NIGERIA DEVELOPMENT UPDATE  |  JUNE 2022 The Continuing Urgency of Business Unusual Nigeria Development Update June 2022 The Continuing Urgency of Business Unusual © 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. Acknowledgments The Nigeria Development Update (NDU) is a World Bank report series produced twice a year that assesses recent economic and social developments and prospects in Nigeria, and places these in a longer-term and global context. The NDU also provides an in-depth examination of selected policy issues and medium-term development challenges in Nigeria. 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 Gloria Joseph-Raji (Senior Economist), Miguel Angel Saldarriaga (Economist), and Marco Antonio Hernandez Ore (Lead Economist). The team included: Nyda Mukhtar, Joseph Ogebe, Lilian Okpeku, Ahmed Rostom, Mariano Cortes and Sergiy Kasyanenko (Recent Economic Developments and Outlook); Masami Kojima (Oil Production); Jonathan Lain, Tara Vishwanath, Arthur Lagrange, Marta Schoch (Poverty Reduction and Attitudes Towards the Petrol Subsidy); Ubah Thomas Ubah, Maheshwor Shrestha, Fanen Ade, Nnenna Oshagbemi, Ayodele Fashogbon, Muderis Mohammed and Foluso Okunmadewa (Social Protection); Jakob Engel, Bob Rijkers, Erhan Artuc, Guido Porto, Guillermo Falcone, Federico Ganz, Aleksandar Stojanov, and Mohammed Isa Shuaibu (Trade); Samik Adhikari and Tekabe Ayelew Belay, with Olumide Olaolu Okunola, Aisha Garba Mohammed, Fatimah Abubakar Mustapha, Julia Vaillant, and Amy Elizabeth Copley (Demographic Dividend); Martin De Simone, Mahesh Dahal, Thanh Thi Mai, Olatunde Adekola, Aisha Garba Mohammed, Dilip Parajuli and Tekabe Ayalew Belay (Out-of-School Children). The team also included Samer Matta, Bertine Kamphuis, Marcello Arrigo, and Chuka Agu. The team is grateful for valuable discussions with the Ministry of Finance, Budget and National Planning, the Central Bank of Nigeria, and the National Bureau of Statistics. The team would like to thank the International Monetary Fund’s Mission Chief, Jesmin Rahman, and her team for invitations to participate in macro-monitoring missions and for their continual dialogue and collaboration. Mary Akerele assisted the team. Budy Wirasmo aided in designing. External and media relations are managed by Mansir Nasir. The report was prepared under the overall supervision of Shubham Chaudhuri (Country Director for Nigeria), Abebe Adugna (Regional Director for Equitable Growth, Finance, and Institutions), and Francisco Carneiro (Practice Manager for Macroeconomics, Trade, and Investment). The findings, interpretations, and conclusions expressed in this report do not necessarily reflect the views of the Executive Directors of the World Bank 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. For questions about this report please email marcohernandez@worldbank.org For information about the World Bank and its activities in Nigeria, please visit: www.worldbank.org/ng NIGERIA DEVELOPMENT UPDATE JUNE 2022 Structure The Nigeria Development Update (NDU) has three sections: 1. Recent economic developments and outlook: A review of the most salient economic developments over the past six months and the outlook for the next two years, including a set of short-term and medium-term policy recommendations. 2. Taking a closer look: A topical review of a selection of issues that have “risen to the surface” in the past six months. 3. Spotlight on Nigeria’s development agenda: A long-term view on key challenges and opportunities for Nigeria’s development agenda, including a set of actionable policy recommendations. Contents Acknowledgmentsiii Abbreviations and Acronyms viii Overview1 Part 1: Recent Economic Developments and Outlook for Nigeria 8 Economic Growth: Improving prospects but increased risks from policy inertia and external shocks 9 Prices: Inflationary pressures have increased due to the war in Ukraine and a delayed policy response 13 The External Sector: Higher oil prices provide a boost, but rising global interest rates and FX restrictions undermine external sustainability 15 Monetary Policy and Exchange Rate Management: The need for timely and consistent monetary policy and exchange rate unification has become critical 17 The Financial Sector: Time to dial down development finance interventions 20 Fiscal Policy: Stagnating oil revenues harm fiscal accounts at both the federal and subnational levels 22 Economic Outlook 26 Part 2: Taking a Closer Look 33 Oil Production and Associated Revenue in Nigeria 34 Picking Up the Pace of Poverty Reduction in Nigeria 38 Attitudes Towards Petrol Subsidy Reform in Nigeria 42 Part 3: Spotlights on Nigeria's Development Agenda 47 Spotlight 1: The Unintended Consequences of Nigeria’s Trade Policies 48 Spotlight 2: Investing in Adolescent Girls to Defuse Nigeria’s Demographic Timebomb 61 Spotlight 3: Bringing Nigeria’s Children Back to School 76 Nigeria: Key Economic Indicators 84 iv THE CONTINUING URGENCY OF BUSINESS UNUSUAL List of Figures Figure O.1. I  nflation in 2022 will continue pushing millions of Nigerians into poverty 3 Figure O.2. D  espite rising oil and gas revenues for the Federation, deductions for the petrol subsidy are causing stagnation in net oil and gas revenues transferred to the Federation Account. 4 Figure O.3. M  any states are expected to see a drop in federation revenue transfers in 2022 despite growing expenditure needs. 4  ervices continued to contribute the most to growth in 2021… Figure 1.1. S 9  while Nigeria’s oil output continued to decline, falling short of OPEC quotas since January Figure 1.2. … 2020.9  igeria’s growth mimics SSA but falls below the levels of emerging markets and oil-exporting Figure 1.3. N economies.10  owever, the rate of economic growth is projected to remain above that of population growth in Figure 1.4. H 2022–2024.10 Figure 1.5. Inflation remained elevated in 2021… 13  and pushed millions of Nigerians into poverty. Figure 1.6. … 13  omestic prices of food staples have increased… Figure 1.7. D 14  and so have fuel prices, except petrol because it is subsidized. Figure 1.8. … 14  e CAB improved in 2021 and is projected to improve further in 2022… Figure 1.9. Th 15 Figure 1.10: …  off the back of higher oil exports and foreign remittances and lower imports. 15 Figure 1.11. D  irect and Portfolio Investment flows to Nigeria remain low. 16 Figure 1.12. D  irect Investments are particularly low compared to peer countries. 16 Figure 1.13. Th e monetary policy rate remained unchanged till May 2022… 17 Figure 1.14. …  despite inflation in Nigeria trending higher than in other SSA countries. 17 Figure 1.15. Th e CBN’s FX supply to the IEFX market remains limited and well below pre-pandemic levels. 18 Figure 1.16. Th e premium between the NAFEX rate and the parallel (black market) rate has widened. 18 Figure 1.17. N  igeria’s exchange rate policy includes FX demand management as well as supply-boosting measures.18 Figure 1.18. Nigeria avoided a credit crunch. 20 Figure 1.19. Th e CBN played a key role in expanding credit. 20 Figure 1.20. R  ising oil prices did not translate into higher gross and net oil revenues. 22 Figure 1.21. A  s such, despite strong non-oil revenue performance, total FAAC revenues remained marginally below 2019 levels. 22 Figure 1.22. R  igid expenditures account for around 60 percent of total federal expenditure. 23 Figure 1.23. C  ontinued pressure from interest payments and personnel costs pushes the federal fiscal deficit beyond the legally stipulated limit. 23 Figure 1.24. F  or most states, fiscal deficits increased as expenditure pressures outstripped revenue growth. 24 Figure 1.25. N  et oil revenues are expected to stagnate in 2022 as oil production remains low and petrol subsidy deductions increase with higher oil prices. 24 Figure 1.26. S  tates are projected to receive lower revenue transfers from the federal government in 2022 in nominal levels relative to 2021. 24 Figure 1.27. F  or most states, gains from VAT revenues and IGR are not expected to make up for losses in net oil revenues. 25 Figure 1.28. Global commodity prices surged, and confidence plunged as a result of the war 26 Figure 1.29. D  espite rebounding oil prices, Nigeria’s macroeconomic stability deteriorated in 2021. 27 Figure 1.30. I  n a business-as-usual scenario, Nigeria’s GDP growth rate would continue to lag other emerging economies.28 Figure 1.31.  Without sustained reforms, Nigeria could end in a high-growth-higher-vulnerabilities scenario 29 While oil prices climbed in 2021, oil output declined. Figure 2.1.  34  talling poverty reduction in Nigeria in the decade prior to COVID-19. Figure 2.2. S 39 v NIGERIA DEVELOPMENT UPDATE JUNE 2022 Consumption for richer Nigerians is more closely linked to Nigeria’s growth trends. Figure 2.3.  39 Richer Nigerians are more likely to purchase petrol, but many poor and vulnerable households Figure 2.4.  also buy petrol directly. 43 Understanding of and support for petrol subsidy reform in Nigeria was low in 2018. Figure 2.5.  43 Nigerians’ satisfaction and trust in the government to use resources effectively was low in 2018, Figure 2.6.  limiting people’s support for petrol subsidy reform. 44 Extractives exports have dominated for the past decades. Figure 3.1.  50 FDI inflows as a share of GDP have been low and declining. Figure 3.2.  50 Nigeria’s tariffs are among the highest in the world, especially for capital, intermediate and Figure 3.3.  consumer goods. 51 As tariffs increase, evasion increases. Figure 3.4.  52 Foreign exchange ban led to increased evasion. Figure 3.5.  53 Without tariff evasion, Nigeria’s revenues would be significantly higher. Figure 3.6.  53 The price of both imported and domestic rice increased after the border closure. Figure 3.7.  54 Changes in welfare and poverty linked to price changes after the border closure. Figure 3.8.  54 The impact of liberalizing trade would vary by state depending on what households consume and Figure 3.9.  produce.55 Figure 3.10. Import taxes and restrictions result in higher production costs and domestic industry protection. 56 Figure 3.11. Nigeria could reform its tariff schedule to reduce production costs while increasing revenues. 57 Figure 3.12. Nigeria's Stalled Demographic Transition. 62 Figure 3.13. The TFR in Nigeria is highest in the North, among females with no education, and among the lower wealth quintiles. 63 Figure 3.14. Adolescent well-being, demographic transition, and consequences for potential demographic dividend in Nigeria. 64 Figure 3.15. Early marriage and teenage pregnancy rates in Nigeria in 2016/17, by wealth quintile. 65 Figure 3.16. Percentage of Nigerian children of secondary school age attending secondary school or higher, by location and wealth quintile, 2016/17. 65 Figure 3.17. Nigeria has very low prevalence of modern contraceptives nationally, and especially in the North East and North West. 66 Figure 3.18. Most fertility in Nigeria is wanted fertility with low demand for family planning, especially among adolescents. 66 Figure 3.19. Nigeria has the highest under-5 mortality rate in the world despite a rapid decline in the last 50 years, largely due to the high prevalence of childbearing among adolescents. 67 Figure 3.20. Nigeria's youth faced an unemployment rate of 53 percent at the end of 2020. 69 Figure 3.21. Targeting adolescent girls with holistic support is critical to reducing fertility and accelerating the demographic transition in Nigeria. 70 Figure 3.22. P rojected share of in-school 6–15 children if in-school population grows at double (5 percent per year) or four-times (10 percent per year) the rate of school-age population (2.5 percent per year). 76 Figure 3.23. S chool attendance status for children aged 6–15, by state and geopolitical zones. 76 Figure 3.24. R elationship between household wealth and formal school attendance, by gender and region. 77 vi THE CONTINUING URGENCY OF BUSINESS UNUSUAL List of Tables Table O.1. K ey Macroeconomic Indicators for Nigeria, 2019–2022. 2 Table O.2. Near-term policy options to support Nigeria’s rise to its full potential. 5  lobal and Regional Indicators, 2019–2022. Table 1.1. G 26  ear-term macroeconomic and structural policy options to support Nigeria’s rise to its potential. Table 1.2. N 31  igeria needs to ensure adolescent girls remain in school longer and are provided services and Table 3.1. N opportunities as they come of working age. 72 List of Boxes Box 1.1. Impact of the war in Ukraine on the Nigerian Economy. 