89630 Nigeria Economic Report Document of the World Bank No. 2 July, 2014 Nigeria Economic Report No. 2 July, 2014 Cover photo credit: Bamidele E. Oladokun NIGERIA Economic Report II Abbreviations And Acronyms BoP Balance of Payments CBN Central Bank of Nigeria CPI Consumer Price Index ECA Excess Crude Account GDP Gross Domestic Product GHS General Household Survey HNLSS Harmonized Nigeria Living Standards Survey ILO International Labor Organization IMF International Monetary Fund MDA Ministries, Departments and Agencies NER Nigerian Economic Report NBS National Bureau of Statistics NDHS Nigeria Demographic Health Survey NNPC Nigerian National Petroleum Corporation OAGF Office of the Accountant General of the Federation PIB Petroleum Industry Bill PPP Purchasing Power Parity SWF Sovereign Wealth Fund VAT Value Added Tax NIGERIA Economic Report III Table of Contents Nigeria Economic Report ............................................................................................................1 Introductory Note .............................................................................................................1 Chapter 1: Macroeconomic Overview ..........................................................................2 Summary .........................................................................................................................2 GDP and Economic Growth ............................................................................................3 The Oil Sector ..............................................................................................................................5 The Balance of Payments ......................................................................................................6 Inflation ........................................................................................................................8 Monetary Policy ...........................................................................................................8 Government Budgets .....................................................................................9 Employment and Job Creation .............................................................................................12 Economic Outlook ......................................................................................................14 Chapter 2: Poverty In Nigeria: A Partial Reassessment ................................................16 Poverty and inequality in the GHS panel .....................................................................17 Tables Table 1: Nigeria Gross National Product (Current Prices) ..............................................4 Table 2: Sectoral Shares in Nigeria GDP: 2012 ...........................................................................5 Table 3: GDP Growth in Selected Sectors : 2011 – 2013 (New Estimates) ....................................5 Table 4: Revenues to the Nigerian Federation Account and VAT Pool ....................................9 Table 5: Federal Budgetary Performance: 2012 and 2013 .............................................................11 Table 6: The 2014 Federal Budget by MDA Relative to 2013 (Planned and Executed) ............13 Table 7: Selected Economic Indicators ........................................................................................14 Table 8: Poverty Rates Per Capita From GHS Panel Data ...........................................................17 Table 9: Gini index and consumption per capita ..............................................................19 Figures Figure 1: Decomposition of Non-Oil GDP Growth:2013 ...............................................................5 Figure 2: Nigeria Oil Production and Exports 2010 – 2012 ..............................................................6 Figure 3: Real Crude oil exports .........................................................................................6 Figure 4: Nigerian Gross Foreign Reserves ..........................................................................7 Figure 5: Gross Direct and Portfolio Foreign Investment in Nigeria: 2010 - 2013 .........................7 Figure 6: CPI and Food Price Inflation in Nigeria (year-on-year) ...................................................8 Figure 7: Balance of Nigeria’s Excess Crude Account .......................................................10 Figure 8: Number of Poor ..............................................................................................19 Figure 9: Distance from poverty line: National and Urban / Rural ...............................20 Figure 10: Distance from poverty line by Macro-Region ............................................21 NIGERIA Economic Report 1 Nigeria Economic Report Introductory Note 4. Together, these new sources of information give a clearer and more consistent story of 1. The Nigerian Economic Report (NER) is a growth and poverty reduction in Nigeria regular publication of the World Bank. Each relative to previous data. It should be edition of the NER includes a macroeconomic noted, however, that this analysis should overview and gives special attention to an be considered only partial and preliminary. additional topic of high policy relevance. The conclusions in this Report concerning poverty and living standards will need 2. In addition to macroeconomic performance, to be confirmed or refuted by the next this edition of the NER focuses on recent comprehensive household budget survey releases of new statistical information. First, (HNLSS) of 2014-2015 to be conducted newly re-based Gross Domestic Product by the NBS with assistance from the World figures indicate a larger, more diversified, and Bank and other development partners. The complex economy in Nigeria than was hitherto new re-based GDP figures may also undergo reported, with significant contributions to further refinement in the near future. growth coming from manufacturing and some services not captured in previous data. 5. This report was prepared by a World Second, Chapter 2 provides an analysis of Bank team led by John Litwack (Lead recent NBS GHS household survey data, Economist). Vasco Molini (Economist) which supports the hypothesis that the larger provided the primary analysis for Chapter NBS HNLSS survey of 2009/2010 may have 2. Contributions were also made by Gloria underestimated consumption. Joseph-Raji (Economist), and Olayinka Babalola (Economist-Consultant). Nani 3. NBS GHS surveys from 2010/2011 and Makonnen, Ifedolapo Borisade, and Helen 2012/2013 would suggest that the national Okeke provided technical support. poverty rate could be significantly lower than indicated by the earlier HNLSS, and that the dynamic of poverty reduction in Nigeria may also be stronger than previously thought. Both the new GDP numbers and GHS-based poverty numbers also support the notion that growth and poverty reduction are primarily an urban phenomenon in Nigeria. It would appear that, in rural areas, growth is slower, poverty is higher, and poverty reduction is slower. The new living standards estimates contained within also imply an even stronger divide between the North and South in Nigeria than do previous figures, with the North experiencing significantly higher poverty and, with the exception of North Central, a lack of recent progress in poverty reduction. In addition, a large number of Nigerians are clustered around the poverty line, implying a high degree of vulnerability for a large part of the population. NIGERIA Economic Report 2 Chapter 1: Macroeconomic Overview Summary 3. The oil sector remains a primary source of macroeconomic uncertainty. Given 1. Nigeria has faced recent challenges to the high dependence of the budgetary and macroeconomic management related balance of payments positions of the country to weakening oil revenues and volatile on oil, changes in prices or in the performance short-term capital flows. Gross foreign of the oil sector can have a major impact on and fiscal reserves declined steadily from the macroeconomic picture. A combination April 2013 into the first quarter of 2014. of regulatory uncertainty and increasing The Government met these challenges with security challenges in the Niger Delta have prudent fiscal, monetary, and exchange rate limited investment and output in the oil policies, which succeeded in maintaining sector in recent years. Declining oil revenues economic stability, reducing the pace of relative to the size of the Nigerian economy