In Nigeria, economic strength in diversificationAugust 24, 2021
Muhammadu Buhari, president of the Federal Republic of Nigeria, talks to The Energy Year about key initiatives for fostering Nigeria’s economic advancement, the importance fossil fuels will retain and government support for the industry, and the expected gains and impact of the African Continental Free Trade Area (AfCFTA).
What key areas and initiatives is the government focusing on to successfully navigate the post-pandemic era and foster economic advancement?
The government has introduced the Economic Sustainability Plan (ESP) as a response to the Covid-19 pandemic. Our policies and programmes in the ESP have contributed to stabilising the economy, which has now rebounded from two consecutive quarters of contraction in 2020. The ESP has 16 key sectoral interventions aimed at: preventing deep recession; retaining and creating jobs; ensuring food security; improving road, rail and power infrastructure; and building the resilience of our healthcare system. Here, we have a set of key economic areas and initiatives:
The mass agricultural programme aims to create millions of job opportunities, directly and indirectly across the 36 states and the FCT [Federal Capital Territory]. The Agriculture for Jobs and Food (AFJF) aspect of the ESP aims to create between 5 million and 10 million jobs through agribusiness clusters, out-grower schemes and support related value chain activities.
Infrastructure development – roads, rail and power – is a key area. An NGN 1-trillion [USD 2.43-billion] infrastructure company (InfraCo) has been established to finance public sector asset development, rehabilitation and reconstruction, as well as to invest in roads, rail, power and other key sectors, with significant multiplier effects on economic growth and job creation. In addition to budgetary capital expenditure for road construction, alternative funding of road projects through the sukuk bonds and the Presidential Infrastructure Development Fund (PIDF) is sourced to create more jobs and increase economic activities in host communities.
The Extensive Public Works Program includes both major and rural road construction and rehabilitation with emphasis on the use of locally available materials like limestone, cement and granite. There is also the Special Public Works Program, which created direct jobs for 774,000 persons across the 774 LGAs [local government areas] in the country. Parallel to this, we have the mass housing programme, which aims to deliver up to 300,000 homes annually under the National Housing Program nationwide. It will create significant direct employment on construction sites and fabrication of construction inputs through domestic manufacturing.
Job creation for youth and women is targeted for achievement through the Digital literacy and skills acquisition, Entrepreneurship, Employment and Leadership and mentoring (DEEL) initiative. Furthermore, we are also making sure to give support to micro, small and medium-sized enterprises (MSMEs). So far, 307,173 employees have benefitted from the payroll support scheme across all 36 states and the FCT. Under the Artisan and Transport Scheme, 114,557 out of a target of 166,500 artisans have received a one-off NGN 30,000 [USD 72.78] grant. The transport track is at 88% completion with 146,811 self-employed transport workers having received the NGN 30,000 one-off grant. Also, 162,117 businesses have been formally registered or incorporated by the Corporate Affairs Commission at no cost as part of the Formalization Support Scheme.
Building a resilient healthcare system, including the release of NGN 1 billion [USD 2.43 million] of funding to the pharmaceutical sector to support the procurement of raw materials and equipment, required boosting of local drug production; removing tariffs on health-related imports (i.e. machineries and consumables) to improve access to drugs and other medical services; developing and executing an incentive package for frontline healthcare workers; and upgrading of diagnostic centres, intensive care units and equipment of isolation centres in the 36 states and FCT.
Strengthening the social safety net has also been a priority, and has been achieved through an increase in the number of cash transfer beneficiaries, N-Power volunteers and sundry traders enjoying small and micro loans through the MarketMoni and TraderMoni schemes. The pre-existing conditional cash transfer has been extended to cover urban poor who have become further impoverished by the Covid-19 restrictions. The government has expanded the Social Register from 2.6 million to 3.6 million.
Lastly, the installation of solar home systems is another new initiative. It aims to cover up to 5 million households, serving about 25 million Nigerians who are currently not connected to the national grid. Other measures include a bailout support to the aviation sector rolled out to support local airlines, ground handlers and related businesses. These among many other measures have been implemented to support the Nigerian economy across the 36 states.
What role and importance will fossil fuels retain, and what government support is the industry receiving?
Our energy industry indeed holds significant potential to support economic growth and socio-economic wellbeing of Nigerians. Fossil fuels in particular are the mainstay of the economy, accounting for about 90% of foreign exchange earnings and more than 60% of the revenue stream to the government. Evidently, fossil fuels play a strategic role in providing the finances required to fund national and sub-national economic plans and programmes.