11 Box 1.2. COVID-19 Vaccination Take-up in Nigeria. 30  e share of Nigerians who have received at least one COVID-19 vaccine dose is low, Figure B1.1. Th and even lower among poor and rural households. 30 vii NIGERIA DEVELOPMENT UPDATE JUNE 2022 Abbreviations and Acronyms bpd barrels per day CBN Central Bank of Nigeria ECOWAS Economic Community of West African States EMDEs Emerging Markets and Developing Economies FAAC Federation Accounts Allocation Committee FDI Foreign Direct Investment FX Foreign Exchange GDP Gross Domestic Product GHS General Household Survey HNLSS Harmonized Nigerian Living Standards Survey I&E Investors and Exporters IEA International Energy Agency IEFX Investors and Exporters Foreign Exchange IGR Internally Generated Revenue JSS Junior Secondary Schools NAFEX Nigeria Autonomous Foreign Exchange Fixing NASSP National Social Safety Net Program NBS National Bureau of Statistics NDU Nigeria Development Update NESG Nigerian Economic Summit Group NLSS Nigerian Living Standard Survey NNPC Nigerian National Petroleum Corporation NSR National Social Registry OAGF Office of the Accountant General of the Federation OOS Out Of School OPEC Organization of the Petroleum Exporting Countries RRR Rapid Response Registry SME Small and Medium Enterprises SSA Sub-Saharan Africa SSS Senior Secondary Schools TFR Total Fertility Rate UBEC Universal Basic Education Commission USD United States Dollar UTAS Upstream Tariff Simulator VAT Value Added Tax viii THE CONTINUING URGENCY OF BUSINESS UNUSUAL Overview Nigeria’s growth prospects have improved higher oil prices is offset by lower oil output, which compared to six months ago… as of May 2022 stood at 1.5 million barrels per day (bpd), the lowest in 15 years. Fiscal gains are offset by Nigeria’s growth prospects for the next three years the continuing petrol subsidy. have improved thanks to a more robust recovery in the non-oil economy and higher global oil prices. As a result, compared to the previous edition of the Nigeria …but, the macroeconomic framework Development Update (NDU) from November 2021, we has weakened, increasing Nigeria’s have revised growth estimates upwards: Nigeria’s gross vulnerability to external and domestic domestic product (GDP) is projected to now grow by shocks 3.4 percent in 2022 and by 3.2 percent in 2023, up from the previous forecasts of 2.8 percent for 2022 and 2023 Nigeria is in a paradoxical situation where from November 2021. Two factors explain the revision: growth prospects have improved, but the overall macroeconomic framework is deteriorating. • First is the better-than-expected performance Compared to the last NDU, our revised estimates for of the services and agriculture sectors. Tertiary inflation, the fiscal deficit, and public debt indicate a activities, except for trade, rebounded above 2019 more vulnerable macroeconomic position in 2021 and production levels, driven by base effects and a the first half of 2022, which is further compounded by demand recovery, particularly in telecommunications the increasing premium between the official and the and financial services. Agriculture continued parallel (black market) exchange rates. The weakening growing, aided by the influx of workers that of Nigeria’s macroeconomic framework is mainly due returned to farming during the pandemic despite to the absence of concerted efforts to reduce inflation, insecurity challenges, higher prices of inputs, and address fiscal pressures, and strengthen exchange rate import restrictions. Based on the GDP performance management. As a result, inflation is expected to be during the first quarter of 2022 and high-frequency two percentage points higher in 2022–2023 than in indicators for the second quarter of 2022, we expect our baseline scenario from six months ago. In addition, these trends to continue until the end of the year. against a burgeoning petrol subsidy (estimated to cost over US$9 billion in 2022 or almost 2 percent of GDP) • Second, higher oil prices stemming from the and low oil production, the general government fiscal Ukraine war will boost Nigeria’s economic deficit for 2022 has been revised upwards from 5.3 to growth, though less than anticipated. As in other 5.8 percent of GDP. Consequently, the public debt ratio oil-producing economies, higher oil prices usually to GDP is projected to reach 36 percent in 2022, up improve Nigeria’s fiscal and external position, from our previous 32.3 percent projection six months boosting exports and public spending. In addition, ago (Table O.1). through income spillover effects, they also aid the non-oil economy, particularly manufacturing and Global risks have risen in the last six months. First, services. However, in contrast to previous episodes of the war in Ukraine has increased the uncertainty in high oil prices, Nigeria is not expected to harness the international capital flows, spurred higher prices of windfall fully this time. This is because the effect of imported food and inputs for fertilizers, depressed Overview 1 NIGERIA DEVELOPMENT UPDATE JUNE 2022 global growth, and heightened the volatility of oil Reducing inflation is arguably the key prices. Second, the impact of monetary tightening by policy priority, as rising prices continue central banks across advanced economies, including the pushing millions of Nigerians into poverty United States Federal Reserve, will reduce the room for maneuver of central banks worldwide. Inflation in 2022 is projected to be higher than anticipated, increasing to 15.5 percent. Before the  ey Macroeconomic Indicators for Table O.1. K Nigeria, 2019–2022. war, inflation was already a major macroeconomic 2022f challenge for Nigeria, and it was among the highest in 2019 2020 2021 NDU NDU the world. Inflationary pressures were compounded by NOV JUN policy distortions, in particular (i) lack of flexible foreign 2021 2022 GDP growth exchange (FX) management, (ii) trade restrictions, and 2.2 -1.8 3.6 2.8 3.4 (iii) conflicting monetary policy goals. In addition, (percent) Inflation (percent) 11.4 13.2 17.0 13.5 15.5 global supply shocks exacerbated inflationary pressures Fiscal deficit and increased the urgency of addressing inflation. In 4.6 5.4 5.3 5.3 5.8 (percent of GDP) May 2022, the Central Bank of Nigeria increased the Public debt 23.6 27.0 35.3 32.3 36.0 interest rate for the first time in 18 months. This was a (percent of GDP) Sources: Nigerian authorities and World Bank projections. Notes: Public debt includes Ways and Means Advances and estimates of AMCON debt. welcome shift in Nigeria’s monetary policy stance but took place much later compared to actions taken by Amid heightened risks, the government has kept Central Banks worldwide and in a context in which FX a “business-as-usual” policy stance that hinders management and development finance at subsidized rates prospects for economic growth and job creation. have reduced the effectiveness of the monetary policy. As Multiple exchange rates, trade restrictions, and trade disruptions and commodity price volatility placed financing of the public deficit by the Central Bank of additional pressure on the domestic prices of food staples Nigeria (CBN) continue to undermine the business and fuel products, our forecast for the average inflation environment. These policies augment long-standing rate in 2022 has been revised upwards from 13.5 to weaknesses in revenue mobilization, foreign investment, 15.5 percent. human capital development, infrastructure investment, nflation in 2022 will continue pushing Figure O.1. I and governance.1 Notably, during 2020 and 2021, millions of Nigerians into poverty when oil prices were much lower, the government lost Poverty headcount rate an opportunity to address one of the primary sources of Number of poor people (millions) fiscal vulnerability by choosing to maintain the subsidy 92 for premium motor spirit, more commonly known 90 Additional 1 million Nigerians falling into poverty as a result as petrol—a subsidy that is unique, opaque, costly, 88 of the Ukraine war unsustainable, harmful, and unfair.2 Due to the petrol 86 6 million Nigerians subsidy and low oil production, Nigeria faces a potential falling into poverty before the Ukraine war fiscal timebomb. As further discussed in this NDU, with 84 upcoming elections in February 2023, a key government 82 challenge is addressing macroeconomic vulnerabilities 80 when (i) elections encourage higher spending; (ii) high 78 inflation is pushing millions of Nigerians into poverty; Before price shock After price shock Source: World Bank estimates based on data from NBS. and (iii) higher global interest rates deter private investment. 1 See the forthcoming World Bank reports: (i) the 2022 Nigeria Public Finance Review; and (ii) the 2022 Nigeria Country Economic Memorandum. 2 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), please see the November 2021 edition of the Nigeria Development Update, “Time for Business Unusual”. 2 Overview THE CONTINUING URGENCY OF BUSINESS UNUSUAL Increased inflationary pressures following the bpd (1.28 million bpd if blended condensates are Ukraine war are expected to push even more Nigerians excluded). Lower oil production is due to force into poverty. Before the war, higher inflation pushed majeures, funding shortfalls, a lack of adequate an estimated 8 million more Nigerians into poverty maintenance, and other factors.3 between 2020 and 2021. In 2021, inflation averaged 17 percent, undermining Nigeria’s economic recovery • The cost of the petrol subsidy will increase by eroding the purchasing power of the most vulnerable significantly as higher global petrol prices will households. We project that the added inflationary entail larger subsidy payouts if pump prices pressure emanating from the war in Ukraine could push continue to be frozen. The removal of the subsidy as many as one million more Nigerians into poverty, that the authorities had originally planned by mid- on top of the six million already projected before the 2022 was postponed until 2023 or later, which is war. Overall, the “inflation shock” is estimated to result expected to generate considerable fiscal costs. The in about 15 million more Nigerians living in poverty 2022 amended budget (yet to be adopted at the between 2020 and 2022. time of this publication) allocates N4 trillion (almost 2 percent of GDP) for the petrol subsidy, higher than the combined budget allocated for education, health, Despite higher oil prices, the fiscal and social protection. situation is deteriorating, limiting the government’s ability to support the • The NNPC makes other deductions from oil recovery and protect the poor and gas revenues. These deductions are to finance government gas projects, refining and exploration In 2022, as in 2021, Nigeria is not expected to benefit costs, pipeline maintenance, and strategic reserve fiscally from higher oil prices fully. In 2021, while oil holdings, among other deductions. In addition, past prices rose by two-thirds against the backdrop of global and mounting funding shortfalls in joint-venture economic recovery from COVID-19, net oil revenues operations will need to be eventually repaid. in Nigeria increased by only 4 percent, as production (including condensates) decreased from 1.83 million The worsening revenue collection at the federation bpd in 2020 to 1.68 million bpd in 2021. This level is increasing budgetary pressures for the States, “decoupling” between oil prices and related revenues and many States are in a precarious fiscal position. happened because the Nigerian National Petroleum With net oil and gas revenues stagnating, most states Corporation (NNPC) deducted a significant portion will not be able to achieve their intended levels of of the Federation’s oil revenues to pay for the petrol expenditures in 2022. In addition, debt servicing subsidy. The decoupling continues in 2022, driven by expenditures at the state level are also mounting due to a low oil production, a larger unit petrol subsidy, a weaker decline in gross statutory account revenue transfers from currency, and higher apparent petrol consumption than the federation account allocation committee (FAAC), in the past (Figure O.2). In particular: which comprises oil and non-value added tax (VAT), non-oil revenues. The lower FAAC transfers in 2022 • Oil production is expected to stagnate and likely will not be compensated by the expected higher VAT fall below that in 2021. For example, during the collection or improvements in independently generated first four months of 2022, oil production was the revenues (IGR). lowest in two decades, averaging only 1.54 million 3 Nigeria has higher oil production costs than peer countries due to procurement procedures requiring the NNPC approval, high-security risks, and local content rules, among other factors. In addition, oil produced by joint ventures (JVs) between the NNPC and international oil companies has been suffering from the inability of the NNPC to cover the Federation’s share of costs. Overview 3 NIGERIA DEVELOPMENT UPDATE JUNE 2022  espite rising oil and gas revenues for the Federation, deductions for the petrol subsidy are Figure O.2. D causing stagnation in net oil and gas revenues transferred to the Federation Account. Net oil revenues and petrol subsidy deductions Naira billion 9,000 8,000 7,760 7,000 6,000 -4,000 5,000 4,806 -1,430 4,000 -107 3,688 -1,017 3,000 -942 -634 2,639 2,742 2,743 2,000 1,000 0 2020 2021 2022f J Gross oil and revenues J Petrol subsidy deductions J Other oil and gas deductions J Net oil and gas revenues Sources: OAGF, BOF, NNPC, and World Bank estimates.  