inflation, and contributing to investor are already necessitating fiscal adjustment. confidence and a stabilization of the balance Fortunately, the performance of the oil sector of payments position in the second quarter of and oil revenues has been stronger in the 2014. The planned Revenue Framework and first half of 2014 than during the particularly Federal Budget for 2014 suggest a resolve to difficult year of 2013. maintain fiscal prudence in light of lower oil revenues, despite growing pressures in the 4. Despite remaining risks, the prospects pre-election environment. for macroeconomic stability are generally good. The stabilization of the balance of 2. A statistical reassessment of national payments position and budgetary revenues accounts data in the form of a GDP re- in the second quarter of 2014 is welcome, basing indicates a quite different size, and could be perpetuated in part by continual structure, and sectoral distribution of signals from the Government and Central growth in the Nigerian Economy. The Bank of the maintenance of the current Nigerian economy now appears more macroeconomic policy stance. On the other diversified, with important sources of growth hand, the combination of a vulnerable current coming from manufacturing (especially account due to slow growth in (oil) exports, food and beverages) and previously combined with potentially volatile short term undocumented services (including the capital flows, imply that the macroeconomic entertainment industry). Slower assessed risks in Nigeria remain high. This situation is growth in agriculture in the newly re-based particularly vulnerable to any large shock to GDP figures is consistent with apparently oil prices or output. Accelerated growth and slow recent progress in poverty reduction in job creation, together with increased State rural areas. revenues from the non-oil economy, remain critical challenges for stability and welfare improvements over the medium and longer term. NIGERIA Economic Report 3 GDP and Economic Growth other key economic indicators. Government budget deficits now appear lower at close 5. The National Bureau of Statistics (NBS) to 1% of GDP in recent years. The fiscal announced new (re-based) numbers for space also looks larger, with sovereign debt GDP from 2010-2013. National accounts at only 10.6% of GDP. The non-oil revenues statistics in Nigeria had not been re-based received by the Federation Account and since 1990. The re-basing exercise involved VAT Pool now look particularly low at less updating the universe of firms assessed to be than 4% of GDP. Consolidated government operating in Nigeria by roughly ten times. expenditures (including the fuel subsidy) are Preliminary figures were made public in now only in the range of 15% of GDP. April, 2014, and were subsequently revised in July, 2014. The July revisions reflect 7. Table 2 indicates fundamental changes in further work on (a) supply-use tables that the structure of Nigerian GDP implied by allow for the harmonization of the production the newly re-based numbers relative to and expenditure sides of GDP, (b) GDP previous estimates. Both sets of numbers deflators, and (c) the finalization of numbers reveal an economy largely dominated by for 2013. More refinements of these numbers sectors servicing the domestic market are possible in the near future as this work (agriculture, trade, food, various services), continues, and new information coming from as well as oil and gas. However, the new comprehensive agriculture and business GDP numbers suggest a more diversified censuses conducted over the next few years and complex economy than do previous should further improve the accuracy of GDP estimates. According to the former GDP estimates for Nigeria. numbers, the three sectors of agriculture, crude oil and gas, and trade accounted for 6. The re-basing has led to a much higher as much as 85% of GDP. Now, agriculture, assessment of the level of GDP in Nigeria. oil and gas, and trade cover only half (54%) For the new base year of 2010, the assessed of Nigerian output. Sectors that received value of GDP increased by 60.7% relative significantly higher new estimates of their to previous statistics. For 2011, 2012, and shares in GDP include telecommunications, 2013, the assessed increases in the level real estate, manufacturing, construction, of Nigerian GDP were 68.3%, 76.9%, and and entertainment. The higher share 88.9%, respectively (Table 1). The new of manufacturing in Nigerian GDP is GDP numbers imply that Nigeria had a encouraging, and this is due in part to the gross national product of US$ 509 billion previously under-accounted food industry in 2013, making it the largest economy in (4.4% of GDP). From the rebasing, the share Africa and the 26th largest economy in the of the oil sector has fallen to 15.8%, less than world. The higher level of GDP in Nigeria agriculture (22.1%) and trade (16.5%). also changes the assessments of a number of Table 1: Nigeria Gross National Product (Current Prices) Million Naira (Million US$) Previous 33984754.13 37409860.61 40544099.94 42396765.71 ($226112.80) ($241759.47) ($258555.58) ($269515.22) New 54612264.18 62980397.22 71713935.06 80092563.38 (re-estimates) ($363355.05) ($407007.86) ($457330.12) ($509146.50) Percentage Increase 60.70% 68.35% 76.88% 88.91% NIGERIA Economic Report 4 Table 2: Sectoral Shares in Nigeria GDP: 2012 important source of exports other than oil A Comparison of Newly Re-Based and Older GDP and gas. Growth in trade and transportation Estimates slowed notably in 2012, but revived in New Old 2013. This likely reflects the particular Agriculture 22.1 33.1 challenges that these sectors faced in 2012: higher transportation costs (reduction in the Crude Oil and Gas) 15.8 37 fuel subsidy), a national strike, heightened Trade 16.5 15.5 security challenges in many parts of the Manufacturing 7.4 1.9 country, and severe flooding in a number of of which food & tobacco 4.4 - regions. Construction 3.1 1.3 Transportation 1.3 1.6 Table 3: GDP Growth in Selected Sectors : 2011 – 2013 Telecommunications 8.3 0.8 (New Estimates) Electricity and Gas 0.5 0.2 A Comparison of Newly Re-Based and Older GDP Estimates Finance and Insurance 2.8 1.6 2011 2012 2013 Real Estate 7.7 4.5 Entertainment, Broadcasting, 2.0 - Total 5.3 4.2 5.5 Motion Pictures, Music Non-Oil GDP 5.8 5.8 8.4 Public Administration 3.1 - Agriculture 2.9 6.7 2.9 Prof., Scientific, and tech. services 3.7 - Crude Oil and Gas 2.3 -4.9 -13.1 Other 5.7 2.5 Manufacturing 17.8 13.5 21.8 Source: NBS including food, beverages, 7.3 6.6 11.8 tobacco Electricity, Gas, and Utilities 39.5 14.6 14.6 8. The magnitude and structure of growth Construction 15.7 9.4 14.2 in the Nigerian economy in the newly Trade 7.2 2.2 6.6 re-based GDP figures also demonstrate Transportation 6.0 -3.4 3.8 some major differences from previous Telecommunications and Info 1.2 3.7 4.7 estimates (Table 3). GDP growth for 2011, Services 2012, and 2013 in Nigeria is now assessed at Entertainment, Broadcasting, 10.5 1.9 24.1 5.3%, 4.2%, and 5.5%, respectively. Non-oil Movies, Music growth accelerated to an estimated 8.4% in Real Estate 0.4 5.6 12.0 2013, but the strong decline in oil and gas Source: NBS (-13.1%) brought down the overall growth rate for the year. The re-based GDP numbers 9. The slower pace of growth in agriculture reveal much less concentration of growth in in the new GDP estimates is consistent agriculture and telecommunications since with what appears to be slow progress 2011 than had been estimated previously, in poverty reduction and welfare and prescribe higher growth to many other improvements in rural areas in Nigeria. sectors. Notably, this includes manufacturing Previous estimates of average annual growth and the large Nigerian food industry. A in (small scale) agriculture of close to 6% number of sectors in manufacturing other appeared inconsistent with slow poverty than food (plastics and rubber, chemicals, reduction in rural areas. This poverty/ metals) also have high newly estimated growth puzzle was highlighted in the growth rates, although the share of these previous Nigeria Economic Report of 2013. sectors other than food in GDP is still quite Following the rebasing, the average annual small. Plastics and rubber products posted growth in agriculture from 2011-2013 is annual growth rates over 30% during 2011- now assessed at 4.2%. Growth in agriculture 2013. Although this sector still accounts was estimated at 2.9% in each of 2011 and for less than 1% of GDP, it has been an 2013. Considering that population growth NIGERIA Economic Report 5 in Nigeria is believed to be close to 3%, the The Oil Sector new estimates are more consistent with what appears to be persistently high rural poverty. 