Nigeria: Economics and the New National Development Plan

14 January 2022
opinion

Jeremy Gaines argues that the NDP enterprise is flawed

On 22 December, almost by way of a Christmas gift to the nation, President Muhammadu Buhari presented the administration's five-year National Development Plan (NDP) from 2021 to 2025 - it is said to be the successor to the Economic Recovery and Growth Plan (ERGP), 2017- 2020, which lapsed in December 2020.

Two things seemed strange in this regard. First, no comment was made on whether the ERGP has been successful or not, let alone an assessment of the economy given on which the NDP is to be anchored. Second, it seems somehow odd to launch a five-year plan one year into the timeframe covered by it. However, what probably most struck the eye of the Christmas shoppers, or rather those Nigerians who were able to beat inflation and unemployment and still afford to shop, was the price tag for the plan: President Buhari stated that Nigeria requires an investment of N348.1 trillion to achieve the NDP's targets - or US$842 billion (CBN rate of N413 = US$1).

THISDAY Newspaper reported the figures as follows:

"The projected investment portfolio would be contributed by the government which would source for 14.3 percent (N49.78 trillion) of the amount, while the balance of 85.7 percent (N298.32 trillion) would come from the private sector."

Let us stop for a moment and consider these figures. One year has already passed, so we can assume the figures will be spread across the next four years. The Federal Government (FG) thus proposes investing N12.44 trillion each year for the next four years - compare this with the approved budget of N16.39 trillion for 2022, for which a substantial volume of new debt had to be taken up. The first question the NDP prompts is therefore: How will FG be financing its 'share'? Will it seek the National Assembly's approval for a massive annual increase in borrowing, because one thing is clear to us all: With oil revenues dwindling, that N12.44 trillion is not simply lying around in the treasury, and the current budget involved a significant and not uncontroversial volume of foreign loans. An ethical argument can be made that in order to make a world for our grandchildren, we need to accumulate debt that our children will still be repaying.

There is nothing wrong with borrowing and debt per se. What is important is to use the sums judiciously. As long as the loans are invested wisely and the returns on them for the country is great enough. The government's intended debt take-up as stated in the NDP was reported in the press as follows: N39.59tn debt stock for 2021, N46.63tn for 2022, N50.22tn for 2023, N50.53tn for 2024, and N45.96tn by 2025.

Put differently, if the FG plan relies on taking up debt in excess of N50 trillion by the year 2024 (when it is no longer in power), the justified expectation must be that the borrowings will go into enterprises that generate returns higher than servicing just the debt and confer social benefits on the nation. It stands to reason that government must have done extensive work - there must be a model for revenue generation on which the proposed borrowings are premised and justified. The granularity of the model must be detailed enough to show and justify the borrowings and investment. It would be interesting to see and scrutinise the revenue model of FG.

Going by the media reports, no mention was made at the NDP presentation of what revenue the government expects to garner. Imagine a private-sector company going to its bankers and asking for a loan because it wishes to invest - and not presenting the business plan showing its return on investment or revenue model. It would promptly be shown the door.

In other words, federal borrowings need to be linked clearly to the positive cashflows associated with each proposed asset/infrastructure, generating sufficient surplus to meet the debt service obligations. To this end, a clear and unambiguous repayment plan must be in place such that the debt burden is not placed on taxpayers or on the treasury. Sadly, the anecdotal evidence on past borrowings, such as those that went into the development of rail transportation, suggests the assets do not generate sufficient revenue to meet the debt service obligation.

The federal government says it intends to borrow a further N7tn next year, but not how it will repay it. Yet a serious repayment plan is needed if only for the sake of continuity. After all, the present government's tenure ends in 2023, meaning it is imperative that a solid continuity plan is in place and guaranteed. Otherwise, we will, no doubt, see a repetition of projects left incomplete and abandoned with all the attendant dire fiscal outcomes.

Last but not least it stands to reason that construction periods will exceed 24 months when developing major physical infrastructure. It would be interesting to see the project development and delivery plans, and the types of moratoria expected to be in place, and how government intends to service the debt during the construction period. The way the plan is presented suggests that the projects will start generating positive cashflows from the onset. This is not possible.

To return to the announcement of the NDP, President Buhari is reported to have continued as follows:

"... the overall target of the plan was to achieve a broad-based real Gross Domestic Product (GDP) growth rate of five percent on average during the Plan period; generate 21 million full-time jobs; and through an inclusive growth, lift 35 million people out of poverty".

He added that this would set the stage for achieving the government's target of lifting 100 million Nigerians out of poverty in 10 years, under the National Poverty Reduction with Growth Strategy (NPRGS). This implies that successful implementation of the Plan will require a strong partnership between the public and private sectors."

