Nigeria Charting a Country Economic Memorandum New Course Nigeria Country Economic Memorandum: Charting a New Course Synthesis Report December 2022 Report No. AUS0002837 © 2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Cover credits: "Contact" by Jimmy Nwanne. This painting refers to man’s curiosity and inquiry about the source of life. It speaks about the possibility of life beyond the walls of our world and planet. If we have life outside our world, how do we access this dimension in order to communicate? To become, we have to enter different states of consciousness. ii Acknowledgements The Nigeria Country Economic Memorandum (CEM) and the associated technical notes describe the main trends and drivers of growth and job creation in Nigeria covering the years 2000 to 2021; outline the key challenges and opportunities to accelerate growth and job creation, synthesizing the findings from recent analyses, and including challenges and opportunities in selected areas; and present actionable policy options to sustain an inclusive growth path. It is intended for a wide audience, including policy makers, business leaders, financial market participants, and the community of analysts and professionals engaged in Nigeria’s evolving economy. The report was prepared by a World Bank team led by Miguel Angel Saldarriaga (Economist), Marco Hernandez (former Lead Economist and now Practice Manager), and Jakob Engel (Senior Economist). The team included: Samer Matta, Nyda Mukhtar, Gloria Joseph-Raji, Joseph Ogebe, Lilian Okpeku, Guillermo Palacios, Elwyn Davies, Besart Avdiu, and Masami Kojima. The extended team includes Yadviga Semikolenova, Arsh Sharma, Anshul Rana (Power), Jakob Engel, Aleksander Stojanov, Jonathan Lain, Bob Rijkers, Erhan Artuc, Guido Porto, Guillermo Falcone, Federico Ganz, Mohammed Isa Shuaibu (Trade and Trade Restrictions), Samik Adhikari, Tekabe Ayalew Belay, Olumide Olaolu Okunola, Aisha Garba Mohammed, Fatimah Abubakar Mustapha, Julia Vaillant, Amy Elizabeth Copley (Demographic time bomb), Rajul Awasthi, Elijah Kimani (Domestic Revenue Mobilization), Ryan Chia Kuo, Sara Nyman, Rodrigo Barajas, Bertine Kamphuis (Competition), Christina Jenq, Jonathan Lain, Tara Vishwanath (Jobs), Elliot Mghenyi and Chidozie Anyiro (Agriculture). Mary Akerele assisted the team. Budy Wirasmo aided in the design. External and media relations are managed by Mansir Nasir. The team is grateful to Marcello Arrigo, Peter Kjaer Milne, Yue Man Lee, and Alex Sienaert for their valuable contributions to this report. The Nigeria Country Economic Memorandum benefited from the overall supervision and guidance of Shubham Chaudhuri (Country Director), Abebe Adugna (Regional Director for Equitable Growth, Finance, and Institutions), Francisco Carneiro (former Practice Manager for Macroeconomics, Trade, and Investment), and Sandeep Mahajan (Practice Manager for Macroeconomics, Trade, and Investment). For questions about this report, please contact: msaldarriaga@worldbank.org. iii NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 Contents Acknowledgementsiii Abbreviations and Acronyms viii Executive Summary ix Setting the stage: Nigeria’s potential and the need to unlock private sector-led growth 1.  1 To provide opportunities for its growing population, Nigeria’s economy has to grow faster and create 1.1.  more jobs 1 Unlocking private investment is the only way to create more and better-quality jobs in a sustainable manner5 1.2.  Nigeria’s growth record since the return of democracy: A tale of two development paths 2.  9 Fast growth in a context of favorable global conditions and improved macroeconomic foundations 2.1.  (2001–2010)11 Moderate growth in a context of favorable global conditions but weaker macroeconomic foundations 2.2.  (2011–2014)12 Low growth in a context of unfavorable global conditions and worsened macroeconomic foundations 2.3.  (2015–2021)12 What can we learn from Nigeria’s growth record: Seven messages 3.  14 Message 1: The deterioration of the macroeconomic foundations has eroded growth potential 3.1.  14 Message 2: The sectoral growth performance across different periods is directly linked to the pace of 3.2.  reforms17 Message 3: Nigeria lacks large and mid-sized formal productive firms 3.3.  20 Message 4: Boom-and-bust oil cycles and low investment have hindered economic diversification 3.4.  23 Message 5: Economic transformation and job creation have been slow, as the non-oil economy moved 3.5.  from low-productivity agriculture to low-productivity services 25 Message 6: Nigeria’s chronic employment crisis worsened in the past decade, amid declining private 3.6.  investment and demographic pressure 30 Message 7: The economy is not generating enough pathways out of poverty due to the lack of 3.7.  economic transformation 32 What it will take: Enablers and accelerators to drive faster and more inclusive growth 4.  36 Macroeconomic enablers: Ensuring macroeconomic sustainability as a fundamental condition for 4.1.  catalyzing private investment 37 Institutional enablers: Building accountable and transparent public institutions to ensure a robust job- 4.2.  creating business environment 39 Investment accelerators: Addressing binding constraints to private investment, firms’ productivity, and 4.3.  job creation 42 iv SYNTHESIS REPORT  |  CHARTING A NEW COURSE How can Nigeria chart a new growth path? 5.  47 5.1. What does success look like?  47 Sustaining policy implementation to achieve success 5.2.  48 5.3. Policy options 48 6. Conclusion 51 Annex: List of Technical Notes 52 References53 List of Figures FIGURE 1. Nigeria’s development has stagnated in recent years… 2 FIGURE 2. …and the number of poor people has risen rapidly as a result 2 FIGURE 3. Nigeria has a choice to make 5 FIGURE 4. East Asian economies experienced rapid economic growth… 6 FIGURE 5. …on the back of high investment rates 6 FIGURE 6. Per capita income levels in Nigeria follow almost perfectly the trajectory of oil prices 9 Nigeria’s growth performance since the return of democracy can be divided in three periods: FIGURE 7.  fast growth and improving macroeconomic foundations (2000–2010), moderate growth and macroeconomic foundations beginning to weaken (2011–2014), and low growth and weakening macroeconomic foundations (2015–2021) 10 FIGURE 8. Between 2001 and 2010, Nigeria was one of the fastest growing economies in the world… 11 FIGURE 9. …led by the expansion of the non-oil economy 11 FIGURE 10. GDP growth plummeted after the collapse of global oil prices in 2014–2015… 13 FIGURE 11. …and Nigeria’s GDP per capita gains over the past two decades are the lowest among peers 13 FIGURE 12. Most macro-fiscal indicators have significantly worsened… 14 FIGURE 13. …and Nigeria’s macroeconomic stability reached a low in 2021 14 FIGURE 14. Structural GDP growth has steadily declined over the past decade…  16 FIGURE 15 …and it is currently below population growth 16 Fiscal deficits track oil prices and consolidation measures have not been sustained FIGURE 16.  17 FIGURE 17. The appetite for reforms has decreased… 20 FIGURE 18. …amid institutional weakening 20 Yet in the past Nigeria has shown that bold reforms are possible, as in 2001–08  FIGURE 19.  20 Small firms dominate the business landscape but report the lowest productivity FIGURE 20.  21 FIGURE 21. More productive firms in Nigeria pay higher wages… 21 v NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 FIGURE 22. …but there appears to be a missing middle 21 FIGURE 23. Informality is prevalent across all regions… 21 FIGURE 24. …and across all sectors 21 FIGURE 25. Less than 10 percent of firms are formal 22 FIGURE 26. A large share of labor is employed in informal firms with low productivity 22 FIGURE 27. Investment has played a limited role in economic growth 23 FIGURE 28. Oil exports continue to dominate the exports basket in Nigeria 24 FIGURE 29. Nigeria has remained one of the least-complex economies in the world for the past 20 years 24 FIGURE 30. In 2021, oil produced was the lowest in three decades 25 FIGURE 31. The decline in structural GDP growth has been accompanied by a decline in TFP growth 25 The contraction in within-sector productivity has led the decline in per-capita value added… FIGURE 32.  27 FIGURE 33. …driven by decreases in productivity in industry and services 27 FIGURE 34. Employment growth did not always occur in sectors with the highest labor productivity growth 28 FIGURE 35. Nigerian manufacturers are less efficient than the average LMIC manufacturer 28 Nigeria’s labor productivity in the manufacturing sector has not changed much over the past FIGURE 36.  four decades 28 FIGURE 37. Less-productive firms can survive into old age without being eliminated over time… 29 FIGURE 38. …and firms are not becoming more productive as they age 29 FIGURE 39. The average yield of cereal grains in Nigeria is below regional peers 30 FIGURE 40. Agricultural productivity has declined over the past 20 years 30 FIGURE 41. Growth has deteriorated over the past two decades across all sectors 31 FIGURE 42. Agriculture has contributed the most to the creation of new jobs 31 FIGURE 43. The move out of agriculture into other sectors has generally increased productivity 31 FIGURE 44. The share of employment in the more-productive “global innovator” services remains low 32 FIGURE 45. Nigeria underperforms in policy areas relevant to service development 32 FIGURE 46. Employment in agriculture is more prevalent among the Nigerian poor  33 FIGURE 47. Only 16.7 percent of Nigerians have a wage job 33 FIGURE 48. Intergenerational mobility to more productive sectors via education is limited 34 The CBN’s current FX management has reduced the supply of FX and increased the premium FIGURE 49.  between the official and parallel rates 37 FIGURE 50. For most of the past 15 years, inflation in Nigeria has been above the CBN’s goal of 9 percent 37 FIGURE 51. Nigeria’s fiscal revenues are among the lowest globally 38 FIGURE 52. Insecurity in Nigeria has spread to all regions 40 FIGURE 53. Concentration in key industries such as cement is higher than in other African countries 41 FIGURE 54. Access to power is one of the main deterrents to private sector investment 42 FIGURE 55. Nigeria’s tariffs have resulted in higher evasion 43 FIGURE 56. Financial intermediation is lower in Nigeria than in other middle-income peers 44 FIGURE 57. The number of fixed broadband subscribers is one of the lowest in the world 46 Structural reforms can bring large growth dividends for Nigeria and close the income gap with FIGURE 58.  other middle-income economies 47 If no action is taken to boost growth and reduce poverty, about 23 million more Nigerians are FIGURE 59.  expected to be living in poverty 48 vi SYNTHESIS REPORT  |  CHARTING A NEW COURSE List of Tables TABLE ES 1. Key policy reforms for faster and more inclusive growth xiii TABLE 1. Sectoral reforms 18 TABLE 2. Key policy reforms for faster and more inclusive growth 49 List of Boxes BOX 1. Volatility harms growth 15 FIGURE B1. Growth volatility in Nigeria is above the average of other LMIC economies 15 BOX 2. Mind the gap: Regional convergence 35 FIGURE B2. GDP per capita is higher in the South… 35 FIGURE B3. Regional disparities in labor productivity are high… 35 FIGURE B4. …across all sectors 35 vii NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 Abbreviations and Acronyms CBN Central Bank of Nigeria COVID-19 Coronavirus Disease 2019 FDI Foreign Direct Investment FX Foreign Exchange GDP Gross Domestic Product HDI Human Development Index. IMF International Monetary Fund LMIC Lower Middle-Income Country MSMEs Micro, Small, and Medium Enterprises NNPC Nigerian National Petroleum Corporation OECD Organisation for Economic Cooperation and Development PIA Petroleum Industry Act SSA Sub-Saharan Africa TFP Total Factor Productivity US United States VAT Value-Added Tax viii SYNTHESIS REPORT  |  CHARTING A NEW COURSE Executive Summary To rise to its potential, Nigeria needs to centered in the Niger Delta and corporate activity grow faster and create more jobs… in Lagos. By contrast, sectors such as agriculture, solid minerals, and manufacturing, which have not Nigeria has vast potential, but development has experienced rapid expansion, are the mainstays of the stagnated over the past decade. Nigeria is Africa’s economy in northern states. Low growth has deepened largest country, with over 210 million people, and regional gaps, and, at current growth rates, it will take Africa’s largest economy, with a Gross Domestic Product 40 years for northern states to catch up with southern (GDP) of around US$430 billion in 2021. With its states. abundance of natural resources, and a young and entrepreneurial population, Nigeria has the potential to Creating better jobs is a necessary condition for be a giant on the global stage. But, despite this potential, accelerating poverty reduction and economic Nigeria is struggling to keep pace with the GDP growth transformation. It is estimated that 3.5 million rates and economic transformation of its peers. As a Nigerians enter the labor market every year, a number result, its development outcomes have stalled since the that cannot be absorbed by a public sector-led economy. early 2010s. For instance, GDP per capita dropped This large number represents 41 percent of the total new from US$2,280 in 2010 to US$2,097 in 2020, and entrants in the labor market in West Africa and is bigger the number of Nigerians living below the poverty line than the entire populations of Botswana, Namibia, (using the national poverty line) rose from 68 million and Qatar. However, even if job creation were to catch to about 80 million—the world’s second-largest poor up with the expansion of the labor force, Nigerian population after India. Moreover, Nigeria is one of the workers would not fully benefit if other socio-economic least-developed countries in the world, with a ranking of conditions remain unchanged. A child born in Nigeria 161 out of 189 on the 2020 Human Development Index today will be 36 percent as productive in adulthood (HDI). (the sixth-lowest percentage globally) as she could be if she enjoyed more and better-quality education and full The country is characterized by strong spatial health. A combination of limited job creation, booming inequalities and a large north-south divide. The demographics, and unfulfilled aspirations is pushing best-performing regions of Nigeria compare favorably young Nigerians to emigrate abroad in search of gainful with upper middle-income countries, while the worst- employment performing states are below the average for low-income countries. These differences are evident in the sectors As a result, Nigeria is at a critical historical juncture, driving growth and their linkages to job creation, with a choice to make. Even at the per capita GDP poverty reduction, and government revenue generation. growth rate of 1.1 percent observed in 2021—which The emerging service economy (real estate, finance, was partly a result of base effects following the 2020 telecommunications, etc.) is mostly concentrated in the recession—it would take about a decade for Nigeria to south, especially Lagos, which has Nigeria’s largest non- return to the level of GDP per capita seen in 2014, just oil economy, accounting for up to 50 percent of the before the oil shock. The current business-as-usual policy national economy. Moreover, the oil industry—which, environment characterized by weak macroeconomic although declining, remains the country’s economic stability and reform slippages hinders prospects for backbone—is an enclave sector whose production is economic growth and job creation, as they perpetuate Executive Summary ix NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 long-standing weaknesses in foreign investment, human by firms, and from borrowing to lending in financial capital development, infrastructure investment, and markets. The macroeconomic stability of Nigeria has good governance. The choices that Nigeria faces are not steadily deteriorated over the past decade and reached easy, and they all entail risks. But the cost of not taking an all-time low in 2021 due to several factors. First, an a decision is even higher. But, if Nigeria and its leaders over-reliance on oil exports, which account for more choose to take the risk of moving on from the status quo than 90 percent of total exports, results in a high degree and business-as-usual, then the next few years could see of external volatility. Second, a limited fiscal space that Nigeria rise to its full potential. stems from very costly petrol subsidies, low tax rates, and weak tax administration hinders the various tiers of government to provide sufficient resources to deliver …by unlocking private investment, which quality public services, including investments in human is pre-conditioned on having a stable capital. Third, restrictive trade policies, weaknesses in macroeconomy exchange rate management, and the monetization of the growing fiscal deficit by the Central Bank of Nigeria Unlocking private investment is the only way to create (CBN) have led to double-digit inflation. more and better-quality jobs in a sustainable manner. The private sector is at the heart of any development process and has been critical in every sustained growth Since the return of democracy in 1999, success story around the world. East Asia’s progress Nigeria’s developmental struggles stem since the late 1950s and early 1960s exemplifies how from the pattern of its unequal growth a private sector-led growth that is rapid and broadly trajectory shared can lift millions out of poverty with little or no increase in income inequality. Although policies varied Nigeria was a rising growth star globally in the 2000s from country to country, reflecting differences in initial due to the implementation of several structural political and economic conditions, the successful East reforms in a context of increasing oil prices; yet Asian economies were able to attract high rates of private this fast growth was not accompanied by robust investment by maintaining macroeconomic stability and job creation. Between 2001 and 2010, Nigeria adopting policies in favor of trade openness, whereby ranked among the top 15 fastest growing economies they abandoned import substitution early on in favor in the world, with an average annual growth rate of of export promotion. In Nigeria, the private sector is 8.2 percent. In addition to the surge in oil prices, this responsible for an estimated 90 percent of GDP and period was characterized by sound macroeconomic 94 percent of jobs, and thus is the only option for policies that helped stabilize the economic environment creating job-enhancing growth. To make that possible, and first-generation sectoral reforms (in banking and the Government has a critical role to play by creating telecommunications), which instilled confidence for a regulatory environment that will allow the private private sector development. As a result, GDP per capita sector to take up that leadership role and by investing in almost quadrupled from US$568 in 2001 to US$2,280 human capital to sustain growth in the long-term. in 2010. Nonetheless, this fast-growth period failed to translate into significant job creation. The expansion But, attracting private investment requires solid of non-farm jobs—a feature that characterized East macroeconomic foundations, which have weakened in Asia’s growth in the 1980s and 1990s—was absent in recent years. The macroeconomy is the platform where Nigeria. In fact, the last World Bank Country Economic all economic activities take place: from consumption to Memorandum from 2009 noted that Nigeria was facing savings in households, from investment to production an “employment crisis” despite a decade of sustained fast x Executive Summary SYNTHESIS REPORT  |  CHARTING A NEW COURSE growth. Sectors that grew quickly at the time, such as are related to the strength of institutions and political wholesale and retail trade, construction, and agriculture, economy dynamics. were largely staffed by informal workers. Meanwhile, 3. Nigeria lacks large and mid-sized formal productive industries in the formal sector, such as financial services firms, pointing to a misallocation of labor. and hospitality, were either not very employment- 4. As oil continues to dominate exports and is a intensive, or have added labor from a very low base, major source of fiscal revenues, boom-and-bust oil hence failing to make a significant difference in wage cycles and low investment have hindered economic employment growth. diversification. 5. Structural transformation and job creation have The hard-won income gains from the 2000s been slow, as the non-oil economy moved from low- evaporated between 2011 and 2021, due to the lack of productivity agriculture to low-productivity services. deeper structural reforms, global shocks, conflicting 6. Nigeria’s chronic employment crisis has worsened in macroeconomic policies, and increased insecurity. the past decade, amid declining private investment Although external conditions were still favorable in and demographic pressure. 2011–2014 with high oil prices, a combination of weak 7. In Nigeria, being in work does not guarantee a path institutions and a lack of deeper reforms prevented the out of poverty. country from sustaining the strong dynamics of the previous decade. Consequently, growth dropped to 4.4 percent in that period. As Nigeria failed to use its To chart a new and inclusive growth windfalls from natural resources efficiently to develop path, Nigeria needs macroeconomic and an enabling business environment that attracts private institutional enablers and investment investments and creates quality jobs, the economy accelerators entered a period of sluggish economic activity where growth plummeted to 1.1 percent in 2015–2021— To catalyze private investment and offer more much lower than the 2.6 percent population growth. opportunities to the youth, the priority is to restore While external factors—the collapse in oil prices, and preserve macroeconomic stability. To do so, it heighted insecurity, and the COVID-19 pandemic— will be critical to improve the availability of FX, and contributed to this economic deceleration, a worsening the predictability and credibility of the exchange rate domestic macroeconomic policy environment— system to ensure a level playing field across all firms exchange rate mismanagement, trade restrictions, and and individuals. In parallel, reducing inflation—which weak fiscal policy—undermined economic stability and pushed an estimated 8 million Nigerians into poverty in the country’s growth potential. 