11. While the re-basing has reduced the estimate of the share of oil and gas in 10. The more diversified structure of Nigerian GDP, this sector still accounts for a GDP and the sectoral growth rates in strong majority of exports and budgetary Table 3 imply a more complex story of revenues in the country, and is therefore GDP growth in the country. Figure 1 critical to macroeconomic and budgetary illustrates the new implied structure of non- stability. The oil sector has faced a number oil GDP growth for the year 2013. This of challenges in recent years in slower output can be contrasted with previous estimates growth, vandalism and theft, an uncertain that assigned 80% of GDP growth to the regulatory environment, and low levels of three sectors of trade, agriculture, and investment. The Petroleum Industry Bill, telecommunications. As in past estimates, which was intended to clarify and improve the share of trade remains significant, but regulatory conditions in the industry, has has fallen to 13% of non-oil GDP growth. still not been passed into law in light of Manufacturing now emerges as the single long standing controversies surrounding largest contributing sector to non-oil GDP various PIB drafts under consideration in the growth in 2013 (22.1%). Real Estate is National Assembly. the third largest contributor at 11%. The contribution of agriculture is similar to 12. 2013 was a difficult year for the oil and gas that of the entertainment, broadcasting, sector. Figures provided by the National Oil movies, and music (7%). Nollywood and the Company (NNPC), the Central Bank, and entertainment industry are now thus properly the Accountant General of the Federation recognized as a significant contributor to show oil output and exports to be in steady GDP growth. A large share of non-oil GDP decline since 2010. 2013 was a particularly growth (26%) comes from “other” sectors difficult year, as several pipelines were that comprise mostly services of various temporarily shut down in light of problems types. related to oil theft. The output of natural gas was also affected, which had Figure 1: Decomposition of Non-Oil GDP Growth:2013 repercussions for electricity production. NNPC assesses crude oil output in 2013 to 9 Manufacturing have averaged 2.18 million 8 Trade barrels a day, 5.8% lower 1.9 Real Estate than the average of 2.39 7 Entertainment, million barrels a day in 2012, Broadcasting, Movies, 6 1.1 Music and 9% lower than levels 5 achieved in 2010 (Figure 2). 0.9 Agriculture The declining trend concerns 0.6 Construction 4 0.6 exports, as the crude oil Telecommunications 3 0.5 handled domestically by Finance 0.4 0.2 NNPC has remained at 2 Other 450,000 barrels a day. The 1 2.2 very strong decline of 13.1% for the oil and gas sector 0 GDP Growth 2013 reported in the GDP data above may reflect rising unit Sources: NBS, World Bank calculations costs in the industry due to heightened security concerns NIGERIA Economic Report 6 that could cause value added in oil to fall The Balance of Payments faster than output. 14. Following a difficult first part of the 13. While the decline in oil output in 2013, year, the Nigerian balance of payments together with weaker oil prices, is position stabilized in the beginning of the consistent with severe shortfalls in oil second quarter of 2014. The confidence of revenues to the Federation, as discussed investors improved, prompting Fitch to issue below, trade data tell what might appear a “stable” rating for the country in April. to be a different story. Available export Money demand stabilized and gross external reserves remained at roughly US$ 38 billion during April and early May. They declined Figure 2: Nigeria Oil Production and Exports to $37 billion by June, but then increased 2010 – 2012 (Million Barrels a Day: Average) back to US$ 38 billion in early July. This 3.0 stabilization came after the Naira had come 2.5 Domestic market under some pressure earlier in the year. 2.0 1.5 Exports 1.0 Figure 3: Real Crude oil exports 0.5 0.0 2010 2011 2012 2013 120.0 100.0 80.0 Sources: Central Bank and NNPC 60.0 40.0 20.0 0.0 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 data (FOB/FOB) from the balance of payments would also suggest stronger export performance than indicated by Figure 2. Sources: Central Bank BoP data According to this data, the dollar value of oil exports actually increased slightly in 2013 relative to 2012. Since the average export 15. After a period of surplus from September price (Bonny Light) received by Nigerian 2011 to March, 2013, the balance exporters was weaker in 2013 ($111 dollars a of payments moved into deficit for barrel) than in 2012 ($114), this would imply approximately one year through March, an increase in real oil exports in 2013 by 2014. During this time, the gross foreign roughly 3.5%. As shown in Figure 3 below, reserves of the country declined from US$ the customs-based export data for oil are 49 billion to US$ 38 billion (Figure 4). The largely consistent with the negative dynamic breakdown in balance of payments data in documented in Figure 2, with the notable Nigeria is difficult to interpret, due to very exception of very high oil exports reported in large negative errors and omissions that customs data for the second quarter of 2013. include both hidden imports and capital One possible explanation for the discrepancy flows. However, it would appear that in the customs export data and the export data underlying pressures have been coming from reported by NNPC and the Central Bank is the current account due to higher growth in that a larger share of the 450000 barrels a day imports than (oil) exports. Since the second received by NNPC for the domestic market half of 2013, pressures also came from a could have actually been exported. Indeed, weakening capital account. The pace of some of this oil is reportedly exported, reserve depletion increased in early 2014. At including as part of swap agreements for that time, auctions of hard currency by the imported refined petroleum. This question Central Bank at the official exchange rate should receive further clarification. were consistently oversubscribed, leading to much higher interbank and street exchange rates. NIGERIA Economic Report 7 16. Other than slow (negative) growth in oil portfolio inflows were a major reason why exports, the primary balance of payments the Nigerian balance of payments slipped development in Nigeria in recent years into deficit in the second half of 2013 and concerns portfolio investment. The the Naira came under increasing pressure. combination of commitment by the Central Despite weakening oil exports, the huge Bank to a high degree of exchange rate portfolio inflows in the second half of stability and double digit interest rates has 2012 and first half of 2013 kept the balance made Nigeria a major destination for portfolio of payments in surplus. However, this changed as of the second Figure 4 : Nigerian Gross Foreign Reserves half of 2013. Potentially highly volatile short-term (US$ billions) 60.000 capital flows present an 50.000 additional macroeconomic 40.000 risk to Nigeria since 30.000 2012. The Central Bank 20.000 has been considering 10.000 adjustments in its policies 0.000 that could reduce volatility 22-Dec-11 22-Jan-12 22-Feb-12 22-Mar-12 22-Apr-12 22-May-12 22-Jun-12 22-Jul-12 22-Aug-12 22-Sep-12 22-Oct-12 22-Nov-12 22-Dec-12 22-Jan-13 22-Feb-13 22-Mar-13 22-Apr-13 22-May-13 22-Jun-13 22-Jul-13 22-Aug-13 22-Sep-13 22-Oct-13 22-Nov-13 22-Dec-13 22-Jan-14 22-Feb-14 22-Mar-14 22-Apr-14 22-May-14 22-Jun-14 in portfolio investment flows. Source: CBN investors since the second half of 2012. As 17. The stabilization of foreign reserves shown in Figure 5, estimated gross portfolio reflects greater confidence among investment to Nigeria amounted to US$ 2.5 investors. Following a year of decline, billion in 2011, but the size of these inflows foreign reserves stabilized in April-May, mushroomed to US$ 17.2 billion in 2012 and 2014 in the context of improved confidence US$ 20.3 billion in 2013. After investing an of investors. The precise causes of this estimated US$ 13.3 billion in Nigerian debt stabilization will need to be assessed further and equity in the first half of 2013, investors when more data becomes