By Omodele Adigun
The Economic Recovery and Growth Plan (ERGP) may be the Buhari administration’s magic wand for taking the country out of the woods, but Prof. Ode Ojowu, a former chief executive of the National Planning Commission/economic adviser to ex-President Olusegun Obasanjo, warns that dangers lie ahead in its projection.
According to Ojowu, now Economic Adviser to a media house, the rather innocuous statement that the “ERGP projects a growth rate of GDP of 4.8 per cent in 2018 and a downward review, or a ‘slight dip’ to 4.5 per cent in 2019 because of the national election of that year” is full of ominous signs.
In a paper delivered recently in Kano at a workshop organised by the Nigeria Deposit Insurance Corporation (NDIC) for finance correspondents, Ojowu observed that while a decline of 0.3 per cent of GDP is not slight, it is even more dangerous to assume automatic correction of the decline in growth immediately after the election year. “Our recent experience does not support this claim of automatic correction. Indeed, having acknowledged the potential negative impact of the election on the growth of the GDP, the ‘Do nothing approach’ to this anticipated negative impact of elections in 2019 is itself a negation of the very essence of the ERGP,” he stated.
Excerpts:
ERGP
The ERGP is a blueprint for recovery from recession in the short term and a strategy for sustainable growth and development in the medium term. The ERGP has three major objectives that will help achieve the vision of inclusive growth, namely, restoring growth with a focus on six priority sectors of agriculture, manufacturing, solid minerals, services, construction and real estate and oil and gas; investing in people with emphasis on social inclusion, job creation and youth empowerment and improved human capital. The third objective is building a globally competitive economy by building physical infrastructure and improving on the business environment with immediate emphasis on the ease of doing business.
The strategies designed under the ERGP are not just sector specific to accelerate growth restoration, they also promote cross-sectoral capacity building and critical infrastructural development. With a strategic balance of monetary and fiscal policies, internal consistency in inter-sectoral plans and external balances, prioritised sectoral funding, all against the background of over-arching political commitment, the ERGP expects to turn the Nigerian economy around through economic diversification. The diversification in turn will end the economy’s heavy dependence on the oil sector for both revenue and foreign exchange earnings.
Implementation
The danger recognised in the rather innocuous ERGP statement that “the slight dip in growth in 2019 is projected to result from the general election in that year with a quick recovery the following year” is the focus of this paper. The ERGP projects a growth rate of GDP of 4.8 per cent in 2018 and a downward review or a “slight dip” to 4.5 per cent in 2019 because of the national election of that year. This dip of 0.3 per cent of GDP is expected to auto-correct with a projected growth of 7 per cent to be achieved in 2020. The ERGP, though recognising the negative impact of the electoral campaign on the growth of the economy, does not include any strategy to mitigate its impact. In fact, the word election is mentioned only once in the ERGP document. While a decline of 0.3 per cent of GDP is not by any measure slight, it is even more dangerous to assume automatic correction of the decline in growth immediately after the election year. Our recent experience does not support this claim of automatic correction. Indeed, having acknowledged the potential negative impact of the election on the growth of the GDP, the “Do nothing approach” to this anticipated negative impact of elections in 2019 is itself a negation of the very essence of the ERGP, which is put in place as an intervention policy to reverse a recessionary growth and deliberately diversify the economy.
Decline
So, how deep can this dip be? Data from unofficial but credible sources put the estimated cost of the 2015 election at $2 billion as traceable expenses spent on media advertisements and campaign materials, among others. These expenditures did not include “underhand dealings and the use of state-owned facilities including stadia for campaigns and other political activities.” Of the $2 billion, an estimated $547 million was spent by INEC and other institutions. These traceable expenditure costs represented about 0.42 per cent of the 2015 GDP ($481.1 billion) and approximately 62 per cent of the approved capital expenditure for the same year ($3.22 billion). Informed observers were convinced that the bulk of the resources expended on the election, even by political parties and by candidates originated from the public till.