2020 and 2021—is another key priority to tackle. This can be done by adopting a single and market-driven This tale of two development paths has highlighted exchange rate regime, fully re-opening land borders several characteristics of the Nigerian economy, which to trade, and enforcing the legal limit that prevents can be summarized in seven messages: the federal government from borrowing more than 5 percent of the previous year’s fiscal revenues from the 1. Macroeconomic stability and policy predictability CBN. There is also an urgent need to strengthen the have steadily deteriorated over the past decade, macro-fiscal framework to provide sufficient resources eroding growth potential and undermining to deliver quality public services, including investments macroeconomic foundations. in human capital, and maintain debt sustainability by: 2. The growth performance across different periods is (i) eliminating the costly and regressive petrol (Premium directly linked to the pace of reforms, which in turn Motor Spirit or PMS) subsidy (estimated at 2.7 percent Executive Summary xi NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 of GDP in 2022); (ii) increasing non-oil revenues by of its digital economy growth potential, as evident from broadening the non-oil tax base efficiently and equitably; the household penetration rate for fixed broadband, and (iii) improving the efficiency of spending. which was only 0.04 percent in 2018, below the African and global averages of 0.6 and 13.6 percent, respectively. Strengthening the rule of law and promoting market contestability and competition are also needed to foster a business-friendly environment that creates Moving from the “what” to the “how”: quality jobs. Given the diverse range of security threats the criticality of sustaining policy that has impacted the Nigerian social fabric in recent implementation to achieve success years—as evident by the 200 percent increase in number of conflict events between 2018 and 2021—it will be While there is no silver bullet to accelerate growth, important to build up social cohesion to enhance citizen Nigeria can become a rising growth star again if it participation and help restore government presence. In implements a comprehensive set of bold reforms in addition to strengthening the rule of law, a business- a timely manner. Skeptics may argue it is unrealistic enabling environment is essential to support a more for Nigeria to chart a new development trajectory efficient allocation of resources and increasing firms’ and grow at around 7 percent per year instead of the productivity. To that end, the Nigerian authorities are current 2–3 percent, or to abandon the over-reliance encouraged to reduce administrative burdens, reduce on oil, together with its legacy of weak governance and barriers to entry to strengthen market contestability poor track record of macroeconomic policies. But in and competition, and improve the transparency and 2000, skeptics would have dismissed the likelihood that management of land markets by enhancing land use Nigeria would become a lower middle-income country planning and strengthening tenure security. and quadruple its income per capita over the following decade. And yet this is nonetheless what it did. Hence, In addition to macroeconomic and institutional despite the current challenges, Nigeria can still chart a enablers, investment accelerators are critical to sustainable and inclusive growth path based on solid develop a more competitive private sector. Four economic institutions with a sound macroeconomic binding constraints to private investment need to be environment that reduces regional disparities, strong addressed to revitalize the private sector. First, unreliable human capital that will help children reach their full power supply is the biggest deterrent to private sector potential and acquire the skills needed for a modern development in Nigeria, causing annual economic losses economy, and productive firms that create more and estimated at US$28 billion (5 percent of GDP). Second, better jobs. To do so, it needs to implement key first- Nigeria remains one of the of the world’s least diversified and second-generation reforms that coalesce in timing in countries, due to high trade and transport costs, a the areas presented in TABLE ES 1. restrictive trade policy environment, and numerous constraints in the overall investment climate. The To implement this set of prioritized reforms, the protectionist trade regime limits growth opportunities authorities need to walk the talk and shift their focus and raises production costs for the private sector. Third, from the “what” to the “how”. Over the years, Nigerian low access to finance constrains the access of firms to governments have developed a plethora of development varied sources of funding, in particular for micro, small, plans (Vision 2020 and Vision 2030) and sectoral and medium enterprises (MSMEs). Only 11.4 percent strategies that analyzed, identified, and set targets for of firms in Nigeria have access to finance, a lower share tackling various development challenges. Nonetheless, than the average of the region and of other middle- many of the ambitious targets set in these strategies income countries. Fourth, Nigeria is capturing a fraction were not achieved because of weak implementation. For xii Executive Summary SYNTHESIS REPORT  |  CHARTING A NEW COURSE instance, Nigeria’s per capita income was US$2,097 in arrangement should support a culture change that 2020, almost half of the target set in Vision 2020 that prioritizes the delivery of public services and meeting was developed in 2009. To place a higher priority on citizen’s needs and should be anchored at the center effective implementation and prioritize interventions, the of policymaking. Implementation is also the result of authorities could develop an institutional arrangement consensus among the political elite about the direction that promotes accountability and coordination and that of policy, the allocation of fiscal resources, the role focuses on improving results as measured by outcomes in of the state and the space for private sector initiatives. a limited number of priority areas as indicated in TABLE Only with sustained implementation we can change the ES1. To effectively coordinate policy implementation narrative from discussing Nigeria’s potential and start across tiers of government, any type of institutional discussing Nigeria’s actuals. TABLE ES 1. Key policy reforms for faster and more inclusive growth Time horizon* Macroeconomic and Institutional Enablers Investment Accelerators Adopt a single and market-reflective exchange rate Facilitate trade and boost domestic Sprints Increase non-oil revenues by raising value added by removing import and VAT and excise rates and strengthening foreign exchange restrictions tax administration Eliminate the petrol subsidy by Medium establishing a compact which also Increase access to finance by distance protects the poor and vulnerable strengthening the institutional runs Contain inflation by reducing the federal infrastructure for financial intermediation government’s recourse to CBN financing Boost competition by embedding it Boost power generation by investing into policy, enhancing enforcement, and in infrastructure to reduce technical and Marathons simplifying rules to lower costs commercial losses Reduce insecurity by strengthening the Facilitate transport connectivity by rule of law reducing interstate transportation costs Source: World Bank. Note: *Sprints are stroke-of-the-pen reforms implementable within 1–3 months or less at no fiscal cost, given the political will. Medium distance runs are programs implementable within 18 months with tangible benefits for millions of Nigerians that can help make the sprints more bearable. Marathons are longer- term structural initiatives and institutional reforms that can be initiated and put on a firm footing in the next three years but will take longer to complete. Blue boxes are policies to be implemented at the federal level, while grey boxes are policies that require both federal and state level implementation. Executive Summary xiii Nigeria Country Economic Memorandum SYNTHESIS REPORT  |  CHARTING A NEW COURSE Setting the stage: Nigeria’s potential 1.  and the need to unlock private sector-led growth To provide opportunities for its 1.1.  transformation driven by firms that invest in and adopt growing population, Nigeria’s better technologies, and of increased labor productivity economy has to grow faster and enabled by better skills. The Government has a critical create more jobs role to play, by creating a regulatory and institutional environment that will boost economic transformation Creating jobs is key to fulfilling the youth’s and position the private sector to take up a leadership aspirations. Three and a half million Nigerians enter role, and by providing adequate health and education the labor market every year (World Bank, 2020a), services. equivalent to 41 percent of the total new entrants in the labor market in West Africa, and 15 percent of the new participants in the labor market in Sub-Saharan Nigeria has vast potential… Africa (SSA).1 This number cannot be absorbed by a public sector-led economy and the private sector needs Nigeria has the potential to be a giant on the global to drive the creation of well-paying jobs. However, even stage. Nigeria is Africa’s largest country, with over if job creation does catch up with the expansion of the 200 million people, which is expected to double by labor force, Nigerian workers will not fully benefit if 2030. Nigeria is also Africa’s largest economy, with wider socio-economic conditions remain unchanged. a nominal gross domestic product (GDP) of around A child born in Nigeria today will be 36 percent as US$430 billion (2021). Nigeria is a multi-ethnic and productive when she grows up as she could be if she diverse federation of 36 autonomous states, with an enjoyed complete education and full health (World abundance of resources, a young and entrepreneurial Bank, 2020b). She would also be expected to only live population, and a dynamic private sector. The country until the age of 55, compared with an average age of 70– has a large domestic market, entrepreneurs who are 75 in other middle-income economies. A combination driving growth through digital technologies, and state of rising unemployment, booming demographics, and governors with a high degree of autonomy, which offers unfulfilled aspirations is pushing young Nigerians to opportunities for dynamic and progressive leaders to emigrate abroad in search of gainful employment. move ahead independently. Creating better jobs is a necessary condition for Between 2001 and 2014, Nigeria was a rising star in accelerating poverty reduction. The private sector West Africa and one the world’s 15 fastest-growing is responsible for an estimated 90 percent of GDP economies, with an average annual growth rate of and 94 percent of jobs in Nigeria (IFC, 2020), and 7 percent. Supported by a favorable global context is thus the only option for creating job-enhancing of sustained high oil prices, Nigeria successfully growth. Better jobs are typically the result of economic implemented macroeconomic reforms that achieved 1 This report uses two set of benchmarks to assess Nigeria’s performance: a regional benchmark, SSA, and, in some cases, countries such as Kenya, Ghana, Ethiopia, and South Africa; and economies that have successfully from low-income economies to lower middle-income and upper middle- income economies, such as Indonesia, India, Mexico, Malaysia, and Thailand. 1. Setting the stage: Nigeria’s potential and the need to unlock private sector-led growth 1 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 substantial growth gains. Structural policies, such as After decades of uneven and non-inclusive growth, large-scale privatization, reforms to the regulatory Nigeria remains a poor country marked by stark environment, the establishment of institutions tasked spatial disparities in social and economic outcomes. with combating corruption, and financial sector reforms, Nigeria is one of the least-developed countries in the succeeded in reducing barriers to investment in Nigeria world (United Nations, 2020), ranking 161st out of and promoted growth and job creation. 189 countries on the HDI in 2020 (FIGURE 1). At the same time, with over 40 percent of its population living in poverty, Nigeria has the second-largest population …but development has stagnated over of poor in the world. Between 2010 and 2020, the the past decade number of Nigerians living below the poverty line rose from 68 million to about 80 million—the world’s Nigeria’s development has stagnated. The robust second-largest poor population after India (FIGURE 2). growth performance seen in 2001–2014 ended The poverty rate for the north as a whole (pooling the abruptly in 2015, as oil prices fell, the security situation North Central, North East, and North West zones) was deteriorated, macroeconomic reforms were reversed, and 57.9 percent in 2018/19, compared with 20.3 percent economic policies became increasingly unpredictable. for the south (pooling the South East, South South, and In 2015 and 2020, Nigeria suffered slumping oil prices South West zones). Indeed, the poverty rate is almost and in 2020, this was compounded by the adverse 20 times higher in Sokoto—the state with the highest effects of the global COVID-19 pandemic. As a result, poverty rate, at 87.7 percent—compared to Lagos—the the annual GDP growth rate averaged just 1.1 percent state with the lowest poverty rate, at 4.5 percent. between 2015 and 2021. As economic growth slowed, and population continued to grow at a fast annual pace Stark differences in human development indicators of about 2.6 percent, gains in per capita income were are evident between the north and the south, and reversed and the number of Nigerians living in poverty between globally connected urban centers and steadily increased. isolated rural areas. Households with large numbers FIGURE 1. Nigeria’s development has stagnated in FIGURE 2. …and the number of poor people has recent years… risen rapidly as a result Human Development Index Population living in poverty Rank (lower ranking reflects better position Number of poor people (millions) 200 worst HDI 85 180 80 160 140 75 120 70 100 80 65 60 60 40 55 20 best HDI 0 50 2005 2007 2009 2011 2013 2015 2017 2019 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Human Development Index Q Nigeria’s rank Q Total number of countries ▬ Back-cast Q Survey to survey-imputation Q LMIC Q UMIC … Distance to last Q 2018/2019 NLSS official poverty rate Source: United Nations Development Program (UNDP). Source: National Bureau of Statistics (NBS) and World Bank Poverty Assessment. Note: Estimates exclude Borno. Poverty rates are based on the national poverty line, with real consumption deflated temporally and spatially. 2 1. Setting the stage: Nigeria’s potential and the need to unlock private sector-led growth SYNTHESIS REPORT  |  CHARTING A NEW COURSE of dependents, limited access to infrastructure, and less- necessary expenditures in critical sectors, such as health, educated household heads are more likely to be poor. education, and security. Of those Nigerians living below the national poverty line in 2018–2019, 84 percent lived in rural areas, and Spending more requires more resources and therefore 76 percent lived in the North Central, North East, or the most critical aspect of meeting Nigeria’s vast North West regions. In human development indicators, expenditure needs lies in raising more revenues. Public for instance, the best-performing regions of Nigeria spending on human and physical capital is too low to compare favorably with upper middle-income countries, equip Nigerians for productive lives. Just 17 percent of while the worst-performing states are below the average public spending goes to education and health, which for low-income countries. prevents Nigeria from developing the human capital necessary to attract large-scale private investment outside the oil sector. Public spending is also fragmented across Nigeria is at a critical historical juncture… three tiers of government (federal, state, and local), which have overlapping and sometimes inconsistent By the end of 2021, Nigeria’s real per capita income expenditure mandates, and no effective coordination had fallen to a level last seen in 1982. Even at a per or reporting mechanism. The states are at the forefront capita GDP growth rate of 1.1 percent observed in 2021 of basic service delivery, but their spending allocations (which was partly a result of base effects following the to the social sectors are too low to improve lives and 2020 recession), it would take about a decade for Nigeria livelihoods. to return to the level of GDP per capita seen in 2014, just before the oil shock (World Bank, 2022b). Nigeria Despite the rebound in economic activity in 2021– is one of the world’s least-diversified oil producers and, 2022, Nigeria is in a paradoxical situation whereby while the country’s growth rate and fiscal and external stronger growth is set against a deteriorating positions have historically improved during periods of macroeconomic framework. Four factors explain this: high oil prices, this was not the case in 2021 or 2022. The decoupling of fiscal trends from the cycle of global • High inflation:  Inflation is arguably the key priority oil prices will make it harder for Nigeria to benefit from to be addressed in order to improve macroeconomic the tailwinds generated by commodity booms. sustainability. Despite the urgency, the response from the authorities over the last two years has not been Nigeria’s revenues are among the lowest globally. adequate, increasing inflation and fueling poverty and Nigeria’s revenues are not only low but have also followed food insecurity. Between 2019 and 2021, Nigeria’s a worrying declining trend over the past decade. Even high inflation stems from a lack of concerted actions during the commodity-price boom in 2012, Nigeria’s to reform the mix of trade restrictions, exchange rate, revenue-to-GDP ratio was only 12 percent, compared monetary, and fiscal policies. with an average of 21.5 percent in SSA. Due to over- reliance on oil, the fall in international prices in 2014– • Decoupling between oil prices and oil revenues: 2015, and the subsequent economic deceleration of the This phenomenon, which started in 2021 and  non-oil economy, revenues plummeted to 5.9 percent of intensified in 2022, is driven by lower oil production, GDP in 2016. Since then, Nigeria has failed to shore up higher consumption of petrol, and a rising petrol its revenues and the country consistently ranked among subsidy. Additionally, external reserves did not the worst five globally in terms of revenue collection increase, and therefore did not reduce the need for between 2015 and 2020. Nigeria’s low level of revenues external financing as was the case during previous threatens fiscal sustainability and undermines the federal episodes of high oil prices. government’s and state governments’ ability to finance 1. Setting the stage: Nigeria’s potential and the need to unlock private sector-led growth 3 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 • Insecurity:  Insecurity remains widespread in Nigeria, next few years could see Nigeria rise to its full potential. with more episodes of violent conflict events across Lifting at least 80 million Nigerians out of poverty will the country.2 Insecurity has not only affected millions require swift and decisive action to address insecurity of Nigerians, but also discouraged private investment and conflicts, high levels of poverty, population growth, and growth. and youth unemployment, macroeconomic and fiscal challenges, long-standing governance issues, crises • Uncertainty about the pace and direction of in power and water supply, bottlenecks to private economic policy: Th  e perception of unpredictability investment and competitiveness, and poor human of economic policy at the state and federal level has development outcomes. Although Nigeria faces serious increased. structural challenges, reforms that lay the foundation for robust and inclusive growth through private investment and job creation could rapidly improve the welfare of its …with an important choice to make citizens and accelerate convergence with other middle- income economies. To free up space for the private The current business-as-usual policy framework sector and enable it to serve as the engine of growth and hinders prospects for economic growth and job job creation, the priority is to restore macroeconomic creation. Multiple exchange rates, trade restrictions stability through adequate fiscal, trade and monetary and a protectionist policy stance, poor revenue policy. mobilization, and financing of the public deficit by the Central Bank of Nigeria (CBN) continue to undermine Nigeria has the potential and resources to accelerate macroeconomic stability and the business environment. growth and reduce poverty. In a context of weakened These policies perpetuate long-standing weaknesses economic growth, widespread poverty, deepening in foreign investment, human capital development, inequality, and political turbulence, realizing the infrastructure investment, and good governance (World Government’s ambition of lifting roughly 100 million Bank, 2022d). Notably, in 2020 and 2021, when oil Nigerians out of poverty by 2030 is challenging prices were much lower than today, the Government (FIGURE 3). For instance, the poverty gap index—a lost an opportunity to address a primary source of fiscal measure of the minimum cost of eliminating poverty if vulnerability by choosing to maintain the subsidy for transfers were perfectly targeted—shows that eliminating Premium Motor Spirit (commonly known as petrol)—a poverty in Nigeria would cost almost N3.7 trillion per subsidy that is unique, opaque, costly, unsustainable, year (World Bank, 2022c), lower than the amount the harmful, and unfair.3 Due to the petrol subsidy and low country currently spends on petrol subsidies. Removing oil production, Nigeria faces a potential fiscal timebomb distortions will allow Nigerians to benefit from their (World Bank, 2022b). country’s immense wealth. With a total wealth of US$5.6 trillion in 2018,4 Nigeria ranked 26th among The choices that Nigeria faces today are not easy. The the wealthiest countries in the world (World Bank, country’s development challenges are numerous. But if 2021a). Nigeria’s total wealth has doubled in the past Nigeria and its leaders choose to take the risk of moving two decades, but it continues to be dominated by natural on from the status quo and business-as-usual, then the resources and not human capital. 2 For trends in conflict events in Nigeria, see the November 2021 edition of the NDU. 3 For a detailed analysis of Nigeria’s petrol subsidy (e.g., how it is administered, how much it costs, who benefits from it, as well as its economic and social implications), refer to the November 2021 (World Bank, 2021b) edition of the Nigeria Development Update, “Time for Business Unusual”. 4 A country’s wealth includes: produced capital (buildings, machinery, and infrastructure); natural capital, such as agricultural land, forests, protected areas, fisheries, mangroves, minerals, oil, coal and gas reserves; human capital (broken down by gender and types of employment); and net foreign assets. 4 1. Setting the stage: Nigeria’s potential and the need to unlock private sector-led growth SYNTHESIS REPORT  |  CHARTING A NEW COURSE FIGURE 3. Nigeria has a choice to make GDP per capita 18,000 16,000 14,000 12,000 10,000 Nigeria: 8,000 rising to potential 6,000 Indonesia’s GDP per capita Nigeria: 4,000 business as usual Average GDP per capita growth Nigeria: 2,000 Nigeria’s GDP per capita things fall apart 2002–2014: 5.1 percent 0 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24 26 28 30 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Source: NBS and World Bank. 1.2. Unlocking private investment is the The public sector can shift from being a primary only way to create more and better- source of formal wage employment to an enabler of quality jobs in a sustainable manner private sector investment and formal job creation. Nigeria can create opportunities for gainful employment Unlocking private investment can generate by fostering an enabling environment in which private economic opportunities for Nigeria’s growing firms become more productive, by investing in human population, accelerating structural transformation, capital, and by enhancing resilience so that gains can be and promoting the diversification of its economy. preserved. High compliance costs, as well as regulatory Nigeria’s structural transformation is yet to happen, and and governance-related hurdles to doing business, have economic diversification away from dependence on oil been a major disincentive to formalization. And policy remains a core challenge. Nigeria has a vibrant private uncertainty and inadequacies, particularly in the realm sector, with some of the largest firms in Africa, and of exchange rate, trade, and competition policy and among the highest rates of entrepreneurial and start- management, have impeded growth of medium and large up activity in the world (IFC, 2020). But a range of businesses and competitive clusters, which otherwise infrastructural, macroeconomic policy, and regulatory have considerable potential to further the transformation constraints has prevented the full potential of Nigeria’s and diversification of Nigeria’s economic base. private sector from being realized. Infrastructure deficits—in particular, lack of reliable power and poor transport connectivity—have stifled private economic Private investment has been critical in activity and hurt the competitiveness of Nigerian firms. every sustained growth success story Poor human capital outcomes also hinder the returns to around the world private investment. Relative to its regional peers in SSA, Nigeria’s performance is lagging in many key education Private sector investment—from farmers and indicators, affecting both the stock (working age adults) microentrepreneurs to local manufacturing and the flow of human capital. The education system has companies and multinational enterprises—is at the not been able to achieve a high degree of inclusiveness: heart of the development process (  World Bank, 2004). Nigeria has the highest number of primary out-of-school Private firms are critical actors in promoting growth children in the world (World Bank, 2022b). and poverty reduction. Governments play a role in the security of property rights, approaches to regulation and taxation, the provision of infrastructure, the functioning 1. Setting the stage: Nigeria’s potential and the need to unlock private sector-led growth 5 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 of finance and labor markets, and broader governance • First, most of these economies (particularly the early features, such as corruption mitigation. Improving developers and the larger economies of Southeast government policies and behaviors that shape the Asia) were able to achieve high rates of private investment climate drives growth and reduces poverty, investment (FIGURE 5). Investment was promoted but the ultimate decision to invest lies with the private by establishing low tariffs for importing capital sector. goods and increasing public investment in physical infrastructure, such as roads and power, which helped East Asia’s progress has come to symbolize how attract private investment by raising the returns to it. economic growth that is rapid and broadly shared can improve the lives of millions  (World • Second, a commitment to macroeconomic stability, Bank, 2018). Since the late 1950s and early 1960s, a primary (but not exclusive) reliance on markets a succession of economies has experienced the East to allocate resources, and committed, credible and Asian