available. Yet became visibly more cautious in the second the partial stabilization of expectations half of the year, limiting gross portfolio of investors concerning oil prices, fiscal inflows to US$ 7 billion. Gross reported policy, and the commitment of the Central portfolio outflows also increased somewhat Bank to defending the exchange rate is in the second half of 2013, amounting to clearly important. Expectations about the close to US$ 3 billion. Thus, declines in performance of the oil sector have improved Figure 5: Gross Direct and Portfolio Foreign Investment in Nigeria: 2010 - 2013 (US$ billions) 20.0 Portfolio 15.0 investment 10.0 Direct 5.0 0.0 2010 H1 2010 H2 2011 H1 2011 H2 2012 H1 2012 H2 2013 H1 2013 H2 Source: CBN BoP statistics NIGERIA Economic Report 8 in general, bolstered by increases in oil commercial banks with a low risk and high revenues accruing to Government. return asset during the recovery from the banking crisis of 2009. On the other hand, Inflation with the high degree of enforced exchange rate stability relative to the US dollar, interest Inflation has continued its general 18. rates in Nigeria have been quite high by downward trend in line with tighter international standards. As indicated above, macroeconomic policy since 2011. The this has attracted a large amount of portfolio rate of CPI inflation remained high in 2012 capital to the country since 2012, which is (12%) due largely to non-monetary factors, potentially unstable. It has also arguably including increases in administrative prices, slowed the recovery and expansion of credit a national strike, and severe flooding in some to the private sector of the economy. The regions. CPI inflation fell to 8% in 2013, and expansion of commercial credit to the private has remained in this range in the first half sector outpaced inflation for the first time in of 2014. Upward pressure on food prices 2013 since the 2009 banking crisis, but the prevented what would have been lower real rate of credit expansion was still quite inflation in early 2014. modest at 2.4%. The general policy goal of the Central Bank is thus to bring down interest Monetary Policy rates in line with the reduction of inflation, 19. The new Central Bank Governor assumed but not so quickly as to adversely shock the office in June, 2014 and has emphasized expectations of investors or profitability of a high degree of continuity in the pursuit the banking sector. of monetary policy. This includes a high degree of exchange rate stability and a goal Government Budgets to gradually reduce interest rates along with 21. The implementation of government progress in bringing down inflation. The budgets faced challenges in 2013 due Central Bank will also continue programs to significantly lower revenues than aimed at assisting development in priority programmed and, in the case of the sectors of the economy. Federal Government, late passage into law of the annual budget. As indicated in Table 20. Interest rate policy has been a source of 4 below, despite a benchmark price ($79 some debate within Nigeria. On the one dollars a barrel) that was much lower than hand, maintaining the base interest rate at the market price, revenues to the Federation 12% has arguably assisted in bringing down for sharing among Government budgets inflation. The associated high yields on came in at 23.5% below planned levels in government debt have also provided Nigerian the Revenue Framework. The extent of the decline in Government oil Figure 6: CPI and Food Price Inflation in Nigeria (year-on-year) revenues in 2013 has been a source of controversy 25.0 in Nigeria, and motivated 20.0 the launching of a forensic 15.0 investigation of NNPC. In addition to weaknesses in 10.0 oil exports and prices, the 5.0 decline in Government 0.0 yields of oil revenues can Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr also be related to changes 2008 2009 2010 2011 2012 2013 2014 in the nature of oil contracts Source: NBS NIGERIA Economic Report 9 in Nigeria. 1In previous years, higher-than- The average monthly receipts of oil revenues programmed oil revenues, reflecting a to the Federation Account increased to N594 conservative benchmark price, compensated billion in the first five months of 2014, as for typically over-projected revenues from compared with N338 billion in 2013. Non- other sources. In 2013, however, due to lower oil revenues reached only 67.1% of their oil output, oil revenues to the Federation planned levels during Jan.-June, 2014, Account were 24.4% below program. This however. The overall revenue framework put pressure on the Excess Crude Account was nevertheless over fulfilled by 12.6%. In (ECA fiscal reserve) that compensates for the context of higher oil revenues, the Excess such revenue shortfalls. Withdrawals to Crude Account accumulated back to US$ 3.6 cover revenue shortfalls to Federal and State billion by April. Budgets decreased the ECA balance from $9.2 billion at the beginning of 2013 to $2.1 23. The execution of the 2013 Federal Budget billion as end-January, 2014. In the second was hindered by the delay in the signing half of 2013, due to concerns over the pace into law of an amendment to the original of depletion of the ECA, the Government 2013 budget. The original budget was signed decided to refrain from compensating by the President on the 26th of February, completely for revenue shortfalls to budgets. 2013 but according to the Executive arm of government, several key items of expenditure 22. The implementation of the revenue were excluded from the Appropriation framework improved notably in the first Act, and it was necessary to address these five months of 2014. As indicated in Table omissions through an amendment to 4, oil revenues to the Federation Account the budget. The amendment budget was in January-May, 2014 reportedly exceeded submitted to the National Assembly by the planned amounts by 39%. This reflects both Executive on the 14th of March 2013. It was more conservative planning for oil revenues finally passed into law on the 26th of July, in the 2014 budget (see below) and significant 2013 following debates and negotiations increases in oil revenues accruing to the State. between the Executive and the National Table 4: Revenues to the Nigerian Federation Account and VAT Pool (N billions) 2013 Total Planned Actual Shortfall % Fulfilment Oil revenues 5.8 5.8 8.4 75.6% Non-oil revenues 2.9 6.7 2.9 75.2% of which customs 2.3 -4.9 -13.1 48.4% of which VAT 17.8 13.5 21.8 84.2% Total 7.3 6.6 11.8 76.5% Jan-May, 2014 Oil revenues 2142 2971 -829 139.0% Non-oil revenues 1235 832 403 67.3% of which customs 326 203 123 62.2% of which VAT 338 329 9 97.2% Total 3377 3803 -426 112.6% Source: OAGF On the subject of decreasing yields, see IMF (2014) Box 2, pp. 44 (http:// 1 www.imf.org/external/pubs/ft/scr/2014/cr14103.pdf) NIGERIA Economic Report 10 Assembly. A total amendment budget of Mirroring 25. the unexpectedly low N4.987 trillion was approved, comprising performance of Federation revenues, a capital budget of N1.592 trillion and federal budgetary revenues also fell short recurrent spending of N3.396 trillion. of expectations in 2013, despite coverage by the ECA of a good part of the shortfalls. 24. Due to the late passage of the original Some expenditure items were not fully 2013 budget, capital warrants for the funded. In particular the capital budget was release of funds in the first quarter of the significantly underfunded, while recurrent year for execution of the capital budget expenditures and statutory transfers were were reportedly only issued on the 31st almost fully funded (Table 5). Actual capital of March, thus delaying implementation spending in 2013 was 60% of planned. The of the capital budget. However, there were federal budget deficit for 2013 of 738.9 no delays to recurrent spending. In the first billion Naira was 17% lower than projected 7 months of the year, the 2013 budget was and amounted to one percent of (re-based) implemented on the basis of the original 2013 GDP. budget. With the approval of the amendment budget, adjustments were made to bring total budgetary releases in the fiscal year in line with the new budget. The 2013 amendment budget was based on expected GDP growth of 6.5 percent, a 12.9 percent inflation rate, an oil benchmark price of US$79 per barrel, an oil production target of 2.526 mbpd and a Naira/US$ exchange rate of 160. Figure 7: Balance of Nigeria’s Excess Crude Account (End Year US$ billions) 25 20 15 10 5 0 