Nigeria: Macroeconomic Assessment and Agenda for Reforms

193 Pages·2008·1.59 MB·English

Nigeria: Macroeconomic

Assessment and Agenda for

Reforms

AAFFRRIICCAANN IINNSSTTIITTUUTTEE FFOORR AAPPPPLLIIEEDD EECCOONNOOMMIICCSS

128 Park Avenue, GRA, P.O. Box 2147 Enugu, NIGERIA
Phone: 234 (042), 256035, 300096 256644; Fax: [phone]
E-mail: [email protected] or [email protected]
UNDER SUB-CONTRACT FROM
IBM Business Consulting Services
1616 North Fort Myer Drive
Arlington, VA 22209
USAID/NIGERIA MACROECONOMIC ASSESSMENT

CONTRACT

TT ee aa mm LL ee aa dd ee rr :: PP rr oo ff .. CC hh aa rr ll ee ss CC .. SS oo ll uu dd oo
CONTENTS

0: Executive Summary
1: Introduction/Context

1.1: Context

1.2: Methodology and Organization of the Report

2: Structure and Performance of the Macro economy

2.1: Macroeconomic Indicators

2.1.1: Aggregate Growth Accounting

2.1.1.a: Productivity Growth

2.2: Major Demand Aggregates/Expenditures

2.2.1: Savings-Investment and External Balance

2.2.1.a Domestic savings generation and domestic investment

2.2.1.b: The current account and its financing

2.3: Macroeconomic Policy and Stability

2.3.1: Monetary and Exchange Rate Policy

2.3.1.a: Structure of the financial system

2.3.1.b: Monetary policy

2.3.1.c: Interest rate policy

2.3.1.d: Exchange rate policy

2.3.2: Fiscal Policy and Budget Management

2.3.3: Other Institutional and Structural Policy Reforms

2.4: State Government and Fiscal Decentralization

2.4.1: Responsibilities of different tiers of government

2.4.2: The politics and economics of revenue allocation in Nigeria

2.4.3: The problem of horizontal fiscal imbalance

2.4.4: Achieving sustainable fiscal reforms in states and local governments

3: The Microeconomic Perspectives: Sectoral Competitiveness Assessment

3.1: Sectoral Decomposition of the Nigerian economy

3.1.1: Oil and Gas

3.1.2: Manufacturing firms and competitiveness

3.1.2.a: Productivity of firms by sub-sectors

3.1.2.b: Textiles and apparel

3.1.2.c: Non-oil natural resources

3.1.2.d: Non-Financial Services

3.1.3: Agriculture

3.1.3.a: The crop production

3.1.3.b: Livestock

3.1.3.c: Fisheries

3.1.3.d: Constraints to agricultural productivity

3.2: Constraints to Firm Competitiveness

3.2.1: Infrastructure: Electricity

3.2.1.a: Land acquisition and registration

2
3.2.2: Cost and access to finance

3.2.3: General Business Environment: corruption, regulatory framework,

customs procedures

3.2.3.a: Corruption and rent-seeking

3.2.3.b: Poor Business ethics

3.2.3.c: Legal and regulatory environment

3.2.3.d: customs procedures

3.3: Government Business Promotion Policies and their Weaknesses

3.3.1: Customs and Trade Policy

3.3.1.a: Export promotion measures

3.3.1.b: Tariff and other trade policy measures

3.3.2: Industrial and Export promotion Incentives to Firms

3.3.2.a: Investment and export incentives

3.3.3: Agricultural promotion

3.3.3.a: Constraints to achievement of policy objectives

4: Human Development, Employment and Poverty

4.1: Human Development Index

4.1.1: Life Expectancy

4.1.1.a: Mortality rates: infant and under-5 mortality

4.1.1.b: Nutrition

4.1.1.c: Public health services

4.1.2: Human capital (education)

4.1.3: Labor markets, employment, and unemployment

4.2: Poverty and Inequality

4.2.1: Nature, Dimensions, and Causes of poverty

4.2.1.a: Inequality

4.2.1.b: Causes of poverty

4.2.2: Gender Issues

4.2.3: The Coping Mechanisms of Households to Poverty

4.2.3.a: Northern Nigeria

4.2.3.b: Southern Nigeria

4.2.4: Government Policy Responses to Poverty and Inequality

5. Growth Prospects, Competitiveness Needs and Programmatic Recommendations

5.1: Summary of Findings

5.2: Medium term Growth Scenarios

5.2.1: Requirements for high growth

5.2.2: Are there potentials for new beginning?