any states are expected to see a drop in federation revenue transfers in 2022 despite Figure O.3. M growing expenditure needs. Gains from VAT revenue, IGR and oil and gas transfers Naira billion 130 80 30 -20 -70 -120 e Kw gi as ara a Pl ger am au Ba a Bo i G o Ta be ba Ji be Ka wa na Ka no Ke a So bi Za oto ra am a Eb ra En yi u w mo B om ss sa D r ta R o s La i O s n o n yo h t e er i go nu aw aw rn in An Abi ug Ed gu nd su on Ek Ko uc b el fa b iv ro el O Ad ate om ra Yo du Ka ga ts k Ak I Ib iv i -R O Be N O m ar C ay a N North Central North East North West South East South South South West J Estimated change in IGR J Estimated change in VAT transfers from 2021 J Estimated change in oil and gas transfers from 2021 Q Total estimated change from 2021 Sources: OAGF, NGF, BOF, DMO, and World Bank estimates. Exchange rate management policies in 2021, the CBN’s FX supply in the main market continue to deter private investment window—the investors and exporters (I&E) window— declined by 41 percent in 2021 relative to 2020. At the The exchange rate policy in 2022 remains focused on same time, while the prevailing rate at the I&E window maintaining an artificially stable official exchange (the Nigerian autonomous foreign exchange fixing rate, rate through foreign exchange restrictions and NAFEX) remained broadly stable in 2021, the parallel administrative measures, thereby deterring inflows exchange rate depreciated by as much as 16 percent in a of capital, especially foreign direct investment. As context of FX scarcity. As a result, the premium between highlighted in previous editions of the NDU, the CBN the parallel exchange rate and the NAFEX widened from restricts the supply of FX to imports of over 40 products, 21 percent to 37 percent. Despite higher oil prices in some of which firms use as raw materials. As a result, 2022, FX shortages have not abated, hindering private despite the recovery in exports and economic activity investment. 4 Overview THE CONTINUING URGENCY OF BUSINESS UNUSUAL Table O.2. Near-term policy options to support Nigeria’s rise to its full potential. Reduce inflation by adopting a single, market-responsive exchange rate regime and enhancing exchange rate management; fully re-opening land borders to trade and strengthening regional cooperation to combat smuggling; removing import and FX restrictions on staple foods and medicines while replacing restrictions with tariffs that reflect the ECOWAS Common External Tariff; and reducing subsidized CBN lending to medium and large firms, and instead expand the scope for commercial banks to lend at a risk-adjusted rate. Address fiscal pressures by phasing out the petrol subsidy while protecting the poor, containing the potential rise in inflation at the time of the subsidy removal through complementary measures, such as eliminating trade and FX restrictions, enhancing exchange rate management, and reducing the monetary financing of fiscal deficits; raising excise taxes on “sin” goods, e.g., alcohol and cigarettes; implementing the electronic money transfer levy; introducing a new, sustainable revenue source from a green surcharge on imported vehicles; aligning the VAT rate with the regional average, re-introducing VAT on petrol, launching VAT compliance improvement initiatives; and rationalizing tax expenditures; amongst other measures. Catalyze private investment to boost job creation and support stronger and more inclusive growth by reducing inter-state and international trade and transportation costs; introducing risk- based management of customs interventions and a streamlined trusted trader program; improving the transparency of key government-to-business services; and increasing affordable access to broadband; amongst other measures. These will add to policy options for reducing inflation that will also foster private investment, by increasing access to markets and improving the availability and accessibility of FX. What would ‘business unusual’ look like? II. Addressing the mounting fiscal pressures at the federal and sub-national levels: N  igeria can Nigeria’s macroeconomic challenges in 2022 continue pursuing a business-as-usual policy mix highlight with even more force the need for a by allocating its limited fiscal resources to the costly sequenced program of robust reforms, as posited and regressive petrol subsidy, or it can redirect in previous editions of the NDU. This edition expenditures towards targeted and time-bound cash emphasizes immediate critical reforms in three key areas transfers and other priority investments in health, to help Nigeria overcome the current challenges and set education, and critical infrastructure. The latter the foundation for rising to its full potential. In 2022, investments are undeniably better for growth and the pace of reform is expected to be slower as political job creation. Phasing out the petrol subsidy will raise activities heat up in the run-up to general elections inflation in the short term. Still, there are other more scheduled for February 2023. However, the authorities important drivers of inflation (notably exchange rate can boost the country’s growth prospects in 2022 and management and trade restrictions), and the impact over the medium term by strengthening macroeconomic of inflation on Nigerian households can be mitigated and structural reform efforts in the near term, including (see the November 2021 NDU for detailed measures measures aimed at: to reduce inflation while protecting the poor). I. Reducing inflation:  In this edition, as in our other III. Catalyzing private investment to boost job recent editions, we highlight the economic hardship creation: S everal factors discourage private imposed by inflation and present policy options investment in Nigeria. See the forthcoming 2022 to address this urgent challenge. Without decisive Nigeria Country Economic Memorandum for a action, inflation will continue pushing Nigerians into detailed analysis and policy options to rebalance poverty. Overview 5 NIGERIA DEVELOPMENT UPDATE JUNE 2022 Nigeria’s growth towards more private investment credit, and markets—will be crucial in the meantime. and exports supporting jobs. Third, the bedrock of infrastructure needs to be strengthened by providing access to electricity, drinking water, improved sanitation, and information and Taking a Closer Look at (i) Oil Production; communication technologies that can help households (ii) the Pace of Poverty Reduction; and find jobs and reach markets, and support the government (iii) Attitudes towards the Petrol Subsidy in rolling out social protection programs. Oil production in Nigeria. Oil production has not Attitudes towards the petrol subsidy reform. Many recovered since its decline in the wake of the COVID-19 Nigerians do not support removing the petrol subsidy, pandemic, while the growing petrol subsidy has eroded and they do not trust the government to use any fiscal the net revenue flow to the Federation. In contrast to savings for pro-poor causes. The challenges associated the past, oil production in Nigeria has consistently with the petrol subsidy in Nigeria are clear: (i) it fallen below its organization of the petroleum exporting imposes an unsustainable fiscal burden, and (ii) richer countries (OPEC) quotas since February 2021 and Nigerians benefit significantly more from it than poorer plunged below 1.5 million bpd in December 2021, Nigerians. Thus, redirecting spending towards health, March 2022, and April 2022. Production constraints education, and targeted social protection is better. Yet, and the deductions for the petrol subsidy are responsible in the absence of countervailing measures, many poor for Nigeria’s low net oil revenues in the current context and vulnerable Nigerians would still lose out in the short of high oil prices. To remain competitive for oil and gas run if the subsidy were removed and petrol prices were investment against the backdrop of the global energy allowed to rise. Sequencing spending on a well-targeted transition, Nigeria will need to slash greenhouse gas social transfers program, alongside a clear, two-way emissions in oil and gas production. Concurrently, communication campaign, could help overcome these the government and the NNPC will need to enhance constraints and generate the trust needed to build a administrative efficiency. consensus around subsidy reform. Picking up the Pace of Poverty Reduction. Poverty reduction in Nigeria hinges on bolstering and sustaining Spotlights on Nigeria’s Development: growth and creating opportunities to share the proceeds (i) The Unintended Effects of Nigeria’s of growth with poorer Nigerians. Our estimates suggest Trade Restrictions; (ii) Investing in that poverty may be becoming entrenched in certain Adolescent Girls to Defuse Nigeria’s households, particularly in rural areas in the north. Demographic Timebomb; and (iii) Bringing Nigeria is spatially unequal, and the labor market is not Nigeria’s Children Back to School creating the jobs needed to lift people out of poverty. The unintended consequences of Nigeria’s trade Three types of reforms could help: First, macroeconomic restrictions. Nigeria’s trade policy has moved further reforms—including fiscal, trade, and exchange-rate in a protectionist direction since 2015, and this has policy—could help diversify the economy, invigorate had several unintended consequences. Trade and structural transformation, and create good, productive investment have been key drivers of global growth and jobs, especially wage jobs. Second, since structural poverty reduction over the past 30 years. The increased transformation and the creation of productive wage participation of firms from developing countries jobs on a large scale may not happen overnight, policies in regional and global value chains has contributed to boost the productivity of the farm and non-farm significantly to job and wealth creation. However, household enterprises—by improving access to inputs, widespread skepticism remains in Nigeria about the 6 Overview THE CONTINUING URGENCY OF BUSINESS UNUSUAL benefits of export-led growth and increased integration. girls. To reap the demographic dividend, Nigeria must Despite economic diversification being a long- kickstart the stalled demographic transition and ensure standing policy aim, efforts to achieve it have remained that today's children have the means to grow into unsuccessful. Foreign investment has not reached its healthy and productive adults. potential, and in fact, it has been declining. Nigeria’s protectionist trade policy increased import restrictions Bringing Nigeria’s children back to school. Although through higher tariffs and levies, import bans, foreign Nigeria has experienced a significant expansion in access exchange limitations, and border closures. While these to education during the last few decades, it still has the measures have been aimed at supporting the country’s highest number of out-of-school (OOS) children in the industrialization and security aims, they have been world. Nigeria’s more than 11 million OOS children detrimental in other ways. For one, current import between the ages of 6 and 15 represent 1 in 12 OOS restrictions result in high levels of evasion and thus a children globally. The OOS children phenomenon in loss in revenue. The estimated total loss of tariff