This all seems very worthy and commendable. However, it rests on the assumption that any future administration will buy into the current poverty reduction strategy, meaning concur with its premises. Given that again no assessment of its success to date was offered, it is uncertain whether this will be the case, as to date no national consensus has been established on the validity of the strategy.

Be that as it may, let us simply take the above numbers at face value and crunch them. Firstly, if we assume that the objective of the US$842 billion is economic growth for job creation, and that 21 million full-time jobs will be created, the implication is that as proposed by FG, it will cost approximately US$40,000 per job (N16.52 million) or US$24,000 to lift one person out of poverty. That would spell US$2.405 trillion to lift the 100 million people out of poverty. Does it really cost the private sector on average N16.5 million to create a full-time job (a factor of 550 on the minimum wage of 30k)?

Secondly, the idea of 5% growth in GDP per annum sounds like a great target, especially if one considers that between 2016 and 2020 absolute GDP only rose a net 7.86%. However, what does achieving 5% growth per annum really mean? The National Bureau of Statistics states that in Q3 2021 the nation scored around 4% GDP growth. However, the figures for 2020 were dismal, the figure is calculated year-on-year, so the increase is relative. Moreover, GDP does not say much about the lot of the average citizen. To reflect the condition of the 'common man' it is better to compare GDP trends per capita, although given income disparities this itself paints an overly rosy picture for the lower strata of society.

The World Bank statistics for the years of the current administration actually paint a horrendous picture in this regard. Between 2012 and 2014, GDP per capita rose from US$ 2,724 to US$ 3,099, the level then dropped continually over the next three years, bottoming out in 2017 at US$ 1,969. By year-end 2020 there had been a slight recovery, with GDP per capita clawing its way up to US$ 2,097. However, net GDP per capita growth since 2015, when the Buhari administration came into office, has been a mere 4.18% overall. The figure at the end of 2020 was only 67% of that for 2014. So, five years of 5% GDP growth (without factoring in the simultaneous increase in the population which eats into the per capita figure) is not going to get prosperity back to the 2014 levels. To put it mildly, such an idea is not particularly ambitious at all.

In other words, we can safely ignore all such grandiose-sounding pronouncements. They at best pander to our wish to hear big numbers and if anything, they have the feel of self-fulfilling soundbites about them. Instead, let us concentrate on two things: First, the forecast that five million full-time jobs will be created each year for the next four years. (Remember jobs were actually shed in 2021, as unemployment rose to an all-time high and the birth rate is currently 3.4%). And second, that the private sector will be contributing almost N300tn over four years, or N75tn per year - at the lower CBN dollar rate that is a tidy US$178.57 billion per annum - which amounts to no less than 40% of the forecast absolute GDP for Nigeria of US$ 440 billion for 2021.

So how exactly can that work? It is not, after all, the Federal Government's job to create jobs; it is its task to set macro-economic parameters that will favour private-sector job creation. This broaches the question: Is the Federal Government simply going to tell the private sector to 'up its game' and pick up the tab? And if so, by what right?

Minister of Finance, Zainab Ahmed was reported in "The Cable" as saying at the presentation:

"In order to have the future we all desire, the plan is developed to play a sizable role in the product complexity space internationally and adopts measures to easing constraints that have hindered the economy from attaining its potentials, particularly, on the product mapping space. The plan provides for the implementation of major infrastructure and other development projects across the six geo-political zones and the opening up of opportunities for the rural areas to ensure balanced development and increased competitiveness."

The statement veers on technospeak and is as good as untranslatable. We can perhaps assume it to mean: (i) Nigeria should produce things where it has a comparative advantage; and (ii) it needs infrastructure to achieve that. This can hardly be read as constituting the necessary revenue model mentioned above. Indeed, given that the development projects are major physical infrastructure, it stands to reason that the construction period will exceed 24 months. It would be interesting to see the project development and delivery plans, and the types of moratoria expected to be in place, let alone how government intends to service the debt during the construction period.

The way the plan is presented suggests that the projects will have positive cashflows from Day One. Yet, neither Rome nor roads were built in a day. Readers will no doubt remember that the much-vaunted new railways took several years to build, and everyone knows they at present haul very little cargo when Nigeria is crying out for an efficient freight haulage system. By all accounts with their heavily subsidised ticket prices they will remain a loss-making project for many years to come.

This brings us, in conclusion, to the indelible flaw in the entire NDP enterprise. The plan evidently stands or falls on the outdated idea that government should 'push' infrastructure at the private sector. Now, if you are expecting the private sector to contribute an additional sum equivalent to 40% of GDP to realize a public-sector plan, perhaps it would be best to start everything by asking the private sector (whoever or whatever they are) what it wants. After all, it is the private sector that exploits comparative advantages, not government. Creating infrastructure by fiat from Abuja is destined to fail because what guarantee is there that it fulfils the private sector's needs?

Gaines is on the staff The African Politiea Institute, Abuja

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