The low oil price regime occasioned by the advent of the Covid-19 pandemic necessitated a renewed focus on fiscal policy interventions economy-wide to minimise the adverse effects of loss of lives and livelihood of the citizens, and ensure preservation of employment and businesses for corporate entities. Given the international nature of the fossil fuel industry, we have focused on an international coalition mechanism that would restore stability in the global oil market as a first important policy intervention.
We rose to the challenge, leveraging bilateral relationships and collaborating with other OPEC and non-OPEC members to agree to production cuts to pave the way for resetting market fundamentals and a price rebound to levels that would allow reasonable income for producers and fair returns for investors.
Secondly, Covid-19 also reinforced the need for a painful but timely policy intervention for the oil and gas sector, which was the promulgation of policy on PMS [premium motor spirit] price deregulation needed to set the stage for market-oriented pricing of PMS in the domestic market.
We also responded swiftly to save our economy and protect lives and livelihood with the formulation of the ESP, whose cardinal pillars are anchored on deepening gas utilisation and consumption to provide a cleaner and cheaper alternative energy source through the National Gas Expansion Program. As mentioned, the plan includes the provision of 25 million solar-powered home solutions to increase energy access and economic empowerment of our rural populace in particular.
Ultimately, we also focus on providing a policy intervention to tackle something that has bedevilled the growth of the industry in Nigeria by reforming the industry through the much-awaited Petroleum Industry Bill (PIB), which has been in the works for nearly two decades. We assiduously reviewed the governance, fiscal, administration and regulatory framework of the industry in tandem with current global and domestic realities to not only enhance its competitiveness but also attractiveness in a transparent, stable and accountable manner.
To what extent will the dual shock further trigger economic diversification in Nigeria?
The fossil fuels sector was globally one of the industries most hit by Covid-19, which collapsed the oil price and distorted incomes and supply chain processes as well as market fundamentals. It is important to state that our economic diversification aspirations seek to reduce dependence on oil and gas, minimise exposure to crude oil price shocks, enhance fiscal stability and facilitate the growth of the agriculture, mining and manufacturing sectors. This is greatly hinged on facilitating effective linkages between the oil and gas industry and these critical sectors to stimulate domestic productive capacity growth and consolidate value addition to the economy.
A critical lever that we are focusing on supporting is the renewed production and utilisation of our abundant reserves of natural gas (more than 200 tcf [5.66 tcm]). We are determined and committed to ensure that gas serves as feedstock or energy source to support industries and fuel economic growth by enhancing its utilisation across critical production and manufacturing processes across the critical sectors of the economy.
Ultimately, natural gas is the next pivotal commodity that will catalyse economic diversification. It is vital in order to consolidate agricultural gains and deepen its value chain development, facilitate sustainable growth in manufacturing, optimise mining of strategic minerals, upgrade land transportation infrastructure, improve power sector performance, and enhance small and medium-sized enterprise development, etc.
This is in recognition of its role as a cleaner fuel that fits well into the new energy transition paradigm but can accord us an opportunity to facilitate availability of energy to our citizens, which is a prerequisite to prosperous and healthy socio-economic wellbeing. Lastly, we are focusing on deepening domestic utilisation of gas to increase energy access amongst our populace. This we are aggressively pursuing through the deployment of starter packs for autogas, CNG, LPG, etc.
What economic gains and impact could the AfCFTA bring to Nigeria?
The African Continental Free Trade Area (AfCFTA) aims to create a single market for goods and services as well as to liberalise and facilitate the movement of people, investment and business across the continent. The specific vision of the AfCFTA is to integrate, diversify and industrialise the economies of African countries. With a total GDP of USD 2.6 trillion and a population of over 1 billion, Africa provides a huge market for Nigeria’s exports. Thus, the AfCFTA can complement Nigeria’s economic diversification by offering preferential access to the African market.
In fact, a study by the Presidential Committee on Impact and Readiness Assessment of the AfCFTA concluded that the AfCFTA can complement Nigeria’s national development agenda and can act as a catalyst for Nigeria’s economic diversification objective. It will do so in the following ways: firstly, the AfCFTA offers Nigerian products and services preferential access to the huge African market, which sources over 85% of its goods’ imports from outside the continent. Preferential market access to Africa is particularly important to Nigeria as lack of access to foreign markets was identified as a key constraint on exports of Nigeria’s non-oil products.
