• ECA down to $0.1b
The World Bank has raised the alarm that, as Nigeria’s Gross Domestic Product (GDP) declines, poverty will be on the increase.
This is contained in the Nigeria Economic Update (NEU) report released by the global financial institution in Abuja on Monday.
The report said: “With economic growth expected to remain below the estimated population growth of 2.6 per cent through 2021, per capita real GDP will decline from $2,485 in 2018 to $2,460 by 2021, pushing more Nigerians into poverty.”
“Population growth is expected to continue exceeding economic growth, undermining Nigeria’s prospects for poverty reduction,” it stated.
The report also revealed that money in the Excess Crude Account (ECA) had almost “ been exhausted, rendering Nigeria more vulnerable to shocks.”
The NEU report stated that “the account balance on June 30 was $0.1 billion, down from $0.6 billion at the end of 2018 and $2.5 billion at the end of 2017.”
The World Bank lamented that the “ECA has rarely operated as envisaged; when it was established in 2004.” It explained that that the account “was to be drawn on only when the actual crude oil price falls below the budget benchmark price for three consecutive months.”
State governments challenged the creation of ECA on the grounds that the Federal Fiscal Responsibility Act (FRA) of 2007 was not binding on them and local governments.
In 2011, the Nigeria Sovereign Investment Authority (NSIA) Act came into being, thus, establishing the Nigeria Sovereign Wealth Fund (NSWF) as the oil savings fund for the country. It has three ring-fenced funds (future generations, infrastructure, and stabilisation), jointly owned by the three tiers of government.
The stabilisation fund, like the ECA, is to support federation revenue in times of economic stress. It was envisaged that the balance in the ECA in 2011 would be transferred to the fund. Instead, in 2012, seed capital of only $1.5 billion was transferred. In addition, another $0.5 billion in 2017 and another $250 million recently.
The World Bank report also took a swipe at the Central Bank of Nigeria’s agriculture intervention.
“CBN financing schemes for the agriculture sector and forex restrictions designed to reduce imports of staple foods will continue to support the sector, but will affect the quality and increase the price of agricultural produce,” it said.
The report warned that “with little growth in agriculture and few opportunities elsewhere, agricultural labour productivity is expected to stagnate, failing to improve the living standards of the 40 million Nigerians it employs.”
The World Bank added: “The financial account balance is estimated to have deteriorated, despite sustained Foreign Portfolio Investment (FPI) flows. FPI inflows rose in 2017, after exchange rate stabilisation, and were further spurred by accelerated issuance of CBN bills and after the 2019 national elections, supported by the stability of the Investors and Exporters Foreign Exchange (IEFX) window exchange rate and by high short-term domestic money market rates (rates on Nigerian Treasury and CBN bills), which currently range from 11 to 17 per cent. Foreign direct investment (FDI) picked up slightly, but at 0.6 percent of GDP remained low.”
The report also stated that “uncertainties about Nigeria’s macro-economic fundamentals may limit FDI inflows to small investments in domestic production. Although in recent years the Federal Government and some state governments have made significant efforts to improve business regulation, long-term investors continue to find Nigeria unattractive because of such fundamental structural deficiencies as prolonged insecurity and a significant infrastructure deficit.”
The World Bank also stated that “sources of external financing for Nigeria require close monitoring. It added: Highly concentrated in monetary instruments, FPI flows tend to be responsive to domestic monetary policy decisions. For Nigeria, the report stated. “sudden outflows would eat into already slipping external reserves and could destabilise the current exchange rate solution decision to hold the IEFX rate at about N360/$).”
External reserves rose from $43.1 billion in January to $45.1 billion at the end of June, equivalent to six months of goods and service imports.
In the area of job creation, the NEU report said “some states are creating enough jobs to keep up with the growth of their labour forces. According to the report, in the year following the recession (between the first quarter of 2017 and the first quarter of 2018), “10states saw some positive job creation, but the number of new jobs was not sufficient to absorb the new entrants into the labour force”.
It noted that the other 26 states and the Federal Capital Territory (FCT) were still losing jobs, while unemployment rose.
“By the third quarter of 2018, four states—Lagos, Rivers, Enugu, and Ondo—growth of full- and part-time jobs significantly outpaced the growth of the labour force, reducing unemployed, and the number of job-losing states declined to 21, including the FCT. The remaining 11 states created new jobs, but not enough to employ all new labour-force entrants.”
Average unemployment rates, the report said, “are higher in oil abundant southern states and in the North, where they are also rising more rapidly. In 2018, nine northern states experienced increases in unemployment rates of over 10 percent.”
However, the quality of the available jobs, the report pointed out, has declined. “Most new jobs created in the last five years were part-time, and the likelihood of getting a full-time job is now lower than it was before the oil shock. In 2014, 81 per cent of new jobs were full-time. As the economy entered recession in 2016, fewer full-time jobs became available, though there were more part-time jobs.”
The report also noted that “in 2017, there were not enough part time jobs to balance the sustained decline in full-time jobs, and total jobs fell by more than 700,000.
“In 2018, both full- and part-time jobs grew positively, but at a low rate. By the end of the year, three million fewer full-time jobs were available than had been before the crisis.”
Director General, Lagos Chamber of Commerce and Industry (LCCI) Muda Yusuf, said yesterday that “the World Bank report is a reminder to the managers of our economy of the need to review their policies on several fronts. Yusuf stated that policies and institutions play critical roles in driving growth and promoting economic inclusion.
He said: “We need to urgently expand the scope of the market in many sectors to unlock growth and investment potential of the economy. Command and Control model of economic management would only worsen the plight of Nigerians.
“Nigerians are very enterprising people and would create tremendous value in a market led economy. This of course is not to diminish the significance of regulation in economic management. Trade, monetary, foreign exchange, and investment policies must be configured to drive growth and economic inclusion. These are the real messages of the World Bank.”