revenue Nigeria is multi-causal and will require a combination due to evasion is estimated at 0.4 percent of GDP, or of interventions. On the demand side, reducing the cost US$1.8 billion annually. Secondly, these policies also of education by eliminating school fees, providing cash adversely affect poverty by raising consumer prices. transfers, and shifting socio-cultural norms that prevent Finally, they reduce the scope for domestic firms to school enrollment are critical steps. On the supply enhance their efficiency by increasing the cost of their side, Nigeria will do well to expand the availability of production inputs, constraining their competitiveness, schools, optimize their location through geo-referenced and limiting their potential to export to regional and data, improve the conditions of dilapidated schools, and global markets. There is an urgent need for a change ensure safety in and around schools. It is also critical to in policy and approach. Options include focusing on involve communities and provide foundational skills to (i) reviewing trade policy to safeguard revenues, reduce those attending Qur’anic education. Systemic finance poverty and support domestic firms; (ii) reducing and governance reforms are also essential to reach domestic and international trade and transport costs; and intended beneficiaries cost-effectively. (iii) enhancing the institutional framework supporting Nigeria’s trade priorities. Investing in adolescent girls to defuse Nigeria’s demographic timebomb. The country has been slow in transitioning to a stage where the share of those working outnumber young and old dependents. As the country enters a period of rapid expansion of the working-age population, there is an opportunity to benefit from this “demographic dividend” and the increase in labor supply that can boost economic growth. However, Nigeria’s persistently high fertility rates (especially in the northern regions) among adolescent girls, the poor, and those with low education threaten to derail the demographic transition. Poverty, low prevalence and demand for modern contraception, and lack of quality secondary schools and job market opportunities contribute to high teenage pregnancy rates, early marriage, and low educational attainment among Nigeria’s adolescent Overview 7 Part 1: Recent Economic Developments and Outlook for Nigeria THE CONTINUING URGENCY OF BUSINESS UNUSUAL Economic Growth: Improving prospects but increased risks from policy inertia and external shocks The Nigerian economy grew faster than expected Nigeria’s growth in 2021 was in line with the average in 2021 and recouped the growth losses from the for Sub-Saharan Africa (SSA) but fell short compared COVID-19 pandemic. Following a contraction of to oil producers and other emerging markets and 1.8 percent in 2020, the economy rebounded and developing economies (EMDEs). Growth in SSA was grew by 3.6 percent in 2021. This growth exceeded at an estimated 3.5 percent, reflecting a better-than- population growth for the first time since 2015. It was expected pickup in activity in the first half of the year driven by base effects in most services and manufacturing amid an improved external environment, including and organic growth in agriculture, telecommunications, a strong rebound in commodity prices. On the other and financial services. However, despite high oil prices, hand, growth in EMDEs and oil-producing countries oil output declined by 8.3 percent and remained was much higher, over 6 percent. consistently below the country’s OPEC quotas (see Section 2.1). The consistent decline in oil production, Nigeria’s GDP is expected to grow faster than its which reached a two-decade low as of May 2022, population in 2022 but still below pre-2015 rates stemmed from technical and security challenges in the and those of EMDEs and oil-producing countries. oil-producing Niger Delta region, aging infrastructure In 2022 is expected to be driven by agriculture, services and inadequate investment in the sector, and NNPC’s (trade, ICT, financial services), and the non-oil industry failure to pay for the Federation’s share of costs in joint- (construction, food). Nevertheless, GDP per capita by venture operations. the end of 2022 is expected to be below its 2014 level and will not return to pre-pandemic levels before 2025.  ervices continued to contribute the Figure 1.1. S  while Nigeria’s oil output continued Figure 1.2. … most to growth in 2021… to decline, falling short of OPEC quotas since January 2020. Contribution to Growth (2015–2022f) Oil price, Nigeria’s oil output and OPEC quotas Percent, percentage points US$ million bpd 10 120 1.8 1.6 8 100 1.4 6 80 1.2 4 1.0 60 2 0.8 40 0.6 0 0.4 20 -2 0.2 -4 0 0 20 0 Ju 0 Se 0 N 0 Ja 0 M 1 M 1 Ju 1 Se 1 N 1 Ja 1 M 2 2 -2 -2 l-2 2 -2 2 -2 -2 l-2 2 -2 2 -2 08 09 10 11 12 13 14 15 16 17 18 19 20 e f 22 n- p- n- p- n- 21 ar ay ov ar ay ov ar 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Ja 20 M M J Agriculture J Oil industry J Non-oil industry J Services J Oil production (Nigeria, rhs) ▬ Oil price Q GDP growth ▬ OPEC quota, rhs Source: NBS. Sources: NBS, NUPRC, and OPEC data. Part 1: Recent Economic Developments and Outlook for Nigeria 9 NIGERIA DEVELOPMENT UPDATE JUNE 2022 • Agriculture:  The agricultural sector grew by vandalism. The NNPC’s monthly reports to FAAC 2.1 percent in 2021 (consistent with 2.2 percent show that disruptions and other factors had cut oil growth in 2020) and is expected to grow by production by about 175,000 bpd in 2021. Nigeria’s 3.2 percent in 2022. Agriculture was the only crude oil output (excluding condensates) has stayed sector to show resilience to economic volatility over consistently below its OPEC quota since February time—it is a crucial employer of last resort and the 2021. Production is expected to stagnate without only sector not to contract during the 2016 or 2020 sustained measures to reverse these trends in 2022. recessions. However, agriculture’s recent growth has lagged its average growth of 5.4 percent over the last • Non-oil Industry:  In 2021, the non-oil industry two decades, despite the sector being a beneficiary of grew by 4.4 percent, recovering from its 2020 CBN development finance interventions.4 According contraction. Base effects accounted for part of the to official information, yields of crops such as rice and growth in certain sectors, such as manufacturing cassava have increased, and the sector’s production is and construction. In 2022, the non-oil industry is expected to expand after overcoming the mobility expected to grow at a lower rate (3.6 percent) as sub- restrictions of 2020 and 2021. sectors such as cement, food, beverage and tobacco, chemical and pharmaceutical products, and motor • Oil Sector: O il and gas output contracted further vehicles and assembly suffer from supply constraints, by 8.3 percent in 2021, following a contraction of rising costs for inputs and services, and foreign 8.9 percent in 2020. As was often the case in prior exchange shortages. years, oil and gas production in 2021 suffered from technical and security issues, including pipeline • Services:  Services, which account for the largest share leaks, equipment failure, work stoppages for of Nigeria’s GDP (slightly more than 50 percent non-payment, community protests over unpaid since 2010), contributed the most to GDP growth compensation, and other problems such as theft and in 2021. This strong performance drove sub-sectors  igeria’s growth mimics SSA but falls Figure 1.3. N  owever, the rate of economic growth Figure 1.4. H below the levels of emerging markets is projected to remain above that of and oil-exporting economies. population growth in 2022–2024. Nigeria’s growth vis-à-vis SSA, EMDE and oil exporters’ Nigeria’s projected growth trajectory 2022–2024 growth (2020–2022f) Percent Percent 8 8 6 6 4 4 2 0 2 -2 0 -4 -2 10 11 12 13 14 15 16 17 18 19 20 e f f f -6 22 23 24 21 20 20 20 20 20 20 20 20 20 20 20 20 20 20 2020 2021 2022f 20 J Nigeria J SSA J EMDEs J Oil exporting J GDP growth ▬ Population growth Sources: NBS and World Bank estimates. Sources: NBS, UN, and World Bank estimates. 4 Notably, the anchor borrowers program (ABP) and the commercial agriculture credit scheme (CACS) initiatives of the CBN, which as of 2020 had extended concessional credits of N497.2 billion and N672.9 billion, respectively. Another CBN initiative, the agricultural credit guarantee scheme fund, guarantees loans granted by commercial banks for agricultural purposes, with the aim of increasing bank credit to the agricultural sector. 10 Part 1: Recent Economic Developments and Outlook for Nigeria THE CONTINUING URGENCY OF BUSINESS UNUSUAL such as information and communication technology by 10.1 percent in 2021 (after growing by 9.4 percent (ICT) and financial services. ICT expanded by in 2020) as digital technology enabled a broader 6.5 percent as households and firms continued to suite of financial transactions. In addition to trade, increase their data consumption in the wake of the these subsectors will continue driving the growth of pandemic-related lockdown. Financial services grew services in 2022 (4 percent). Box 1.1. Impact of the war in Ukraine on the Nigerian Economy. The war in Ukraine is affecting the Nigerian economy through direct and indirect channels. The direct channels include (i) trade disruption; and (ii) commodity (mainly food, fuel, and fertilizer) prices. The indirect channels include: (i) the transmission of higher commodity prices to growth; and (ii) the tightening of global financial conditions, which impact foreign financing flows into Nigeria. While Nigeria is a heavy recipient of foreign remittances, neither the Russian Federation nor Ukraine is a significant source country for remittance flows to Nigeria. Similarly, investment flows into Nigeria from both countries are insignificant. Hence, the war is not affecting Nigeria through these channels. Trade disruptions:The war adds to the headwinds to global recovery by further disrupting supply chains, especially those between Russia and Ukraine and the rest of the world. Nigeria is among the top-ten importers of wheat grains from Russia, which accounted for 19 percent of Nigeria’s total wheat imports in 2020. As a result of the war, there is a gap that Nigeria must seek to fill from other sources. Commodity prices: D  isruptions caused by the war are causing supply shortfalls and increases in the international prices of commodities. This includes the cost of fuel and food staples (in particular, cereals and edible oils) and fertilizers, products for which Russia and Ukraine hold a considerable share of global exports. In addition, higher cereal prices raise animal feed prices and, consequently, poultry and meat. Higher fuel and food prices in Nigeria exacerbate pre-existing inflationary pressures, eroding purchasing power and hurting the poor.  e price movements for essential food items may be leaving some Nigerians especially worse-off and at risk Th of falling into—or deeper into—poverty. This is determined by the mix of goods that households consume and produce.5 For example, raw wheat prices have increased dramatically since the start of the war in Ukraine, rising by 35 percent between January and March 2022. Still, raw wheat constitutes only a tiny share of what Nigerians consume, limiting the impact on welfare. However, although price increases for wheat-derived products such as flour and bread and vegetable oil were much more modest, they threatened households’ purchasing power far more, making up a much larger share of their consumption basket. This demonstrates the interlinked nature of international and domestic markets for raw and refined products. Shocks to purchasing power may be partially offset for those households that produce and sell goods whose prices are increasing, especially for corn-producing households in Nigeria’s middle-belt (in states such as Niger, Plateau, and Taraba). However, this does little to help poor and vulnerable households in Nigeria’s north, who do 5 See Artuc et al. (2022) for further details on the global impact of war-induced price inflation on poverty. See Artuc et al. (Forthcoming) for specific estimates for Nigeria. Part 1: Recent Economic Developments and Outlook for Nigeria 11 NIGERIA DEVELOPMENT UPDATE JUNE 2022 Box 1.1 continued not produce corn but buy wheat-derived products and other staples (in states such as Jigawa, Sokoto, and Zamfara). This is particularly worrying, as many northern Nigerians’ food security was already threatened even before the current cost-of-living crisis. Th  e higher crude oil prices triggered by the war (33 percent increase between January and March 2022) would ordinarily be beneficial to Nigeria’s current account position and its fiscal position. However, there has been no boost on the budgetary side due to continued challenges in oil production and the burden of the petrol subsidy. As a result, we expect the fiscal deficit in 2022 to grow to 5.8 percent of GDP, up from our earlier projection of 5.3 percent. Economic growth: Th  e income effects of higher oil prices on secondary and especially tertiary economic activities are expected to result in higher growth in 2022 than initially anticipated. Our growth projections for 2022 have been revised upwards from 2.8 percent (as of November 2021) to 3.4 percent. Global financial conditions: I nflationary pressures from the invasion, also hitting advanced economies, led many central banks to hike interest rates earlier and faster than anticipated. For example, the US Federal Reserve raised its federal fund rate by 0.25 percentage points in March 2022 for the first time in over three years and by a further 0.5 percentage points in May 2022—the single most significant rate hike in more than 20 years. The US Federal Reserve also indicated an aggressive path ahead, with rate hikes expected at its remaining meetings in 2022. Higher interest rates in advanced economies diverted capital away from EMDEs such as Nigeria. Furthermore, foreign aid flows may tilt in the direction of Ukraine, thus reducing flows to Nigeria and other African economies. 