Managing the Nigerian Economy Post COVID-19
A Policy Brief written by Professor Osita Ogbu
The Nigerian economy was in dire straits before COVID-19. The pandemic could tip it over if the right policies and structural reforms are not urgently and diligently implemented. The pandemic has exposed the weaknesses in our health system, from the primary to the tertiary, requiring a needs assessment on both the physical and human infrastructure for addressing the gaps. To address these gaps, a novel and inward-looking approaches would be appropriate given the inevitable contraction of public expenditures, across board, going forward. Such novel approaches would rely on our research institutions and NAFDAC to accelerate pharmaceutical research and innovation towards creating a vibrant pharmaceutical manufacturing sub-sector. This has job-creation implications and would, importantly, stem self-doubt and knowledge dependence and could easily spill over to other sectors. The Federal government must work collaboratively with the state governments to urgently address primary health care issues, but the onus is on the state governments to address the gaps that have hindered their access to the Basic Health Fund. Development partners support can be coordinated towards improving the health system in Nigeria. The huge question for the economy is how to engineer reasonable inclusive growth under uncertainty, given both supply and demand shocks and the absence of fiscal space. To address the twin shocks, Nigeria has to switch expenditure to domestic produced goods and direct its lean resources to infrastructure for production. In this respect, two productive sectors are critical: agriculture and manufacturing. Agriculture requires commercialization and scaling up to allow for the infusion of technology that would raise productivity. This requires a clear understanding that agriculture is science-led. Nigeria needs to restore a private sector-led Marketing Boards. The manufacturing gap in Nigeria has been the major source of her increasing poverty profile. Both agriculture and manufacturing in Nigeria and in any developing country, face constraints in the demand for and supply of technology, requiring creative government intervention. Such interventions would include a focused and strategic use of prominent economic and financial institutions of government. The governments at both levels have a role in encouraging foreign and domestic investments in the manufacturing sector that links strongly to the agricultural sector and to institute a regime that monitors and enforces local content, job creation, skills and technology transfer. Economic resilience will occur when Nigeria engineers a competitive federation where state governments recognize that they have a responsibility for generating and distributing prosperity. A post COVID-19 economy is an economy without oil. This will require a mindset shift in both governance and politics; a lean, intelligent, and efficient government and responsible citizenship that is acknowledge and ready to play her role.
The Nigerian economy was already facing serious economic and developmental challenges before COVID-19. Coming out of recession and growing at 2.1% against the population growth rate of 2.6 %, the situation was dire with implications for a lower per capita income and reduced average standard of living. Inclusive growth has eluded Nigeria even when growth rates were in the range of 6-7% largely due to the sources of growth. The oil sector being dominant. The absence of intelligent, robust programs and plans of government (at all levels) which align public expenditures to effective delivery of infrastructure and social services, and provide direction to the private sector is a major contributor. A focus on short-term and partial measures meant that critical foundations for improving productivity across all the productive sectors were neglected and job-focused industrialization was not prioritized. With low productivity, real incomes were declining, and poverty was worsening. Nigeria’s output per worker according to a 2014 Mckinsey report is 57% less than the average of seven large developing countries. The government agricultural policy of putting more people and more land under cultivation, the policy of extensification instead of intensification, underscores the absence of basic understanding that what is required is how to improve yield per acre and per capita food production. In the words of the former Prime Minister of Israel, Shimon Peres, “Agriculture is 95% science and 5% labor”. This fact is often lost on our policymakers who are often not problem-solving oriented. This low productivity across sectors especially in agriculture will become a defining issue in the management of a post COVID-19 economy.
Nigeria’s urbanization has been somewhat a-typical because rather than contribute to raising productivity, it has contributed to its low productivity trajectory because urbanization has not followed industrialization. Most of the urban dwellers in Nigeria are underemployed and many eke out a living in the informal sector. There is a huge cost to informality. Increasing informality has negative consequences for GDP per capita growth. With this informality increasing and encouraged through programs like Trader-moni, the likelihood of the emergence of a structured small and medium business outfits with access to capital and potential for innovation, job creation, productivity and tax revenue diminishes. The absence of an urban-based manufacturing sector is a major factor contributing to Nigeria’s increasing poverty. The strategy for formalizing the informal sector into medium enterprises and in supporting the emergence of a more robust manufacturing sector would be critical for a prosperous and resilient post COVID-19 Nigerian economy.