miracle—rapid economic growth that reduces capable governance. poverty significantly, with little or no increase in income inequality. The development model that underpinned • Third, trade openness. In general, East Asian this success combined policies that promoted rapid economies abandoned import substitution early on labor-intensive growth with public spending on basic in favor of export promotion, in sharp contrast with human capital—education, health, and family planning Latin America up to the 1990s. services. The initial success of the newly industrialized economies—Hong Kong SAR, China; the Republic of Building human capital is essential to boosting Korea; Singapore—spread in the 1980s to Indonesia, labor productivity. Investment rates by themselves are Malaysia, Thailand, and China. The poorer Southeast not the main drivers of growth. Capital accumulation Asian economies of Cambodia, Lao PDR and Vietnam brings more inputs to the production process, but there have followed suit since the early 1990s (FIGURE is a limit to how much this process can sustain growth 4). Although policies varied from country to country, because of the decreasing marginal impact of additional reflecting differences in initial political and economic capital. Thus, the measure of success is not the quantity conditions, the successful economies shared several of investment, but its quality. Governments can play a policy and institutional characteristics: role in enhancing the quality of investment by investing FIGURE 4. East Asian economies experienced FIGURE 5. …on the back of high investment rates rapid economic growth… GDP growth Investment Percent yoy Percent of GDP 12 45 40 10 35 8 30 25 6 20 4 15 10 2 5 0 0 na a . a d g m na a . a d g m ep ep si si n n si si n n a a hi la Ko hi la Ko ne ay ne ay R tn R tn C ai C ai e e al al do a, do a, g g Th Th Vi Vi M M on on re re In In Ko Ko H H J 1980–89 J 1990–89 J 2000–09 J 2010–20 J 1980–89 J 1990–89 J 2000–09 J 2010–20 Source: WDI. Source: WDI. 6 1. Setting the stage: Nigeria’s potential and the need to unlock private sector-led growth SYNTHESIS REPORT  |  CHARTING A NEW COURSE in human capital. A basic level of human capital, such …and, attracting private investment as literacy and numeracy skills, is needed for economic requires sound macroeconomic and survival. The growing role of technology in life and institutional foundations business means that all types of jobs (including low-skill ones) require more advanced cognitive skills (World The macroeconomic context has a paramount role Bank, 2019). in influencing the level of private investment. The macroeconomy is the platform where all economic activity takes place: from consumption to savings Private investment promotes economic in households, from investment to production in diversification and job creation… enterprises, and from borrowing to lending in financial markets (World Bank, 2013). Sound macroeconomic Private investment is the engine for growth and management can provide an environment where poverty reduction. It creates opportunities and jobs for households and enterprises are able to plan for the people, and expands the variety of goods and services long term and undertake their own risk management. available, reducing their cost to the benefit of consumers. Business cycles are intrinsic to modern economies, and It also supports a sustainable source of tax revenues some degree of volatility in aggregate prices, output, to fund other important social goals (World Bank, and employment is normal. However, the effects of 2004). Sustained private investment encourages higher an unstable macroeconomic framework percolate productivity by providing opportunities and incentives throughout the economy—reducing employment, for firms to develop, adapt, and adopt better ways to interrupting credit, and deferring investment—and organize production, distribute goods, and respond to produce losses that lead to a decline in long-term consumers. economic growth. The trade and investment policy agenda lies at the Improving the opportunities and incentives for heart of a strategy for economic diversification firms to invest—by reducing unjustified costs, risks, (OECD and World Trade Organization, 2019). The  or barriers—requires a sound macroeconomic private sector accounts for more than 90 percent of jobs environment and solid institutions. Robust in developing countries (World Bank, 2005). Better institutions promote job creation through their effects job opportunities also enhance incentives for people to on firms and the efficiency with which they operate. invest in their education and skills, thus complementing Economic growth comes from an increase in the efforts to improve human development. Firms that production and exchange activities undertaken by are more productive can also pay higher wages and firms. Institutions, such as property rights and contract invest more in training. Hundreds of millions of poor law, shape the regulatory and economic environment people in developing countries make their living as within which firms operate. They also influence a firm’s microentrepreneurs, operating in the informal economy. internal decisions and its productivity (Syverson, 2011). Firms in the informal economy face many of the same Economy-wide productivity is optimized in a dynamic constraints as formal firms, including insecure property market environment that allows for and encourages rights, corruption, policy unpredictability, and limited firms to be created, grow or shrink depending on their access to finance and public services. Relieving these productivity. constraints raises incomes for entrepreneurs and allows them to expand their activities. Institutions matter for job creation and economic transformation. Institutions include all formal and informal conventions that shape the political, economic, 1. Setting the stage: Nigeria’s potential and the need to unlock private sector-led growth 7 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 and social behavior of the members of a society. They encompass not only basic institutions, such as social norms and the rule of law, but also more specific ones, such as governance arrangements for entities (including firms) and regulations applying to various markets (IMF, 2003). The quality of institutions influences the decisions of firms of all types: the decision of the farmer to sow more seed; the decision of the microentrepreneur to start a business; the decision of the local manufacturing company to expand its production line and hire more workers; and the decision of the multinational about where to locate its next global production facility (World Bank, 2005). Economic institutions matter for economic growth because they shape the incentives of key economic actors in society. In particular, they influence investments in physical and human capital and technology, and the organization of production (Acemoglu, 2005). Growth within a poor investment climate and weak macro framework is possible, but unlikely to be sustained. For example, in the 1960s and 1970s, Brazil experienced strong growth while closing domestic markets to international competition and pursuing heavy public investment through state-owned enterprises. The initial results were impressive, but growth proved unsustainable. Protected firms lacked the incentives to enhance their productivity and fell further behind international best practices. Other firms had less access to new technologies and had to pay higher prices for inputs supplied by protected sectors. Public investment to sustain growth led to severe debt, and ultimately to a macroeconomic crisis. Subsequent efforts to improve the investment climate were initially met with cautious responses from firms (World Bank, 2004). 8 1. Setting the stage: Nigeria’s potential and the need to unlock private sector-led growth SYNTHESIS REPORT  |  CHARTING A NEW COURSE Nigeria’s growth record since the return 2.  of democracy: A tale of two development paths Learning from Nigeria’s recent growth performance is influence on their development trajectories. This poses critical to developing an effective and inclusive growth a challenge to building national consensus in the areas agenda that creates jobs and reduces poverty in the of macroeconomic stability, prioritizing public resource long term. Understanding what the drivers of growth allocation, and meeting minimal national standards for are, what affects the quality of observed growth, and how public administration, public financial management, well-positioned the country is to continue generating and service delivery. growth is important for three reasons. First, growth is an effective driver of poverty reduction. Without strong Oil has played a disproportionate role in the Nigerian economic growth, the chances of reducing poverty are economy as a source of export earnings and public small. Second, the quality of growth matters. Nigeria revenues (  World Bank, 2020c). Nigeria began producing not only has to create millions of jobs for its expanding oil in the late 1950s. As a result, oil inflows rose from labour force, but also needs them to be quality jobs that 3 percent of the country’s total merchandise exports in create added value if they are expected to lift people out 1960 to 90 percent by 1974. From the 1970s up until of poverty. Third, time matters. A single year of poor 2012, the oil sector accounted for about 80 percent of economic performance has long-term consequences. As total federation revenues. Income per capita has closely the COVID-19 pandemic has made evident, economic followed the trajectory of oil prices over the past 50 years shocks can leave long-lasting scars on education and (FIGURE 6). Given that oil prices are extremely volatile, human capital. If no action is taken now, the income so income per capita in Nigeria has become likewise. gap with other middle-income economies over the next By undermining Nigeria’s short-term macroeconomic decades will become insurmountable, and the chances stability, oil dependence has also eroded the conditions that an average Nigerian will achieve the same living for sustainable long-term growth. standards as in other middle-income economies will FIGURE 6. Per capita income levels in Nigeria dwindle. follow almost perfectly the trajectory of oil prices US$ US$/bbl Nigeria is a federation made up of the federal 3,500 Return to democracy 120 government at the center, 36 state governments, a 3,000 100 federal capital territory administration and 774 local 2,500 80 government councils. Under the 1999 Constitution, 2,000 the states enjoy significant autonomy, as certain critical 60 1,500 laws and policies do not automatically apply to them 40 unless expressly re-enacted. Federalism has emerged 1,000 as a central institutional mechanism through which 500 20 power is negotiated, resources are distributed, services 0 0 are delivered, and conflict is managed. The degree of 60 64 68 72 76 80 84 88 92 96 00 04 08 12 16 20 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 autonomy granted to states gives them considerable ▬ GDP per capita (current) ▬ Crude oil price, rhs Source: WDI. 2. Nigeria’s growth record since the return of democracy: A tale of two development paths 9 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 Nigeria achieved significant income gains in the However, hard-won income gains from the 2000s 2000s. Between 2000 and 2010, Nigeria’s GDP growth evaporated between 2011 and 2021. While GDP exceeded global performance in a context of rising oil per capita continued increasing and reached a peak of prices (World Bank, 2020c). Moreover, Nigeria was one US$3,099 by the end of 2014, since 2011, GDP growth of the few countries that did not completely succumb to started moderating and macroeconomic foundations the 2008–2009 global financial crisis, largely because of a began to weaken despite higher oil prices. When the prudent counter-cyclical fiscal policy.5 At the same time, shock oil price of 2015 hit the economy, Nigeria was in the share of the oil sector relative to GDP contracted a worse position than in 2010 to face the crisis. Since from 31 to 10 percent, thanks to strong private sector 2015, the Nigerian economy has been facing substantial growth, especially in services. By the end of 2010, GDP challenges, with a pronounced economic slowdown per capita had reached US$2,280, up from US$568 at following the global shocks in oil prices in 2015 and the start of 2001 (FIGURE 7). 2020, as well as to the COVID-19 pandemic in 2020. FIGURE 7. Nigeria’s growth performance since the return of democracy can be divided in three periods: fast growth and improving macroeconomic foundations (2000–2010), moderate growth and macroeconomic foundations beginning to weaken (2011–2014), and low growth and weakening macroeconomic foundations (2015–2021) Index 2000=100 Percent (yoy) 140 Fast growth Moderate Low growth 16 Fast growth Moderate Low growth and improving growth and and weakening and improving growth and and weakening macroeconomic macro- macroeconomic macroeconomic macro- macroeconomic 120 foundations economic foundations foundations economic foundations foundations 12 foundations begin to begin to 100 weaken weaken 8 80 4 60 0 40 20 -4 20 0 20 1 20 2 20 3 20 4 20 5 20 6 20 7 20 8 20 9 20 0 20 1 20 2 20 3 20 4 20 5 20 6 20 7 20 8 20 9 20 0 21 20 0 20 1 20 2 20 3 20 4 20 5 20 6 20 7 20 8 20 9 20 0 20 1 20 2 20 3 20 4 20 5 20 6 20 7 20 8 20 9 20 0 21 1 1 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 2 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 2 20 20 ▬ Macrostability index ▬ Real GDP growth US$/bbl Number of poor people (million) 120 Fast growth Low growth 79 Moderate growth and Low growth and weakening and improving and weakening macroeconomic foundations macroeconomic foundations macroeconomic macroeconomic 77 begin to weaken 100 foundations foundations 75 80 73 60 71 40 Moderate growth and 69 macro- economic 20 foundations 67 begin to weaken 0 65 20 0 20 1 20 2 20 3 20 4 20 5 20 6 20 7 20 8 20 9 20 0 20 1 20 2 20 3 20 4 20 5 20 6 20 7 20 8 20 9 20 0 21 10 11 12 13 14 15 16 17 18 19 1 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 2 20 20 20 20 20 20 20 20 20 20 20 ▬ Oil price ▬ Poverty headcount rate Source: OAGF, NBS, World Bank. Note: There are no consistent poverty estimates for the period 2000–2009. The macrostability index is a standardized composite index of inflation, current account, and overall fiscal balance, with 2000 as the base year. 5 However, the 2008–2009 crisis was not innocuous. Large capital outflows and withdrawal of US dollar-denominated assets from some banks eventually led to a depreciation of the Nigerian naira and the collapse of share prices and market capitalization on the Nigerian Stock Exchange in 2008. 10 2. Nigeria’s growth record since the return of democracy: A tale of two development paths SYNTHESIS REPORT  |  CHARTING A NEW COURSE The economy went into recession twice during this became independent. At an average of 5.6 percent, period (in 2016 and then again in 2020). Although the growth in GDP per capita was above the average of oil sector now only accounts for 10 percent of Nigeria’s Nigeria’s Sub-Saharan peers and other lower middle- GDP, oil revenues still make up about half of general income countries, and it placed Nigeria among the 15 government revenue and 90 percent of goods exports. fastest growing countries in the world. This growth was In this context, macroeconomic stability deteriorated comparable to that experienced by East Asian economies because of multiple exchange rates, foreign currency during their own episodes of fast growth. restrictions, a pro-cyclical fiscal policy, trade restrictions, and high inflation. The economy recovered in 2021 This long spell of sustained expansion benefited all but, paradoxically, macroeconomic stability deteriorated sectors of the economy. This period was characterized further (FIGURE 7). Even at the average per-capita by high oil prices, accompanied by macroeconomic GDP growth rate of 1.1 percent observed in 2021 and first-generation structural reforms that instilled (which was partly a result of base effects following the confidence for private investment and FDI.6 While 2020 recession), it would take about a decade for Nigeria non-oil growth averaged about 3 to 4 percent between to return to the level of GDP per capita of 2014, just 1990 and 2000, it more than doubled to over 8 percent before the oil price shock. between 2001 and 2010 (FIGURE 9). Despite the global financial crisis, the non-oil economy grew by more than 7 percent in 2009. Fast growth in a context of favorable 2.1.  global conditions and improved The rapid growth of the Nigerian economy stemmed macroeconomic foundations (2001– from well-implemented macroeconomic reforms 2010) in a very favorable global context. Nigeria’s strong growth performance during a period of rising oil prices In the 2000s, Nigeria was one of the fastest growing reflected primarily two factors: (i) sound macroeconomic economies in the world. Nigeria grew at an average of policy that created a more favorable environment for 8.2 percent per year between 2001 and 2010 (FIGURE private investment; and (ii) sectoral policies. The goals 8), the strongest economic expansion since the country of macroeconomic policy were to stabilize the economy, FIGURE 8. Between 2001 and 2010, Nigeria was FIGURE 9. …led by the expansion of the non-oil one of the fastest growing economies in the economy world… GDP growth, percent (yoy) Sectoral growth, percent (yoy) 9 12 8 10 10.1 7 8 8.0 6 6 6.8 5.6 5 4 4 2 1.8 1.6 1.1 3 0 2 -2 -4.2 -3.8 1 -4 0 -6 2001–2010 2011–2014 2015–2021 Avg. 2001–2010 Avg. 2011–2014 Avg. 2015–2021 J Nigeria J SSA J LMIC J World J Oil GDP J Non-oil GDP J Real GDP Source: WDI. Source: WDI. 6 For a more detailed overview, see World Bank (2010) Nigeria Country Economic Memorandum, Putting Nigeria to Work: A strategy for Employment and Growth. 2. Nigeria’s growth record since the return of democracy: A tale of two development paths 11 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 improve budgetary planning and execution, and provide Growth during this period was not inclusive and the a platform for sustained economic diversification and number of poor people remained stagnant. Gains non-oil growth. Sectoral policies, such as the banking from the period of high growth were relatively larger consolidation exercise and the telecommunications for richer Nigerians, and insufficient to lift people out reform, directly boosted growth in specific sectors of the of poverty. The welfare of relatively richer Nigerians was economy. On fiscal management, a key reform was the far more strongly linked to the country’s growth than introduction of the Excess Crude Oil Account in 2004, was the case for poor Nigerians. During this period, with the aim of stabilizing expenditures between periods the number of poor people remained on average at 68 of high oil prices and low oil prices. An oil price was million (FIGURE 7). benchmarked for the budget and any additional revenue due to higher international oil prices was parked in the Excess Crude Oil Account to help promote counter- Low growth in a context of 2.3.  cyclical fiscal policy when the need arose. This reform unfavorable global conditions was successfully implemented between 2005 and 2008. and worsened macroeconomic Nigeria also successfully negotiated debt relief from the foundations (2015–2021) Paris Club in 2006 that eased debt servicing pressures and reduced its debt overhang (Okonjo-Iweala, 2012). Between 2015 and 2021, an oil crisis, the COVID-19 crisis, and conflicting macroeconomic policies set in motion a period of sluggish growth. Economic Moderate growth in a context of 2.2.  growth averaged 1.1 percent per year between 2015 favorable global conditions but and 2021, below the rate of population growth of weaker macroeconomic foundations 2.6 percent (FIGURE 10). Despite the fast expansion (2011–2014) of the previous decade, the structure of the economy remained undiversified. The oil price shock of late 2014 In the absence of sustained reforms, growth slowed and its aftermath pushed the economy into recession between 2011 and 2014. Nigeria’s strong growth in 2016 and led to a major budgetary crisis due to the performance had occurred despite poor physical latent trend of weak domestic revenue mobilization. infrastructure and a business environment that was not Nigeria was on a path to a sluggish recovery between conducive to private investment. From 2011 to 2014, 2018 and 2019, when the economy was hit hard by the although growth remained high at 4.4 percent per COVID-19 pandemic in 2020. The decline in oil prices year, the economy slowed down. External conditions and weak domestic demand also affected the non-oil were still favorable, and oil prices reached their highest economy. The growth rate of Nigeria’s GDP per capita level in 20 years, but weak institutions and a lack of was not only negative, but also lower than the average of deeper reforms prevented the country from sustaining other countries affected by similar shocks (FIGURE 11). the strong dynamics of the previous decade. Revenues declined in this period by almost 3 percentage points of The Nigerian economy was not resilient enough GDP, despite oil prices remaining high, as oil production to alleviate the impact of negative global shocks. In fell due to vandalism, and the Government’s -subsidized contrast to the 2008–2009 crisis, when the 2016 oil domestic gasoline, reducing its net oil revenues. Attempts price shock occurred, the economy lacked adequate to rebuild the Excess Crude Oil Account buffers were buffers and, as a consequence, expenditures collapsed, unsuccessful and Excess Crude Oil Account declined to jeopardizing the delivery of public services. After the US$2 billion at the end of 2014, well-below the target of 2015–2016 oil price shock, the Government aimed to US$6 billion needed to withstand the oil price shock of diversify its revenue base and also curtail expenditure to 1 standard deviation (IMF, 2014). maintain fiscal stability. However, curtailing expenditures 12 2. Nigeria’s growth record since the return of democracy: A tale of two development paths SYNTHESIS REPORT  |  CHARTING A NEW COURSE FIGURE 10. GDP growth plummeted after the FIGURE 11. …and Nigeria’s GDP per capita gains collapse of global oil prices in 2014–2015… over the past two decades are the lowest among peers GDP per capita growth, percent (yoy) 6 Turkey Russia 5 5.1 5.2 Mexico 4 4.3 China Brazil 3 South Africa 2.8 2.6 2.5 Egypt 2 Indonesia 1.6 1 India Ghana 0 Bangladesh -1.0 -1 Pakistan -1.9 Nigeria -2 Avg. 2001–2010 Avg. 2011–2014 Avg. 2015–2021 0 5,000 10,000 15,000 20,000 25,000 30,000 GDP per capita (US$, 2017 PPP) J Middle-income countries J Sub-Saharan Africa J Nigeria J 2001 J Additional GDP per capita between 2001–2021 Source: WDI. Source: WDI. in the early part of this period resulted in the build-up of significant arrears (both salary and contractor arrears), which had to be paid off during the period. This resulted in higher levels of debt, higher debt servicing, and higher levels of rigid expenditures that were maintained during the period (World Bank, 2022d). When oil prices started to recover from 2018 onwards and Nigeria exited its first recession, it faced the COVID-19 shock in 2020, which again led to declining revenues as economic growth globally slowed down. By the end of 2020, Nigeria’s fiscal deficit stood at 5.4 percent of GDP, 1.4 percentage points higher than the legally mandated limit. In 2021, rising oil prices could have helped Nigeria recover its public finances, but the continuing petrol subsidy and falling oil production have led to declining net oil revenues. 2. Nigeria’s growth record since the return of democracy: A tale of two development paths 13 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 What can we learn from Nigeria’s growth 3.  record: Seven messages Message 1: The deterioration of the 3.1.  