5.3: Summary Agenda for Economic Growth and Competitiveness

5.4: Strategic Agenda for USAID’s Intervention

5.4.1: Setting Priorities

5.4.2: Delivery Mechanism: How should aid be packaged and delivered?

5.4.2.a: Targeting persons and/or institutions

5.4.2.b: Aid coordination and leveraging of higher resources

3
5.4.2.c: Demonstrative projects approach

5.4.2.d: Re-thinking the Results orientation and measures of performance

References
Text Boxes
1.1: Nigeria’s Resource Endowments and Potentials for Sustainable Development 4
2.1: Nigeria and Indonesia: Two similar countries, two different policy regimes,
two different outcomes 23
2.2: Nigeria’s Experience with Fund-Supported Programs 25
2.3: Financial System stability Assessment 27
2.4: Inefficient Public Investment 43
2.5: Sources of Revenue: Federal Government 47
2.6: Possible Reform Agenda of States Public Expenditure 57
3.1: Some of the policy responses to promote manufacturing sector 65
3.2: The problem of the Textile Industry
3.3: Constraints to Manufacturing Productivity 71
3.4: Trade and Competitiveness Policies to promote trade as contained in Nigeria’s trade policy 81
3.5: Recent Tariff and Trade Policy Developments ` 84
3.6: Industrial Policy Incentives to firms 87
3.7: Small and Medium Industries Equity Investment Scheme (SMIEIS) 88
3.8: Government Agricultural promotion measures 93
4.1: Nigeria’s major demographic characteristics 95
4.2: Poverty and the Environment 104
4.3: Women in vulnerability: Marital and procreative circumstances in Osun State 107
4.4: Coping Strategies of the Poor in Oyo State 110
4.5: Safety nets in Osun State 111
4.6: Assessment of Government Programs related to Poverty and of community-based
organizations and institutions 113
Appendix Boxes:
1. Oil Revenue in Nigeria 157
2. The Dilemma of a nation—to save or not to save 158
3. History of intergovernmental fiscal transfers in Nigeria 159
4. Dealing with Corruption in Nigeria 160
Text Tables:
2.1: Regional distribution of Nigeria’s GDP 7
2.2: Structure of Output (percentage of GDP) 9
2.3: GDP: Sectoral Averages, 1965-2000 9
2.4: Structure of Income: Composition of Value-Added, 1990- 2001 (Percentage of GDP) 11
2.5: Nigeria: Economy-wide total factor productivity, 1961-97 (Percentages) 12
2.6: Structure of Domestic Gross Domestic Expenditure, 1990- 2001 (Percentage of GDP) 13
2.7: Terms of Trade 14
2.8: National Savings and Investment as Percentage of GDP 15
2.9: Components of Capital Formation 15
4
2.10: Sectoral Utilization of Foreign Exchange (US Dollars and Percentage Shares)
17

2.11: Imports by major groups (percentage of total imports)
17

2.12: Measures of macro volatility, 1960—2000 21

2.13: Nigeria and Indonesia: Selected Indicators, 1960—1999 23

2.14: Monetary Policy targets and actual performance 1999—2001 29

2.15: Monetary Survey: Contribution to the growth of M2 (Percentages)
30

2.16: Sectoral Distribution of Bank Credit, 1997- 2001 (percentage of total)
30

2.17: Selected Interest rates, 1997—2002 (percentages, end of period) 31

2.18: Selected exchange rate indices (1980- 2001) 32

2.19: Consolidated Government finances (percentage of GDP) 35

2.20: Sectoral allocation of capital budget (billions of Naira and Percentage of capital spending) 38

2.21: Responsibilities of different tiers of government in Nigeria 46

2.22: Statutory allocation formulas for sharing Federation Account (percentages) 49

2.23: Nigeria: Revenue Sharing formula among the states 52

2.24: Nigerian states and the federal capital territory: Horizontal fiscal imbalance, 1997- 2001 54

