People & Money

On the new National Development Plan

The new medium plan draws attention to the fact that Nigeria is in no doubt as to its preferred direction of growth, the route to this, and the preferred pace. Our leaders just ain’t ready yet.

Discussions on the announcement by the Federal Government of a new national development plan ought, ordinarily, to take place within the context of the extent to which the goals of the last such plan ― the Economic Recovery and Growth Plan (ERGP) 2017-2020 ― were achieved. Output did not grow as fast as the ERGP numbers had forecasted ― lower domestic crude oil production and global prices, the consequence of shocks to our terms of trade in 2016, was the major culprit. In addition, over the four years to end-2020, the non-oil sector also had to put up with a string of sub-optimal policy decisions, including random bans across sectors, and the eventual closure of the country’s land borders for an extended period.

…is the MTNDP dead on arrival? One assumption, a number of observations, and a query, together provide guides to answering this question. On the balance of current evidence, we must assume that in order to meet the new plan’s overall target…current economic conditions will require that the economy grows faster in the three years to 2025 than in the two years to 2022. All of which should lead to the question: “How, even without the Russian provocation, government intends to achieve the plan’s goals?”

If these scrunched the rate of annual increases in the gross domestic product over the period covered by the ERGP, elevated levels of unemployment and inflation simply underscored how miserable the last plan period was. And this is before you add the adverse effects of the COVID-19 pandemic.

Unfortunately, the opening conditions of the Medium Term National Development Plan (MTNDP) ― 2021-2025 are no more favourable. Russia’s invasion of Ukraine promises to shave about two percentage points off the global growth outlook for this year, and depending on how long it lasts, maybe next year, too. The global pass-through to the domestic economy of this deterioration in the global geo-political space was always going to be through the trade channel.

Rising wheat prices, along with associated shortages, which will push up the price of a range of food ― bread, pasta, spaghetti, noodles, etc. ― has already been signposted. Similarly, a shortage of potash (both Ukraine and Russia are big producers of this) for the manufacture of fertilisers will hurt domestic harvest ― further pushing up the prices of other food items. Not too long ago, we could have counted on rising oil prices to lift the nation’s boat. But that was before the boat sprung several leaks ― especially an inability to meet its OPEC+ assigned quota, and the smoke-and-mirror accounting for petrol subsidy.

The new medium term plan’s oil and gas output numbers are clearly a form of a joke. Even if we ramped up investment in the sector today, we are not going to reach the production levels that support an average annual growth of 2.1 per cent in the sector over the next three years. And this is before you add the adverse medium- to long-term effect on the sector, of the global energy transition.

In other words, is the MTNDP dead on arrival? One assumption, a number of observations, and a query, together provide guides to answering this question. On the balance of current evidence, we must assume that in order to meet the new plan’s overall target (“Broad-based economic growth of about 3.8 percent on average; with non-oil GDP growth of 4 percent and oil GDP growth of 2.1 percent”), current economic conditions will require that the economy grows faster in the three years to 2025 than in the two years to 2022. All of which should lead to the question: “How, even without the Russian provocation, government intends to achieve the plan’s goals?”

But first, the observations. As usual, the output numbers overstate the economy’s case. This is not just because of the base effect on output growth, which we saw towards the end of last year. Across key sectors of the economy, we have not invested enough just to keep current capacity chugging along nicely. Domestic policies over the last seven years, almost autarkic at some points, have frightened non-resident investors away, while driving domestic savings pools towards dollar hoards stashed away from the formal financial services sector. And in anticipation of the tapering of monetary support schemes across the West, globally, investable funds are scampering for safer shores.

Also Read: Inflating away our miserly economic gains

The new medium term plan’s oil and gas output numbers are clearly a form of a joke. Even if we ramped up investment in the sector today, we are not going to reach the production levels that support an average annual growth of 2.1 per cent in the sector over the next three years. And this is before you add the adverse medium- to long-term effect on the sector, of the global energy transition. Since February 24, wheat prices have risen by 30 per cent. Add shortfalls in the global supply of potash to this, and it is easy to see how out of kilter the plan’s inflation projections may already be. Worse, the Federal Government’s balance sheet does not offer much comfort either. It is safe to forecast that a large public spending requirement will, for some time to come, cooperate with miserly revenue streams to inflate the public debt stock.

Obviously, it is not enough to observe the speed with which the economy rebounded to its post-COVID-19 growth rate by year-end 2021 and extrapolating from this to assume healthy growth numbers going forward. If nothing else, the growth numbers we saw in the last two quarters of 2021 benefitted a lot from negative COVID-19-induced quarterly output growth rates in 2020.

Back to the plan’s “How?” According to an overview that I have seen, these check all the right boxes: “Continuing with prudent fiscal management with enhanced focus on mobilisation of non-oil revenues to engender increased spending on social-protection initiatives and reduce the dependency of the budget on domestic and external financing to improve debt-servicing capacity; Finetuning monetary policy framework, with emphasis on price stability, support to the economy as appropriate, harmonisation of the exchange rates and ensuring that the eventual unified exchange rate is well aligned with macro-structural fundamentals; Further accelerating the pace of economic diversification, where all the sectors of the economy become more competitive and begin to meet domestic and regional demands for goods and services and eventually compete more effectively in the global market; Reducing the costs of production for the manufacturing sector through improved business environment, avoidance of multiple taxation and increased and more reliable provision of infrastructure; Enhancing the performance of the manufacturing sector and strengthening its linkages to other sectors particularly agriculture and service sectors to bring about increased employment intensity of growth as well as the sensitivity of poverty reduction to growth; and Deepening the financial sector and sustaining its stability to ensure increased credit allocation to MSMEs.”

Obviously, it is not enough to observe the speed with which the economy rebounded to its post-COVID-19 growth rate by year-end 2021 and extrapolating from this to assume healthy growth numbers going forward. If nothing else, the growth numbers we saw in the last two quarters of 2021 benefitted a lot from negative COVID-19-induced quarterly output growth rates in 2020. Yet, over the last two decades, managers of the Nigerian economy have made a hash of every idea, from attaining price stability, through harmonising the plethora of official and parallel market exchange rates, to better public expenditure management. Along the way, we have dropped useful tools such as the oil price-based fiscal rule and the Budget Monitoring and Price Intelligence Unit.

If nothing else, the new medium plan draws attention to the fact that Nigeria is in no doubt as to its preferred direction of growth, the route to this, and the preferred pace. Our leaders just ain’t ready yet.

Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.

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