2008 2009 2010 2011 2012 2013 Source: OAGF Table 5: Federal Budgetary Performance: 2012 and 2013 11 In Billions of Naira Billions of Dollars NIGERIA Economic Report 2012 2013 2012 2013 FGN Budget Actual Actual as share Budget Actual Actual as share Budget Actual Budget Actual as share Budget Actual Budget Actual as share Budget of budget (%) Budget of budget (%) (Jan Sept) of budget (%) (Jan-Sept) of budget (%) Revenue Share of Federation Account 2,656.43 1,933.60 73% 3,228.12 2,935.17 91% 16.60 12.09 73% 20.18 18.34 91% (48.5%) Share of VAT Pool (14%) 107.90 70.74 66% 127.05 106.93 84% 0.67 0.44 66% 0.79 0.67 84% Independent Revenue 446.78 123.22 28% 455.78 274.35 60% 2.79 0.77 28% 2.85 1.71 60% Others1 349.90 456.46 130% 289.23 505.45 175% 2.79 2.85 130% 1.81 3.16 175% Total Inflows 3,561.02 2,584.03 73% 4,100.18 3,821.91 93% 22.26 16.15 73% 25.63 23.89 93% Expenditure Non-debt Recurrent 2,425.05 1,791.19 74% 2,415.74 2,386.83 99% 15.16 11.19 74% 15.10 14.92 99% Expenditure Personnel Costs 1,805.43 1,382.42 77% 1,718.23 1,861.04 108% 11.28 8.64 77% 10.74 11.63 108% Overheads 619.62 408.77 66% 697.52 525.79 75% 3.87 2.55 66% 4.36 3.29 75% Debt Service 559.58 490.67 88% 591.76 828.10 140% 3.50 3.07 88% 3.70 5.18 140% Statutory Transfers 372.59 235.53 63% 388.05 387.87 100% 2.33 1.47 63% 2.43 2.42 100% Capital Expenditure 1,339.99 445.56 33% 1591.66 958.00 60% 8.37 2.78 33% 9.95 5.99 60% Total Outflows 4,367.21 2,962.94 63% 4,987.22 4,560.81 91% 28.36 18.52 63% 31.17 28.51 91% Fiscal Balance (1,136.19) (378.92) 33% (887.04) (738.90) 83% (7.10) (2.37) 33% 5.54 (4.62) 83% Financing Items 1,136.19 939.38 83% 887.04 1,207.64 136% 7.10 5.87 83% 5.54 7.55 136% Domestic Borrowing 744.44 694.29 93% 577.04 706.74 122% 4.65 4.34 93% 3.61 4.42 122% Sharing from ECA 306.76 163.59 53% 225.00 195.86 87% 1.92 1.02 53% 1.41 1.22 87% Others2 85.00 81.50 96% 85.00 305.04 359% 0.53 0.51 93% 0.53 1.91 359% Source: OAGF NIGERIA Economic Report 12 26. The 2014 budget and 2014-2016 Medium Employment and Job Creation Term Fiscal Framework, which were first submitted in draft form to the National 28. The National Bureau of Statistics (NBS) Assembly in September, 2013, propose a has temporarily ceased publishing figures significant budget tightening in light of on unemployment in Nigeria, pending a recent problems on the revenue side of decision on the adoption of a new official the budget. The 2014 budget lowers the methodology. Previous official estimates of projection of oil production to 2.39 million unemployment increased steadily to 23.9% barrels a day, as opposed to 2.53 million of the active labor force by 2011. However, in the 2013 budget. A benchmark price has the official definition of unemployment was been set at US$ 77.5 a barrel. Due to these quite unusual, including all members of the assumptions, oil revenues for 2014 are work force who had not worked 40 hours programmed at 7.6% lower than in 2013, during the previous week. This definition, thereby implying a budgetary tightening which was adopted in 2001 by the National at federal and subnational levels. Federal Consultative Committee on Statistics, is expenditures for 2014 are planned at 6% currently in the process of being revised. lower in nominal terms than in the 2013 Federal Budget. 29. The NBS is now monitoring job creation in the country. A survey conducted by the 27. The 2014 Federal Budget imposes nominal NBS revealed that the Nigerian economy cuts of 30% in capital budget allocations generated 1,167,740 jobs in 2013. Fifty four relative to the Federal Budget of 2013, percent of these jobs were created in the but planned capital spending is still 16% informal sector, 37% in the formal (private) higher than the actual executed capital sector, and 9% in the public sector. The budget in 2013. As shown in Table 6, if fastest growth in job creation in the formal fully implemented, the 2014 Federal Capital sector came from trade, real estate, and Budget will actually exceed the executed 2013 housing services. Federal Capital Budget by 16%. The 30% cuts in planned federal capital allocations in The unemployment rate in Nigeria 30. 2014 relative to the 2013 Budget vary from according to a usual (ILO) definition is 17.5% (Health) to 47.9% (Ministry of Police likely lower than 10%.2 This is the conclusion Formations and Command). As indicated in that comes from unofficial assessments, Table 6, however, if the 2014 capital budget including that of the NBS, and does not would be executed 100%, capital spending contradict the fact that the scarcity of jobs is would actually increase by more than 40% economic problem number one in Nigeria. in each of the key Ministries of Health, As in many other developing countries, most Education, Agriculture, Transport, Water, Nigerians cannot afford to be completely Power, Science and Technology, and Works. unemployed. Those without good productive Planned Federal capital spending in 2014 employment therefore typically engage in is lower than the executed Federal Capital various low productivity and low paying Budget in 2013 only for the Ministries of tasks for survival. The employment problem Aviation, Defense, and Police, as well as in Nigeria may be better understood as an “Other MDAs, Commissions, and State underemployment problem corresponding Bodies.” Capital budget implementation to a scarcity of high productivity jobs, and during the first quarter of 2014 was in many cases of highly qualified candidates reportedly slow, with only N 165.5 billion of to fill those jobs. These additional jobs and an annual capital budget of N1119.6 billion being released, and N 107.6 billion utilized 2 The internationally accepted ILO definition of unemployment concerns members of the active labor population who are looking for work, and were by MDAs. available for work, but did not work, during a previous reference period (often one week). Table 6: The 2014 Federal Budget by MDA Relative to 2013 (Planned and Executed) 13 APPROVED 2014 BUDGET NIGERIA Economic Report Allocations to Ministries, Departments and Agencies (MDAs) 2014 S/N MDA RECURRENT CAPITAL TOTAL 2014 2014 TOTAL 2014 MDA CHANGE CHANGE IN CHANGE IN ALLOCATION RECURRENT RECURRENT ALLOCATION IN TOTAL CAPITAL CAPITAL BUDGET AS SHARE AS SHARE AS SHARE OF BUDGET 2014 BUDGET (2014 (2014 BUDGET TO OF MDA OF MDA NATIONAL BUDGET TO BUDGET TO 2013 2013 EXECUTED ALLOCATION ALLOCATION BUDGET 2013 BUDGET) BUDGET) BUDGET) Billions of Naira % Percentage 1 Ministry of Health 214.95 49.54 264.48 81% 19% 6% -6.4% -17.5% 48.5% 2 Ministry of Education 373.53 50.78 424.31 88% 12% 9% -3.0% -28.7% 49.1% 3 Ministry of Agriculture 31.49 35.55 67.04 47% 53% 1% -20.0% -29.9% 42.7% 4 Ministry of Transport 8.19 31.81 40.00 20% 80% 1% -24.3% -28.6% 59.5% 5 Ministry of Water Resources 7.71 44.21 51.91 15% 85% 1% -41.2% -45.0% 47.3% 6 Ministry of Power 3.40 59.81 63.21 5% 95% 1% -18.5% -18.5% 51.2% 7 Ministry of Mines & Steel Development 10.58 2.18 12.76 83% 17% 0% -7.0% -35.6% 12.6% 8 Ministry of Petroleum Resources 55.71 6.22 61.93 90% 10% 1% 1.7% -27.5% 145.5% 9 Ministry of Aviation 6.15 26.16 32.31 19% 81% 1% -41.1% -45.9% -8.1% 10 Ministry of Science & Technology 23.92 13.01 36.94 65% 35% 1% -4.5% -20.4% 68.4% 11 Defence/MOD/Army/Air force/ Navy 314.35 35.36 349.71 90% 10% 7% -4.0% -40.3% -11.2% 12 Ministry of Police Formations & Command 295.56 7.34 302.90 98% 2% 6% -3.7% -47.9% -8.4% 13 Ministry of Youth Development 75.96 5.04 80.99 94% 6% 2% -7.3% -37.6% 28.1% 14 Ministry of Works 27.41 106.32 133.73 20% 80% 3% -30.1% -35.4% 45.6% 15 Ministry of Environment 14.14 8.97 23.11 61% 39% 0% -15.2% -33.3% 185.2% 16 Allocation to other MDAs, Commissions and State bodies 502.56 242.87 745.43 67% 33% 16% -11.0% -28.7% -38.5% 17 Allocation for Debt Service n/a n/a 712.00 n/a n/a 15% 20.3% n/a n/a 18 Allocation for Statutory Transfers n/a n/a 408.69 n/a n/a 9% 5.3% n/a n/a 19 Consolidated Revenue Fund Charges (Service Wide Votes, 489.29 394.44 883.73 55% 45% 19% -11.1% -26.2% 76.5% Capital Supplementation, Pension & Gratuities) Grand Total 2,454.89 1,119.61 4,695.19 52% 24% 100% -6% -30% 16% Source: OAGF NIGERIA Economic Report 14 qualifications need to be created in Nigeria unlikely in 2014. through accelerated private sector growth in the cities and improvements in the country’s 32. Nevertheless, Nigeria is still in a somewhat education system. vulnerable macroeconomic position, with much depending on the performance of Economic Outlook the oil sector and commodity prices. A negative shock to oil revenues would