56822 FAST TRACKBRIEF September 15, 2008 The IEG report "Nigeria: Country Assistance Evaluation" was discussed by CODE on September 15, 2008 Nigeria: Country Assistance Evaluation The period from July 1, 1998 to June 30, 2007 (World Bank fiscal years 99-07) saw a substantial improvement in Nigeria's economic performance and outlook relative to the previous two decades, during which, notwithstanding the expanding production of oil and gas, Nigeria's social indicators deteriorated steadily and the country acquired among the worst reputations for corruption and poor governance. During its second term, the Obasanjo administration built on some actions taken previously to stabilize the economy, created an oil surplus account to prevent the fiscal instability of the earlier period, took significant steps to improve public financial management, put in place important new initiatives on corruption and transparency, and continued the privatization program. At the same time, there was little progress in tackling some of the important structural weaknesses, and consequently there have been limited outcomes for the vast majority of Nigeria's population. The improvements in the functioning of the federal government have not translated into similar improvements at the state and local government levels, where the main responsibility lies for service provision. The fundamental infrastructure problems in the supply of power and the quality of roads and water remain, and progress on achieving the Millennium Development Goals (MDGs) has been, at best, slow. In some cases there has been further deterioration in social indicators. A 2004 IEG review of the outcomes of World Bank support to Nigeria to that point rated them unsatisfactory. By 2007 the achievements of the reform team put in place during President Obasanjo's second term had began showing signs of reaping much more favorable outcomes. Given these improvements, the overall outcome of World Bank support during the latter part of the review period is assessed as moderately satisfactory, and the overall outcome of the Bank's program for the entire 10-year period is rated moderately unsatisfactory. During this period, the Bank provided important assistance to the government of Nigeria. In spite of the relatively small weight of the Bank's financial contribution given Nigeria's earnings from oil, the Bank carried a great deal of weight as a source of objective advice and as a means of influencing perceptions of Nigeria in the international community. During the period to mid-2003, however, the Bank had some difficulty in determining the role it should play. A large number of lending operations were started, often without the base of local knowledge needed for success. At the same time, the Bank was slow to invest in analytic work. With the reform team providing clear Nigerian leadership in the second term of President Obasanjo, the Bank adapted its program in many areas to provide effective support. The Bank is well placed to continue to make an important contribution to Nigeria's economic and social progress. For this to occur, it is important that the Nigerian government take all necessary steps to ensure policy continuity as well as to extend and deepen the reforms initiated over the evaluation period--this is of critical importance for the country's long-term economic success. The period since 1999 has been the longest period of percentage of the portfolio at risk was reduced from 79 democratic civilian rule in Nigeria since independence in percent in 2003 to 26 percent in 2006. 1960. During the preceding military regime of General During the president's first term, the Bank operated through Sani Abacha from 1993 to 1998, Nigeria had reached its a series of Interim Strategy Notes, with the preparation of a nadir. Corruption was rife and most economic and social full strategy document awaiting Nigeria's preparation of a indicators deteriorated over the period. During his first strategy of its own. In 2004 the Nigerian authorities term as democratically elected president, Olusegun published the National Economic Empowerment and Obasanjo moved to consolidate his political base and win Development Strategy (NEEDS) and using this as a basis, the support of the governors of Nigeria's 36 states. During the Bank prepared a joint Country Partnership Strategy his second term, the president put in place a technocratic (CPS) with the U.K.'s Department for International reform team that introduced far-reaching changes in Development (DFID). NEEDS enunciated three pillars: (a) Nigeria's planning, budgeting, and financial management changing the way government works and improving system, made a significant start on civil service reform and governance, (b) growing the private sector and focusing on took aggressive steps to deal with corruption. Most non-oil growth, and (c) empowering people and improving importantly, an effort was made to de-link Nigeria's budget social service delivery. These were fully consistent with the from fluctuations in oil revenues, which had led to extreme approach outlined in the earlier Bank strategy documents volatility and macro instability in earlier decades. and were adopted as the pillars for the CPS. This Country During the Abacha regime, the World Bank had essentially Assistance Evaluation (CAE) uses these same three pillars to closed down its operations in Nigeria. There was no new organize its review of the outcomes associated with the lending and very limited analytic work. With the return of Bank's program in Nigeria. democracy, the Bank undertook a major effort to identify and approve new investment loans to support the 800 750 IDA/IBRD Commitment Amounts development of key sectors. After the hiatus, Bank staff 700 had limited knowledge of the country and many 600 500 government officials were unfamiliar with Bank 427 422 400 322 330 procedures. While the Bank undertook analytic work in the 300 230 fiduciary areas, in some sectors operations moved ahead 200 80 174 without the necessary analytical underpinnings. A number 100 of the operations were under-prepared and overly complex, 0 2000 2001 2002 2003 2004 2005 2006 2007 with the consequence that until 2004, disbursements were Source: Business Warehouse database. slow and a high proportion of the Bank lending program was rated as being at risk. With the slow pace of reform efforts during President Obasanjo's first term there was a The Evaluation Findings great deal of frustration in the country and the Bank