The government sector was already undergoing serious stress before COVID-19. The over-reliance on oil revenue often makes both national and states budgets precarious and unimplementable. Yet, the budget is ordinarily a major instrument for managing the economy and serves as a signpost to the private sector and international business as to the direction of government policies. There is very little fiscal space because debt service is now over 60% of total revenue and the Excess Crude Account – savings for the rainy day- has been drawn down. The Federal Inland Revenue Service projected tax revenue of over 8.5trillion Naira is now but a mirage. The crash of oil price from about $65 a barrel to under $30 has invalidated the budgets of Federal and State governments. This is also coming at a time the government has implemented the minimum wage act. With very little room for borrowing, now is the time for a truly homegrown structural adjustment and an opportunity to construct an economy without oil. It would require institutional and policy coordination, rationalization of public assets and strict accountability, all of which Nigeria is not practiced at. This is no time for partial solutions or partisanship. But this will require discipline, capacity, political will, transparency and the bridging of the existing trust-deficit.
2. Managing the Post Pandemic Economy and the Opportunities
Two major areas of immediate and long-term concern:
COVID-19 has exposed how fragile and weak our health institutions and systems are both at the national and sub-national levels. The reliance on foreign treatment by the elite has shielded them from the true picture of things. President Buhari missed an opportunity to be a champion of homegrown robust health infrastructure when he returned from a 100-day treatment abroad. He could have tapped into the national sentiment and sympathy to engineer a public-private sector partnership that would have given Nigeria one or two world class hospitals. This Pandemic has provided another opportunity for the President to initiate and engineer this, tapping into domestic philanthropy, the newfound interest of high net worth individuals in providing health care facilities, the business community and Nigeria’s medical Diaspora. But more importantly, the States must be incentivized by the Federal government to come up with plans to revitalize the public health sector within their domains. These plans will of necessity place great emphasis on public health, public health education, nutrition and the management of infectious diseases with the appropriate expertise and infrastructure. The same PPP arrangements can be replicated in the States given that the economy would not able to support huge public expenditures at this time. COVID-19 pandemic and the ensuing economic crisis present State governments an opportunity to initiate state health insurance programs, especially for the poor and elderly. This would require that the Primary Healthcare Centers in the states are re-engineered and supported to meet the criteria for accessing the fund under the Basic Health Care Provision Fund established under section 11 of the National Health Act of 2014. A number of the States are currently ill-prepared to access the funds under the provision of the act. It must be recognized that before COVID-19, Nigeria has had serious Hygiene and sanitation challenges and internal epidemics of Malaria, TB, malnutrition, maternal mortality, Lassa fever still rage. Other challenges include limited access to quality care, poor service delivery and the ongoing brain drain. These challenges would remain and could get worse post COVID-19, requiring a multi-sectoral strategic approach and significant State-level efforts in coordinating both Federal, private sector and Donor assistance.
The Federal government should adopt a strategic approach with international development partners, given that donor resources would also decline. This is the time when donor coordination will have greater utility. The Federal government, the Ministry of National Planning, should produce a plan for the health sector across the states or regions that donors can key into. Donors want to be coordinated. But they want to be coordinated intelligently, purposefully, and transparently. This is the time to guide and focus their contribution and an opportunity to re-engineer Nigeria’s donor relationships. It would make sense if this is led at the highest level of government.
One critical area that Nigeria should exploit and invest in post COVID-19 is in pharmaceutical research and innovation with emphasis in translating inventions to innovations. This brokerage role of translating the products of research into products in the market can be played by government institutions such as the Ministry of Science and Technology in the absence of venture capital. There are pharmaceutical research centers and faculties of pharmacy in Nigerian universities. But they lack research support. But more importantly, they don’t get the stimulus that comes from political leadership. Yet, this leadership is critical in promoting innovation in any developing country. Some of the COVID-19 resources should be directed to some selected institutions and coordinated to work collaboratively towards producing drugs that could address COVID-19 and other diseases that are prevalent in our society. Our dependence on foreign importation of drugs limits access and cannot be sustained over the long run. There are many drugs produced from our herbs in the market with NAFDAC numbers but with a disclaimer that the efficacy of these drugs has not been verified. This is the time to equip NAFDAC and the universities to begin to verify and authenticate the safety and efficacy of these drugs. This is a worthwhile investment that would go a long way in breaking down self-doubt and knowledge dependence.