also 31. The short term economic outlook in Nigeria adversely affect the expectations of portfolio looks cautiously optimistic, although with investors, with further short term balance of significant remaining risks. The on-going payments implications. On the positive side, recovery in the oil sector should give GDP in addition to the perceived resolve of the growth a boost in 2014 relative to the past Government and Central Bank to maintain two years. The twin deficits in the balance of a prudent macroeconomic policy stance, payments and general government financial the strong reserve and debt positions of the position during most of 2013 and early 2014 Nigerian Government imply still significant had raised some concerns, but trends since space. Although the balance of the ECA the second quarter of 2014 have been more is still quite low, Nigerian sovereign debt positive. The foreign reserve position of the stands at only 10.6% of (re-based) GDP, and country stabilized, oil revenues increased, external debt at 1.7%. Changes in monetary the Excess Crude Account experienced policies in the US and other developed an augmentation, and investor confidence countries could also trigger changes in net improved. The resolve with which the portfolio investment flows to Nigeria. Nigerian Government adjusted its budgetary and fiscal plans downward in light of falling oil revenues, despite pre-election pressures in the other direction, sent an important signal to markets that the kind of pre-election fiscal loosening that preceded the 2011 elections is Table 7: Selected Economic Indicators 2011 2012 2013 2014* GDP Growth (%) 5.3 4.2 5.5 7.4 Inflation Rate (CPI Dec/Dec, %) 10.3 12.0 8.0 7.5 General Government Budget Balance (% of GDP) -1.3 -1.1 -2.4 0.5 Federal Government Budget Balance (% of GDP) -1.6 -1.4 -1.0 -1.0 Fiscal Reserves (ECA/SWF) US$ b 4.6 8.6 3.0 6.0 Gross Monetary Reserves ($ b) 32.6 46.0 43.6 40.0 Nominal Exchange Rate (N/US$), eop 158 157 158.0 159.0 Sovereign Debt (% of GDP) 9.7 10.3 10.6 10.6 External 1.3 1.4 1.4 1.7 Domestic 8.4 8.9 9.2 8.9 Commercial Credit to the Private Sector (% of GDP) 15 15 14 16 Note: General Gov. balance includes Federal, State, Local, Extra-Bdg Funds, Fuel Subsidy, Net Change in ECA * Projections Note: Estimates as shares of GDP use new re-based GDP numbers NIGERIA Economic Report 15 33. Over the medium and longer term, output are currently uncertain. Maintaining Nigeria’s future prosperity will depend or increasing the finance of public services critically on improvements in non-oil in Nigeria will entail rapid growth of non-oil growth and non-oil government revenues. sources of revenues. The Nigerian economy While Nigeria still possesses substantial oil has experienced substantial economic growth and gas reserves, oil revenues will likely in recent years. The quality and quantity of continue to shrink relative to the size of this growth has nevertheless proved so far the Nigerian economy over the medium insufficient to generate the productive jobs term. As concluded in the previous Nigeria needed by a young and rapidly growing Economic Report, this should occur even population. Chapter 2 of this Report, which in the event of an optimistic scenario with examines patterns in poverty and living respect to oil output and prices. However, standards in Nigeria, supports the primary current consensus expectations are for importance of urban growth for achieving weaker oil prices over the medium term, and this goal. the prospects for a sustained recovery in oil NIGERIA Economic Report 16 Chapter 2: Poverty In Nigeria: A Partial Reassessment Recently announced re-based GDP 34. survey in early 2010 relative to the second figures that increase the estimated size of half of 2009 that would seem to have little the Nigerian economy have again drawn economic rationale. The newly re-based attention to official poverty statistics. GDP numbers increase suspicions in this Data from the last comprehensive household regard, as the average level of consumption survey (NHLSS) in 2009/2010 indicated that reported in this survey would appear to be the official poverty rate3 remained stubbornly inconsistent with the newly estimated size of high at 46% of the population (adult the Nigerian economy. equivalent approach)4, or 62% in strictly per capita terms. This indicates only a slight This Chapter provides a partial 36. decline from 48% and 64%, respectively, reassessment of poverty in Nigeria based that were recorded from the NHLSS in on recent information. This note makes 2003/2004. These poverty numbers raise two use of new National Bureau of Statistics major economic questions. Firstly, why has (NBS) data has become available on the the rapid economic growth in Nigeria not web from two smaller General Household generated greater poverty reduction? Second, Surveys (GHS) in panel format6 conducted how could an economy of the size and wealth in 2010/2011 and 2012/2013. It should be of Nigeria have such high poverty rates? emphasized that this reassessment is only a The country’s performance is at odds with very partial analysis, and its confirmation or the general international trend of poverty refutation will need to come from the next reduction, in particular in other countries comprehensive HNLSS in 2014/2015 by experiencing rapid economic growth like NBS. Nigeria. 37. For the GHS-panel survey used for the It appears increasingly likely that 35. estimations below, 5000 households were consumption of Nigerians was interviewed. The sample is representative at underestimated in the 2009/2010 NHLSS. the macro-regional level in the same sense A World Bank report of 20135 raised the as the HNLSS. It is not representative at the hypothesis that consumption may have been State level, however. There are also some significantly underestimated in the 2009/2010 important differences in methodology that NHLSS. This report noted an unusual sharp prevent the direct comparison of results from decline in monthly consumption in this the GHS with the HNLSS. For example, the HNLSS gathers consumption data from households for an entire year, whereas the The national poverty line in 2010 was about 53674 Naira based on GHS covers activities only at two times: post 3 consumption of 3000 calories a day. 4 The adult equivalent approach accounts for the fact that children need less planting (Sept.-Oct.) and post harvesting calories than adults. (April-May)7. In addition, consumption 5 See “Where Has All the Growth Gone? A Poverty Update for Nigeria” WB. 2013. data were collected for the GHS using a 6 The same households were interviewed in both rounds 7-day recall period, whereas the HNLSS 7 Consumption figures were averaged over the two visits in order to proxy households’ annual consumption patterns irrespective of seasonal variations. uses a diary. To calculate final aggregates, Averaging consumption over the two visits has one important limitation in consumption figures were averaged over reducing substantially the standard deviation of the distributions. Therefore,the Gini index and all the inequality measures should be considered as lower the two visits in order to proxy households’ bound estimates. annual consumption patterns irrespective of NIGERIA Economic Report 17 seasons, and then deflated spatially using a Poverty and inequality in the zone level price deflator calculated from the GHS panel GHS survey itself. 