growth. Low oil prices between 2015 and 2020, macroeconomic foundations has coupled with production problems in Nigeria’s oil eroded growth potential sector, affected the current account balance, which turned from a surplus of 3.7 percent of GDP in Macroeconomic stability and policy predictability 2009–2014 to a deficit of 0.7 percent in 2015–2020. have steadily deteriorated over the past decade. The volatility of Nigeria’s GDP growth rate is above • Limited fiscal space. Nigeria’s limited fiscal space average for lower middle-income countries (BOX 1). reflects the country’s low total revenues and heavy Macroeconomic stability7 has worsened significantly dependence on crude oil exports. Prior to the since 2014 (FIGURE 12) and, by 2021, it reached COVID-19 pandemic, a full 50 percent of general at an all-time low (FIGURE 13). Several factors have government revenue came from the oil sector; thus, undermined macroeconomic stability. much like the external balance, the federal budget is highly exposed to trends in commodity prices. • An over-reliance on oil exports, resulting in high Following the 2015 oil shock, Nigeria’s already low exposure to external volatility. Over the past four general government revenue fell to an average of just decades, oil and gas has consistently represented 7 percent of GDP between 2016 and 2020—among more than 90 percent of Nigeria’s total exports, the lowest in the world. Revenues from other sources, exposing the economy to a high degree of external such as non-oil taxation, had stagnated at about volatility. In each cycle, faltering oil exports weaken 4 percent of GDP due to costly tax incentives, low confidence in the economy, resulting in diminished tax rates, weak tax administration, and burdensome or even negative net capital inflows, which intensifies compliance requirements for taxpayers. In 2020– pressure on the local currency (the Nigerian naira), 2021, Nigeria’s fiscal position became increasingly and further discourages investment, in turn slowing precarious as the general government deficit reached FIGURE 12. Most macro-fiscal indicators have FIGURE 13. …and Nigeria’s macroeconomic significantly worsened… stability reached a low in 2021 Macroeconomic indicators Macrostability Index (2000=100) 30 15 84 168 170 175 180 21 42 57 131 179 164 140 25 120 Sub-Saharan Africa 20 20.5 100 15 80 13.6 13.7 12.5 10 60 9.9 8.8 5 6.9 Nigeria 5.8 40 2.4 2.6 0 -2.3 20 -0.7 -5 0 Current account General gov’t 20 0 20 1 20 2 20 3 20 4 20 5 20 6 20 7 20 8 20 9 20 0 20 1 20 2 20 3 20 4 20 5 20 6 20 7 20 8 20 9 20 0 21 GDP per capita Inflation balance revenue 1 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 2 20 growth (percent) (percent) (percent of GDP) (percent of GDP) J 2000–10 J 2011–14 J 2015–21 ‡ Global ranking Source: WEO. Source: World Bank staff calculations based on WEO. 7 Measured by a standardized composite index of inflation, current account, and overall fiscal balance, with 2000 as the base year. 14 3. What can we learn from Nigeria’s growth record: Seven messages SYNTHESIS REPORT  |  CHARTING A NEW COURSE BOX 1. Volatility harms growth Growth in Nigeria is more volatile than in the average middle-income economies ( FIGURE B1). Volatility is driven largely by external terms-of-trade shocks and the country’s reliance on oil-export earnings. Expenditure volatility has resulted in low-quality government spending, often marred by incomplete capital projects. Macroeconomic instability has also hindered long-term planning by the private sector and resulted in a concentration of economic activity in short-term arbitrage opportunities, rather than productive long-term investments. Volatile fiscal spending also tends to cause real exchange-rate volatility. Growth volatility, even with high growth rates, affects long-term growth prospects. Adverse consequences may arise from two channels: first, unsteady revenue flows tend to reduce the quality and productivity of government expenditures; and, second, private investments tend to shrink in a volatile environment. Macroeconomic volatility is a source of short-term concern and an impediment to achieving long-term FIGURE B1. Growth volatility in Nigeria is above the average of other LMIC economies development goals. Beyond regular business cycle Log of real GDP per capita (2020) fluctuations, volatility disrupts households’ and 4.2 firms’ saving, investment, and production decisions. 4.1 EGY DZA LKA UKR It reduces the ability of the financial system to IDN BTN MNG 4.0 VNM TUN BOL transform liquid financial instruments into long-term 3.9 SWZ PHL LAO SLV UZB MAR 3.8 BLZ capital investments, as agents in the economy become IND MRT CPV AGO 3.7 reluctant to enter long-term contracts. Greater 3.6 BGD PAK KEN KHM NGA COG output volatility—especially when accompanied by 3.5 CMR NPL FSM BEN SENZMB PNG TJK TLS crisis episodes—stifles long-term growth. Increasing 3.4 COM TZA HTI LSO VUT output volatility by 1 standard deviation leads to a 3.3 KIR Average GDP growth volatility 1.3-percentage-point reduction in growth per capita. 3.2 1 2 3 4 5 6 7 This decline is even more sizable (2.2 percentage GDP growth volatility points) during times of crisis (World Bank, 2014). Source: WEO, NBS. 5.2 percent of GDP, breaching the 3 percent statutory The debt to GDP ratio surged from 13.1 percent ceiling for the federal government established in the in 2014 to 35.3 percent in 2021, and the federal 2007 Fiscal Responsibility Act.8 government’s debt-service-to-revenue ratio has risen to critical levels in recent years. • A pro-cyclical fiscal position. The Government’s dependence on volatile oil revenues, very low • Inconsistent monetary policies. Nigeria’s monetary non-oil revenues, and depleted fiscal buffers have policies are not helping reduce inflation. Since shifted its fiscal policy stance from counter-cyclical 2018, the CBN has increasingly financed the federal between 2008 and 2014, to pro-cyclical between government, heightening inflationary pressures. 2015 and 2021 (World Bank, 2022d). Pro-cyclical Moreover, the CBN’s policy goals are conflicting, fiscal policies have amplified economic fluctuations, as the central bank aims to stabilize the de facto further discouraging new investment, exacerbating exchange rate, promote economic growth, and unemployment, and weakening debt sustainability. contain inflation simultaneously. Partly due to 8 In line with the 2007 Fiscal Responsibility Act, 34 of Nigeria’s 36 states have limited their fiscal deficits. 3. What can we learn from Nigeria’s growth record: Seven messages 15 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 weak fiscal management, since 2015 the CBN • Restrictive trade policies. Unpredictably enforced has increasingly focused on directly promoting import prohibitions, cumbersome customs growth and industrial development. Meanwhile, procedures, and a dearth of publicly available high inflation has worsened poverty and depressed compliance information increase trade costs and economic activity. Between 2020 and 2021, for erode Nigeria’s non-oil export competitiveness. instance, the inflation shock pushed an estimated Although the Government has significantly reduced 8 million Nigerians into poverty. tariffs in recent decades, the tariff regime remains restrictive. In 2016, Nigeria’s weighted average tariff • Unpredictable exchange-rate policies. Exchange for most-favored nation (MFN) trade partners was rate policy aims to maintain an artificially stable twice the SSA average, 5.5 times higher than in exchange rate through continued foreign exchange Indonesia, and 9 times higher than in Mexico. (FX) restrictions and administrative measures. The CBN supplies FX to four FX windows at different As a result, Nigeria’s potential output—the level rates, while maintaining a complete restriction on of real GDP that can be sustained over the long FX for a group of 45 products and limiting its supply term—is below population growth. Potential output, for most other imports. In the drive to create jobs measured through the structural component of growth, and foster economic diversification through import is a measure of what an economy can produce when substitution, the CBN has imposed foreign-currency operating at maximum sustainable employment restrictions aimed at boosting the supply of credit (IMF, 1997). Potential growth has declined from an to priority sectors, while also directly supporting average of 8.2 percent in 2000–2010, to 4.4 percent in industrial and agricultural development through 2011–2014, and further to 2.1 percent in 2015–2021 subsidized financing. These policies have hurt (FIGURE 14). With potential economic growth below investor confidence: foreign direct investment inflows population growth, Nigeria relies on cyclical growth have fallen significantly, and domestic producers (positive exogeneous shocks) to sporadically generate have curtailed production due to limited access to positive GDP-per-capita growth, exacerbating the imported raw material. They have also created a large country’s vulnerability to external volatility. This is well premium between the official and parallel rates. captured by the pattern of growth in 2021 (3.6 percent), when structural GDP growth remained at the same level FIGURE 14. Structural GDP growth has steadily FIGURE 15 …and it is currently below population declined over the past decade… growth Percent Percent 10 20 8 15 8.2 6 10 1.2 5 4 4.4 0 2 2.1 -5 0 -0.2 -1.0 -10 -2 20 1 20 2 20 3 20 4 20 5 20 6 20 7 20 8 20 9 20 0 20 1 12 20 3 20 4 20 5 20 6 20 7 20 8 20 9 20 0 21 1 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 2 20 20 2001–2010 2011–2014 2015–2021 J Structural J Cyclical J Structural J Cyclical ▬ Real GDP growth Source: World Bank staff calculations based on WDI. Source: World Bank staff calculations based on WDI. 16 3. What can we learn from Nigeria’s growth record: Seven messages SYNTHESIS REPORT  |  CHARTING A NEW COURSE as in 2020 (1.7 percent), while cyclical GDP growth growth and job creation (World Bank, 2022b). Multiple accounted for more than 50 percent of the observed exchange rates, trade restrictions, and financing of the GDP growth (FIGURE 15). public deficit by the CBN continue to undermine the business environment. These policies augment long- standing weaknesses in revenue mobilization, foreign Message 2: The sectoral growth 3.2.  investment, human capital development, infrastructure performance across different periods investment, and governance (FIGURE 17 and FIGURE is directly linked to the pace of 18). reforms Nigeria has a track record of successful sectoral Oil-price shocks and mounting fiscal pressures have reforms that have achieved substantial growth gains. repeatedly spurred reform but sustaining these Structural policies, such as large-scale privatization, efforts has proven difficult  (FIGURE 16). Periods reforms to the regulatory environment, the establishment of macroeconomic crisis, such as at the start of the of institutions tasked with combating corruption, COVID-19 pandemic, have led to diversification and and financial sector reforms, have succeeded in the fiscal consolidation measures both at the federal and past in improving the supply response of the economy state levels (World Bank, 2022d). However, reforms (FIGURE 19). Improvements in aggregate domestic that impose costs on vested interests (e.g., reducing demand underlying the strong growth performance were subsidies) have met significant resistance and have lacked the result of: (i) higher foreign direct investment (FDI), consensus among the elite. Moreover, once the initial notably in the oil and gas and telecommunications crisis subsides, reform efforts tend to lose momentum sectors; (ii) increases in remittances from Nigerians (Usman, 2022). This pattern was observed during living abroad; and (iii) higher credit to the private sector the period of structural adjustment in the 1980s, after (Treichel, 2010). FDI and remittances responded directly the accumulation of debt in the 1990s, and during to important changes in macroeconomic policies and the period of low oil prices and declining production structural reforms. Most notably, sound macroeconomic volumes between 2015 and 2020. After the 2020 policies helped stabilize the economic environment, and recession, the Government has kept a “business-as- reduce inflation and real interest rates. usual” policy stance that hinders prospects for economic  iscal deficits track oil prices and consolidation measures have not been sustained FIGURE 16. F Consolidated government, percent of GDP Bonny Light, US$/bbl 0 2021 140 Decoupling of oil prices and 120 -1 fiscal position due to large 2017–2018 petrol subsidy Significant increase deductions 100 -2 in NNPC deductions 2020 Recession 2014 caused by 80 -3 COVID-19 ECA depleted and oil 2012 to US$2 billion prices shock 60 Successful -4 reduction of fuel subsidy 2014–2015 40 obligations Recession caused by low oil prices -5 2015–2019 20 Nigeria’s revenue collection among the lowest in the world -6 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 ▬ Fiscal deficit, lhs ▬ Oil price, rhs Source: OAGF, NBS, World Bank. 3. What can we learn from Nigeria’s growth record: Seven messages 17 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 TABLE 1. Sectoral reforms A successful reform: Telecommunications Context NITEL, the government-owned company in charge of providing services in the sector, was plagued with a list of complaints, including ineffective services, high cost of operations, inefficient billing systems, and a call completion rate of less than 50 percent. In 2001, there were about 400,000 phone lines in Nigeria, roughly 1 per 440 inhabitants, the lowest telephone density in the world. Reform The Nigerian Communications Act in 2003 aimed to privatize the sector. The Act was to facilitate the entry of private players into the market, create an enabling regulatory environment, promote fair competition, and market efficiency, as well as expansion of telecommunications in rural areas. Result By 2021, over 8.5 million Nigerians had access to phones, and Nigeria recorded about 187 million registered mobile connections. The reform has yielded significant benefits, allowing entry and competition into the sector. The success of the reform has been attributed to several factors, including the availability of a large tech-savvy market, appropriate technology, timely decision-making by the Government, and effective regulation by the Nigeria Communications Commission. A successful sequential reform: Banking sector Context Nigeria suffered from a low capital base (on average, US$19 million), a large number of small banks (roughly 70) with relatively few branches, poor rating of some banks, weak corporate governance, non-compliance with regulatory requirements, and huge non-performing, insider-related credit. Furthermore, there was over- dependence on public sector credit. Reform The CBN led on banking sector reforms in 2004, which continued until 2010, to usher in a sound banking system able to facilitate economic development and provide a platform for robust monetary policy implementation. The reforms included: consolidation through mergers and acquisitions; a risk-focused, rule-based regulatory framework; zero tolerance for weak corporate governance, misconduct and opacity; promotion of the enforcement of dormant laws; accelerated completion of the Electronics Financial Analysis and Surveillance Systems (e-FASS); and strict enforcement of the contingency planning framework for systemic banking distress. Result The reforms improved banking infrastructure, strengthened the regulatory and supervisory framework, and addressed impaired capital and provision of structured finance. The minimum capital requirement was raised from about US$19 million to US$190 million. To meet new capital requirements, many of the existing 89 commercial banks merged with larger and financially more robust banks, resulting in the emergence of 25 commercial banks that were more solid. Another factor deepening the financial system was the reform of the pension fund, essentially the replacement of the pay-as-you-go system by a fully funded pension system. The new system allowed an end to the accumulation of arrears and had a catalytic effect on the capital markets. Since the banking consolidation, credit to the private sector has more than doubled as a percentage of GDP. An incomplete reform: Power Context The Government owned and operated a vertically integrated company, the National Electric Power Authority (NEPA). NEPA was established to exercise unilateral control over generation, transmission, and distribution of electricity in Nigeria. The sector faced shortages of electrical power supply to meet ever-increasing demand; non-payment of utility bills by a large percentage of consumers; loss of already insufficient power due to dilapidated, obsolete, and poorly maintained infrastructure; shortage of gas supply for thermal stations and low water levels for hydro stations; high operating costs; and the recurring vandalism of power installations. 18 3. What can we learn from Nigeria’s growth record: Seven messages SYNTHESIS REPORT  |  CHARTING A NEW COURSE TABLE 1. Sectoral reforms (continued) Reform In 2013, the formal handover of NEPA’s successor companies to private investors took place, covering six generation companies (GENCOs) and 11 distribution companies (DISCOs), and the Transmission Company of Nigeria (TCN) was established. Result Despite the reform, Nigeria is only able to supply about 3,000 to 4,000 Megawatts daily, a level insufficient for a country of more than 200 million people. One reason is the incomplete nature of the reform, as the Government was unable to complete the development of planned gas-powered plants. Also, the transmission company was not privatized, meaning that ownership of the transmission infrastructure remains with the federal government. In addition, most distribution companies do not receive sufficient electric power for on- sale to consumers and are unable to recover costs incurred from upgrading or improving electricity distribution infrastructure and equipment. The Government implemented the Power Sector Recovery Program in 2017 to resolve many longstanding issues in the sector, in particular around the financial sustainability of the generation and distribution companies. As of 2021, this program has been successful in reducing subsidies and improving the financial sustainability of the sector, but more needs to be done to improve access to reliable power. A failed reform: Oil and gas Context The Nigerian oil and gas sector is composed of numerous players and institutions across three segments: (i) an upstream segment, with several companies involved in the exploration and production of oil and gas; (ii) a midstream segment, with companies that store, treat, and transport oil and gas; and (iii) a downstream segment, which includes refiners, bottling plants for liquefied petroleum gas, filling stations, and trucking companies. The sector’s production has declined consistently over the past two decades due to inefficiencies and the accumulation of large payment arrears for joint-venture cash calls in the 2010s. Due to uncertainties about future regulatory and fiscal frameworks, Nigeria has not held a licensing round for oil blocks other than marginal fields since 2007. New production has been limited to drilling new wells in existing license areas. In 2021, less than one-fifth of oil and gas lifted by the Nigerian National Petroleum Company was eventually transferred to the Federation Account—the petrol subsidy accounted for 42 percent of oil and gas lifted by the NNPC, by far the largest component (World Bank, 2022d). Reform Since 2000, the Oil and Gas Sector Reform Implementation Committee (OGIC) has attempted to draft and pass a law that would effectively reform the oil and gas sector, specifically to allow the sector to become profitable and attract more investments, and to reduce the fiscal burden of the petrol subsidy. After more than two decades in the making, the Petroleum Industry Act (PIA) was enacted on August 16, 2021, and it aimed to reform the oil and gas sector in Nigeria. It transformed NNPC into a limited liability quasi-commercial enterprise (with shares held by Ministries of Petroleum Resources and Finance) and transferred many powers of the Ministry of Petroleum Resources to two new regulators: (i) a Commission for oil and gas exploration and production; and (ii) the Authority for activities downstream of oil and gas production. The PIA also introduced a new fiscal framework for the oil sector, aimed at increasing oil profits at the expense of taxes. Result As of June 2022, Nigeria has not removed the petrol subsidy. Oil production remains below the average production level of the last decade due to high costs, high security risks, the inability of the Federation to pay fully and on time for its share of costs in joint-venture operations, and in the past uncertainties about the future fiscal terms, now set out in the PIA. Despite the passage of the PIA, confusion remains regarding the management and governance of the oil sector. Multiple entities are acting as fiscal agents, with the Commission collecting upstream petroleum revenues, and the Federal Inland Revenue Service continuing to collect downstream revenues. The PIA does not explicitly eliminate in-kind payments and leaves the discretion to the Commission. In contrast to internationally accepted best practice, the PIA excludes all ministers and vests in the Commission the exclusive authority to decide how fiscal payments are to be made or when and how to conduct licensing rounds. 3. What can we learn from Nigeria’s growth record: Seven messages 19 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 FIGURE 17. The appetite for reforms has FIGURE 18. …amid institutional weakening decreased… Petrol subsidy, evasion, exchange rate Governance Indicators in Nigeria Naira billion Percent Index 3,000 35 High ranking 0 2,803 32 2,500 30 -0.5 25 2,000 -1.0 22 20 1,500 15 -1.5 1,289 1,000 10 -2.0 291 500 7 212 5 550 6 394 0 0 -2.5 Low ranking Exchange rate premium Petrol subsidy Evasion (BDX vs IEFX) 2001–2010 2011–2014 2015–2021 J 2009–2010 J 2011–2014 J 2015–2020 J 2021–2022 J Political stability and violence J Government effectiveness Source: NBS, CBN, NNPC, NCS. Source: NBS, Worldwide Governance Indicators (WGI). Note: Evasion corresponds to tariff evasion induced by the introduction of foreign exchange restrictions. Yet in the past Nigeria has shown that bold reforms are possible, as in 2001–08 FIGURE 19.  4,000 2001: 2003: 2004: 2005: 2006: 3,500 Liberalization of First fiscal rule i. Central Bank Act i. Privatization of Civil service reforms telecom introduced ii. Excess crude state-owned 3,000 account enterprises and deregulation of 2,500 government activities 2,000 ii. Debt forgiveness 1,500 2007: 1,000 i. Trade reforms ii. The Fiscal Responsibility Act 500 and the Public Procurement Act (PPA) were enacted 0 2000 2001 2002 2003 2004 2005 2006 2007 ▬ GDP per capita Source: NBS. Message 3: Nigeria lacks large and 3.3.  complement the value chains of larger firms. No country mid-sized formal productive firms has diversified its economy without the creation of mid- sized firms. Mid-sized productive firms are important for economic growth, poverty reduction, and job Small firms represent 40 percent of the total number creation. Mid-sized firms generate the bulk of good jobs of firms in Nigeria and report the lowest productivity. in most upper middle-income economies, especially in Large firms are concentrated in telecommunications, the manufacturing and services sectors, and they are oil production, and the financial sector. They are the usually enablers of economic transformation. They also most productive but have not been able to generate serve to transfer technology, with spillovers from larger productivity spillovers. In 2014, smaller firms reported firms being usually captured by mid-sized firms, thus having more workers compared with 2009, but larger increasing the overall productivity of the economy. Mid- firms have higher levels of productivity and can create sized firms are essential for diversification: they have jobs faster (FIGURE 20). the right size to export, start new production lines, and 20 3. What can we learn from Nigeria’s growth record: Seven messages SYNTHESIS REPORT  |  CHARTING A NEW COURSE  mall firms dominate the business landscape but report the lowest productivity FIGURE 20. S Percent Performance relative to large firms (large firms=100 percent) 220 41 200 Small 180 160 10 140 Large 120 100 80 60 40 49 20 Medium 0 Value added Employment Labour productivity J Small J Medium J Large Source: Enterprise Survey 2009 and 2014. The sample is restricted to a balanced panel of firms that responded to both surveys. FIGURE 21. More productive firms in Nigeria pay FIGURE 22. …but there appears to be a missing higher wages… middle Number of employees Thousand naira Number of employees Thousand naira 30 1,400 35 2,000 1,800 25 1,200 30 1,600 1,000 25 1,400 20 1,200 800 20 15 1,000 600 15 800 10 400 10 600 400 5 200 5 200 0 0 0 0 1 2 3 4 5 1 2 3 4 5 Labor productivity quintiles in manufacturing Labor productivity quintiles in formal manufacturing J Employment ▬ Median wage, rhs J Employment ▬ Median wage, rhs Source: NBS, MSME National Survey (2017). Note: Labor productivity measured as sales per worker. FIGURE 23. Informality is prevalent across all FIGURE 24. …and across all sectors regions… Informality share - micro 98 Accomodation & food services Administrative activities 96 96.5 96.4 Agriculture 96.1 Arts and entertainment 94.8 95.0 Construction 94 Education Human health and social works 92 ICT Manufacturing 90 Mining and Quarrying Others services activities 88 88.4 Professional & technical works Real estate activities 86 Transport and storage Water Supply Trade 84 North North North South South South Central East West East South West 0 20 40 60 80 100 Informality share - micro Source: NBS, micro sample of the MSME National Survey (2017). Note: Informal firms are defined as those not registered with the Corporate Affairs Commission (CAC). 