such as the tax amnesty programme. This, amongst other measures, has resulted in the number of taxpayers rising from 13 million to over 19 million. We are also deploying technology in tax and customs’ collections to automate processes and enhance efficiencies.”
In addition, he said government is also shifting its domestic debt portfolio to longer term maturities. “Our external debt is primarily concessional borrowing, representing 54% of our external debt as at June 2018. Debt Sustainability Analysis is conducted annually to reaffirm that our Public Debt Stock is sustainable. In Nigeria, our borrowing is being utilized principally to fix our infrastructure.”
He also agreed with the IMF that appropriate policies are needed to enhance the resilience of the region from all forms of vulnerabilities, create more jobs for the rising youth population and raise per capita income. While the IMF Report projected that Sub Saharan Africa needs to create about 20 million jobs annually over the next decade to absorb its rising population, the Minister said the ERGP targets to create about 15 million jobs by 2020.
This, he explained, is intended to be achieved principally through the private sector. “Our aim is to make Nigeria a more investment friendly place, a more attractive place for people to do business. We conducted sector specific labs, what we referred to as the ERGP Focus Labs, to bring potential investors and government officials together to seek to remove the bottlenecks and impediments impeding investment projects. We identified over $22 billion of potential investments which could be unlocked, if we can remove some of these impediments.”
The Minister said government is committed to implementing policies and programmes that promote social inclusion and deliver growth that is more diversified, inclusive and sustainable. “We also introduced the Social Investment Programme with annual allocations of N500 billion (equivalent of $1.6 billion) in each of our budgets since 2016. We are increasing investments in human capital. As an example, since 2015, at the Federal Government level, we have quadrupled our capital allocation to education and health. We are determined to make progress towards meeting the Sustainable Development Goals (SDGs), as indicated in the report presented.”
Agreeing that there is need to put in place sound macroeconomic policy management to mitigate the risks associated with volatile capital flows, the Minister said that was why Nigeria is focusing on attracting Foreign Direct Investment (FDI) through reforms in the business environment to make it more attractive to investors. “We also set up the Presidential Enabling Business Environment Council (PEBEC) charged with implementing targeted reforms to remove bottlenecks to investment,” he added.
Nigeria, the Minister emphasized, has put in place policy measures to encourage investors. “We are not hostile to portfolio investors however we prefer foreign direct investment. We encourage investors to bring in their money to invest and also make it possible and easier for them to repatriate their money. Our policy framework is clear and that is to reduce inflation so as to bring down interest rate and create conducive environment for investors.”
He also acknowledged that the country must prepare for the Fourth Industrial Revolution where advancements in artificial intelligence, robotics, self-driving vehicles, and nanotechnology may be disruptive. “In my view, the best way to prepare for it is to place emphasis, as the ERGP does, on investments in broadband and digital technology. We must also educate and train our people, particularly our young people, to enhance their capabilities to understand and respond to these new technologies. We must prepare our people for this brave new world, and if possible, find a way to leap-frog. An example is mobile money where many African countries have advanced further than some Western countries.”
While acknowledging IMF expectations on improved growth for Sub-Saharan Africa in 2018 by 3.1%, up from 2.7% in 2017, the Minister noted that the current direction of movement is encouraging; although he also pointed out that given the generally high rate of population growth in the region, there is need for a much higher growth for the people to really feel the impact of the improved growth.
He appreciated the fact that given the size of the Nigerian economy, developments in the country is bound to have a significant effect on the overall performance of Sub-Saharan Africa.
He explained that Nigeria’s initial projections were that the economy would grow at more than 3% in 2018. “However, due to some oil production challenges in Q2 2018 – which are being resolved – and reduced agricultural output due to some local communal conflicts between herdsmen and farmers as well as flooding in the agriculture belt – we have had to reduce our own projections to 2.1%. The good news is that action is being taken to resolve these challenges.”
While presenting the REO Report, IMF’s Director of African Department, Mr. Abebe Selassie, pointed out that the medium term per capita growth for Sub-Sahara region was too low, thus meeting the SDGs will require stronger growth and more financing for reasonable impact to be made.
The Report suggested that relevant policies will be needed to created more jobs in the coming years and noted that there is also the possibility that job creation might be complicated by uncertainty to the extent to which technology replaces labour.
It pointed out that economic recovery in the region is expected to continue amidst rising risks and indicated that though fiscal deficits are narrowing, the quality of adjustments needs to be strengthened; therefore countries need to improve their policy frameworks, promote diversification, deepen trade and financial integration as well as promote flexible education.