39. Poverty figures computed from the GHS 38. A poverty line was calculated from the panel (Table 8) support the hypothesis GHS panel data based on the same that poverty rates in Nigeria are number of calories (3000) as used for the significantly lower than estimates based official Nigerian definition of poverty. on the 2009/2010 HNLSS. At the national This generated a poverty line at 180 Naira level, the GHS-computed per capita poverty per capita per day in 20108. If an adjustment rate registers at 35.2 and 33.1 percent of the is made for purchasing power parity (PPP), population in 2009/2010 and 2012/2013, the line becomes 1.4 dollars per capita per respectively. This can be compared with the day, very close to the 1.25 dollars PPP line 2009/2010 per capita estimate of 62% based used by the World Bank for international on the HNLSS. Reflecting significantly comparisons. higher GDP per capita in Nigeria, these new poverty rates, in contrast to previous estimates, are lower than those in neighboring countries such as Benin and Niger.9 Box 1: Household Surveys Conducted by the National Bureau of Statistics Short Full Name Periodicity Sample Size Consumption Name Data HNLSS Part A (Welfare) Every 5 years (2003/4, 2009/10) 77,400 HH (100 per LGA) Part B (Consumption) Every 5 years (2003/4, 2009/10) 38,700 HH (50 per LGA) One-year diary GHS GHS Survey Every year 22,000 HH Information GHS-Panel Every other year 5,000 HH (10 HH per 500 EA) collected twice Table 8: Poverty Rates Per Capita From GHS Panel Data (% of Population) Poverty headcount Diff Poverty gap Poverty severity Poverty headcount GHS GHS GHS GHS GHS GHS HNLSS 2010-2011 2009-10* 2012-2013 2010-2011 2012-2013 2010-2011 2012-2013 National 35.2 33.1 -2.1 9.2 9.6 3.7 3.9 62.6 Rural 46.3 44.9 -1.4 12.9 13.1 5.2 5.3 69.1 Urban 15.8 12.6 -3.2 2.8 3.6 1.0 1.3 51.2 North Central 33.4 31.1 -2.3 8.9 8.9 4.0 3.5 65.8 North East 47.1 50.2 3.1 15.9 13.0 6.9 5.2 75.4 North West 46.9 45.9 -1.0 12.4 12.4 4.6 4.8 74.2 South East 31.7 28.8 -2.9 8.1 10.3 3.2 4.7 54.9 South South 27.7 24.4 -3.3 6.7 7.7 2.7 3.2 53.3 South West 21.2 16.0 -5.2 3.6 5.4 1.3 2.0 47.9 Source GHS 2010/11-2012/13: post planting and post harvesting visits *Data are not directly comparable to GHS results. They are presented just for illustrative purposes. 8 On an annual basis, the line is 65804 Naira per capita in 2010 prices 9 The last available poverty rates using the $1.25 line per capita are for Niger 43.6% (2008) and Benin 47.3% (2003). NIGERIA Economic Report 18 40. The new estimates suggest a strong divide 4.2 percent during this period. Growth fell to between the North and South of Nigeria in under 3% in each of 2011 and 2013, close to poverty and poverty reduction. As indicated national population growth rate. in Table 8, the GHS data would suggest that all three Southern macro-regions, together 43. The number of Nigerians living in with the North Central region, experienced poverty is not decreasing. Due to rapid declines in estimated poverty rates between annual population growth averaging about 3 2010-2013. By contrast, poverty increased percent, Nigeria needs to experience a strong in the North East and remained largely reduction in the poverty rate in order to unchanged in the North West. The contrast in reduce the absolute number of the poor. The absolute levels of poverty in different macro- new estimates presented above would imply regions is also striking, with the South West that the number of poor Nigerians did not experiencing the lowest poverty rate of 16% decrease between 2010/2011 and 2012/2013, in 2012-2013, while an estimated 50.2% of remaining at 58 million (Figure 8). In the population lives below the poverty line addition, the number of poor people living in the North East. The North West and North in the Northern part of Nigeria is increasing, East together account for the majority (52%) while the number of poor in Southern Nigeria of poor Nigerians. Adding also the North is decreasing. Central, it appears that about 66% of the poor reside in the Northern part of the country. 44. As with the previous HNLSS estimates, analysis based on the GHS panel data 41. The contrast between urban and rural indicates an increase in inequality and areas in the new estimates with respect income polarization in Nigeria.10 This is to poverty is also striking. As indicated in the subject of an additional forthcoming Table 8, urban areas in Nigeria on aggregate World Bank report. In the last decade, while experience both a significantly lower poverty average per capita consumption increased, rate and measurable progress in poverty income distribution became more unequal. reduction, while poverty remains high in Also, a clear rise in polarization is detected. rural areas. The interpretation of these results Compared to 10 years ago, the concentration is complicated by the fact that the last urban- of households in the middle of the Nigerian rural classification in Nigeria dates from income distribution diminished, with 1991. A number of areas classified as rural in increased clustering in the highest and lowest 1991 may be urban today. Nevertheless, this deciles. This change had a clear spatial result fits very well the State-by-State patterns characterization. Northern households in the HNLSS that suggest urbanization increasingly occupied bottom deciles of the and urban growth to be a primary driver of national income distribution while Southern poverty reduction in Nigeria. households increasingly moved upward. The overall impact was a general hollowing 42. Slow progress in poverty reduction in out of the distribution center and a further rural areas is consistent with revised accentuation of the North/South divide, with agricultural growth rates from the GDP relatively well-off households living in the rebasing. A particular puzzle identified in the South and relatively poorer concentrating the previous Nigeria Economic Report concerns North. the contrast between very rapid estimated growth in (small scale) agriculture in the last decade of close to 6% and apparent little progress in poverty reduction in rural areas. The GDP rebasing has so far produced new growth rates for the years 2011-2013, and 10 In income-polarized societies, people cluster around group means and tend to be far from the mean/median of the overall distribution. As a consequence, suggests that growth in agriculture averaged the middle class in polarized societies struggles to consolidate its position. NIGERIA Economic Report 19 Figure 8: Number of Poor Number of poor in thousand indviduals National by Zones 60,000 20,000 15,000 '000 Individuals 40,000 '000 Individuals 10,0005,000 20,000 0 th st So uth st th st So uth st So So t t t N hE l N hE l So So t h h h h or tra or tra s es es s ut ut ut ut or a e or a e ut Ea ut Ea So W So W W W N en N en C C t t h h th th or or N N 0 2010/2011 2012/2013 2010/2011 2012/2013 Source: GHS 2010/11-2012/13: post planting and post harvesting visits 45. Poverty trends presented in Table 8 provide some insights on the general trends. suggest that an increase in inequality The most widely used inequality indicator, could have offset the poverty-reducing the Gini index11 increased from 0.33 to 0.34 benefits from growth in recent years. (Table 9), equivalent to about 3 percent Inequality indices tend to vary slowly, and increase in inequality in 2 years. Other the period considered is too short to see inequality indices consistently indicate an significant variations. However, they can increase in inequality both at national level Table 9: Gini index and consumption per capita Gini Mean consumption pc GHS 2010-2011 GHS 2012-2013 GHS 2010-2011 GHS 2012-2013 National 0.33 0.34 100824 103817 Rural 0.30 0.32 82806 85494 Urban 0.31 0.32 132390 135731 North Central 0.30 0.30 97189 98778 North East 0.30 0.31 83904 76254 North West 0.31 0.32 85047 85365 South East 0.36 0.36 110597 119948 South South 0.34 0.35 114899 126817 South West 0.30 0.29 118690 122467 Source: GHS 2010/11-2012/13: post planting and post harvesting visits 11 The Gini index is a measure of income inequality that falls between 0 and 1. A higher Gini indicates more inequality, i.e. lower income groups consume a smaller share of national income. A Gini measured by household surveys will typically underestimate the actual level of inequality, as very wealthy people usually do not participate in household surveys. NIGERIA Economic Report 20 and in rural areas. The Gini also increased worsening of poverty figures. In the North in the North West and North East, both areas East, average consumption declined. that experience high poverty. By contrast, the South West apparently experienced some 47. A significant number of Nigerians live close reduction in inequality. This is consistent to the poverty line, particularly in rural with the official HNLSS data that indicated areas. Figure 9 presents the full distribution very rapid and inclusive consumption growth of living standards as implied by the analysis in Lagos State. of the GHS panel. These distributions are quite similar for 2010/2011 and 2012/2013. 