12 Part 1: Recent Economic Developments and Outlook for Nigeria THE CONTINUING URGENCY OF BUSINESS UNUSUAL Prices: Inflationary pressures have increased due to the war in Ukraine and a delayed policy response Elevated inflation in 2021 was already reducing reach 15.5 by end-2022. The headline inflation rate the purchasing power of Nigerians and increasing rose to 16.8 percent year-on-year in April 2022, from poverty. Inflation is hurting Nigerians, especially 15.6 percent in January, while food inflation increased workers facing lower incomes, as they have turned to from 17.2 to 18.4 percent. Core inflation, which small-scale, non-farm enterprise activities in the wake of excludes prices of volatile agricultural produce, remained COVID-19. Nigeria’s inflation has increased consistently steady at 14.2 percent. Food inflation, however, is since the closure of the borders. In 2021, at an average of increasing due to higher wheat prices. As of April 2022, 17 percent, inflation was above that of the previous four the price of wheat flour—used to produce bread, pasta, years and among the highest in the world. It was driven and other major Nigerian staples—had increased by by higher food prices, especially for staples such as bread 36 percent year-on-year. Core inflation has risen due to and cereals, potatoes, yams, and other tubers, meat, fish, the scarcity of petrol and other fuels (diesel, household fruits, and oils and fats. We estimate that between 2020 kerosene, and jet fuel).6 and 2021, the “inflation shock” alone pushed about 8 million more Nigerians below the poverty line (Figure The added inflationary pressure from the war in 1.6). Ukraine could push as many as one million additional Nigerians into poverty in 2022. Even before the war, The war in Ukraine has added to Nigeria’s inflation in 2022—then projected at 13.5 percent— inflationary pressures, with inflation projected to was predicted to push around six million Nigerians Figure 1.5. Inflation remained elevated in 2021…  and pushed millions of Nigerians Figure 1.6. … into poverty. Headline, food, and core inflation (Jan 2017–Mar 2022) Poverty headcount rate Percent (yoy) Number of poor (millions) 24 92 22 90 Additional 1 million Nigerians falling into poverty as a result 20 of the Ukraine war 18.4 88 18 86 6 million Nigerians 16 falling into poverty 16.8 before the Ukraine war 14 84 14.2 12 82 10 80 8 Ap -17 Ju 17 O -17 Ja -17 Ap -18 Ju 18 O -18 Ja -18 Ap -19 Ju 19 O -19 Ja -19 Ap -20 Ju 20 O -20 Ja -20 Ap -21 Ju 21 O -21 Ja -21 Ap -22 2 78 r-2 r- r- r- r- r- n l ct n l ct n l ct n l ct n l ct n Before price shock After price shock Ja ▬ CPI ▬ Core CPI ▬ Food CPI Source: NBS. Source: NBS and World Bank estimates. 6 The Nigerian Midstream and Downstream Petroleum Regulatory Authority indicated that petrol shortages in February-March 2022 were due to the discovery of 100 million liters of imported petrol in the supply chain with methanol quantities “above Nigeria’s specifications”, leading to an emergency withdrawal of unspecified volumes of the product from the supply chain. The shortages led to black-marketeering and higher unofficial prices. Part 1: Recent Economic Developments and Outlook for Nigeria 13 NIGERIA DEVELOPMENT UPDATE JUNE 2022  omestic prices of food staples have Figure 1.7. D …and so have fuel prices, except petrol Figure 1.8.  increased… because it is subsidized. Average prices of local staples (April 2022 vs April 2021) Average prices of fuel products (April 2022 vs April 2021) Naira Naira per litre 550 139 naira higher 700 417 naira higher 57 naira higher 654 524 500 227 naira higher 513 600 590 118 naira higher 450 456 451 500 400 108 naira higher 400 385 350 361 363 300 333 300 6 naira higher 237 200 250 253 173 166 200 100 150 0 Yam tuber Bread Rice Wheat flour (1 tuber) (500g) (1kg) (1kg) Petrol Kerosene Diesel J April 2021 J April 2022 J April 2021 J April 2022 Source: NBS. Source: NBS. into poverty in 2022.7 With the war, the higher rate of inflation—projected at 15.5 percent—could push approximately seven million Nigerians into poverty, an additional one million people (Figure 1.6). The CBN’s inflation target of 6–9 percent, which was not achieved in previous years, remains unlikely to be met in 2022. The increase in May 2022 in the policy rate by the CBN is an adequate measure. Still, it has occurred in a context in which FX management and development finance at subsidized rates have reduced the effectiveness of monetary policy. Moreover, financing of the fiscal deficit and trade restrictions by the Central Bank continue fueling inflationary pressures. Inflation in Nigeria will thus remain among the highest in Sub-Saharan Africa in 2022. 7 This estimate involves isolating the impacts of inflation on consumption and purchasing power, although it does not capture the effects that inflationary shocks can have on income, nor does it account for how people might substitute away from purchasing goods whose prices rise more to other, cheaper goods. 14 Part 1: Recent Economic Developments and Outlook for Nigeria THE CONTINUING URGENCY OF BUSINESS UNUSUAL The External Sector: Higher oil prices provide a boost, but rising global interest rates and FX restrictions undermine external sustainability Nigeria’s current account improved in 2021 thanks Direct investments have been persistently low in to the economic recovery from COVID-19 and 2022, as exchange rate management issues deter is expected to strengthen further in 2022 due to investors. Net foreign direct investment (FDI) inflows increases in oil prices, remittance inflows, and non-oil in 2021 remained at less than 1 percent of GDP, despite exports. In 2021, the current account deficit narrowed higher oil prices which have historically driven higher from 3.8 percent of GDP in 2020 to 0.4 percent in portfolio investment flows into the country. Although 2021, driven by an increase in exports stemming from the CBN has made progress in harmonizing the two the rebound in oil prices. In contrast, imports remained main exchange rates, the reform remains incomplete, subdued and declined by 4 percent year-on-year. This and the persistence of multiple rates continues to was partly due to FX scarcity, as the private sector discourage private investment. reported shortages of FX even for “allowed” imports.8 Remittance flows also recovered to pre-pandemic levels With rising global interest rates, Nigeria will likely in 2021. In 2022, higher oil prices are expected to push experience net portfolio outflows in 2022. FPI inflows the current account to a surplus for the first time since grew significantly in 2021, exceeding US$6 billion 2018, amounting to a projected 2.8 percent of GDP. (1.4 percent of GDP). This followed a significant decline in 2020 in the wake of the COVID-19 pandemic when net outflows reached US$3.6 billion (0.8 percent of  he CAB improved in 2021 and is Figure 1.9. T …off the back of higher oil exports Figure 1.10:  projected to improve further in 2022… and foreign remittances and lower imports. Current Account Balance (2018–2022f) Contributions to Changes in CAB Percent of GDP Percent, percentage points 3 8 2 6 4 1 2 0 0 -1 -2 -2 -4 -3 -6 -4 -8 2018 2019 2020 2021e 2022f 2018 2019 2020 2021 J Exports J Imports J Net transfers J Net income Q Change in CAB Source: CBN. Source: CBN. 8 The CBN had already excluded several import categories from FX access since 2015, in a deliberate effort to mute “excess demand for frivolous imports”. Part 1: Recent Economic Developments and Outlook for Nigeria 15 NIGERIA DEVELOPMENT UPDATE JUNE 2022  irect and Portfolio Investment flows Figure 1.11. D  irect Investments are particularly Figure 1.12. D to Nigeria remain low. low compared to peer countries. Net FPI and FDI flows to Nigeria (2018–2022f) FDI to Nigeria and Comparator Countries (2018–2022f) Percent of GDP Percent of GDP 1.5 6 5 1.0 4 0.5 3 0 2 -0.5 1 -1.0 0 2018 2019 2020 2021e 2022f 2018 2019 2020 J FPI ▬ FDI ▬ Oil producing ▬ EMDEs ▬ SSA ▬ Nigeria Source: CBN. Sources: World Bank calculations based on CBN and WDI data. GDP). However, with the continued hiking of interest rates in the US and other advanced economies due to rising inflation, net portfolio inflows to Nigeria are expected to drop under 1 percent of GDP in 2022. The pre-election environment is also likely to add to the hesitance of portfolio investors, keeping net inflows low. Boosted by higher oil exports, International Monetary Fund's Special Drawing Rights allocation in August 2021, and a Eurobond issuance in September 2021, gross official reserves rose to US$41.3 billion (7.4 months of imports) at the end of 2021;9 offering an opportunity for exchange rate adjustment. Nigeria issued additional Eurobonds for US$1.25 billion in March 2022. However, gross FX reserves are projected to decline during 2022, as the CBN is expected to clear the FX backlog to foreigners (estimated at US$1.7 billion as of end-October) and FX forward contracts. 9 The International Monetary Fund issued a Special Drawing Rights allocation of US$3.35 billion to Nigeria in August 2021 as part of the US$650 billion general Special Drawing Rights allocation to boost global liquidity. Nigeria also issued Eurobonds for US$4 billion in September 2021. 