Here are some of the challenges Nigeria must contend with:
(1) Pronounced Economic Nationalism around the globe– my nation and my people first.
(2) Pandemic and its aftermath
(3) Limited fiscal space and economic uncertainty
(4) Absence of Sympathy Credit – this is a Pandemic and not a national or regional epidemic
(5) Significant reduction in foreign direct investment (especially in Nigeria’s oil and gas sector)
(6) Significant reduction in immigrant remittances (now at over $15 billion per annum) due to unemployment. This could worsen Nigeria’s poverty profile, especially in the South.
(7) Both demand and supply shocks. Demand shock will reduce domestic and foreign consumption. The supply shock will affect Nigeria’s supply chain especially that of critical imports from China and other sources – especially capital goods and raw materials.
(8) No growth or recession
The countries that would rebound and prosper post COVID-19 are countries that are creating and producing things. We are describing a transforming economy; an innovation economy. The dominance of the service sector in our economy weakens the resilience of the Nigerian economy. It has made Nigeria import dependent with a huge wholesale and retail sector that contributes significantly to this import dependence. We need to switch the expenditure of the significant middle class from foreign made goods to locally produced goods. But we must produce the goods at home first. How can we engineer inclusive growth under economic uncertainty? Two sectors are critical in this respect: Agriculture and Manufacturing. Both the Federal and state governments must be entrepreneurial in their intervention in the sectors and should use the academia and the private sector to meet capacity gaps.
There have been some significant steps taken with respect to the transformation of the Agricultural sector and in reducing food imports. The fertilizer policy of reaching the farmers directly is well thought-out. But to transform Agriculture is to raise agricultural productivity significantly. That has not happened. It will not happen for as long as Nigeria’s agricultural policy has not recognized nor invested in the knowledge and technology required to raise productivity in agriculture. The Universities of Agriculture are not seen as centers of solutions and the Agricultural Research Institutes play very little role in the agricultural policy landscape. Nigeria needs to alter the current knowledge generation-knowledge transfer infrastructure in the agricultural sector. But science-led agriculture would require specialization, scaling-up and commercialization, treating agriculture as business. Currently, 70% of Nigeria’s cultivated land is in the form of small holding with less than 2 hectares per farmer. This is a major constraint with respect to the scaling-up of technological adoption. But both technology supply and demand face significant non-technological constraints that affect access and profitability. The resolution of these constraints would require the intervention and critical thinking on the part of government. A focused and strategic use of government’s economic and financial institutions such as Bank of Industry, NEXIM, Bank of Agriculture, Raw Material Research and Development Council and others will be critical here. In order to take agriculture to the next level and produce at an internationally competitive level, the following should happen:
Organize knowledge generating and knowledge transfer institutions regionally around key crops of the regions. The Universities of Agriculture and agricultural research institutes should be mandated to lead in knowledge generation and transfer in their catchment areas. States need to retrain and deploy knowledge extension workers.
Scale-up and Commercialize agriculture by providing incentives and inviting both local and international businessmen/ women to participate (key crops can be identified). Scaling-up and commercialization are important in reducing rural unemployment and improving rural income, hence improved demand for domestic manufactured goods.
States and Regions should have Agricultural rejuvenation plans with appropriate incentives.
Federal and State Governments should bring back the Marketing Boards. These new Boards constructed under the PPP must be private sector led. The traditional roles of the Board -quality control, knowledge transfer, price stability etc. are critical now.
Investment in Post-harvest technology and cold storage facilities and linking them to the export processing zones and the Marketing Boards. Again, the Private sector can become active players here.