Secondly, the AfCFTA provides huge export opportunities for products manufactured in Nigeria, including Nigeria’s priority export products identified in the ERGP [Economic Recovery and Growth Plan] and the Industrial Revolution Plan. It also supports the backward integration agenda. These opportunities will create jobs in Nigeria.
Thirdly, the AfCFTA provides immense opportunities for Nigeria’s service companies to expand to Africa, especially those in financial services, e-commerce and the digital economy. Nigerian companies have built critical capacity in these sectors and have long desired to expand to Africa but were constrained by trade barriers which the AfCFTA will now remove.
Fourthly, the AfCFTA will also liberalise education, health and transport services, which account for 87% of Nigeria’s services imports. Liberalising these sectors will provide an impetus for investment to flow in, which will in turn improve quality of services and create jobs. The ease of movement of persons will also improve productivity and specialisation through mobility of skills.
The Presidential Committee on Impact and Readiness Assessment of the AfCFTA also found that by eliminating import duties on goods from Africa, the AfCFTA will have a number of effects: foremost, it will increase the demand for Nigeria’s products and services in Africa, which will result in an increase in the price of Nigerian exports which will in turn improve the margins for Nigerian exporters. It will also boost trade with Africa as goods manufactured in Africa will become cheaper than goods from other continents of the world. Moreover, it will reduce prices of consumer goods in the local market.
A fall in revenue in the short term, due to tariff elimination by Nigeria, would be offset by a rise in revenue generated through increased trade in the longer term; and a reduction of Nigeria’s weighted tariffs against exports from other African countries would boost economic activity, boost non-oil revenue, and improve exchange rate competitiveness by reducing the real effective exchange rate.
Thus, the potential for Nigeria to take advantage of market access opportunities created by the AfCFTA is enormous. What is critical, however, is how to evolve appropriate domestic policies and strategies that will deepen and diversify the productive base of the Nigerian economy and to make such products competitive in the African market. This is why the Nigerian government is now focused on providing the much-needed infrastructure that will help accelerate the diversification of the economy to take full advantage of the AfCFTA.
What steps is the government taking to soothe social tensions, bridge economic disparity and bolster sustainable development?
Socioeconomic stability is undoubtedly a major prerequisite for economic development. A number of factors have combined to contribute to social tensions and income inequality in nation states. In the case of Nigeria, the key challenges revolve around poverty, unemployment and different forms of insecurity problems.
Indeed, poverty and unemployment make the youth easy targets for recruitment into violent crimes and criminality. Similarly, high income disparities have fuelled grievances among Nigerians. Failure of successive administrations in Nigeria to address the challenges of poverty, unemployment and inequitable distribution of wealth among ethnic nationalities is one of the major causes of socio-economic instability in the country.
The present administration is taking a number of actions to address these sources of socio-economic instability. These include the following measures: firstly, strengthening policies and laws for the economic empowerment of youth and women, to ensure the effective implementation of the National Gender Policy 2014 and the Violence Against Persons Prohibition (VAPP) Act 2015, while also ensuring the speedy passage of the Equal Opportunity Bill.
As an administration, we must provide adequate resources to schools to promote civic education as active citizenship holds the key to Nigeria’s inclusive development. Taking urgent measures to address the high youth unemployment rate is now pivotal. In the presidential overture to Nigerian youths in the aftermath of the #EndSars saga, the president in his new year speech specifically reached out to young Nigerians, promising to fulfil their 5 for 5 demands. In addition, the government has supported youth-focused business development in the fintech, agriculture and entertainment sectors.
Secondly, making the tax system more progressive by closing the loopholes in Nigeria’s tax laws that allow for tax avoidance and tax dodging; eliminating unfair, unnecessary tax waivers and tax holidays; and reforming the tax incentives structure.
Thirdly, increasing the amount of public resources allocated to the provision of public goods and services, chiefly health, education, social protection, energy and safe drinking water. This is aligned with our goal to lift 100 million Nigerians out of poverty in 10 years through the national poverty reduction strategies. In this quest, increasing support to smallholder farmers to address poverty, unemployment and inequality in rural Nigeria is essential.
Lastly, bringing down the high cost of governance and introducing measures to safeguard the policy-making process from capture by elites or vested interests is elemental. Here, a purposeful anti-corruption drive and a radical shift in social values and mindset is needed for Nigeria to move forward.