16 Part 1: Recent Economic Developments and Outlook for Nigeria THE CONTINUING URGENCY OF BUSINESS UNUSUAL Monetary Policy and Exchange Rate Management: The need for timely and consistent monetary policy and exchange rate unification has become critical Against the background of heightened inflationary CBN raise the monetary policy rateby 150 basis points pressures from the war in Ukraine, timely and to 13 percent, persuaded that tackling inflation had consistent monetary policy in 2022 is becoming a become more urgent. However, CBN’s development pressing priority. Nigeria was the only emerging market financing interventions at subsidized interest rates and economy not to change its policy rate between the its FX management which leaves substantial amounts of second half of 2020 and May 2022. Higher food, fuel, local currency liquidity waiting to exit, have reduced the and fertilizer prices arising from the Ukraine war started effectiveness of the monetary policy. impacting early in the year, and Nigeria’s inflation rate started trending upwards in February 2022. It reached Clarity on exchange rate policy, and transparency 16.8 percent in April, up from 15.6 percent in January, in its management, are necessary to attract more and is likely to increase further if the war persists. Policy significant capital inflows, including foreign direct action to counteract this trend has become critical. investments. The exchange rate policy in 2022 remains However, the CBN postponed any increase in the policy focused on maintaining the IEFX rate and the official rate, having retained the monetary policy rate (MPR) exchange rate artificially stable through foreign exchange at 11.5 percent since September 2020, and continued restrictions and administrative measures.10 The CBN to ramp up its development finance initiatives to soften maintains a complete restriction of FX supply to import the economic impact of the COVID-19 crisis on about 45 products, and firms report limited FX supply households and businesses. Only in May 2022 did the availability for other imports. Despite the recovery in  he monetary policy rate remained Figure 1.13. T  despite inflation in Nigeria trending Figure 1.14. … unchanged till May 2022… higher than in other SSA countries. Monetary Policy Rate and Inflation (2020–2022) Average Inflation Rates - Nigeria and SSA Countries Percent (yoy) Percent (yoy) 20 18 18 16 16 14 14 12 12 10 10 8 8 6 6 4 4 2 0 2 20 0 0 0 20 0 21 1 1 1 N 1 Ja 1 M 2 M 2 2 -2 -2 l-2 -2 -2 -2 l-2 2 -2 2 -2 -2 0 n- p- n- p- n- ar ay ov ar ay ov ar ay Ju Ju Ja Se Ja Se 2020 2021 2022f M M M N M J Inflation ▬ MPR J SSA J Nigeria Source: CBN, NBS. Source: NBS, WDI. 10 The IEFX rate - also known as the NAFEX rate - is the exchange rate applicable in the Investors and Exporters foreign exchange window. Part 1: Recent Economic Developments and Outlook for Nigeria 17 NIGERIA DEVELOPMENT UPDATE JUNE 2022 exports and economic activity in 2021, the CBN’s FX The benefits of a more effective exchange rate supply in the I&E window declined by 41 percent in management, with a view towards a unified and 2021 relative to 2020. At the same time, the NAFEX market-reflective exchange rate, are more significant remained broadly stable in 2021, the parallel exchange than in previous years. Favorable external conditions rate depreciated by as much as 16 percent in a context (oil prices being the highest in nine years) provide an of FX scarcity. As a result, the premium between the opportunity to adjust the exchange rate reflective of parallel exchange rate and the NAFEX widened from market dynamics. Allowing further gradual adjustment 21 percent to 37 percent. The CBN has also signaled in the IEFX rate, where the CBN manages the price, that it would stop selling FX to commercial banks by would help eliminate misalignment and alleviate end-2022, and has introduced an FX repatriation rebate persistent FX pressures. The CBN took steps to program in February in conjunction with the Bankers’ unify multiple exchange rates by adopting the IEFX Committee. window rate as its official exchange rate in May 2021. However, different windows still exist, and the parallel  he CBN’s FX supply to the IEFX Figure 1.15. T  he premium between the NAFEX rate Figure 1.16. T market remains limited and well below and the parallel (black market) rate pre-pandemic levels. has widened. IEFX Market Turnover and CBN Supply NAFEX and BDC (parallel) rates and premium US$ billion Percent (yoy) Naira/US$ 9 20 18 600 8 7 16 550 14 172 Naira/US$ 6 12 5 500 10 4 8 450 3 6 2 4 400 1 2 0 0 350 M 2 2 20 0 0 0 20 0 21 1 1 1 21 1 22 2 2 20 M 0 Ju 0 Se 0 N 20 Ja 0 M 1 M 1 Ju 1 Se 1 N 21 Ja 1 M 2 -2 -2 -2 -2 l-2 -2 -2 -2 l-2 -2 -2 -2 -2 -2 l-2 -2 2 -2 -2 l-2 -2 2 n- p- n- p- n- n- p- n- p- n- ar ay ov ar ay ov ar ay ar ay ov ar ay ov ar ay Ju Ju Ja Se Ja Se Ja Ja M M M M M N M N M J IEFX market turnover ▬ CBN FX supply J Inflation rate ▬ Parallel market, rhs ▬ IEFX window (NAFEX, rhs) Source: FMDQ. Sources: CBN and Nairametrics. Nigeria’s exchange rate policy includes FX demand management as well as supply-boosting Figure 1.17.  measures. Timeline of CBN’s exchange rate management interventions, 2021–22 26-Jan-21 5-Mar-21 27-Jul-21 17-Aug-21 21-Aug-21 8-Sep-21 17-Sep-21 2-Feb-22 25-Feb-22 CBN introduces the (i) Court grants CBN announces that CBN announces that it ‘Naira 4 Dollar Scheme’ CBN's request to it will go after persons will stop sales of Forex for diaspora remittances. freeze accounts who purchased FX to banks by end of 2022. of six fintech under pretense of companies. travelling abroad. CBN threatens to CBN discontinues CBN directs banks CBN accuses owner of CBN introduces the RT200 expel exporters the sale of forex to place a post-no- AbokiFX company of Non-oil export proceeds who refuse to remit to BDC operators debit restriction on manipulative and speculative repatriation scheme to foreign exchange in Nigeria. bank accounts of activities on the Naira and reduce exposure to volatile proceeds in the 18 companies. declares abokifx.com illegal. sources of Forex and NAFEX market. promote sustainable inflow of forex over the next 3–5 years. Source: CBN. 18 Part 1: Recent Economic Developments and Outlook for Nigeria THE CONTINUING URGENCY OF BUSINESS UNUSUAL rate premium continues to climb, reaching 39 percent over the official IEFX rate in March 2022 (see Figure 1.16). The CBN continues to supply FX to at least four windows, sometimes at varying rates: (i) the I&E window; (ii) the secondary market intervention sales retail window; (ii) the small and medium-size enterprises (SME) window; and (iv) the window for invisibles. Part 1: Recent Economic Developments and Outlook for Nigeria 19 NIGERIA DEVELOPMENT UPDATE JUNE 2022 The Financial Sector: Time to dial down development finance interventions Through March 2022, net domestic credit grew rising in relative importance to about 60 percent by the robustly (21.3 percent year-on-year), reflecting a end of 2021. surge in private sector credit (Figure 1.18) spurred by the CBN’s development finance interventions. The CBN’s continued provision of heavily subsidized At the same time, deposit money banks have increased funding to certain sectors undermines commercial their holdings of CBN securities—as their yields banks that lend on a risk-adjusted pricing basis rose—while roughly maintaining their exposure to the and needs to be dialed down. CBN disbursements government. The share of private sector credit originated are growing in funding the private sector, with the by deposit money banks that went to the agriculture CBN’s share of private sector credit rising from about sector continued to rise. It stood at 6.3 percent of the 6.5 percent at end-2019 to 10 percent by end-2021 total (March 2022), about two percentage points higher (Figure 1.19). Although some of the COVID-related than at the end of 2019. As of February 2022, interest tools deployed by the CBN are being phased out (e.g., rates on savings and time deposits and prime lending the moratorium on principal repayments on CBN- were below the levels prevailing at the start of the funded credits lapsed in March 2022), the Central Bank pandemic—by around 200bps and 300bps, respectively. has introduced new intervention facilities without a However, maximum lending rates (charged to riskier publicly available evaluation of their impact. The CBN borrowers) have returned to levels prevailing in March also stepped up disbursements and kept the monetary 2020. Overall, foreign currency funding of commercial policy rate unchanged at 11.5 percent from September and merchant banks steadily grew in 2021, with funding 2020 until May 2022. On March 15, 2022, the CBN sourced domestically from corporates and households extended the 5 percent per annum interest rate on its Figure 1.18. Nigeria avoided a credit crunch.  he CBN played a key role in Figure 1.19. T expanding credit. Credit to the Private Sector Share in Private Sector Credit Origination (end 2021 'inside' Vs. end January 2022 'outside') Naira trillions 25 end-2021 20 15 10 5 0 Fe -18 Ap 19 Ju 19 Au 19 O 19 D -19 Fe -19 Ap 20 Ju 20 Au 20 O 20 D -20 Fe -20 Ap 21 Ju 21 Au 21 O 21 D -21 1 Jan-2022 -2 b- r- n- g- b- r- n- g- b- r- n- g- ec ct ec ct ec ct ec D J Central Bank of Nigeria J Commercial banks J Non interest banks J Central Bank of Nigeria J Commercial banks J Non interest banks J Primary mortgage banks J Microfinance banks J Primary mortgage banks J Microfinance banks Source: CBN. Source: CBN. 20 Part 1: Recent Economic Developments and Outlook for Nigeria THE CONTINUING URGENCY OF BUSINESS UNUSUAL development finance intervention funds for one more tools and powers provided in the 2020 Banks and Other year through end-February 2023. The Monetary Policy Financial Institutions Act is strongly recommended. The Committee has strongly encouraged the central bank regulatory forbearance granted by the CBN at the onset to continue its development finance interventions, of the pandemic for restructuring loans impacted by including a policy tool to help tame rising inflation. COVID-19, and the surge in the price of crude oil, have However, this stance fuels inflation in the short term helped keep the banking system sound. Restructuring from elevated aggregate demand and weakens the ability peaked at some 40 percent of banking system loans, but of the central bank to control inflation efficiently. that share fell to around 25 percent in Q3-2021, and repayments on restructured loans started to normalize. Expanding government programs to support micro, small, and medium enterprises (MSMEs) is a priority to protect viable and vulnerable MSMEs against rising uncertainty. The banking system has proved resilient in the face of COVID-19. Still, the operating environment for banks and firms has become more challenging recently. The fallout from the war in Ukraine drives inflation higher, increasing production costs and the cost of borrowing through higher rates. Thus, loan quality over the next several quarters is likely to deteriorate, but it is not expected to threaten the banking system’s stability, as capitalization levels remain healthy overall. The NPLs ratio fell to 4.8 percent of gross loans in February 2022 (from 6.4 percent in Q2-2021). System-wide capitalization levels stood at 14.4 percent in February 2022 (down from 15.5 percent in Q2-2021), above minimum prudential requirements, but profitability has eroded. There are pockets of vulnerability, as troubled loans (International Financial Reporting Standards Stage II and III) remain elevated in two domestically systemically important banks— one of which has a thin capital buffer above the minimum requirement—as of Q3-2021. In addition, certain medium-sized banks that cater to SMEs and intermediate CBN development finance could be stressed if the economic recovery were to falter. SMEs, many of which have already suffered over the last two years, typically have less resiliency in revenue generation than larger, more diversified companies. Phasing out prudential regulatory support measures is also a priority. Managing the consequences of this removal may test the adequacy of the framework for dealing with banks in distress. Further developing the Part 1: Recent Economic Developments and Outlook for Nigeria 21 NIGERIA DEVELOPMENT UPDATE JUNE 2022 Fiscal Policy: Stagnating oil revenues harm fiscal accounts at both the federal and subnational levels Nigeria’s fiscal performance suffered in 2021, as oil light crude oil rose to an average of US$70/barrel in production was sluggish, the petrol subsidy eroded 2021 from US$42/barrel in 2020, net oil revenues net oil revenues, and expenditure pressures remained transferred to the Federation Account increased only high. Although higher than in 2020, the Federation's by 3.9 percent (approximately N100 billion). The revenues did not match pre-pandemic (2019) levels. stagnation in oil revenues is attributable to declining oil On the expenditure side, interest payments and production and sizable deductions from the Federation’s capital expenditures increased. As a result, the general oil revenues for the petrol subsidy. government fiscal deficit is estimated at 6.5 percent of GDP in 2021, with the federal fiscal deficit reaching The performance of non-oil revenues boosted total 4.2 percent of GDP—a marginal improvement from revenues, but total distributable FAAC revenues 4.4 percent in 2020—but still breaching the limit remained below 2019 levels, even in nominal terms. set by the 2007 Fiscal Responsibility Act for the third Non-oil revenues increased by almost 19 percent against consecutive year (for a detailed explanation of Nigerian 2020 levels (and 22 percent over 2019 levels) but stayed fiscal rules, see the Forthcoming 2022 World Bank around 2.4 percent of GDP (only 0.1 percentage point Nigeria Public Finance Review). increase over 2020 levels). VAT revenues increased by 17.6 percent to remain at 0.9 percent of GDP in 2021, In 2021, for the first time, Nigeria did not fully the same as in 2020. Customs revenues increased by benefit from rising oil prices. In the wake of the global 38.6 percent (0.1 percentage point of GDP) over the economic recovery from COVID-19, international oil 2020 level. Total FAAC revenues were 3.3 percent (or prices increased sharply. Although the price of Bonny N232 billion) below 2019 levels (or 0.2 percentage  ising oil prices did not translate into Figure 1.20. R As such, despite strong non-oil Figure 1.21.  