that a Macro Stability and Governance: The outcome of the Bank's seeming opportunity for progress was being lost. program in this area is assessed as moderately satisfactory. Both the Nigerian government and the Bank rightly judged Starting in mid-2003 with President Obasanjo's reform that better economic governance was a necessary condition team in place, the Bank geared its activities to support the for effective service delivery and poverty reduction in efforts at reform and undertook changes in its management Nigeria. Oil resources channeled through the federal and of the lending program to speed up disbursements and get state governments were being lost through corruption and improved results. An important initiative of the inefficiency, and only a small proportion was meeting the government was to secure debt relief, and the Bank assisted stated purposes of the budgets and plans. During President with analytic work demonstrating to Nigeria's creditors that Obasanjo's first term, there were some measures taken, most the level of debt servicing Nigeria was required to notably in the area of anticorruption (including, for example, undertake was not consistent with its achievement of the the establishment, with Bank and DFID support, of Millennium Development Goals (MDGs). This was a diagnostic tools--such as unit cost norms--for use in contributory factor to the decision to write off 60 percent monitoring public procurement). Nevertheless, there was no of Nigeria's debts. The Bank also supported the efforts of comprehensive strategy for improving the way government the reformers with a substantial loan for Economic worked. This came with the reform team in mid-2003 when, Governance that provided support for the budget reforms for the first time, an attempt was made to tackle public and the steps being taken to reform the civil service. sector reform on a number of different fronts. First, a Disbursements on Bank loans began to pick up, and the 2 commitment was made to macroeconomic stability by basing generators that produce power at a cost that is a multiple of the budget on a reference price for oil and putting surpluses prices in other countries. Transport is an equally important into a special account that could only be drawn on when bottleneck, with less than 20 percent of national roads rated prices fell. Second, steps were taken to increase the as being in good condition. Nigerian enterprise thus faces independence of key agencies, such as the Audit Office, the a high cost structure and at the same time low prices from Accounts Office, and the National Bureau of Statistics, to competing products as a consequence of the appreciation enable them to perform a watchdog function. Third, the of the exchange rate due to rising oil and gas export Economic and Financial Crimes Commission was earnings. established to investigate and prosecute corruption cases, The Bank has attempted to support private sector and Nigeria subscribed to the Extractive Industries development in a number of ways. One important goal has Transparency Initiative (EITI) to track transfers from the oil been to improve infrastructure. In the power sector, the Bank sector. Fourth, a start was made on civil service reform did not participate in government programs to increase through automating payroll functions in selected ministries, generating capacity, which were deemed questionable and rooting out ghost workers, and right-sizing pilot agencies often corrupt, but instead focused on much needed sector with severance payments for unqualified workers. reforms and improvements in transmission and distribution The reform made an effective start with the federal facilities. This was an appropriate strategy under the government, but the reformers ran out of time before an circumstances, and indeed, there has been some progress in effort could be made to induce the state governments to last two years on power sector restructuring and the undertake similar reforms. The states have responsibility establishment of a regulatory structure. However, the overall for most of the expenditures on service delivery, but in outcomes have been modest and the country still faces serious many states the accounts are a black box, with little power shortages. The Bank's efforts were under-scaled oversight. relative to the enormous issue that inadequate power supply The Bank supported the reform effort at the federal level represents for Nigeria. In transport the Bank held back through two Economic Reform and Governance loans. lending because of concerns that the institutional structure was The first was small and opportunistic, while the much not conducive to efficient management of the road system, larger second loan provided the reform team with the particularly for maintenance. The Bank has been pushing resources needed to lubricate the programs they were institutional reforms that are only now beginning to show introducing. These, along with high-quality fiduciary work, prospect of being adopted. The situation in the highway provided an important contribution to the reform. sector is therefore not much better now than it was in 1999. Attempts to follow a similar pattern through pilot The same is true for fixed-line telecommunications. operations in four states have had limited outcomes thus On the positive side, Bank technical assistance for far. The Bank has not yet resolved the issue of how to privatization of the ports contributed to a genuine success engage at the state level at an adequate scale to have an story that has sharply lowered waiting times in Nigerian impact over time. ports. The Bank, however, was unable to pursue the reform Creating the Basis for Sustainable Non-Oil Growth: The of customs procedures because of lack of receptivity by the outcomes of Bank support under this pillar were government. moderately unsatisfactory. The pace of non-oil growth Another element of Bank support for the private sector was during the period under review was well ahead of that support for the government's privatization program under achieved in the 1990s. A number of factors contributed to which most commercial state-owned enterprises (SOEs) were this: the spill-over from buoyant prices and production of privatized. The Bank also provided a number of studies and petroleum and gas allowed both expenditures and imports technical assistance activities on improving the business to expand without harming either fiscal or exchange rate environment for small and medium