There should be a major plan to link agriculture to manufacturing more aggressively
To build resilience, address unemployment and poverty, Nigeria must take advantage of a Post COVID-19 economy to increase manufacturing sector contribution to GDP, from about 10 % to 30-40 %. No country has ever taking millions out of poverty without a robust manufacturing sector. The Asian economic transformation bears this out . The technological dynamism in the sector raises productivity, raises wages and income and hence leads to poverty reduction. But there cannot be robust manufacturing sector that is innovative without active government support and intermediation. I would like to suggest the following:
The Ministry of Industry must be at par with the Ministry of Agriculture in terms of budget allocation and status. Some of the budget allocation would come in handy in the resolution of first-mover disadvantages, for bridging infrastructural gaps and aggressive acquisition of “settled” technology – those mostly in the public domain that requires licensing etc. China’s rapid industrialization came with the exploitation of these “settled” technology.
These technologies if appropriately appropriated can spur rapid industrial output in the industrial clusters of Aba, Nnewi, Lagos, Ogun state and those incipient all across Nigeria yearning for government support.
Coordination failure is a major issue in the conduct of the public sector in Nigeria -Given limited resources, institutions such as the Bank of Industry, NEXIM Bank, Bank of Agriculture, Nigerian Export Promotion Council (NEPC), Raw Material Research and Development Council must bring their assets and resources to promote selected key import substitution products. The mandate of the institutions must be coordinated and synergized towards identified industrial production goals. The Central Bank of Nigeria would be required to invest its surplus in the manufacturing plan of the Federal government.
The Export processing zones needs to be reactivated and made to play a pivotal role in boosting the manufacturing sector. They can serve as enclaves and islands of infrastructure sufficiency for production of goods with huge domestic demand and export potential. Their leadership must be appropriate and accountable.
Nigeria must take advantage of the supply disruption in China and encourage Chinese investors to invest here with a program of incentives. But these investments must be on agreed terms that include a strict enforcement of technology transfer, skills-upgrading and domestic job-creation with timelines. The idea is that Nigeria must move from made in Nigeria to made by Nigerians over a specified period. This can only happen with a disciplined, committed and capable government. This attitude of government would be the same for any other foreign investor attracted to boost the manufacturing sector. The effort of the government must be supplemented by a carefully selected committee of knowledgeable individuals from both the academy and the private sector to monitor implementation and delivery.
Increasing domestic demand for locally produced goods will require strict enforcement of local content in contracting at all levels of governments. And governments must lead in patronizing made in Nigeria goods.
The government must work with the private sector and state governments to invest in the technical and vocational skills and in some instances, industry specific skills. This is where the polytechnics and engineering schools can become useful in training skilled factory hands. As a matter of State Policy, technical and vocational schools and selected manufacturing engineering disciplines should be offered with full scholarship.
Post COVID-19, the National Economic Council must be a council for how to generate jobs, raise productivity, create wealth and prosperity. States must be seen as centers of prosperity – with plans on how to transform the many natural resources of the states into manufactured goods. States can act alone but they can also present regional plans that the Federal government can incentivize.
Some of our High Net Worth Individuals (HNWI) should be encouraged to shift some of their resources from the service sector to the manufacturing sector with the Federal Government as the major partner and broker. There is currently a preponderance of investments in education and financial institutions by the HNWI.
Government must maintain policy consistency and use smart subsidies such as insurance and guarantees to promote manufacturing provided it is not done in a reckless manner.
Conclusion: Governance and the People
These two sectors will lead Nigeria’s structural change if these appropriate policies are implemented diligently. But a lot more would be required from the government sector in terms of a lean and efficient state going forward; policy and institutional coordination that addresses deep-rooted coordination failure; non-partisan capacity augmentation from the academia, research institutes and the private sector; and an acknowledgement that State governments must be held responsible for creating and spreading prosperity in their domain which makes a competitive federation an imperative. A post COVID-19 Nigerian economy is an economy without oil. It will require a major shift in mindset at the level of political leadership and citizenry to adjust to the new reality. The quality of governance and management of the economy at the State level will be key to resilience. A major re-orientation is required to instill accountability and shift politics/governance away from personal gains, corruption and wastage, and to inculcate citizen responsibility across board, including payment of taxes, community effort in support of social service provision and an acceptance of a new national ethos of meritocracy.