higher gross and net oil revenues. revenue performance, total FAAC revenues remained marginally below 2019 levels. Revenues and oil prices Revenue contributions as a share of total Revenues in naira billions Price of Bonny Light (US$/bbl) 8,000 80 8,000 7,000 70 7,000 6,000 60 6,000 5,000 50 5,000 4,000 40 4,000 3,000 30 3,000 2,000 20 2,000 1,000 10 1,000 0 0 0 2018 2019 2020 2021 2016 2017 2018 2019 2020 2021 J Gross oil revenues J Net oil revenues Q Total FAAC revenues J Net VAT revenues J NCS collected revenues ▬ Bonny Light (average), rhs J FIRS collected non-VAT revenues J Net oil revenues Source: OAGF and BOF. Source: OAGF and BOF. 22 Part 1: Recent Economic Developments and Outlook for Nigeria THE CONTINUING URGENCY OF BUSINESS UNUSUAL points of GDP) on account of the negligible increase in collectively saw a 10 percent increase in revenues for net oil revenues. 2021, but expenditures grew by almost 20 percent, primarily due to higher interest payments. The states’ Expenditure pressures remain high due to an increase collective primary spending is estimated to have declined in recurrent spending. Federal expenditures rose by by 7 percent in 2021 against 2020, raising concerns 22.8 percent in 2021 (0.5 percentage points of GDP), about the accumulation of arrears. Many states are and “rigid” recurrent spending—interest payments expected to have posted larger fiscal deficits than in and personnel costs—hovered around 60 percent of 2020. total federal expenditure. Interest payments increased by 26.4 percent (0.2 percentage points of GDP) while In 2022, Federal government revenues are projected personnel expenditure by almost 10 percent (but a to be 3.7 percent lower, despite a 22 percent decline of 0.1 percentage point of GDP). However, increase in estimated independent revenues. In capital expenditures also rose significantly in 2021, by 2022, despite higher oil prices, net oil revenues for nearly 75 percent against 2020 levels (from 1.4 percent Nigeria are projected to remain stagnant due to low oil of GDP in 2020 to 2.2 percent of GDP in 2021), to production and large petrol subsidy deductions. Federal reach their highest-ever level of N3.9 trillion. This expenditures are estimated to increase by over 25 percent stark increase was presumably due to the government in 2022 amid elections, with a 37 percent increase in resuming projects paused in 2020 because of the capital expenditures. If budgeted expenditures are in pandemic (see the forthcoming 2022 World Bank line with the Medium-Term Fiscal Framework (MTFF), Nigeria Public Finance Review for a broader analysis the federal fiscal deficit will reach 5.4 percent of GDP. of spending efficiency) as well as possibly due to the Suppose capital expenditures are maintained at the 2021 upcoming elections. level, which may occur due to delays in passing the 2022 amended budget. In that case, the federal fiscal deficit Many subnational governments also saw their fiscal is still expected to be higher than in 2021 and reach balances worsen as expenditure growth outstripped 4.7 percent of GDP. revenue increases. It is estimated that the states  igid expenditures account for Figure 1.22. R  ontinued pressure from interest Figure 1.23. C around 60 percent of total federal payments and personnel costs expenditure. pushes the federal fiscal deficit beyond the legally stipulated limit. Federal expenditures Fiscal balance Naira billions Percent of GDP 100 0 90 -0.5 80 -1.0 70 -1.5 60 -2.0 50 -2.5 40 -3.0 30 20 -3.5 10 -4.0 0 -4.5 2016 2017 2018 2019 2020 2021 2016 2017 2018 2019 2020 2021 J Debt servicing J Personnel expenditure J Capex J Other Source: OAGF and BOF. Source: OAGF and BOF. Part 1: Recent Economic Developments and Outlook for Nigeria 23 NIGERIA DEVELOPMENT UPDATE JUNE 2022  or most states, fiscal deficits increased as expenditure pressures outstripped revenue Figure 1.24. F growth. Fiscal balance at the state-level Naira billions 100 0 -100 -200 -300 -400 e Kw gi as ara a Pl ger am au Ba a Bo i G o Ta be ba Ji be Ka wa na Ka no Ke a So bi Za oto ra am a Eb r a En yi u w mo B om ss sa D r ta R o s La ti O s n o n yo h e er i go nu aw aw rn in An Abi ug Ed gu nd su on Ek Ko uc b el fa b iv ro el O Ad ate om ra Yo du Ka ga ts k Ak I Ib iv i -R O Be N O m ar C ay a N North Central North East North West South East South South South West bars: 2020 Q 2021 Source: OAGF, DMO, and NGF.  et oil revenues are expected to stagnate in 2022 as oil production remains low and petrol Figure 1.25. N subsidy deductions increase with higher oil prices. Net oil revenues and petrol subsidy deductions Naira billion 9,000 8,000 7,760 7,000 6,000 -4,000 5,000 4,806 -1,430 4,000 -107 3,688 -1,017 3,000 -942 -634 2,639 2,742 2,743 2,000 1,000 0 2020 2021 2022f J Gross oil and revenues J Petrol subsidy deductions J Other oil and gas deductions J Net oil and gas revenues Source: World Bank staff estimates based on data from OAGF and BOF.  tates are projected to receive lower revenue transfers from the federal government in 2022 Figure 1.26. S in nominal levels relative to 2021. Federal government transfers to states Percent 20 10 0 -10 -20 -30 -40 -50 -60 ue Kw gi as ara a Pl ger am au Ba a Bo i G o Ta be ba Ji be Ka wa na Ka no Ke a So bi Za oto ra am a Eb ra En yi u w mo B om ss sa D r ta R o s La ti O s n o n yo h e er i go aw aw rn in An Abi ug Ed gu nd su on Ek Ko uc b el fa b iv ro el O n Ad ate om ra Yo du Ka ga ts k Ak I Ib iv i -R O Be N O m ar C ay a N North Central North East North West South East South South South West bars: Percentage change against 2021 actual Q Percentage change against 2022 budget Source: World Bank staff estimates based on data from OAGF, DMO, and NGF. 24 Part 1: Recent Economic Developments and Outlook for Nigeria THE CONTINUING URGENCY OF BUSINESS UNUSUAL  or most states, gains from VAT revenues and IGR are not expected to make up for losses Figure 1.27. F in net oil revenues. Gains from VAT revenue, IGR and oil & gas transfers 130 80 30 -20 -70 -120 e K i as ra a Pl ger am au Ba a Bo i G no Ta be ba Ji be Ka wa na Ka no Ke a So i Za oto ra am a Eb r a En yi u w mo B om ss sa D r ta R o s La iti O s n o n yo g h bb e er go nu aw aw in An bi ug Ed gu nd su on Ek Ko uc el N wa fa b iv ro el O Ad ate r om ra Yo du Ka ga ts A k Ak I Ib iv i -R O Be N O m ar C ay a North Central North East North West South East South South South West J Estimated change in IGR J Estimated change in VAT transfers from 2021 J Estimated change in oil and gas transfers from 2021 Q Total estimated change from 2021 Source: World Bank staff estimates based on data from OAGF, DMO, and NGF. Stagnating net oil revenues will significantly affect the fiscal situation at the state level. State governments are projected to collectively receive 2.7 percent fewer revenues than in 2021, as federal transfers are estimated to decline by 10 percent against 2020 levels. Lower transfers will cause state governments to incur debt or drastically slash discretionary expenditure. Although states receive the majority of VAT revenues, VAT increases would not make up for the loss of net oil revenues. As a result, in 2022, the average state in Nigeria will lose N18.8 billion in oil and gas revenues, while optimistic projections place average gains from VAT and the electronic money transfer Levy at N7.1 billion per state, and average increases in each state’s independent revenues at N6.7 billion. As a result, the average state can expect to lose N5 billion in revenue in 2022. Public debt is considered to be sustainable. It is expected to reach 36 percent of GDP in 2022, 1 percentage point higher than in 2021. Debt servicing costs are projected to remain high, with interest payments expected to reach 45 percent of total consolidated government revenues in 2022 (see the World Bank Nigeria Public Finance Review, 2022 (forthcoming), for a discussion on debt dynamics and sustainability). Part 1: Recent Economic Developments and Outlook for Nigeria 25 NIGERIA DEVELOPMENT UPDATE JUNE 2022 Economic Outlook The Global Economy: The shock from the Commodity prices surged in the first half of 2022, war in Ukraine is affecting the recovery especially for those commodities where Russia and from the pandemic Ukraine are major exporters ( Figure 1.28). Further disruptions to Russia’s crude oil exports could be offset Global economic prospects have deteriorated by inventory releases or the scaling up of production substantially since early 2022, amid disruption to among other major exporters; however, increasing global commodity markets caused by the war in production would take time. In 2022, crude oil prices Ukraine and accelerated policy tightening in many are forecast to average US$100 per barrel, an upward countries. These headwinds arose right on the heels of revision of US$24 per barrel from forecasts in January the COVID-19 pandemic. Beyond the war, frequent  lobal and Regional Indicators, 2019– Table 1.1. G pandemic-related lockdowns in China have contributed 2022. to disrupting global supply chains. As a result, overall 2022f risks to economic prospects have risen sharply, and 2019 2020 2021 GEP GEP the room of maneuver to control inflation, boost JAN JUN 2022 2022 growth, and promote financial stability has decreased. Real GDP Growth Furthermore, high public debt leaves many EMDEs - Global economy 2.6 -3.3 5.7 4.1 2.9 with even less policy space to support the recovery (percent) Real GDP Growth - while expanding social safety nets, which are needed to 1.7 -4.6 5.1 3.8 2.6 AEs (percent) mitigate the impact of higher food and fuel prices on Real GDP Growth - 3.8 -1.6 6.6 4.6 3.4 vulnerable households. Against this backdrop, global EMDEs (percent) economic growth is forecast to slow from 5.7 percent Real GDP Growth - 2.6 -2.0 4.2 3.6 3.7 SSAs (percent) in 2021 to 2.9 percent in 2022—1.2 percentage points Crude Oil Price below the January forecast— and edge up to 3.1 percent 64 42.3 70.4 76 100 ($/bbl) in 2023 (Table 1.1). Source: World Bank Global Economic Prospects (June 2022), Commodity Markets Outlook (June 2022). Figure 1.28. Global commodity prices surged, and confidence plunged as a result of the war Panel A. Commodity Price Indexes Panel B. Global Sentix Index Index, 100=December 2021 Index 160 45 35 140 25 120 15 5 100 -5 80 -15 -25 60 -35 -45 40 -55 20 -65 20 0 0 0 21 1 1 1 22 2 20 0 0 0 21 1 1 1 22 2 r-2 l-2 -2 r-2 l-2 -2 r-2 r-2 l-2 -2 r-2 l-2 -2 r-2 n- n- n- n- n- n- ct ct ct ct Ju Ju Ju Ju Ap Ap Ap Ap Ap Ap Ja Ja Ja Ja Ja Ja O O O O ▬ Energy ▬ Food ▬ Metals & minerals ▬ Fertilizers ▬ Expectations ▬ Current ▬ Overall Source: Bloomberg and World Bank. Note: Panel A. Pink Sheet data for oil, metals, and agricultural prices indexed to December 2021=100. Last observation is from March 2022. Panel B. A positive value indicates improving sentiment. Last observation is from April 2022. 26 Part 1: Recent Economic Developments and Outlook for Nigeria THE CONTINUING URGENCY OF BUSINESS UNUSUAL (Table 1.1). Prices are projected to moderate in 2023 as • Decoupling between oil prices and oil revenues: production rises elsewhere; however, they will remain As highlighted in this edition of the NDU, this much higher than previously forecast and well above the phenomenon started in 2021 and intensified in 2022 past five years' average. and will continue until the petrol subsidy is phased out. The scenario is more optimistic on the external side, as higher oil prices boost the value of oil exports. Nigeria’s Outlook: Stronger growth amid a However, external reserves have not increased and weakening macroeconomic framework have not reduced the need for external financing as in previous episodes of higher oil prices. Nigeria’s short-term growth prospects are positive. In  espite rebounding oil prices, Figure 1.29. D 2022–2023, the economy will continue growing above Nigeria’s macroeconomic stability than the expected population growth of 2.6 percent. deteriorated in 2021. GDP is projected to grow by 3.4 percent in 2022 and Oil prices and production volumes US$/bbl Percent of GDP 3.2 percent in 2023. Growth prospects have improved 160 0 on the back of (i) sustained growth in agriculture and a 140 robust recovery in services, mainly telecommunications, -1 120 and financial services, all which are above 2019 -2 100 production levels; and (ii) higher oil prices, which 80 -3 have strengthened Nigeria’s external position, and have 60 spillovers effects on manufacturing and services. -4 40 -5 20 However, macroeconomic indicators have weakened 0 -6 despite higher oil prices and higher growth. 