enterprises (SMEs) and, stability; the stable macro-environment and lowered most recently, a program for improving the mining sector with inflation created confidence in the business community; emphasis on artisanal mining. While each of these activities and the government was perceived to be pro-business and has merit, together they do not add up to a coherent program committed to better governance. There was, however, of support and have not so far yielded significant outcomes. slow progress on improving infrastructure and in putting in This lack of a coherent strategy for bringing together place the conditions needed to promote a sustained rate of institutions, policies, and investment programs is mirrored in non-oil growth in the years ahead. the agriculture sector. The Bank has not addressed national or In every survey of the business sector, the main constraint statewide agricultural systems and policies. Again, the Bank to growth that emerges is the inadequacy of Nigeria's was able to put in place some very successful individual infrastructure. Virtually no enterprise of reasonable size programs. In agriculture, it has operated at the community relies solely on public supplies of power, and all invest in level through a community-driven development (CDD) 3 program--the FADAMA project--which focuses on require strong management that puts the national interest agricultural investments and appears, according to a recent ahead of that of individuals and state governments. In the independent evaluation, to have yielded significant gains in fragmented context of Nigerian politics that is a very tough farm incomes. proposition to maintain. If the government shows the Social Service Delivery and Community Empowerment: The necessary leadership and successfully leverages the resources it outcomes of Bank support under this pillar are rated has at its disposal to provide incentives to state governments moderately unsatisfactory. The sustained growth during to do a better job of delivering social services, there is the the period from 1999 to 2007, due mainly to rising oil potential for real progress in reducing poverty and achieving revenues and relative internal stability, led to some decline the MDGs. in income poverty but to very little change in social During the CAE period, the Bank has taken an increasingly indicators. Social service delivery is mainly in the hands of strategic view of the challenges it faces in Nigeria, the state governments, and there is little evidence of the recognizing, for example, the primacy of finding ways of kinds of institutional development over the period that engaging at the state level, and evolving the approach of would raise the prospects for improved outcomes in future "lead states" which, while still needing to be fine-tuned, is and for achievement of the MDGs. One bright spot is the moving in the right direction. The Bank is also moving success and popularity of CDD programs. These appear to toward an effective partnership with DFID. It now needs have led to short-term income gains and a process within also to take a more strategic view of the challenges of communities for weighing priorities for development. To building institutions and developing capacity in Nigeria. take this to the next stage of making these achievements Within that strategy scope remains for the Bank to sustainable and contributing to better social service continue being flexible and taking advantage of outcomes, it will be necessary to forge better links with the opportunities that arise when institutions have committed local governments and state ministries, which are leadership. The Bank has an important role to play in responsible for providing the teachers, books, and furniture Nigeria in the long term. This is a situation where the Bank to the newly constructed schools and the health workers can make a major difference to the outcomes. But for this and pharmaceuticals to the clinics. to happen, there needs to be continued commitment by the The key to sustained rural development is agricultural Nigerian authorities to the reform agenda that was growth and natural resource management. There has been decisively set in motion earlier this decade, which IEG little progress in either of these areas. Increased prices and regards as critical to ensuring the country's long-term demand have led to expansion of area under some crops, economic success. The World Bank can then respond by notably cassava, and to production increases. But a policy deepening its engagement in selected areas of the Nigerian framework of import restrictions and input subsidies is not economy. creating the basis for the levels of agricultural growth Nigeria needs. As regards the outcome of Bank support for natural resource management, the efforts have not yet yielded substantial positive outcomes. The Bank's activities, except for the CDD programs, have been mainly at the federal level. When the objective has been to develop narrowly defined programs, such as those for attacking preventable diseases such as HIV/AIDS and polio, Bank projects have had some success. When more broadly defined across the health and education sectors, they have foundered due to the lack of focus on building institutions at the state level. Overall the outcomes of the Bank program are rated moderately unsatisfactory. In the Nigerian context this reflects an improving trend relative to a previous IEG assessment of the 2000 to 2004 period, which rated the outcome of Bank assistance as unsatisfactory. The current assessment recognizes the signal achievements in maintaining macroeconomic stability and laying the basis for more effective and cost-efficient performance of the central government. There are major risks associated with this, however. The earnings from Nigeria's oil and gas resources 4 About Fast Track Briefs Fast Track Briefs help inform the World Bank Group (WBG) managers and staff about new evaluation findings and recommendations. The views expressed here are those of IEG and should not be attributed to the WBG or its affiliated organizations. Management's Response to IEG is included in the published IEG report. The findings here do not support any general inferences beyond the scope of the evaluation, including any inferences about the WBG's past, current or prospective overall performance. The Fast Track Brief, which summarizes major IEG evaluations, will be distributed to selected World Bank Group staff. 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