3. What can we learn from Nigeria’s growth record: Seven messages 21 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 There is a dual economy featuring large above 95 percent in all regions. Furthermore, informality concentrations in employment among the most- and among micro firms is most widespread in private sector least-productive firms, even in the formal sector. The services, such as administration and support, or arts, more-productive firms in Nigeria pay higher wages and entertainment, and recreation (FIGURE 24). The the most-productive firms employ the most people, lowest informality rates for micro firms are in public making productivity growth crucial to creating more sector services (e.g., education, human health, and social and better jobs. However, there appears to be a missing works). middle, as the least-productive firms are the second- biggest employers (FIGURE 21 and FIGURE 22). This Informality is a potential source of labor dual economy is not driven by informality, as the same misallocation. Among micro firms, informal firms are pattern holds when focusing only on formal firms. The only one-third as productive as formal ones. However, missing middle, whereby there is a negative relationship informal businesses comprise 93.8 percent of all micro between employment and productivity between the firms (FIGURE 25), and employ over three times first and fourth quartiles, points to a misallocation of more workers than formal micro businesses. Such labor. This is because, ideally, labor should be allocated widespread informality indicates that a large share of to the most-productive firms, and a generally positive labor is misallocated toward less-productive firms, and relationship would be expected between employment that informality may be a potential source of labor and productivity. misallocation (FIGURE 26). However, informality is often a symptom of underlying economic weaknesses Informality is prevalent across all regions and most that cause a self-selection of less-productive firms into sectors. Among micro firms, the informality9 rate across informality (see, for example, La Porta and Shleifer, regions ranges from 88.4 percent in the South-South to 2014). Hence, measures to improve productivity can 96.5 percent in the North West (FIGURE 23). With naturally reduce informality over time, which in turn can the exception of the South-South, micro informality is reduce misallocation and further increase productivity. FIGURE 25. Less than 10 percent of firms are FIGURE 26. A large share of labor is employed in formal informal firms with low productivity Share of firms (percent) 100 4,500 90 93.8 4,000 4,220 80 3,500 70 3,000 60 2,500 50 2,000 40 1,908 1,500 30 1,303 20 1,000 10 500 688 6.2 0 0 Formal Informal Labour productivity 2017 Total employment 2017 J Formal (thousand naira) J Informal (number of employees) Source: NBS, micro sample of the MSME National Survey (2017). Note: Labor productivity measured as sales per worker. Informal firms are defined as those not registered with the Corporate Affairs Commission (CAC). 9 Informal firms are defined as those not registered with the Corporate Affairs Commission (CAC). 22 3. What can we learn from Nigeria’s growth record: Seven messages SYNTHESIS REPORT  |  CHARTING A NEW COURSE Message 4: Boom-and-bust oil cycles 3.4.  telecommunications and financial services, the negative and low investment have hindered oil price cycle had negative spillovers across the economy. economic diversification Thus, from 2015 to 2020, the economy relied heavily on public consumption, especially in 2016 as a reaction In Nigeria, the contribution of investment to growth to the 2016 recession, and in 2020 as a response to the has been small, due to limited fiscal space and a weak COVID-19 crisis. (FIGURE 27). business environment. Economies that have diversified their sources of growth over the past decades have done As a consequence of muted investment growth, so off the back of investment growth. Diversification Nigeria has remained far more dependent on oil involves learning about innovative products, new exports than the average of other oil-rich countries. technology, and uncharted markets. It requires steady Since the 1970s, Nigeria’s economy has become heavily financing through public investment—mainly in the focused on oil production, and formerly robust non- form of better infrastructure—and private investment. oil sectors have atrophied. Previously, Nigeria exported Until 2014, Nigeria’s growth relied heavily on private a broad range of primary commodities, including consumption. From 2001 to 2014, Nigeria enjoyed a substantial share of the world’s cocoa, palm oil, a long period of growth in private consumption, groundnuts, cotton, hides, skins, rubber, and coffee, driven by a favorable cycle of relatively high oil prices. as well as coal, tin, and other minerals. Over the past Macroeconomic and structural reforms instilled greater decades, oil has instead consistently represented more confidence among the business community, and boosted than 90 percent of Nigeria’s total exports (FIGURE 28). FDI and remittances from Nigerians living abroad, This overwhelming dependence on oil exports has left raising aggregate demand. Growth was also sustained by Nigeria’s terms-of-trade and balance-of-payments highly an increase in oil exports. vulnerable to shocks. Conversely, public consumption has been the Despite repeatedly experiencing the adverse primary driver of growth for the past five years. When consequences of the lack of diversity in its export oil prices collapsed, consumption and investment also base, Nigeria has made little progress in reducing declined. Because the economy had not diversified its its dependence on oil. Regional comparators such as sources of growth, apart from in certain areas such as Uganda and Benin, and global comparators such as the FIGURE 27. Investment has played a limited role in economic growth Contributions to GDP Growth 2000–2010 2011–2014 2015–2020 Real GDP 7.9 5.6 0.7 Imports -1.4 -1.3 0 Exports 2.0 1.1 0 Change in inventories 0 0.1 0 Gross fixed capital formation 0.1 0.6 0 Public consumption 0.4 -0.3 0.5 Private consumption 5.6 2.8 0.1 -2 0 2 4 6 8 10 -2 0 2 4 6 -0.2 0 0.2 0.4 0.6 0.8 Percentage points Percentage points Percentage points Source: NBS. 3. What can we learn from Nigeria’s growth record: Seven messages 23 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 FIGURE 28. Oil exports continue to dominate the exports basket in Nigeria Nigeria Indonesia Egypt, Arab Rep. Percent 100 90 80 70 60 50 40 30 20 10 0 5 0 0 5 0 5 0e 5 0 0 5 0 5 0e 5 0 0 5 0 5 0e 98 99 00 00 01 01 98 99 00 00 01 01 98 99 00 00 01 01 02 02 02 –1 –1 –2 –2 –2 –2 –1 –1 –2 –2 –2 –2 –1 –1 –2 –2 –2 –2 –2 –2 –2 81 86 96 01 06 11 81 86 96 01 06 11 81 86 96 01 06 11 16 16 16 20 20 20 19 19 19 20 20 19 19 19 20 20 19 19 19 20 20 20 20 20 Oman Ecuador Mexico Percent 100 90 80 70 60 50 40 30 20 10 0 5 0 0 5 0 15 0e 5 0 0 5 0 15 0e 5 0 0 5 0 15 0e 98 99 00 00 01 98 99 00 00 01 98 99 00 00 01 20 02 20 02 20 02 –1 –1 –2 –2 –2 –1 –1 –2 –2 –2 –1 –1 –2 –2 –2 – –2 – –2 – –2 81 86 96 01 06 11 81 86 96 01 06 11 81 86 96 01 06 11 16 16 16 20 20 20 19 19 19 20 20 19 19 19 20 20 19 19 19 20 20 20 20 20 J Oil exports J Non-oil exports Source: WDI and CBN. United Arab Emirates and Oman, have reduced their FIGURE 29. Nigeria has remained one of the least- complex economies in the world for the past 20 dependence on commodity exports by broadening their years portfolio of manufactured goods. Economic complexity 2018 1.0 EST LTU ESP As a result of low investment in non-oil industries, PRT PHL LVA SAU 0.5 IND Nigeria is among the seven least-complex economies CRI CYP NOR VNM SLV COL MKD NZL JOR in the world. Over the past 20 years, Nigeria’s economy 0 ARE PAN MDA ZAF SWZ JAM DOM CHL ARG has become relatively less complex, moving from QAT MUS PRY KEN LKA NAM ALB ARM -0.5 OMN KHM MAR AUS the 127th to the 133rd position in the Economic KAZ MWI ETH PAK ZMB SENMLI NIC MNGPER Complexity Index ranking (FIGURE 29). Low growth -1.0 CMR MMRMDG MRT ECU DZACUB ZWE MOZ and slow structural transformation have contributed to -1.5 GAB this outcome—the pace of structural transformation NGA AGO PNG -2.0 of the domestic economy of the 2000s has not been -2.5 -2.0 -1.5 -1.0 -0.5 0 0.5 1.0 1.5 sustained over a sufficiently long period. Economic complexity 2000 Source: ??? 24 3. What can we learn from Nigeria’s growth record: Seven messages SYNTHESIS REPORT  |  CHARTING A NEW COURSE FIGURE 30. In 2021, oil produced was the lowest in three decades 2021 production fell to the lowest level since 1988 Oil production in Nigeria and Brent crude oil price (FIGURE 30). movements mbpd US$/bbl Nigeria has limited exploration for many years and 3.0 140 has not held an exploration licensing round since 120 2.5 2007. In the absence of new exploration, production 2.0 100 in Nigeria has tended to stagnate and then fall, as 80 production from existing fields naturally declines to the 1.5 60 tune of 10–15 percent a year. With the exception of a 1.0 40 marginal round in 2020, the federal government has not 0.5 20 conducted an exploration licensing round since 2007. This was partly because industry players were waiting for 0 0 the new PIA, which was enacted in August 2021 and has 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 ▬ Nigerian oil production ▬ Brent crude oil price, rhs made fiscal terms more attractive to investors. Attacks Source: World Bank staff calculations based on NNPC annual statistical on oil production infrastructure, work stoppages, and bulletins for oil production from 1990 to 2019, government oil production reports for 2020 and 2021, and World Bank commodity annual prices for disturbances in oil-producing communities have led to Brent crude oil. the suspension of oil production on numerous occasions Despite being an oil exporter, Nigeria is benefiting (see the June 2022 Nigeria Development Update). less than before from cycles of higher oil prices (World Bank, 2022b). Oil production has been  declining steadily for the past two decades and is not Message 5: Economic transformation 3.5.  expected to recover to its prior levels. The Federation’s and job creation have been slow, failure to finance production of its share of equity oil has as the non-oil economy moved from plagued Nigeria’s oil production for many years. After low-productivity agriculture to low- rising above 2 million barrels per day (b/d) in 1997, productivity services oil production fluctuated between 2 and 2.5 million b/d before falling below 2 million b/d in 2016, due to Nigeria’s periods of expansion have been accompanied an unusually high number of attacks on oil production by improvements in total factor productivity (TFP). infrastructure that year. After recovering modestly, in Between 2001 and 2011, growth was accompanied by FIGURE 31. The decline in structural GDP growth has been accompanied by a decline in TFP growth 2000–2010 2011–2014 2015–2020 Real GDP 7.9 5.6 0.7 Total factor productivity 6.4 4.3 -0.6 Labor 0.7 0.7 0.6 Capital stock 0.9 0.7 0.7 0 2 4 6 8 10 0 1 2 3 4 5 6 -1.0 -0.5 0 0.5 1.0 Percentage points Percentage points Percentage points Source: NBS. 3. What can we learn from Nigeria’s growth record: Seven messages 25 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 a sizable rise in TFP (FIGURE 31).10 This coincided resort, agriculture, has been the only sector constantly with important sectoral reforms that boosted output employing people, but its growth has not increased in the and job creation in the financial sector and ICT. Sound past two decades. Third, oil dominance: with rents from macroeconomic policies helped stabilize the economic the oil sector dominating fiscal and external revenues, environment and curb inflation and real interest rates, the space for diversification in non-oil industries that while sectoral reforms included large-scale privatization, could have boosted labor and capital stock has been reforms to the regulatory environment, the establishment severely constrained. of institutions tasked with combating corruption, and financial sector reforms (Treichel, 2010) As the reform Structural transformation has been slow, and the impulse slowed after 2010, economic growth and TFP’s non-oil economy has shifted from low-productivity contribution to growth also slowed. agriculture to similarly low-productivity services. Sector-specific contributions to growth can be conceived From 2015 to 2020, Nigeria’s TFP growth contracted. as the result of two underlying mechanisms: (i) changes The end of the commodities boom, combined with in per-worker productivity in a given sector; and heightened insecurity and an inadequate macro-financial (ii) reallocation of workers across sectors. The latter policy response, led to a sharp decrease in TFP growth can be split in two subcomponents: (i) a dynamic during the 2016 recession. However, TFP growth had productivity gain, from labor moving to sectors where started decelerating since 2011 as investment declined. labor productivity increases; and (ii) a static productivity Few productivity improvements occurred in the gain, when workers move to sectors with higher employment-intensive sectors of the economy, such as productivity, regardless of its growth. manufacturing. As a result, infrastructure constraints became more binding in such sectors, limiting progress • Between 2000 and 2014, within-sector productivity in their productivity, competitiveness, and ability to growth and the reallocation of labor across sectors generate employment. With oil receipts dominating reinforced each other in promoting growth in Nigeria fiscal revenue and exports, the economy was hit hard by (FIGURE 32). However, productivity growth was low oil prices, a significant fall in oil production, and largely driven by within-sector productivity growth inadequate policy implementation. Investor confidence followed by transitions to more-productive sectors. gradually eroded, as macroeconomic conditions worsened, with inflation doubling, distortions in the • Agriculture and services exhibited noticeable growth foreign exchange market dampening activity, and risks in within-sector productivity. Productivity growth in growing in the banking sector. agriculture (within-sector) generated three-quarters of the aggregate productivity gain in this period. From 2000 to 2020, the contributions of labor In services, within-sector productivity growth was and capital to growth have remained constant. relatively more modest, but nonetheless positive These facts reflect three trends. First, growth in (FIGURE 33). Labor reallocation from agriculture, Nigeria has not been investment-driven, and capital and to a limited extent manufacturing, toward the accumulation has been slow. Even during the episodes services sector drove the main across-sector dynamics of high oil prices, most growth came from exports and throughout the 2000s. However, reallocation effects consumption. Second, industries driving growth, such remained limited compared with productivity as ICT, telecommunications, and financial services, dynamics within each sector. have not created enough jobs. The employer of last 10 Measured by the residual of capital and labor accumulation, and not only technological innovation. 26 3. What can we learn from Nigeria’s growth record: Seven messages SYNTHESIS REPORT  |  CHARTING A NEW COURSE  he contraction in within-sector productivity has led the decline in per-capita value added… FIGURE 32. T 2000–2010 2011–2014 2015–2020 Total per capita value added 5.3 2.5 -1.7 Demographic change -0.1 0 0.2 Participation rate 0 -3.0 -0.1 Employment rate 0 -0.3 -1.1 Dynamic reallocation 0.2 -0.1 -0.1 Static reallocation 0.2 1.2 0.3 Within-sector productivity 5.0 4.8 -0.9 -1 0 1 2 3 4 5 6 -4 -2 0 2 4 6 -2.0 -1.5 -1.0 -0.5 0 0.5 Percentage points Percentage points Percentage points Source: WDI. FIGURE 33. …driven by decreases in productivity in industry and services 2000–2010 2011–2014 2015–2020 Change in productivity 5.3 5.9 -0.7 Inter-sectoral, services 1.5 0.5 0.5 Inter-sectoral, industry -0.6 1.2 0 Inter-sectoral, agriculture -0.5 -0.6 -0.3 Within, services 2.5 3.3 -1.1 Within, industry 0.5 -0.2 -0.5 Within, agriculture 2.0 1.7 0.6 -2 0 2 4 6 -2 0 2 4 6 8 -1.5 -1.0 -0.5 0 0.5 1.0 Percentage points Percentage points Percentage points Source: WDI. • Between 2015 and 2020, productivity declined productivity and earnings. These effects were further due to within-sector productivity contractions and exacerbated by the COVID-19 pandemic. an increase in unemployment. The within-sector productivity contraction was shared across services Employment growth did not always occur in and industry. The contraction in productivity growth subsectors with the highest labor productivity within industry and services was significant and growth, thereby dragging down aggregate drove the overall decline in TFP. Despite decreasing productivity through misallocation. The subsectors productivity in agriculture, both industry and services with the highest growth in employment between 2016 lost employment shares to the agriculture sector. That and 2017 were mostly those with low labor productivity is, given lack of opportunities elsewhere and low growth (FIGURE 34).11 This implies that labor has entry barriers in agriculture, the latter became the been flowing to increasingly less-productive sectors. absorbing sector for new labor entrants despite low Although the relationship between employment growth 11 There are two caveats to this result. First, the data come from an MSME survey that excludes large firms. Second, productivity is measured as sales per employee. Sales data are influenced by the prices that firms can charge, and potentially reflect more factors than productivity differences alone (e.g., price-setting power, quality differences). 3. What can we learn from Nigeria’s growth record: Seven messages 27 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 FIGURE 34. Employment growth did not always occur in sectors with the highest labor productivity growth Turnover per worker growth (2017–16) 250 Education 200 150 Arts, Entertainment, Recreation Professional, Scientific, Technical Agriculture 100 ICT Administrative & Support 50 Wholesale/ Construction Retail Trade Manufacturing 0 Accomodation Real Estate & Food Activities Others Services -50 0 5 10 15 20 25 30 35 40 45 Employment growth (2017–16) Source: NBS, MSME National Survey (2017). FIGURE 35. Nigerian manufacturers are less FIGURE 36. Nigeria’s labor productivity in the efficient than the average LMIC manufacturer manufacturing sector has not changed much over the past four decades Industry value added per worker Industry value added US$ Value added per population 7,000 400,000 6,000 350,000 300,000 5,000 250,000 4,000 200,000 3,000 150,000 2,000 100,000 1,000 50,000 0 0 2001–2010 2011–2014 2015–2018 1981 2018 J Nigeria J Lower middle income countries J Nigeria J Korea, Rep. Source: The Economic Transformation Database 2021. Figures are adapted from Serbia’s CEM 2019. LMICs available in the dataset include Bangladesh, Bolivia, Cambodia, Cameroon, Egypt, Ghana, India, Kenya, Nepal, Lao DPR, Lesotho, Morocco, Myanmar, Nepal, Nigeria, Pakistan, the Philippines, Senegal, Sri Lanka, Tanzania, Tunisia, Vietnam, and Zambia. and productivity growth can be ambiguous,12 it is ideally sectors may be on the rise. Industry, the sector that has expected to be positive (Cusolito and Maloney, 2018). been typically the driver of structural transformation, Labor should be allocated to more productive sectors, remains subdued. A Nigerian manufacturer needs almost where it can generate the most value, thereby increasing one and half times more workers than the average LMIC aggregate productivity. In that case, we would see a firm to produce the same level of output. Despite having strong positive relationship between employment and a big manufacturing sector in the early 1980s, nowadays productivity growth. Therefore, a negative relationship, Nigeria’s labor productivity is below the level of its peers. whereby sectors with decreasing productivity receive (FIGURE 35 and FIGURE 36) more employment, means that misallocation across 12 The relationship can be negative when productivity rises because jobs have been cut, e.g., by shedding superfluous workers or switching to technologies that require less labor; or it can be positive when more-productive firms expand. 28 3. What can we learn from Nigeria’s growth record: Seven messages SYNTHESIS REPORT  |  CHARTING A NEW COURSE FIGURE 37. Less-productive firms can survive into FIGURE 38. …and firms are not becoming more old age without being eliminated over time… productive as they age Ratio of labor productivity between firms in the 80th and 20th percentiles in 2020 Average labor productivity 2017 25 3,000 20 15 2,500 10 2,000 5 0 1,500 m A up d t, ricu rt C cre re st tion So uc n W n ks g ac T ci er ar g ea ifi e g pp ans ate chn s W , Se ort ctiv al le er Sto es /R W e lT e de Su Tr Est Te ice ai st S o & Ed ctio al io , S Oth Qu urin R nt S ryin le e, ag en g po in uf IC ly p A ic e ltu or ho w & iti & Fo ra et a ci at on a sa ag r l c, rv ru t tiv n & 1,000 tra io R s in an & e is at M in d m mo e lth Ad c c o in 500 M ea ta A H er al on nt an ,E si um er 0 es ts at H of Ar W 0 10 20 30 40 50 60 70 Pr Age J Baseline J Controlling for region Q Manufacturing Q Services Source: NBS, MSME National Survey (2017). Source: NBS, MSME National Survey (2017). Note: Labor productivity measured as sales per worker. Note: Labor productivity measured as sales per worker. Micro data show considerable dispersion of labor is very flat. Hence, it appears likely that less-productive productivity across firms, further highlighting firms can survive into old age without being eliminated significant levels of misallocation. FIGURE 37 shows over time. (FIGURE 38). This points to a lack of the ratio of labor productivity between firms in the 80th efficient market forces that would cause less-productive and 20th percentiles in 2020 by sector, with and without firms to be outcompeted. Furthermore, these results may controlling for region. The 80–20 ratios range from 4 indicate that firms are not becoming more productive to 20, implying huge differences in firms’ productivity as they age, implying a lack of ability or incentives for within each industry. In advanced economies such as learning. Overall, this implies that resources are not the United States, top firms are only twice as productive being allocated to the most productive firms, which is a as those in the bottom percentiles. Hence, within the sign of misallocation that reduces aggregate productivity same sector, and even the same region, firms with vastly (Hsieh and Klenow, 2009). A notable caveat, however, is different productivity levels co-exist in Nigeria. Part that large firms are missing from the sample considered of this dispersion can be explained by factors such as for this analysis. firm capabilities and mark-ups (Cusolito and Maloney, 2018). However, the presence of both productive and Agricultural productivity indicators, such as plot unproductive firms can signal misallocation, as less yields and labor productivity, as well as TFP, reveal productive firms that should have been outcompeted that agriculture in Nigeria has grown more slowly take up resources from more productive ones. The than in other countries  (FIGURE 38, FIGURE 39 magnitude of dispersion indicates large potential and FIGURE 40). Agricultural workers are the most gains from moving factors, particularly labor, to more- disadvantaged economic group in Nigeria, with a large productive firms. disparity in consumption levels between agricultural and other workers, especially in remote areas of the Older MSMEs are not more productive than younger country. The lack of progress on TFP is mainly explained firms, implying a lack of efficient market forces and by: (i) the significant underinvestment in agriculture learning effects, which contributes to misallocation. research that is required to generate high-yielding and In both the manufacturing and services sectors, the climate-resilient crop varieties and livestock breeds; relationship between labor productivity and firms’ age and (ii) weak farmer extension and advisory services, 3. What can we learn from Nigeria’s growth record: Seven messages 29 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 FIGURE 39. The average yield of cereal grains in FIGURE 40. Agricultural productivity has declined Nigeria is below regional peers over the past 20 years Cereal yield (kg per hectare) Agriculture Total Productivity Index 6,000 115 Nigeria 110 5,000 Vietnam 105 4,000 100 Indonesia 95 3,000 South Africa 90 Sub-Saharan Africa 2,000 India 85 Nigeria 80 1,000 Ethiopia 75 Lower middle income countries 0 70 20 0 20 1 20 2 20 3 20 4 20 5 20 6 20 7 20 8 20 9 10 20 1 12 20 3 20 4 20 5 20 6 20 7 18 20 0 20 1 20 2 20 3 20 4 20 5 20 6 20 7 20 8 20 9 20 0 20 1 12 20 3 20 4 20 5 20 6 20 7 20 8 19 1 1 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 20 20 20 20 20 Source: WDI and U.S. Department of Agriculture. which are required to disseminate crop and livestock Ghana, Ethiopia, and Kenya—where fertility rates have management practices enabling the efficient use of declined, but not in Nigeria. existing technologies. Nigeria’s investment in agricultural research has been falling—as a share of agricultural Not enough jobs are being created for the 3.5 million GDP, it fell from an already low 0.4 percent in 2008 young Nigerians coming of working age every year. In to 0.2 percent in 2017. In comparison, Ghana’s share Nigeria, agriculture has long served as an employer of last is 1 percent and South Africa’s is 2.8 percent. Current resort; family farms absorb excess labor during economic policies that protect the sector through subsidized downturns. However, the periodic influx of displaced lending and trade barriers have not been able to increase urban workers into the rural economy keeps agricultural the average productivity of the sector significantly—on wage rates depressed and generates uncertainty that the contrary, agricultural productivity is lower than in discourages investment in productive capital (World 2001–2010. Bank, 2020a). The informal services sector also provides employment, but it typically offers low wages and limited job security or labor protection. In addition to Message 6: Nigeria’s chronic 3.6.  