46. The lack of progress in poverty reduction The horizontal axis represents consumption in the North West and North East can be measured as a percentage of the poverty related to both a stagnation in average line. The vertical axis represents the share of consumption and increasing inequality. the population. Thus, a distribution farther According to the GHS panel data, between to the right indicates higher welfare for the 2010/2011 and 2012/2013, the average real population. consumption of Nigerians grew by less than 3%, and again exhibited a high variance across 48. A large share of the Nigerian population macro-regions. Average real consumption in appears vulnerable to poverty. As indicated the South South grew in real terms by 10%, by the national line in Figure 9, 58% of the the South East experienced 8% growth, and population lives under 140% of the poverty South West about 4%. On the other hand, line. In rural areas, this number reaches the other two upper Northern zones did not almost 70%. By contrast, this number for experience growth in average consumption urban areas is 30%, and some improvement and inequality increased, which explains the is visible in 2012/2013 relative to 2010/2011. Figure 9: Distance from poverty line: National and Urban / Rural Distance from poverty line Consumption per capita National Urban and Rural 1 1 .8 .8 .6 .6 .4 .4 .2 .2 0 20 40 60 80 100 120 140 160 180 200 220 240 0 20 40 60 80 100 120 140 160 180 200 220 240 % of Poverty Line % of Poverty Line Rural 11 Rural 13 2011 2013 Urban 11 Urban 13 Source: GHS 2010/11-2012/13: post planting and post harvesting visits NIGERIA Economic Report 21 If converted into internationally comparable into poverty. The North West distribution PPP terms, 140% of the poverty line is close also shows a slight worsening for Nigerians to $2 a day. Thus, for the case of national and living slightly above the poverty line in rural populations, a small standard of living this region. By contrast, the South shows shock could potentially put many more improvements, with distributions moving to Nigerians in this group below the poverty the right. Improvements in the South East line. Conversely, a large share of the Nigerian are fairly uniform across the distribution. In poor are close to the poverty line, implying the South South, most of the improvements that small standard of living increases for this in living standards would seem to concern group could reduce the estimated poverty people already living above the poverty line. rate significantly. By contrast, the South West demonstrates the greatest improvements for those living close 49. An examination of cumulative distributions to the poverty line. There is even a slight of consumption by macro-region shows the deterioration for the highest brackets. same general improvements in the South and deteriorations in the North West 50. In conclusion, this examination of recent and North East. While the distributions of GHS data offers a number of hypotheses consumption by Nigerian macro-regions are on poverty and living standards in Nigeria similar in 2010/2011 and 2012/2013, the that can be confirmed or refuted following difference between the North and South is the next comprehensive HNLSS. clearly visible (Figure 10). In the North East, the distribution has moved toward the left, • The present analysis presents additional indicating that a number of people above evidence that consumption may have the poverty line have now moved closer to been underestimated, and poverty rates it, and some below it have moved deeper overestimated, on the basis of the latest Figure 10: Distance from poverty line by Macro-Region Distance from poverty line Consumption per capita North_Central North_East North_West 0 .2 .4 .6 .8 1 0 .2 .4 .6 .8 1 0 .2 .4 .6 .8 1 20 40 60 80 100120140160180200220240 20 40 60 80 100120140160180200220240 20 40 60 80 100120140160180200220240 % of Poverty Line % of Poverty Line % of Poverty Line 2011 2013 2011 2013 2011 2013 South_East South_South South_West 0 .2 .4 .6 .8 1 0 .2 .4 .6 .8 1 .2 .4 .6 .8 0 20 40 60 80 100120140160180200220240 20 40 60 80 100120140160180200220240 20 40 60 80 100120140160180200220240 % of Poverty Line % of Poverty Line % of Poverty Line 2011 2013 2011 2013 2011 2013 Source: GHS 2010/11-2012/13: post planting and post harvesting visits NIGERIA Economic Report 22 2009/2010 HNLSS survey. Poverty rates is likely related to the security situation in estimated from GHS data are significantly this part of the country. This particularly lower than current official rates based on the concerns the visible deterioration in living HNLSS. These rates are more consistent with standards in the North East. The much the size, wealth, and growth of the Nigerian higher absolute levels of poverty in the economy North also reflect other differences: (a) a relatively low level of many public services • The GHS data would also suggest that and (b) a relative remoteness from ports and poverty reduction in Nigeria is primarily current points of economic agglomeration in an urban phenomenon, with significant Nigeria. Research in economics continues poverty concentrated in rural areas. This is to stress the high value of basic education also consistent with what would appear to be for increasing the probability of productive slower estimated growth rates in agriculture employment. Over 90% of children in the coming out of the GDP rebasing exercise. Southern part of Nigeria between ages 6-16 attend school, while this is only true for • The present analysis echoes and strengthens less than half of children in the North West the conclusions coming out of the HNLSS and North East.12 Health indicators show a data on strong disparities between the similar divide. For example, immunization Northern and Southern parts of the country. rates of 14% and 21% in the North West and While the HNLSS data show much higher North East, respectively, can be compared poverty in the North, the GHS data suggest with over 70% immunization rates in the that the South may be experiencing a much South. Infrastructure that could better more positive dynamic in poverty reduction, connect markets in Nigeria or measures to and that the North East has experienced a facilitate higher productivity in agriculture significant worsening in poverty and living could also have a measurable impact on standards. poverty reduction in the North. • The South West region appears to be in a • The prime importance of urban growth in particularly advantageous position, with a Nigeria for poverty reduction is clear. As significantly lower poverty rate, the fastest emphasized in the previous NER, Lagos poverty reduction dynamic, and a more State remains an illustrative example of a equitable distribution of income (at least strong urban growth agglomeration that has excluding the super-rich who are not in the produced jobs, generated inclusive growth, GHS sample). and brought millions out of poverty. To reduce the absolute number of poor and generate 51. An emerging possibly clearer picture of the the productive jobs desperately needed evolution of poverty and living standards for the growing ranks of young Nigerians, in Nigeria has implications for economic at least a handful of cities in Nigeria other policy and development in the country. than Lagos will need to experience the same This topic is largely out of the scope of this type of take off into rapid urban growth. Chapter, but several preliminary observations As stressed in the previous NER, a better can be made: connectivity of markets through roads and other infrastructure will be key to increasing • The North/South divide in poverty and the viability of other Nigerian cities for poverty reduction is a regrettable trend investors seeking to serve a larger national or that can hopefully be reversed. The current international market. deterioration or stagnation in poverty 12 “Federal Republic of Nigeria Education and Skills Policy Notes: Policy reduction in the North East and North West Note 1: Education Access, Equity and Quality in Nigeria” pp. 24-25, World Bank, June 10, 2013 13 Nigeria Demographic Health Survey (NDHS), 2013 NIGERIA Economic Report 23 • Poverty reduction in rural areas can Agricultural Transformation Agenda also be strengthened through urban growth holds promise in Nigeria for increasing (migration to cities) and measures to agricultural productivity through increasing increase the viability of agricultural markets. the viability of markets for key value chains. Evidence from the GHS surveys indicates The potential for rural poverty reduction is that migration from rural to urban areas large. may already be increasing agricultural productivity (yields relative to number of people on household farms) in some areas in Nigeria.14 Thus, strong urban growth that provides opportunities for migrants in cities is also a key to rural poverty reduction. The 14 This will be clarified in a series of forthcoming World Bank studies on the labor market NIGERIA Economic Report 24