The assumption that the growth rate will make a quick recovery in the year following the election is rather optimistic. It is generally true that the softening of the economic growth in 2015 was occasioned by the shock caused by falling oil prices but the negative impact of the elections coinciding with the external shock could not be ignored. Studies were not carried out to determine the coefficients of the elections and the lead shocks on the growth of the economy but the elections and their aftermath were certainly a contributory factor to the sustained decline of the GDP growth into a recession between 2015 and 2016.
Different growth scenarios are possible depending on the degree or lack of intervention measures. Though the ERGP does not define the inflexion point at which recovery turns to growth, a forced decline or a dip of 6.25 per cent of the growth rate from 4.8 per cent to 4.5 per cent can induce a growth rate reversal that is off the ERGP target.
The ERGP reviewed downward its growth target for 2017 from 2.19 per cent to 1.5 per cent due to current challenges in the economy. These challenges include delay in passage of the budget, delay in funding of capital projects as well as the time lag between the release of funds and disbursement of same to contractors and other beneficiaries. These delays will have a spillover effect on subsequent years. Assuming these current economic challenges remain relatively constant through to 2020, the percentage downward review for 2017 from 2.19 per cent to 1.5 per cent when factored into the ERGP projections will realise a growth rate of 4.79 per cent in 2020, which is far off from the target of 7 per cent. The possibility of this scenario becoming a reality is not far-fetched as the identified challenges are likely to remain a common feature of the economic and political landscape, unless deliberately tackled. A projection of the growth rate on assumption that the economy is insulated from these economic challenges and the negative impact of the electoral politics in 2019 is ‘neutralised’ will realise a possible GDP growth rate of 10.30 per cent in 2020. While this last scenario strengthens the need for developing and implementing strategies for insulating the ERGP from electoral politics, the essential point being made is that there are numerous uncertainties around the ERGP growth trajectory that need to be watched from an ‘ERGP situation room’, if its targets must be achieved.
Ways out
We suggest the following strategies for insulating the implementation of the ERGP from electoral politics:
Set up ERGP Situation Room to oversee the implementation of the ERGP during campaign period. It is recommended that the Situation Room be composed of Ministries of Agriculture, Industry, Trade and Investment; Budget and National Planning; CBN; Finance; Power, Works and Housing; representatives of the private sector, especially contractors, with technical support from National Bureau of Statistics (NBS)and development partners. They should be responsible for designing a mechanism for aggressive monitoring of the programme and make public overall implementation plans and M&E frameworks for ERGP to guide future budgetary allocations to priority sectors and to provide reviews for programmes and projects. Such reviews will be useful at policy review sessions and sectoral management meetings, especially so for zero-based budgeting of the Federal Government. Publicly available full implementation plan and M&E for the ERGP will guide other stakeholders in independent monitoring of the ERGP implementation during the critical period of the national election.
Protect the budget allocations to priority sectors. Capital provisions should be rolled over rather than be recalled at the end of the fiscal year. This roll-over practice is already on with regards to 2016 and 2017 capital projects but it needs to be formalised with a buy-in from the National Assembly.
Encourage preparation of state-level ERGPs: Take practical steps to make states prepare their own ERGP by use of incentives, like the bail out and CBN’s Anchor Borrowers’ Programme. It is recommended that special emphasis be placed on complimentary and coordinated road construction by the three tiers of government that link urban-rural roads to promote scale movement of persons and goods between urban and rural areas. Roads are of particular importance because of the immediacy of their impacts and their catalytic role in economic growth and promotion of trade and socialisation. Recently, the Federal Government’s investigation revealed that the cost of transport was a major cause of commodity inflation in Nigeria. State-level implementation of ERGPs diffuses the negative impact of shocks to the execution of the plan by spreading ownership, increasing resources for execution and contributing to higher growth rate of the GDP.
Secure project loans ahead of budget. The 2018 budget capital projects depend ‘essentially’ on borrowings and the execution of the capital projects will be stepped up as planned borrowings materialise. This strategy makes capital spending a residual priority. It is recommended that beyond 2018, given the complex and lengthy negotiations involved in acquiring a loan, loans meant to fund capital projects must be negotiated for and secured in advance and reflected in the budget proposal.