their negative economic consequences, rising levels of employment crisis worsened in unemployment and underemployment are both a cause the past decade, amid declining and a consequence of conflict and insecurity. private investment and demographic pressure Even during the period of high growth between 2001 and 2010, growth did not translate into job creation Finding jobs for the millions of young Nigerians that and unemployment did not fall materially  (Treichel, enter the labor market every year is crucial to reaping 2010). The fastest-growing period in Nigeria’s history, the country’s demographic dividend and accelerating from 2001 to 2010, was driven by growth in the non- structural transformation. More than two-thirds oil economy. The oil sector was no longer the major of Nigerians are under 30; the age distribution has contributor to GDP in terms of value addition or remained largely unchanged since at least 2000 and is employment, but it remained the main source of exports projected to persist through 2030. Although the share and fiscal revenues. This strong economic performance of young people in the working-age population is high was accompanied by rising productivity, but it was across SSA, it has peaked in some countries—such as a jobless growth: the expansion of non-farm jobs, a 30 3. What can we learn from Nigeria’s growth record: Seven messages SYNTHESIS REPORT  |  CHARTING A NEW COURSE feature that characterized East Asia’s growth in the 1980s Agriculture has been the primary driver of growth and 1990s, was absent in Nigeria. Sectors that grew and employment over time. While services subsectors, quickly, such as wholesale and retail trade, construction, such as trade and business services, increased their and agriculture, have been largely staffed by informal contribution to growth significantly between 2000 workers. Industries in the formal sector, for example, and 2014, agriculture has remained the main driver of financial services and hospitality, are either not very growth and job creation (FIGURE 41 and FIGURE employment-intensive, or have added labor from a very 42). In the labor market, this has been reflected in a low base, failing to make a significant difference in wage shift of employment into family agriculture. Moreover, employment growth. the considerable growth of employment in agriculture is consistent with the absence of improvement in agricultural productivity. Nigeria’s growth path has been FIGURE 41. Growth has deteriorated over the past two decades across all sectors Contributions to GDP Growth 2000–2010 2011–2014 2015–2021 Real GDP 7.9 5.6 1.1 Services 4.2 3.1 0.8 Non-oil industry 0.6 1.6 0 Oil industry 0.4 -0.7 -0.4 Agriculture 2.0 1.0 0.6 0 2 4 6 8 10 -1 0 1 2 3 4 5 6 -1.0 -0.5 0 0.5 1.0 1.5 2.0 Percentage points Percentage points Percentage points Source: NBS. FIGURE 42. Agriculture has contributed the most FIGURE 43. The move out of agriculture into other to the creation of new jobs sectors has generally increased productivity Percentage points Employment share 2.5 50 2000 2.0 40 2017 1.5 30 1.0 2017 20 2017 2000 0.5 2000 2000 10 0 2017 2017 2000 2017 2017 0 2000 2000 -0.5 1991–2000 2001–2010 2011–2014 2015–2018 0 1,000 2,000 3,000 4,000 5,000 6,000 Labor productivity J Agriculture J Real estate J Trade services J Business services ▬ Agriculture ▬ Manufacturing ▬ Construction J Financial services J Government services J Other services J Mining ▬ Commerce/hospitality ▬ Transport/ICT ▬ Business and finance J Construction J Transport services J Utilities J Manufacturing ▬ Other services Source: ILO and NBS. 3. What can we learn from Nigeria’s growth record: Seven messages 31 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 FIGURE 44. The share of employment in the more- FIGURE 45. Nigeria underperforms in policy areas productive “global innovator” services remains relevant to service development low Global innovators, share employment (percent) Technology 25 1.5 1.0 20 0.5 PER 15 MEX 0 BRA BRA EGY 10 IND -0.5 ZAF MYS MEX IND ETH EGY PER ETH GHA SEN AGO IDN -1.0 KEN 5 KEN GHA UGA NGA CMR TZA SEN -1.5 IDN UGA 0 -2.0 TZA -5 -2.5 NGA 5 6 7 8 9 10 11 12 -3 -2 -1 0 1 2 GDP per capita Training Q Knowledge-intensive offshoreable services (percent) Q Technology Q Technology.1 Q Technology.2 Q Knowledge-intensive offshoreable services (percent).1 Q Knowledge-intensive offshoreable services (percent).2 Source: Enterprise Survey 2014. distinct from that of other middle-income economies productivity gains from growth in services will remain such as India or Indonesia, whose strong performance modest, if the bulk of job creation occurs in services that relied extensively on the services and manufacturing are not connected to global markets (FIGURE 44), and sectors. In Nigeria, by contrast, over the period of high if policies to promote technology adoption and training growth of 2001–2010, the contribution of agriculture to remain limited (FIGURE 45). (World Bank, 2022) GDP declined only marginally. There has been a slow reallocation of labor toward Message 7: The economy is not 3.7.  retail and other services. From 2001 to 2010, generating enough pathways out of retail and agriculture were the primary drivers of job poverty due to the lack of economic creation. From 2011 to 2014, the main contributors transformation to employment growth were business services, manufacturing, other services, and retail. From 2015 to Regional and global poverty reduction depends on 2018, business services made the largest contribution Nigeria, the country where around one in five of all to growth, alongside agriculture, other services, and the poor in SSA lives. Although estimating the largest manufacturing. Consistent with the notion that changes contributor to global poverty is difficult due to data in oil prices drove employment trends, the share of constraints in India, estimates suggest that almost two- agricultural employment increased and employment thirds of the global poor live in SSA. In 2018, some in retail trade decreased as oil prices fell. The move out 18.5 percent of people living on less than US$1.90 (at of agriculture into other sectors has generally enhanced 2011 PPP) per person per day in SSA lived in Nigeria. productivity (FIGURE 43). The transportation and Thus, lifting Nigerians out of poverty is vital to moving ICT sectors have seen notable productivity increases. the needle on both regional and global poverty. Productivity in commerce and hospitality, as well as in other services, is generally not far from that Most poverty in Nigeria is in-work, and working in in agriculture; thus, growth in these sectors has not any job does not guarantee a pathway out of poverty particularly enhanced overall productivity. Moreover, (World Bank 2022). Around 11.7 percent of Nigerian  32 3. What can we learn from Nigeria’s growth record: Seven messages SYNTHESIS REPORT  |  CHARTING A NEW COURSE FIGURE 46. Employment in agriculture is more FIGURE 47. Only 16.7 percent of Nigerians have a prevalent among the Nigerian poor wage job Share of working people (percent) Share of working people (percent) 100 100 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 1 2 3 4 5 6 7 8 9 10 Total 1 2 3 4 5 6 7 8 9 10 Total Decile of the real consumption distribution Decile of the real consumption distribution J Agriculture J Industry J Retail and trade J Other services J Wage J Farming J Non-farm enterprise J Apprentice Source: 2018/19 NLSS and World Bank estimates. Note: Sample restricted to individuals of working age (aged 15–64) who were working. Primary job refers to the job that individuals spent the most hours on during the previous week. workers were primarily engaged in jobs in industry in produced farm outputs that were only or mainly for sale, 2018/19, compared with 42.4 percent in agriculture and this share was higher for those in the top 60 percent and 45.9 percent in services (including retail and trade of the consumption distribution (40.7 percent) than and other types of services). Employment in agriculture for those in the bottom 40 percent (32.2 percent). This is far more prevalent among Nigeria’s poor: some resonates with previous evidence from Nigeria that 60 percent of workers from the bottom 40 percent of suggests commercialization of agricultural activities may the consumption distribution were primarily engaged in not be widespread (Ecker & Hatzenbuehler, 2021). agriculture, compared with 33.1 percent of those from Similarly, non-farm enterprises were unlikely to employ the top 60 percent (FIGURE 46 and FIGURE 47). people from outside the household: just 16.5 percent of non-farm enterprise workers engaged employees Wage employment accounts for just a sliver of from outside their household, with this share being jobs in Nigeria, especially among the poor. Around even lower for those from the bottom 40 percent of the 16.7 percent of working Nigerians held wage jobs consumption distribution. in 2018/19, with the remainder mostly split across farming (38.4 percent) and non-farm household Intergenerational mobility to more-productive sectors enterprises (39 percent). The lack of wage jobs may is limited, and access to jobs is hindered by a lack of have severe implications for poverty reduction, given skills throughout the lifecycle. Nigeria’s low rate of that wage employment tends to offer lower earnings educational attainment prevents workers from moving risk, the potential for better working conditions—such into more-productive sectors that require sophisticated as paid overtime, paid leave, and social insurance— skills, an issue that persists over generations (FIGURE and the foundation for careers with a longer-term 48). Educational attainment is lower in the North, commitment to the labor market and clearer pathways especially for women, and people are more likely to be for advancement. engaged in low-productivity activities, such as agriculture and livestock farming. Moreover, educational mobility is Work in farm and non-farm enterprises is very small lower for children whose father reported lower education in scale and may not generate the income required to levels. Compared with men, women in northern regions lift households out of poverty. Among those working are less likely to obtain post-secondary education and primarily in farming in 2018/19, around 36.5 percent more likely to remain outside the labor force. 3. What can we learn from Nigeria’s growth record: Seven messages 33 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 FIGURE 48. Intergenerational mobility to more productive sectors via education is limited Transitions in educational attainment for heads of household and their children Source: 2018/19 NLSS and World Bank estimates. Compounding macroeconomic frailties, shocks and events have proliferated, displacing populations, uncertainty may blight Nigeria’s progress on poverty disrupting markets, and wreaking havoc on Nigerians’ reduction, while climate change and conflict events livelihoods. The knock-on effects on forced displacement could intensify shocks, further limiting opportunities have been sizable: for example, across the Lake Chad to spread the proceeds of growth. Many non-poor region (including Nigeria, as well as Cameroon, Chad, Nigerians are only one small shock away from falling and Niger), the Boko Haram insurgency had already left into poverty, while those who are already poor could be 2.5 million people as refugees or internally displaced by pushed into even deeper deprivation. Climate-related 2016, cutting off their access to livelihoods and income shocks—such as floods and droughts—are particularly (World Bank and UNHCR, 2016). Growing evidence harmful because they threaten the rain-fed agricultural from within Nigeria also documents how agricultural and pastoral activities that are common among markets, and in turn food security, have been disrupted households living below or just above the poverty line. by conflict events (Awodola & Oboshi, 2015; Van Uncertainty about when such shocks may hit, combined Den Hoek, 2017; Jelilov, Ozden, & Briggs, 2018; with a lack of coping or insurance mechanisms, can trap Blankespoor, 2021). Thus, in line with global evidence, households in poverty by discouraging the adoption of conflict is a severe constraint to poverty reduction in high-risk, high-reward technologies or investment in Nigeria (Corral, Irwin, Krishnan, Mahler & Vishwanath, human and physical capital (see, for example, Dercon 2020). [2002]). Alongside increasing climate shocks, conflict 34 3. What can we learn from Nigeria’s growth record: Seven messages SYNTHESIS REPORT  |  CHARTING A NEW COURSE BOX 2. Mind the gap: Regional convergence Low growth has deepened regional gaps, and, at current growth rates, it will take 40 years for northern states to catch up with southern states. These differences are evident in the sectors driving growth and their linkages to job creation, poverty reduction, and government revenue generation (FIGURE B2). The emerging service economy (real estate, finance, telecommunications, etc.) is mostly concentrated in the south, especially Lagos, which has Nigeria’s largest non-oil economy. It accounts for up to 50 percent of the national economy, and attracts over 60 percent of Nigeria’s FDI. For instance, 20 of the country’s 21 commercial banks are headquartered in Lagos. Moreover, the oil industry—which, although declining, remains the country’s economic backbone—is an enclave sector whose production is centered in the Niger Delta and corporate activity in Lagos. By contrast, sectors such as agriculture, solid minerals, and manufacturing, which have not experienced rapid expansion, are the mainstays of the economy in northern states. FIGURE B2. GDP per capita is higher in the FIGURE B3. Regional disparities in labor South… productivity are high… Sales per worker (thousand naira) 2,500 Sokoto Katsina Jigawa 2,083.8 Yobe Zamfara Borno 2,000 Kano 1,810.5 Kebbi 1,743.9 1,593.6 Kaduna Bauchi 1,500 Gombe 1,377.2 Niger Plateau Adamawa FCT 1,013.9 Kwara 1,000 Oyo Nasarawa Taraba Ekiti Kogi Osun Benue Ogun Ondo 500 Edo Enugu Ebonyi GDP per capita Lagos (current, US$) Cross River Anambra Delta Imo 1–1,000 Abia 0 1,001–2,000 North North North South South South Bayelsa Akwa Ibom Rivers Above 2,000 Central East West East South West Source: NBS. Source: NBS, MSME National Survey (2017) and World Bank Enterprise Survey (2014). Sales expressed as thousands of naira. FIGURE B4. …across all sectors Value added per worker (south=100 percent) Southern states have a lower incidence of poverty 100 90 than northern states. In fact, between 2004 and 80 70 2010, poverty may have increased in northern states, 60 50 while simultaneously declining in southern states. 40 30 Disparities in both job creation and the incidence of 20 10 poverty have a strong impact on the ability of states 0 to generate diversified and non-oil internal revenue. n al , ge g ric ry g g l n re io tin in in tio ct e ra at pa le in ur er in rta ve od h pr ct at ap ac be po m fa c nd Regional disparities in labor productivity are high. d ,m co u nd e s d an n an ra an Ac a ta rs m Tr ile pe te an od Among MSMEs, labor productivity (measured as xt er pa pu ur Fo Te th om ta d, O es oo sales per worker), ranges from about N1 million in C R W J North J South Source: NBS, MSME National Survey (2017) and World Bank Enterprise the North East to just over N2 million in the South Survey (2014). Sales expressed as thousands of naira. South (FIGURE B3). Similarly, among formal firms with more than five employees, labor productivity (measured as value added per worker) in the North is about 2 to 10 times lower than in the South (FIGURE B4). 3. What can we learn from Nigeria’s growth record: Seven messages 35 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 What it will take: Enablers and 4.  accelerators to drive faster and more inclusive growth To offer more opportunities to the next generation of Bank, 2020b) that unless countries strengthen their Nigerians, the first priority is to restore and preserve human capital, they cannot achieve sustained, inclusive macroeconomic stability. Providing macroeconomic economic growth, because they will not have a workforce sustainability, marshaling fiscal resources, and building prepared for the more skilled jobs of the future and will the transparency, accountability, and effectiveness not be able to compete effectively in the global economy. of public institutions are prerequisites to promoting In the case of Nigeria, investing in people is critical to inclusive development and building trust across society. tapping into the country’s abundant human resources. Nigeria, however, features several economic policy This entails refurbishing the education system to improve anomalies—such as multiple exchange rates, foreign people’s skills, as well as enhancing access to basic exchange restrictions, and pro-cyclical fiscal policies— services to ensure a healthy labor force. Maximizing the that are partly explained by the dominance of the oil potential contribution of women is especially important, sector. Trade protectionism is also widespread, leading to with a particular focus on the health, education, and life a sub-optimal allocation of resources within productive chances of adolescent girls. sectors. As a result, many investors have concluded that Nigeria’s macroeconomic management is weak A lack of concerted policies across economic and have therefore declined to invest more fully in the institutions, agents, and sectors prevents permanent country’s economic transformation. Further inhibiting solutions to the current economic situation in this transformation is the “yo-yo” effect of workers Nigeria. The fractured policy space among the elites shifting back and forth between agriculture and services, and structural characteristics of the economy, such as in response to changes in the oil price (World Bank, wide regional differences in endowments and unequal 2020a). distribution of income in a federal policy framework, have considerably reduced the consistency and The second priority is to build a new, more inclusive accountability of economic policy. As a result, the main economic growth model, with a view to achieving economic actors at the different tiers of government are sustained growth by investing in human development isolated or weakly connected, unable to make the best and poverty outcomes. The jobs available to most use of their capabilities and resources. This has resulted Nigerians today cannot lift them out of poverty. The in a high degree of inefficiency and loss of opportunities insufficient outcomes of the current oil-driven growth for growth and employment. A lack of policy cohesion model, in terms of poverty reduction and shared underpins many of Nigeria’s anomalous economic prosperity, make a more inclusive growth model outcomes: weak job demand, poor educational essential. outcomes, frail macroeconomics, stagnant productivity, and wide regional disparities. This also means, however, The frontier for skills is moving rapidly, bringing that Nigeria can rebound and set itself on a trajectory both opportunities to accelerate investments in to higher growth through strategic interventions in the human capital. There is mounting evidence (World short to medium term. 36 4. What it will take: enablers and accelerators to drive faster and more inclusive growth SYNTHESIS REPORT  |  CHARTING A NEW COURSE Nigeria’s past growth performance offers valuable management remains too rigid to effectively respond to lessons about what to prioritize. Tapping into the external shocks. extensive analytical work of the past decade and ongoing engagements, the World Bank has identified a set of Opportunities: A  dopting a single, market-driven opportunities to accelerate economic transformation. exchange rate regime, and clearly communicating the These are organized around three pillars to deliver better exchange-rate management strategy will build credibility jobs for more people. and improve the availability and accessibility of FX. To achieve this goal, it is critical to re-establish the US dollar interbank market and re-enable commercial banks to Macroeconomic enablers: Ensuring 4.1.  trade FX on their own behalf and not solely to fill client macroeconomic sustainability as a orders. fundamental condition for catalyzing private investment Reducing inflation through a sequenced Improving the availability of FX and and coordinated mix of trade, monetary, the predictability and credibility of the and fiscal policies exchange rate system Why the urgency? Inflation in Nigeria has been Why the urgency? The CBN’s exchange rate chronically high (FIGURE 50) and among the highest management policies continue to discourage investment in the world. Inflationary pressures from supply shocks and fuel inflation. Exchange rate stability is a key CBN are compounded by policy distortions, in particular: objective; to preserve its external reserves, the CBN (i) a lack of flexible foreign exchange (FX) management; continues to manage FX demand and limit the supply (ii) trade restrictions; and (iii) conflicting monetary of FX to the market (FIGURE 49). Although the CBN policy goals. Nigeria’s monetary policy is not helping has raised the nominal official exchange rate three times reduce inflation. In particular, FX management and since 2020 (by 15 percent in March 2020, 5 percent development finance at subsidized rates have reduced in August 2020, and 7 percent in May 2021), FX the effectiveness of the monetary policy. Since 2018, the FIGURE 49. The CBN’s current FX management FIGURE 50. For most of the past 15 years, inflation has reduced the supply of FX and increased the in Nigeria has been above the CBN’s goal of 9 premium between the official and parallel rates percent FX interventions and exchange rate premium Inflation and food inflation CBN FX interventions in US$ million Percent Percent yoy 6,000 40 25 35 5,000 20 30 4,000 25 15 3,000 20 10 15 2,000 10 5 1,000 5 0 0 0 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Ju 2 M -19 M r-19 Ju 19 Se l-19 N -19 Ja -19 M -20 M r-20 Ju 20 Se l-20 N -20 Ja -20 M -21 M r-21 Ju 21 Se l-21 N -21 1 n- 2 n -2 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Ja 20 - - - n ay p ov n ay p ov n ay p ov a a a Ja J Banks J BDC J IEFX ▬ Exchange rate premium (Parallel vs IEFX), rhs ▬ Headline inflation ▬ Food inflation Source: CBN. Source: NBS. 4. What it will take: enablers and accelerators to drive faster and more inclusive growth 37 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 CBN has increasingly financed the federal government, obstacles to accelerating revenue mobilization. Oil and heightening inflationary pressures. Moreover, the CBN’s gas revenues are volatile and have been reducing, amid policy goals—stabilize the de facto exchange rate, a secular decline in oil production and the burden of promote economic growth, and contain inflation— petrol subsidies to consumers. Oil fiscal savings rules are at odds with each other. Partly due to weak fiscal broadly functioned until 2012, but since then savings management, since 2015 the CBN has increasingly have been depleted and not replenished. In addition, focused on directly promoting growth and industrial tax expenditures impose a large cost in terms of forgone development. Meanwhile, high inflation has worsened revenues at N5.8 trillion (3.7 percent of GDP)—one of poverty and depressed economic activity. Between 2020 the highest among SSA countries for which estimates and 2021, for instance, the inflation shock has pushed of forgone revenues are available (World Bank, 2022d). an estimated 8 million Nigerians into poverty. Despite a succession of development plans prepared by every government, macroeconomic policies lack Reducing inflation is arguably the key Opportunities:  predictability due to weak implementation, the absence priority. of buffers to reduce the impact of external shocks, and a poor institutional framework that lets ministries, • FX management: S  ee previous section. departments and agencies pursue conflicting goals with little coordination. • Trade measures:  Fully re-open land borders to trade, FIGURE 51. Nigeria’s fiscal revenues are among and strengthen regional cooperation to combat the lowest globally smuggling. Remove imports of staple foods and Fiscal revenues medicines from the list of FX restrictions, and replace Percent of GDP restrictions with tariffs that reflect the ECOWAS 30 Common External Tariff. Review FX restrictions 25 and import bans on non-food goods and assess the 24.7 23.9 22.8 24.2 20 implications of replacing them with tariffs. 