2.25: Fiscal balance performance in sample of states, 1997- 2001 (Average) 56

3.1: Structure of output, 1990- 2001 (Percentage of GDP) 58

3.2: International comparison of manufacturing value added at constant 1990 prices in US$ 60

3.3: Comparative competitiveness indicators of the manufacturing sector
61

3.4: Selected indicators of performance in Nigerian manufacturing sector
62

3.5: Index of manufacturing production by sectors
63

3.6: Summary of firms' survey results
64

3.7: Energy Resources estimates in Nigeria
66

3.8: Service Sector Contribution to GDP
67

3.9: Agricultural Sector performance
68

3.10: Percentage of firms with private Generators
72

3.11: Percentage of firms, which reported electricity as biggest infrastructure problem 72

3.12: Cost of publicly compared to privately provided electricity (N. per KwH). 73

3.13: Percentage of firms having access to external credit 74

3.14: Percentage of firms reporting being credit constrained 75

4.1: Summary Health Indicators for Nigeria 95

4.2: Trends in Nigeria’s Three Mortalities 96

4.3: Nigeria: Nutrition- daily per capita supply of calories, protein and fat 97

4.4: Nigeria: Food imports as percentage of total import 97

4.5: HIV prevalence in Nigeria’s six zones 98

4.6: Percentage Distribution of Employed persons (15-59) by industry, 1995-1999 (in millions) 100

4.7: Changes in total employment over structural adjustment, by initial firm size (1990). 101

4.8: Poverty trends in Nigeria (percentage of population in deep poverty) 102

4.9: Comparative Gender Development Indicators 106

4.10: Evaluation of National Poverty Eradication Program (NAPEP and the PRSP) 112

5.1: Implications of Alternative Growth Scenarios 117

5.2: Proposed Thematic Allocations of USAID/Nigeria budget 125

5.3: Proposed Budget Allocations of USAID/Nigeria’s SO2 Activities
126

5
Appendix Tables:
1. Federal Government’s major targets on the economy versus actual performance 134

2. Nigeria in a Global Context
135
3. Human Development Index components: Nigeria in Regional and Global contexts, 2000 135

4. Selected Macroeconomic Indicators 136

5a: Sectoral GDP in Nigeria 137
5b: GDP at 1984 factor cost (Sectoral Shares, percentages) 138

6: Nigeria’s External Debt Outstanding (1983- 2001) (US$ millions) 140
7. Nigeria’s External Debt service payments (1985- 2001) US$ millions 141

8. External Debt service projections (2002- 2011) 142

9. Federal and State governments’ Debt (1999-2002) 142

10. Structural Reforms and policy implementation 144

11. Number of Financial Institutions, 1997- 2001 145

12. Nigeria: Frequently Used Indicators of Stability and Vulnerability in the Financial

Sector, 1998—2002 (percentage of GDP unless otherwise indicated) 146

13. Federation Account Operations, 1997—2001 (millions of Naira and percentages) 147

14. Selected social and demographic indicators in comparative perspectives 149

15. Poverty Incidence by states including the Federal Capital Territory, 1980- 96 150

16. List of Federal Government projects and programming for poverty eradication 151

17. Elements of current anti-poverty programs and projects of state governments in

Nigeria (July 2002) 153

18. Some features of the NAPEP and the Draft PRSP 154

19. Selected petroleum statistics, 1997—2002 156

Figures

2.1: Long-term per capita Growth trend 6

2.2: Comparative contributions of oil and non-oil GDP in Aggregate GDP 9

2.3: Percentage Changes in oil production and prices, 1980- 2001 11

2.4: Total Factor Productivity, 1960—1999 12

2.5: Comparative Debt to GDP movement in Nigeria and Africa’s Ten largest Economies 19

2.6: Proportional co-movements of changes in oil price and terms of trade 22

2.7: Volatility of growth rate for the Real Exchange Rate Index 33

2.8: Real Revenue and Expenditure per capita, 1968—2001 36

2.9: Federation Account Allocation Formula 50

2.91: Controversial Revenue Allocation Formula 50

2.10: The new Allocation formula 51

3.1: Oil and Non-Oil Exports as percentage of Total Exports

3.2: Oil and non-oil revenue (percentages)

4.1: Sectoral Employment, 2000 102

4.2: GDP per capita and poverty reduction in Nigeria and selected developing countries