21.5 20.1 15 • Monetary policy:  Reduce subsidized CBN lending 13.5 10 to medium and large firms. To further reduce the federal government’s recourse to CBN financing, 5 6.9 enforce the legal limit that prevents the federal 0 government from borrowing from the CBN more Nigeria SSA LMIC World J 2010–2014 J 2015–2020 than 5 percent of the previous year’s fiscal revenues. Source: OAGF, WDI.  riorities for mobilizing oil and non-oil Opportunities: P Strengthening the macrofiscal framework revenue and reducing tax expenditures can be divided in three areas. Why the urgency? Nigeria’s revenues are among the lowest globally. As revenues remain volatile and low • Eliminate the petrol subsidy. Nigeria’s petrol (FIGURE 51), the country has adjusted spending to subsidy imposes a massive and unsustainable fiscal maintain fiscal sustainability. Low revenue and costly burden (2.7 percent of GDP in 2022), and an subsidies undermine the government’s ability to finance even greater opportunity cost. By maintaining an necessary expenditures in critical areas, such as health, inefficient price control on petrol, Nigeria is forgoing education, security, and Nigeria’s vast infrastructure productivity-enhancing investments in essential gap. Over-reliance on oil and low tax rates are major public goods and services. 38 4. What it will take: enablers and accelerators to drive faster and more inclusive growth SYNTHESIS REPORT  |  CHARTING A NEW COURSE • Increase non-oil revenues. Two sets of actions can The infrastructure gap, estimated to cost up to contribute to achieving this goal: 4 percentage points of GDP growth annually, reduces profitability and discourages private investment, ƒ First, broaden the non-oil tax base efficiently specifically through a lack of reliable power supply, and equitably. Low tax rates are a major obstacle and gaps in transportation, irrigation, and water and to accelerating revenue mobilization. Despite sanitation. Public-private partnerships (PPPs) could rising from 5.0 to 7.5 percent in 2020, the help fund infrastructure investments to meet the standard VAT rate in Nigeria remains by far the country’s needs lowest in SSA. A weak tax administration also hinders revenue mobilization. For instance, poor VAT efficiency reflects exemptions on a wide Institutional enablers: Building 4.2.  range of goods (e.g., food, pharmaceuticals, accountable and transparent public education) and weak administrative performance. institutions to ensure a robust job- Moreover, certain classes of taxpayers escape the creating business environment income tax net entirely or in part. Tackling insecurity and strengthening the ƒ Second, reduce tax expenditures. Nigeria rule of law started publishing cost-benefit analyses of its tax expenditures on a regular basis to inform Why the urgency? Nigeria faces a diverse range of the preparation of the annual Medium-Term security threats: terrorism and violent extremism, Expenditure Framework and Fiscal Strategy armed banditry, kidnapping gangs, separatist agitations, Paper. However, adequate management of tax pastoralists-farmers’ conflicts, transnational organized expenditures is hindered by shortcomings in the crime, piracy and sea robbery, and porous borders. In legislative framework and overlaps across several the 2021 Global Terrorism Index, Nigeria ranked sixth public institutions. Good practice suggests that by number of terrorist threats, only below Afghanistan, tax expenditures should be decided solely through Iraq, Somalia, Burkina Faso, and Syria. tax laws.  e Armed Conflict and Location Event Data (ACLED) Th • Improve the efficiency of spending. With its Project estimates that the number of conflict events population surpassing 200 million, Nigeria’s national in Nigeria increased by 200 percent between 2018 budget of nearly US$50 billion entails a per capita and 2021. Attacks by Boko Haram and Islamic State allocation of US$22013 annually across federal and West Africa Province (ISWAP) have created large state governments. This is significantly lower than numbers of internally displaced people, while armed in comparator countries: for example, in 2020 the banditry, kidnapping gangs, and separatists’ agitations Indonesian Government spent US$716 per capita, constitute a grave threat to personal security across and the South African Government about US$1,833 the country (FIGURE 52). Conflicts between farmers per capita.14 In addition, most of Nigeria’s small and pastoralists, which first emerged in the middle resource envelope is devoted to keeping government belt, have spread to other parts of the country. Youth administrative functions going, to the detriment unemployment, poverty, inequality, and lack of national of spending on human capital and infrastructure. cohesion have magnified fragility. It is estimated that one 13 In current (2021) US$-equivalents, derived from Nigerian naira values converted using the official exchange rate prevalent during the preparation of this report (N410/US$). The values are budgeted, not actual spending. 14 World Development Indicators (2021) and IMF Fiscal Monitor (October 2021). 4. What it will take: enablers and accelerators to drive faster and more inclusive growth 39 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 additional conflict event leads to a 3–4 percent decrease local public goods and services can complement in total consumption (World Bank, 2019). Fragility and connective infrastructure. Easing the movement conflict have severe consequences in terms of the loss of goods and labor by reducing transport and of lives and destruction of property. They undermine information barriers can facilitate trade. Building the normal functioning of society, reducing human and up social cohesion can enhance citizen participation physical capital and long-term growth. For instance, and help restore government presence. Coordinated mass kidnappings of schoolchildren by Boko Haram resource management, information, and technology have resulted in the closure of over 600 schools, with transfers can help reduce divisions. educational losses for tens of thousands of children. • Strengthening the rule of law by expanding state FIGURE 52. Insecurity in Nigeria has spread to all regions capacity for social cohesion. Three basic and related Map of predominant conflict events by region state functions need to be strengthened: security, North East: justice, and the coordination and provision of North West: Criminal gangs (bandits) Haram and ISWAP infrastructure and services at the local level. Enhanced security, coupled with transparency and information- North Central: sharing to better assess and manage security risks, is necessary to expand safe access to conflict areas Conflict between herders and farmers for civilians and allow peacebuilding programs South West: Yoruba separatist to advance. A stronger justice system is vital for and criminal gangs resolving conflicts peacefully, addressing grievances South East: Militants Biafran separatist and enforcing law and order, all of which contribute South South: Pirates and criminal gangs to enhancing the legitimacy of the government. At Source: Armed Conflict and Location Event Data. the state and local levels, stronger capacity could enhance the delivery of services, and of programs in Opportunities:  The effects of fragility and conflict in support of recovery and peacebuilding. Nigeria are highly visible, notably in terms of poor social and economic outcomes, low levels of human security, • Creating durable solutions for displaced people. unequal opportunities, social exclusion, and a low level Massive population displacement has created major of trust in public institutions. Priorities for reducing challenges to social cohesion across the North East, insecurity and strengthening the rule of law focus particularly in Borno. Although around 1.6 million on three areas, which require enhanced coordination people have returned home since 2015, there are between different tiers of government. still about 2 million internally displaced people in Nigeria, more than 80 percent of them in Borno. • Acknowledging that any single action or policy Government authorities and partner organizations will not be sufficient, in isolation, to bring supporting the return of displaced people to their about security and development. A single policy, original homes could expand their support to implemented in isolation, can have a positive working with displaced people and host communities development impact. However, when the objective to absorb and integrate those who are unlikely to is to dramatically alter the vicious cycle between return. For those who do move back to damaged unemployment, insecurity, and fragility, a holistic areas, the restoration and improvement of basic and coordinated effort along different fronts has services is essential. the most potential. For example, investments in 40 4. What it will take: enablers and accelerators to drive faster and more inclusive growth SYNTHESIS REPORT  |  CHARTING A NEW COURSE Promoting market contestability and Opportunities: A  business-enabling environment is competition essential to promoting greater market competition, enabling a more efficient allocation of resources, and Why the urgency? Conditions to support a market- increasing productivity. Enhanced policy predictability based, competitive economy have weakened due to reduces the cost of saving and investing, and allows for market distortions introduced by conflicting macro long-term planning. Competition can expand markets and micro policies. Local content rules, import bans, and productivity, boost growth, create jobs, and improve restrictions on foreign companies, state aid favoring households’ welfare. Three priorities can be identified: certain players, privatization without consideration of the effects on competition, and biased standard-setting • Reducing the administrative burden and processes have created an uneven playing field, inhibited simplifying rules to lower transaction costs. investment, and raised prices. Administrative burdens on businesses affect market contestability and efficiency. The regulatory R  eforms of the regulatory framework have not been environment in most states is complex and opaque. sustained, thus discouraging investment decisions by Where regulations are restrictive and procedural domestic and foreign firms. In addition, unexpected requirements too costly or time-consuming, changes in macro policies have limited access to entrepreneurs are less likely to start businesses FX for manufacturers, and severely constrained the or formally register them. Information about capacity of local industry to achieve production goals. fees, requirements, and timelines for obtaining Import substitution and the influence of large players government services is not easily accessible. The on industrial policies have compromised market ability of businesses to plan for the impact of policy contestability (FIGURE 53). changes is also limited by lack of information. Easier access to regulatory information would allow for FIGURE 53. Concentration in key industries such as cement is higher than in other African countries greater regulatory efficiency, enhance the transparency Herfindahl-Hirschman Index of public processes, introduce accountability, lower 6,000 compliance costs, and improve regulatory quality for 5,000 5,168 businesses at the state level. 4,457 4,000 4,175 • Reducing barriers to entry to strengthen market 3,000 contestability. Barriers to entry and rivalry remain 2,000 relatively high in Nigeria compared with the average 2,025 middle-income economy. A decline in market 1,000 contestability has reduced the pressure on firms to 0 adopt better technologies. Nigeria passed the Federal Nigeria Nigeria Ghana Kenya 2016 2021 2019 2021 Competition and Consumer Protection Act to curb Source: World Bank, Reuters. anticompetitive behavior and promote competition in the market, but there are still gaps in the regulatory F  or instance, key markets for raw materials and final framework. In addition, independence, capacity consumption goods show a high degree of concentration, building, and efficiency are needed to strengthen due in part to barriers to entry and expansion for smaller enforcement of the law by the nascent Federal firms. Furthermore, land management has complicated Competition and Consumer Protection Commission. the development of competitive clusters. 4. What it will take: enablers and accelerators to drive faster and more inclusive growth 41 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 • Improving the transparency and management of households are estimated to use gasoline generators, of land markets to enhance land use planning, whose combined capacity is eight times larger than improve access to finance, and strengthen security that of the national grid. However, these generators are of tenure. Registered land comprises only 3 percent expensive, and cause 1,500 deaths annually from smoke of the country’s landmass and is located primarily in inhalation. Furthermore, until recently, electricity tariff urban areas. Varying practices across states and the subsidies imposed an unsustainable fiscal burden on the application of informal, customary, and religious government. For instance, between 2015 and 2020, such norms make land management challenging. The subsidies cost on average US$1.2 billion per year. relatively high cost of formally registering land FIGURE 54. Access to power is one of the main and property, and lack of clarity about procedures, deterrents to private sector investment incentivize informal practices. Four out of five Access to electricity businesses register their properties through in-person Percent of population visits to the registration office, due to a lack of 100 functional digital property registration platforms and 90 90 80 processes across states. Although progress has been 70 74 made in certain states where property registration 60 61 takes an average of four weeks, in most states it takes 50 55 longer and can take as much as two years. 40 44 48 30 20 Investment accelerators: Addressing 4.3.  10 binding constraints to private 0 2001 2010 2020 investment, firms’ productivity, and J LMIC J Nigeria job creation Source: WDI. Opportunities: P  riorities for improving on-grid and off- Improving access to reliable power to grid access to reliable power, and for restoring the fiscal reduce production costs sustainability of the power sector, focus on four areas. Why the urgency? Unreliable power supply is arguably • Strengthening the regulatory environment, to the biggest deterrent to private sector development in enhance market competition and corporate Nigeria (FIGURE 54), causing annual economic losses governance among power generation and estimated at US$28 billion (5 percent of GDP). Lack of distribution companies. Nigeria’s power sector is power consistently tops the list of constraints facing the unbundled and, since 2013, largely privately owned. private sector. Most firms connected to the national grid However, a weak regulatory framework has led receive less than five hours of power per day. Meanwhile, to limited enforcement of contracts and delays in 40 percent of the population (85 million Nigerians) electricity tariff reviews. do not have access to electricity, well above the average of 14 percent across lower middle-income countries • Ensuring the financial and fiscal sustainability of (LMICs). The average Nigerian consumes 147 kWh per the sector by implementing progressive and cost- year, one-fifth of the average for LMICs. Chronic power reflective tariffs, while protecting the poor. Cost- shortages reduce the incentives for investors to expand reflective tariffs will allow generation companies production and create more jobs. Notably, in the absence and gas suppliers to receive adequate payments, of reliable power, 30 percent of SMEs and 26 percent while increasing their power supply. Improving their 42 4. What it will take: enablers and accelerators to drive faster and more inclusive growth SYNTHESIS REPORT  |  CHARTING A NEW COURSE financial sustainability will allow them to raise tariffs borders, large informal sector, and underdeveloped for most consumers, while keeping tariffs low for the domestic supply chains. poor. It is also critical to restructure the Government’s FIGURE 55. Nigeria’s tariffs have resulted in historical arrears using sustainable funding sources. higher evasion Percent change in evasion relative to 2014 • Improving operational efficiency in electricity 80 FX restrictions FX restrictions are associated with a 51% increase in evasion generation, transmission, and distribution 70 between 2014 and 2019 60 systems. Opportunities include: (i) tackling 50 electricity theft and bill collection to reduce high 40 system losses; and (ii) increasing accountability and 30 transparency by timely publishing audited financial 20 statements for all distribution companies, according 10 Upper bound to international financial reporting standards. 0 -10 Lower bound -20 • Investing in infrastructure to reduce technical 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 and commercial losses. Distribution companies Source: Nigeria’s customs data and UN Trains data. Note: Evasion is defined as non collected custom revenues. lose about 50 percent of every kWh produced, well above the international standard of N  igeria exports relatively little to the rest of the 15 percent. Opportunities include: (i) accelerating continent. Its formal intra-regional exports as a share of the introduction of metering for customers; total exports are less than 10 percent, while almost one- (ii) upgrading and rehabilitating transmission lines; quarter of South Africa’s exports go to the African region. and (iii) adopting a strategy to expand access to Nigeria’s share of trade within ECOWAS is also small— electricity that encompasses off-grid solutions. about 5 percent of Nigeria’s total recorded exports in 2020. FDI, which goes hand-in-hand with trade, supports the diversification of the economy and helps Enhancing trade and connectivity to domestic firms export. However, Nigeria’s FDI inflows boost domestic value added as a share of GDP have dropped from over 2 percent a decade ago to less than 1 percent, one of the lowest Why the urgency? Nigeria’s protectionist trade regime rates among middle-income economies. Regulatory and limits growth opportunities and raises production institutional weaknesses inhibit the country's ability to costs for the private sector. Nigeria remains one of the attract and retain investment and diversify its economic of the world’s least diversified countries, due to high and revenue base. Although Nigeria has been taking trade and transport costs, a restrictive trade policy steps to facilitate trade, these are yet to be reflected in environment, and numerous constraints in the overall key rankings: in fact, Nigeria’s Logistics Performance investment climate. In recent years, there has been a Index ranking significantly deteriorated, from 92nd in significant escalation in the scale and scope of import 2016 to 147th (out of 160) in 2018. restrictions. Many of them have been intended to support the development of domestic production and Opportunities: T rade presents a vital, but often processing, especially of staple food items. They include untapped, pathway to poverty reduction. Through FX restrictions, import bans, border closures, and its effects on investment, technology transfer, and high tariffs. However, these policies have done little to competition, trade can help growth—boosting job boost domestic production and have increased evasion creation, increasing domestic value added, and reducing (FIGURE 55), due to the country’s highly porous the price of goods that Nigerians buy along the way. 4. What it will take: enablers and accelerators to drive faster and more inclusive growth 43 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 • Remove trade restrictions to decrease evasion and inefficiencies and informal payments across the Lagos- reduce production costs:  A wide range of restrictions Kano-Jibiya Road corridor (USAID, 2013). Conversely, are intended to support the development of domestic informal costs represent about 3 percent of the total cost production and processing, especially of staple to import, or US$162 per 20-foot container, with the food items. This includes FX restrictions, import majority incurred during border clearance and transport bans, border closures, high tariffs, and non-tariff from Lagos warehouses to Kano. Additional costs are measures. One of the areas where trade restrictions passed on to consumers through higher final prices. have the most impact is customs evasion. Current import bans, in combination with unpredictable enforcement and cumbersome customs procedures, Promoting financial deepening to cause large-scale smuggling, and FX bans have led to increase access to sustainable long-term substantial reductions in reported imports. Increased finance openness to trade can help Nigeria achieve long- standing policy goals of economic diversification and Why the urgency? Low access to finance and limited industrial development. financial inclusion constrain the access of firms to varied sources of funding (FIGURE 56), particularly MSMEs. • Strengthen trade facilitation to integrate Nigeria Only 11.4 percent of firms in Nigeria have access to into global value chains:Nigeria stands to gain finance, a lower share than the average of the region from reforms that address high costs and delays at the and of other middle-income countries. Domestic credit border, which would position the country to emerge to the private sector as a percentage of GDP remains as a logistics hub for the region and a springboard lower than the 14.6 percent achieved in 2016. Banks into regional value chains. High priority measures are reluctant to lend to certain sectors, most notably are reducing trade costs, including by addressing agriculture, which accounted for 24.1 percent of GDP in delays and inefficiencies in border and port clearance. 2020 but only received 4 percent of total banking sector Other relevant measures encompass simplifying credit. The CBN has provided funding to the agriculture and harmonizing documents, streamlining and sector on highly subsidized terms, thus crowding out automating procedures, as well as improving commercial credit and contributing to the weakening of governance, impartiality of decision-making, and monetary policy and financial intermediation. Financial information availability. intermediation is also discouraged by widening spreads FIGURE 56. Financial intermediation is lower in Reducing interstate transportation frictions to Nigeria than in other middle-income peers promote domestic market growth and reduce export Percentage of firms with access to credit costs. The movement of goods between states and Brazil (2009) across borders has been hampered over the years by Kenya (2018) interstate transportation costs and multiple checkpoints. Malaysia (2015) Transportation costs can be equivalent to as much as South Africa (2007) Indonesia (2015) 40–70 percent of business incomes, as recorded in Ghana (2013) Lagos, the FCT, Bauchi, Abia, and Cross River. In the Sub-Saharan Africa absence of a uniform and transparent schedule of levies Russia (2012) and fees, borders are increasingly thick for exporters, Cote D'Ivoire (2016) who have fewer incentives to sell into foreign markets. Nigeria (2014) For instance, one study found that about 40 percent 0 10 20 30 40 50 60 70 of the export costs that it recorded could be linked to Percent of firms with bank loans/line of credit Source: Enterprise Surveys. 44 4. What it will take: enablers and accelerators to drive faster and more inclusive growth SYNTHESIS REPORT  |  CHARTING A NEW COURSE between bank lending rates and the monetary policy partial credit guarantees (PCGs) can support banks rate on newly approved loans, systemic gaps in the credit in entering new markets. contracting environment, and the pervasive impact of macroeconomic uncertainty. • Reducing security risks associated with digital financial services. Digital financial services enable Opportunities:  Banking the private sector, in particular individuals and businesses to conduct transactions MSMEs, is necessary to achieve sustainable job creation electronically, and can extend beyond digital and foster a strong and resilient recovery. Four areas of payments to include credit, savings, and insurance. intervention are key: The main threats associated with these services derive from pervasive fraud, and from the ongoing struggle • Re-aligning roles and responsibilities for monetary with terrorism and armed conflict in northern and financial sector policies. The primary roles states. Adequate regulation and oversight can reduce and responsibilities of the CBN should be clearly the risks associated with the ease of obtaining focused on ensuring price stability. The CBN’s use instant credit and making real-time domestic and of intervention funds potentially offers important international money transfers sources of funding to specific sectors, but this simultaneously undermines commercial banks’ appetite for lending and compromises the thrust of Developing digital infrastructure and monetary policy. skills to enhance technology adoption • Strengthening the institutional infrastructure Why the urgency? Nigeria is capturing a fraction of for financial intermediation. Banks’ reluctance its digital economy growth potential—a 10 percent to lend to MSMEs stems from weaknesses in increase in mobile broadband penetration can lead to credit infrastructure, such as: (i) shortcomings a minimum additional GDP growth of 0.8 percent. in credit information, particularly in the quality Minimal fixed broadband infrastructure (FIGURE and timeliness of information shared with credit 57) and a lack of accessible and affordable connectivity bureaus; (ii) uncertain and unreliable loan foreclosure in rural areas have exacerbated the digital divide. At processes, which can result in creditors facing the end of 2018, Nigeria’s household penetration rate legal challenges and lengthy delays; and (iii) the for fixed broadband was 0.04 percent, far below the incomplete implementation of unique borrower African average of 0.6 percent and the world average identification and a register for movable collateral. of 13.6 percent. The average cost of fixed broadband is US$80 per month, which is unaffordable for most • Providing banks with access to long-term funding households. With the high cost of internet and mobile to finance lending to MSMEs. There is a role connectivity, small entrepreneurs, microenterprises, and for development finance, to the extent that it is SMEs face poor quality of internet services, impacting made available on terms aligned with the market. their efficiency and productivity. About 63 percent The Development Bank of Nigeria is a wholesale of Nigerians living in rural areas are unconnected, development finance institution which, unlike the compared with 40 percent of those living in urban areas. schemes financed by the CBN, is mandated to The quality of service is uneven across the country, provide term funding for on-lending to MSMEs on particularly in the north, where mobile phone coverage a fully self-sustainable basis, and could support the is poor and impacted by conflict zones. The performance expansion of the MSME finance market. Moreover, of Nigeria’s digital entrepreneurship ecosystem, i.e., the creation of new ventures and the transformation 4. What it will take: enablers and accelerators to drive faster and more inclusive growth 45 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 of existing business through digital technologies, lags telecommunications operators continue to rely regional and global competitors. Nigeria ranks 118th on their own infrastructure. This has resulted in out of 141 countries in ICT adoption, and 129th out unnecessary duplicative investments, with high- of 141 countries in digital skills on the World Economic traffic intercity routes often having three or more Forum’s Global Competitiveness Index. Although urban fiber-optic links, while other routes have none. SMEs have been increasingly using digital platforms, the Nigeria needs between 120,000 and 167,000 km digitalization of firms in traditional industries and rural of fiber infrastructure—in addition to the existing locations remains limited. Digital entrepreneurs are also 55,000 km—at a cost of US$3.4 billion. The lack of constrained by a cumbersome tax system and public an open-access wholesale network, combined with procurement processes that are difficult to navigate. ineffective wholesale access regulation and various In addition to promoting job creation and reducing federal and state levies, has hampered investments in transaction costs, the implementation of a robust digital the sector. ecosystem could boost the delivery of social safety nets to the poorest and enhance financial inclusion. • Expanding technology adoption by firms and the Government. Realizing the potential of digital FIGURE 57. The number of fixed broadband subscribers is one of the lowest in the world technologies requires widespread adoption by firms Fixed broadband subscribers and the Government. To favor this, it is important 2017; per 100 people to remove the overlap of responsibilities between 14 13.6 various entities responsible for regulating the ICT 12 sector, review procurement policies and practices 10 to ease access to public procurement for local 8 companies, and build core skills in the procurement, development, and maintenance of digital services. In 6 addition, a value-for-money audit of investments in 4 government digital systems will reduce inefficiencies 2 0.6 in the adaptation to new technologies. 0.1 1.4 0 Nigeria Sub-Saharan Southern World Africa Africa average • Increasing mobile internet adoption among Source: Nigeria National Broadband Plan 2020–2025. women through expanded smartphone ownership. Affordability is reported as the single biggest barrier Opportunities:  Nigeria’s digital economy has the to using mobile internet for women in Nigeria, potential to unleash productivity gains, offer new followed by lack of digital literacy and skills, and lack services, and improve the Government’s efficiency. It can of perceived relevance of mobile internet. In 2020, also lead to greater citizen engagement and enhanced only 37 percent of women owned a smartphone, trust. This could be achieved through interventions in compared with 51 percent of men. three areas: • Investing in fiber infrastructure as part of a national backbone network. Unlike its West African peers, Nigeria does not have a pervasive, open- access national backbone network through which high-speed internet connectivity can be affordably extended across the entire country. As such, most 46 4. What it will take: enablers and accelerators to drive faster and more inclusive growth SYNTHESIS REPORT  |  CHARTING A NEW COURSE How can Nigeria chart a new growth 5.  path? 5.1. What does success look like? 6.7 percentage points of additional yearly growth over the next 20 years (FIGURE 58). This fast growth would Measuring the impact of reforms on the help Nigeria close its income gap with other middle- speed and quality of growth income economies over the next three decades (assuming constant population growth). These simulations do not Nigeria is at a pivotal moment in its history. Nigeria predict future growth, but serve as an approximation was one of the best growth performers globally in the of the growth rate that Nigeria could achieve if it 2000s, but it failed to efficiently use the large windfalls implemented policies as effective as those enacted in from natural resources and build institutions that could aspirational peers such as Indonesia, Mexico, and South foster structural transformation and job creation. As a Africa. result, Nigeria is struggling to keep pace with the growth FIGURE 58. Structural reforms can bring large rates and transformation of its peers, and improvements growth dividends for Nigeria and close the income in its development outcomes have stalled since the gap with other middle-income economies early 2010s. For instance, GDP per capita dropped Impact on Nigeria’s annual GDP growth from closing the gap with Indonesia, Mexico, and South Africa over 20 years from US$2,280 in 2010 to US$2,097 in 2020, and Percentage points the number of Nigerians living below the poverty line 8 rose from 68 million to about 80 million—the world’s 7 0.8 second-largest poor population after India. Moreover, More effective 0.9 governance Better access to basic education and health 6 Trade facilitation Nigeria is one of the least developed countries in the 1.0 More access to finance 2015–2021 growth 5 world, with a ranking of 160 out of 189 on the 2020 1.0 Better regulatory quality HDI. Another indication of Nigeria’s development 4 1.2 challenges is that a Nigerian child born today will only Power and infrastructure 3 1.2 be 36 percent as productive in adulthood (the sixth- 2 lowest percentage globally) as she could be if she enjoyed 1 1.1 complete education and full health in her early years. 0 Source: World Bank calculations. Notes: Structural determinants of potential GDP growth are identified by While there is no silver bullet to accelerate growth, separately studying capital, labor, and productivity—the channels through which these determinants may work. The analysis builds on the approach putting Nigeria on an upward development trajectory introduced by Bouis and Duval (2011), Barnes et al. (2013), and Johannson et al. (2013), and elaborated on by Egert and Gal (2016). The model is requires a comprehensive set of bold and urgent based on a standard Cobb-Douglass production function with capital, labor, and technical efficiency. Technical efficiency is estimated with a stochastic reforms. Considering how far behind its peers Nigeria is frontier analysis, which allows for the computation, for a given sample of countries, of the maximum amount of output, given the factors of production on many socio-economic dimensions, structural reforms and technology available and conditional on structural and macro variables. The impact of each structural reform on growth depends on the comparator could yield large economic dividends in the long run. country and the number of years to close the gap. As a simulation exercise, federal- and state-level reforms that reduce trade restrictions, strengthen governance The cost of inaction for Nigeria is very high. If no and regulatory quality, improve digital connectivity, structural reforms are implemented and business-as- ameliorate power and infrastructure, boost human usual continues, Nigeria’s future looks bleak. Per-capita capital, reduce product and labor market regulation, income will plateau, 80 million working-age Nigerians and increase access to finance could jointly contribute will not have a full-time job by 2030 if the employment 5. How can Nigeria chart a new growth path? 47 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 rate does not improve, and 23 million more Nigerians strategy based on a prioritized set of reforms. Nigeria’s will live in extreme poverty by 2030 if the poverty rate aspiration to chart a new path to upper middle-income does not fall (FIGURE 59). Nigeria’s oil-based growth status requires the effective implementation of a wide model, low tax revenue, mismanaged exchange rate, weak range of reforms that span across all parts of government, governance, large-scale trade restrictions, and inefficient the private sector, and society. In particular, bold first- resource use will have prevented crucial investments, and second-generation reforms are required. First- extended Nigeria's pattern of poor and unequal growth, generation reforms—termed as “enablers”—consist of and depleted the country's natural-resource base. fiscal adjustment, exchange rate, and trade liberalization reforms that seek to create the right foundations for FIGURE 59. If no action is taken to boost growth and reduce poverty, about 23 million more a well-functioning economy. Meanwhile, second- Nigerians are expected to be living in poverty generation reforms—termed as “accelerators”—are Number of poor critical to developing market institutions and a vibrant 700 private sector that creates quality jobs. Both sets 600 83 of reforms will require strengthening coordination 500 between federal, state and local governments to reduce 400 105 inefficiencies and maximize synergies. 300 523 Sequencing the reforms is paramount for a successful 200 374 implementation. All the proposed actions are critical 100 to realizing Nigeria’s potential. However, not all actions can be implemented immediately and yield results in the 0 2019 2020 short term. Considerations about the political economy, J Rest of the World J Nigeria Source: World Bank estimates based on NBS data and World Poverty Clock. global context, and adequate funding are necessary to Note: Poverty estimates do not include Borno. improve the chances of successfully implementing any reform. Against this background, “sprints” are stroke- With increasing macroeconomic shocks, structural of-the-pen reforms implementable within one to reforms have become critical. The COVID-19 three months at no fiscal cost, given the political will; pandemic and rising inflationary pressures from the “medium-distance runs” are programs implementable Russia-Ukraine war have already pushed an additional within 18 months with tangible benefits for millions 7 million Nigerians into poverty. If reforms are not of Nigerians; and “marathons” are long-term structural adopted to reduce inflation and foster job creation, initiatives that can be initiated and put on a firm footing the number of Nigerians facing extreme poverty could in the next three years. TABLE 2 and the following increase by more than 30 million by 2030. section chart a path for the authorities to start a process of reform that would put Nigeria on a faster and more sustainable growth trajectory, if adequately implemented. Sustaining policy implementation to 5.2.  achieve success 5.3. Policy options Sprints, medium distance runs, and marathons A. Macroeconomic and Institutional Enablers: To achieve the desired success and forge a faster and • Adopt a unified and market-reflective exchange more inclusive growth path, this report proposes a rate. Unify all FX rates to eliminate misalignment 48 5. How can Nigeria chart a new growth path? SYNTHESIS REPORT  |  CHARTING A NEW COURSE TABLE 2. Key policy reforms for faster and more inclusive growth Time horizon* Macroeconomic and Institutional Enablers Investment Accelerators Adopt a single and market-reflective exchange rate Facilitate trade and boost domestic Sprints Increase non-oil revenues by raising value added by removing import and VAT and excise rates and strengthening foreign exchange restrictions tax administration Eliminate the petrol subsidy by Medium establishing a “compact” which also Increase access to finance by distance protects the poor and vulnerable strengthening the institutional runs Contain inflation by reducing the federal infrastructure for financial intermediation government’s recourse to CBN financing Boost competition by embedding it Boost power generation by investing into policy, enhancing enforcement, and in infrastructure to reduce technical and Marathons simplifying rules to lower costs commercial losses Reduce insecurity by strengthening the Facilitate transport connectivity by rule of law reducing interstate transportation costs Source: World Bank. Note: *Sprints are stroke-of-the-pen reforms implementable within 1–3 months or less at no fiscal cost, given the political will. Medium distance runs are programs implementable within 18 months with tangible benefits for millions of Nigerians that can help make the sprints more bearable. Marathons are longer- term structural initiatives and institutional reforms that can be initiated and put on a firm footing in the next three years but will take longer to complete. Blue boxes are policies to be implemented at the federal level, while grey boxes are policies that require both federal and state level implementation. and alleviate persistent FX pressures and adopt a • Reduce insecurity. Strengthen the rule of law by clear exchange-rate management and communication expanding state capacity for social cohesion and strategy to build credibility. create durable solutions for displaced people • Increase non-oil revenues. Increase the VAT rate B. Investment Accelerators: from 7.5 to 15 percent via a 2.5-percentage-point increase every two years, and gradually increase the • Facilitate trade. Facilitate imports of staple foods and excise rates on beer, tobacco, and non-alcoholic medicines, by removing them from the list of import beverages. bans and applying tariffs that reflect the ECOWAS common external tariff; remove FX restrictions on • Eliminate the petrol subsidy. Phase out the petrol non-food products. price subsidy and roll out a large, targeted, and time-limited cash transfer program, coupled with a • Increase access to finance. Strengthen credit communication strategy to explain public spending infrastructure by addressing shortcomings in credit priorities. information, particularly in the quality and timeliness of information shared with credit bureaus and • Contain inflation. Enforce the existing limit improve the reliability of loan foreclosure processes. (5 percent of the previous year’s fiscal revenues) on the use of CBN overdrafts to finance the fiscal deficit. • Boost power generation. Accelerate the introduction of metering to customers, upgrade and rehabilitate • Boost competition. Expand access to regulatory transmission lines, and adopt a strategy to expand information at the state level to enhance the access to electricity that encompasses off-grid transparency of public processes, introduce solutions. accountability, reduce compliance costs, and improve regulatory quality for businesses at the state level. • Facilitate transport connectivity. Adopt a uniform national schedule of levies and fees and improve transport infrastructure though PPPs. 5. How can Nigeria chart a new growth path? 49 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 How to sustain implementation: building highest political leadership. The mandate should focus elite consensus on a set of critical on efficient and rapid implementation, with the end goal reforms and institutionalizing a delivery of achieving results. unit that coordinates across tiers of government Nigerian states should be part of any institutional arrangement to support policy implementation. To implement this set of prioritized reforms, the Meeting demands for autonomy and balancing power, focus must shift from the “what” to the “how”. Over the 1999 Constitution devolved extensive political the years, successive Nigerian governments developed autonomy and service delivery responsibilities to a plethora of development plans (such as Vision 2020 subnational governments. As a result, the states play and Vision 2030) and sectoral strategies that analyzed, a key role in addressing the country’s development identified, and set targets for tackling key development priorities. They are responsible for the delivery of challenges. Nevertheless, Nigeria’s development progress basic services, including health, education, and water has stagnated, and most of the targets were not realized supply and sanitation, as well as for providing land or are not expected to be met in light of current trends. access for infrastructure development. Representing For instance, Vision 2020, introduced in 2009, aimed states would be necessary and critical to improving to improve the welfare the population and place the coordination, avoiding duplication, and ensuring robust country among the top 20 economies in the world. It implementation at the local level, particularly when targeted a minimum GDP of US$900 billion and per- it comes to reforms that involve investments and job capita income of not less than US$4,000 per year by creation. 2020. These targets have been largely missed, as Nigeria’s per-capita income was US$2,097 in 2020, just over half To drive change, any institutional arrangement of the target. The failure to turn policy ambitions into created to promote accountability and coordination results has stemmed from the inability to focus on timely needs to focus on a limited set of priorities and and robust implementation of priority measures. measure success based on outputs, not inputs. There is a need not only to define what success looks like and The success of Nigeria’s growth strategies will how it can be measured, but also what the priorities largely depend on the establishment of a strong are: if everything is a priority, nothing is. While policy implementation mechanism that promotes makers can indicate several priorities to address, performance and accountability. A new institutional not all constraints are equally important in terms of arrangement explicitly created to monitor policy development impact. Hard choices must be made. implementation and to promote accountability and Choosing a small set of priorities to be addressed over coordination could support this process. This will not a defined period of time, based on simple tracking solve all policy implementation issues and it is not mechanisms, would also go a long way toward securing a silver bullet to address Nigeria’s vast development the support of senior civil servants. Metrics of success challenges, but it has the potential to help Nigeria place are based on outcomes, not inputs. For instance, do not a greater priority on effective implementation to achieve target an increase in spending in education or health per tangible results. This institutional arrangement, which se, but rather an increase in literacy rates or decrease in should support a culture change that prioritizes the the child mortality rate. Regularly structured meetings delivery of public services and meeting citizen’s needs, (bi-monthly or monthly) with clearly defined expected would be expected to be at the center of policymaking, outcomes and deadlines are also important, as they and to have a clear and unwavering mandate from the create a sense of urgency to deliver. 50 5. How can Nigeria chart a new growth path? SYNTHESIS REPORT  |  CHARTING A NEW COURSE 6. Conclusion Nigeria cannot sustainably grow faster without Policy implementation, implementation, and restoring solid macroeconomic foundations. implementation. The development agenda, which Providing macroeconomic sustainability is the first has not changed for several years and is unlikely to be priority to accelerate growth, reduce poverty and corrected overnight, remains significant. For any reform boost job creation. An over-reliance on oil exports has to succeed, adequate and sustained implementation brought about a high exposure to external volatility. through subsequent government administrations will be Combined with the government’s limited fiscal space, critical. But policy implementation is not a byproduct high borrowing costs, and ad-hoc borrowing strategy, of economic growth. Implementation is the result of this has resulted in a pro-cyclical fiscal position that consensus among the political elite about the direction is not suited to reducing the impact of domestic and of policy, the allocation of fiscal resources, the role external shocks on the real economy. Inconsistent of the state and the space for private sector initiatives. monetary policies and distortionary exchange rate Only with sustained implementation can we finally stop policies have fueled inflation, thereby shrinking the talking about Nigeria’s potential and start talking about purchasing power and the value of savings of Nigerians, Nigeria’s actuals. and discouraging private investment. Restrictive trade policies, intended to promote domestic production, have   been counterproductive as they increased production costs and encouraged smuggling and evasion. But macroeconomic foundations alone will not make the economy more competitive. To sustain growth and job creation in the long term, structural constraints that hinder private investment have to be addressed. While the development challenges are vast, a change of policies in four areas is urgent to improve the productivity of the economy by reducing the cost of doing business and improving the allocation of resources: (i) access to reliable power by investing in the sector’s infrastructure; (ii) trade policies that boost domestic valued added by reducing protectionist measures; (iii) strengthening the rule of law by reducing insecurity, and (iv) better transport connectivity by reducing interstate transportation costs. 6. Conclusion 51 NIGERIA COUNTRY ECONOMIC MEMORANDUM   |  DECEMBER 2022 Annex: List of Technical Notes The CEM also includes a set of seven technical notes that summarize key challenges and opportunities in selected areas, and present to the extent possible granular priority policy options. The selection of priority areas for in-depth analysis in the technical notes has been guided by the Nigeria Country Partnership Framework and accompanying Systematic Country Diagnosis and Country Private Sector Diagnostics. The process for selecting the technical notes was also guided by two additional criteria, including: (i) the 2021–2025 National Development Plan; and (ii) alignment with the 2019 IDA Jobs and Economic Transformation (JET) framework.15 Title: “Igniting Economic Growth by Reforming Nigeria’s Power Sector” Authors: Yadviga Semikolenova, Arsh Sharma, and Anshul Rana  Title: “Integrating Nigeria Through Better Trade Policies for Investment and Diversification” Authors: Jakob Engel, Aleksander Stojanov, Jonathan Lain, Bob Rijkers, Erhan Artuc, Guido Porto, Guillermo  Falcone, Federico Ganz, and Mohammed Isa Shuaibu Title: “Investing in Adolescent Girls to Defuse Nigeria’s Demographic Time Bomb” Authors: Samik Adhikari, Tekabe Ayalew Belay, Olumide Olaolu Okunola, Aisha Garba Mohammed, Fatimah  Abubakar Mustapha, Julia Vaillant, and Amy Elizabeth Copley Title: “Options for Nigeria to Mobilize Domestic Revenues Without Hurting Investment” Authors: Rajul Awasthi and Elijah Kimani  Title: “Strengthening Competition in Nigeria to Unlock Growth Opportunities” Authors: Ryan Chia Kuo, Sara Nyman, and Rodrigo Barajas  Title: “Good Jobs for A New Generation: Delivering Quality Jobs for Young Nigerians After COVID-19” Authors: Christina Jenq, Jonathan Lain, and Tara Vishwanath  Title: “Modernizing Nigeria’s Agribusiness to Boost Domestic Value Added” Authors: Elliot Mghenyi and Chidozie Anyiro  15 See: IDA. 2019. “Special Theme: Jobs and Economic Transformation”. 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