(1992-1998) 103
6
Abbreviations and Acronyms

ACGSF – Agricultural Credit Guarantee Scheme Fund

ADP – Agricultural Development Programme

ADR – Alternative Dispute Resolution

AML – Anti-Money Laundering

APMEU – Agricultural Projects Monitoring and Evaluation Unit

ASYCUDA – Automated Systems for Customs Data Entry and Control

ATLE – Africa’s Ten Largest Economies

BMPI – Budget Monitoring and Price Intelligence Unit

CAC – Corporate Affairs Commission

CRF – Clean Report of Findings

DAS – Dutch Auction System

DMO – Debt Management Office

DFFRI – Directorate for Food, Roads and Rural Infrastructure

ECGA – Export Credit Guarantee Agencies

ECOWAS – Economic Community of West African States

EEG – Export Expansion Grants

EPZ – Export Processing Zone

FACU – Federal Agricultural Coordinating Unit

FDI – Foreign Direct Investment

FEAP – Family Economic Advancement Programme

FIRS – Federal Inland Revenue Service

FOB – Free on Board

FOS – Federal Office of Statistics

FSSA – Financial System Stability Assessment

GDI – Gender related Development Index

GEM – Gender Empowerment Index

GDP – Gross Domestic Product

HDI – Human Development Index

ICC – International Chamber of Commerce

7
IDIB – Industrial and Insurance Brokers

IDR - Import Duty Report

IFEM – Inter-Bank Foreign Exchange Market

IMF – International Monetary Fund

IPR –Intellectual Property Rights

LDC – Least Developed Countries

LECON – Leasing Company of Nigeria

LGA – Local Government Authority

LNG – Liquefied Natural Gas

MAN – Manufacturers Association of Nigeria

mbd – million barrels per day

MDG – Millennium Development Goals

MFN – Most Favored Nation

MIB – Manufacturing in Bond

NACB – Nigeria Agricultural and Cooperative Bank

NACRDB – Nigerian Agricultural and Cooperative and Rural Development Bank

NAFDAC – National Agency for Food and Drug Administration and Control

NAFFPP – National Accelerated Food Production Programme

NALDA - National Agricultural Land Development Authority

NAPEP – National Poverty Eradication Programme

NBCI – Nigerian Bank for Commerce and Industry

NEPA – National Electric Power Authority

NEPAD – New Economic Partnership for Africa Development

NEXIM – Nigeria Export Import Bank

NIDB – Nigeria Industrial Development Bank

NIPC – Nigeria Investment Promotion Commission

NITEL – Nigeria Telecommunications Limited

NLC – Nigeria Labour Congress

NNPC - Nigeria National Petroleum Corporation

NTB – Non-tariff Barriers

ODA – Official Development Assistance

8
OPEC – Organization of petroleum Exporting Countries
ORT – Oral Rehydration Therapy
PAPDC – Poverty Alleviation Programme Development Committee
PAYE – Pay As You Earn
PBN – People’s Bank of Nigeria
PCU – Projects Coordinating Unit
PRSP - Poverty Reduction Strategy Process/paper
PSI – Pre-Shipment Inspection
PTF – Petroleum Trust Fund
R&D – Research and Development
RER – Real Exchange Rate
RIL – Research-to-industry Linkage
RMAFC – Revenue Mobilization, Allocation and Fiscal Commission
RPED – Regional Programme on Enterprise Development
SAP – Structural Adjustment Programme
SBA – Stand-by Agreements
SDR – Special Drawing Rights
SGR – Strategic Grain Reserve
SME – Small and Medium Scale Enterprises
SMIDA – Small and Medium Scale Industrial Development Agency
SMIEIS – Small and Medium Industries Equity Investment Scheme
SON – Standards Organization of Nigeria
TBA – Traditional Birth Attendants
TFP - Total Factor Productivity
TRIPs – Trade Related Intellectual Property Rights
UBE – Universal Basic Education
UEMOA – Union Economique et Monetaire l’Ouest Afrique
UNDP – United Nations Development Programme
UNICEF – United Nations International Children Emergency Fund
UNIDO – United Nations Industrial Development Organization
UPE – Universal Primary Education

US AGOA – United States African Growth and Opportunity Act

9
WTO – World Trade Organization
10