10 11 12 13 14 15 16 17 18 19 20 21 Four reasons explain the paradox of higher growth 20 20 20 20 20 20 20 20 20 20 20 20 ▬ Macro stability index (2010=100), lhs ▬ Oil price (Bonny Light), lhs accompanied by an expected deterioration of the ▬ Fiscal deficit, rhs macroeconomic framework: Source: OAGF, NBS, and CBN. Note: Macro stability is measured by a standardized composite index of inflation, current account, and overall fiscal balance, with 2000 as the base year. • High inflation: Inflation is arguably the key priority to improving macroeconomic sustainability. Despite • Heightened global risks: F  irst, the war in Ukraine the urgency, the authorities' response over the last has increased the uncertainty in international capital two years has not been adequate, and inflation has flows, spurred higher prices of imported food and increased and fueled poverty and food insecurity. inputs for fertilizers, depressed global growth, and As discussed in previous NDUs, between 2020 and heightened the volatility of oil prices. Second, the 2021, Nigeria’s high inflation resulted from a lack of impact of monetary tightening by central banks in concerted action to reduce it by reforming the mix advanced economies, including the United States of trade, exchange rate, monetary, and fiscal policies. Federal Reserve, will reduce the room for maneuver For instance, until May 2022, the CBN was the only of central banks worldwide and will likely reduce monetary authority in emerging economies pursuing capital inflows into emerging economies. expansionary policies amid intensified inflationary pressures. In addition, global supply shocks resulting • Insecurity and uncertainty about the pace and from the war in Ukraine have further compounded direction of economic policy:Insecurity remains food and fuels inflationary pressures. widespread in Nigeria, with more violent conflict Part 1: Recent Economic Developments and Outlook for Nigeria 27 NIGERIA DEVELOPMENT UPDATE JUNE 2022 n a business-as-usual scenario, Nigeria’s GDP growth rate would continue to lag other Figure 1.30. I emerging economies. Macroeconomic indicators and projections for Nigeria, 2017–2023 GDP growth (percent) Inflation (percent) CAB (percentage of GDP) Overall fiscal balance (percentage Debt (percentage of GDP) of GDP) 6 18 2.0 0 70 15.3 1.4 16 1.5 3.4 -1 60 13.3 13.2 4 0.6 14 1.0 -2 50 1.6 0.5 2 12 36.4 0 -3 40 10 0 -0.5 25.2 8 -4 30 20.0 -1.0 -4.2 -2 6 -1.8 -1.5 -5 20 4 -2.0 -5.5 -4 -6 10 -5.8 2 -2.5 -2.4 -6 0 -3.0 -7 0 9 20 3f 9 20 3f 9 20 3f 9 20 3f 9 20 3f –1 –1 –1 –1 –1 –2 –2 –2 –2 –2 20 20 20 20 20 17 17 17 17 17 21 21 21 21 21 20 20 20 20 20 20 20 20 20 20 J EMEs J Nigeria Source: WEO and World Bank. events across the country.11 Insecurity has affected Nigeria’s Policy Scenarios: The overall millions of Nigerian lives, but it has also discouraged macroeconomic framework would private investment and growth. This situation is deteriorate further without concerted compounded by increased public perception of policy policy reforms unpredictability at the state and federal levels due to the February 2023 general elections run-up. In our baseline “business-as-usual” scenario, Nigeria’s GDP growth will remain above population growth in A “business-as-usual” policy stance would not 2022–2024. Nigeria will be in a highly unusual situation address Nigeria’s macroeconomic challenges. Multiple where growth prospects have improved, but the overall exchange rates, trade restrictions, and CBN financing of macroeconomic framework is deteriorating. Instead of the public deficit continue to undermine the business benefitting from the windfalls to build macroeconomic environment, compounding long-standing weaknesses resilience, the Nigerian economy is becoming more in revenue mobilization, foreign investment, human vulnerable to external shocks—if the external windfalls capital development, infrastructure investment, and were to reverse, the economy would face a similar good governance. In particular, the authorities lost recession to that of 2015–2016. an opportunity to address the main source of fiscal vulnerabilities by choosing to maintain the petrol • External variables: O  il prices are expected to subsidy. Moreover, with the 2023 elections on the remain broadly stable while oil production increases horizon, the window of opportunity to accelerate growth gradually. The price of Bonny Light crude oil is by easing macroeconomic imbalances, addressing fiscal assumed to average US$85/barrel between 2022 vulnerabilities, and protecting the welfare of poor and 2024, and crude oil production will remain households has shrunk—the following section describes at 1.5 million bpd at the end of 2022 and range two macroeconomic scenarios. between 1.6 and 1.7 million bpd in 2023–24. Central banks in advanced and emerging economies continue tightening their monetary policy stance in response to supply shocks. 11 For trends in conflict events in Nigeria, see the November 2021 edition of the NDU. 28 Part 1: Recent Economic Developments and Outlook for Nigeria THE CONTINUING URGENCY OF BUSINESS UNUSUAL • Policy: Th e baseline scenario assumes that current In a “business unusual” scenario, the government policies continue, particularly regarding the petrol would undertake a sequenced program of bold subsidy, exchange rate management, and the mix of macro-structural reforms that position Nigeria on a trade, fiscal, and monetary policies. faster and more inclusive growth path. • G  rowth is projected to be 3.4 percent in 2022 and • External variables: Th  is scenario has the same 3.2 percent in 2023 and 2024. We expect sustained assumptions on external variables as the business-as- growth in services (telecommunications, trade, usual scenario. financial service) and non-oil industry (construction, food industry) and a moderate recovery in the • Policy: This scenario assumes that the Nigerian oil sector. However, inflation would remain high, authorities advance exchange rate, trade, fiscal, eroding consumer purchasing power and increasing and monetary policy reforms that help reduce poverty. The burden of the petrol subsidy would inflation, address fiscal and monetary vulnerabilities reduce the already limited fiscal space, limiting the and enhance the business-enabling environment options to alleviate the impact of high inflation on (Table 1.2). For instance, immediate actions in the poorest Nigerians. In the absence of FX reforms, this scenario would include (i) adopting a single, there will be continued pressure on the parallel market-responsive exchange rate; (ii) establishing a exchange rate, which will continue discouraging “compact” with the Nigerian people that phases out private investment and fueling inflation. In this the petrol subsidy while protecting the poor through scenario, once 2022 GDP per capita is adjusted by targeted and time-bound cash transfers; (iii) easing changes in prices and exchange rates, per capita GDP FX and import restrictions; and (iv) accelerating growth would be close the zero. COVID-19 vaccinations (see Box 1.2). By building macroeconomic resilience, the Nigerian economy will  ithout sustained reforms, Nigeria Figure 1.31. W could end in a high-growth-higher- be a solid position to attenuate any potential global vulnerabilities scenario shock on commodity prices or capital inflows. GDP Growth Outlook 2022–2024 GDP growth • I  n this scenario, growth could exceed 4.0 percent on 5.0 4.5 average in 2022–2024, driven by sustained growth Baseline scenario: Best scenario: 4.0 Higher growth and deteriorating macro stability Higher growth and strengthening macro stability in services and industry. The reduction in inflation 3.5 would restore confidence in the economy, promoting 3.0 Baseline scenario 2022f consumption and investment. By removing the 2.5 3.4 percent burden of the petrol subsidy, the government would 2.0 Worst scenario: Lower growth and be able to use the additional resources in investment 1.5 deteriorating macro stability projects at the state and federal levels and protect 1.0 the poor through cash transfers. These measures 0.5 0 would boost public investment and consumption and private consumption. Finally, a more flexible Macro stability Sources: World Bank. exchange rate in a context where FX availability increases will promote private investment and reduce inflationary pressures. Part 1: Recent Economic Developments and Outlook for Nigeria 29 NIGERIA DEVELOPMENT UPDATE JUNE 2022 Policy options to reduce inflation, address cannot afford to be complacent and expect growth to fiscal pressures, and catalyze private maintain the GDP growth trajectory observed in 2021 investment for faster growth with job without any sustained effort. GDP growth in 2021 creation was mainly the result of base effects following the 2020 recession— without base effects, GDP growth would The risk of returning to a scenario where economic have been 1.8 to 2.3 percent, below the population growth is below population growth is high under growth rate. With Nigeria benefitting only partially the current policy mix. This scenario could be further from high oil prices, which negatively impact the fiscal complicated by an unfavorable external context and position; inflation pushing millions into poverty; FX a deceleration of vaccination rates (Box 1.2). Even in discouraging investment and production; and higher the most favorable global context, the policy response global uncertainty, the time to implement long-overdue of Nigerian authorities will be crucial to laying the reforms is now. foundation for sustained growth. The government Box 1.2. COVID-19 Vaccination Take-up in Nigeria. Vaccine take-up in Nigeria remains extremely low for a variety of reasons. Just 10 percent of the Nigerian population had received at least one dose of a COVID-19 vaccine as of April 5, 2022.12 Both supply-side and demand-side factors may explain the slow progress of Nigeria’s vaccination campaign. The short supply of doses and challenges in delivery could inhibit vaccination roll-out. Some Nigerians might also lack information on the vaccine or hesitate to get vaccinated. Vaccination rates are meager among poor and  he share of Nigerians who have Figure B1.1. T received at least one COVID-19 rural households, who know less about Nigeria’s vaccine dose is low, and even vaccination campaign. The most recent round of lower among poor and rural the COVID-19 National Longitudinal Phone Survey households. (NLPS, collected in December 2021 and January Nigeria: Population vaccinated with at least one dose of COVID-19 vaccine - January 2022 2022) sheds light on these issues. According to this Share of total population nationally representative survey, while the overall 16 vaccination rate is low, it is less than half in the 14 12 bottom quintile of the consumption distribution as 10 in the top quintile. These lower immunization rates 8 correlate with poorer and rural households being less 6 aware of Nigeria’s COVID-19 vaccination campaign. 4 Around 71 percent of respondents in the poorest 2 0 quintile knew about the COVID-19 vaccination e e an al 1 2 3 4 5 al al Q Q Q Q Q ur rb M m R U Fe campaign, compared to 87 percent in the wealthiest Overall By sex By sector GHS-Panel W4 consumption quintiles quintile. Among unvaccinated respondents willing Source: Covid-19 National Longitudinal Phone Survey, Phase 2 Round 1. General Household Survey Wave 4 for consumption quintiles. to get the vaccine, the most common reason for not 12 See report on official statistics available at https://ourworldindata.org/coronavirus/country/nigeria. Differences in survey-based immunization rates and official statistics might be related to delay in administrative reports of vaccination and positive bias in reporting in the NLPS household survey. 30 Part 1: Recent Economic Developments and Outlook for Nigeria THE CONTINUING URGENCY OF BUSINESS UNUSUAL Box 1.2 continued accessing the immunization is a lack of information on how or where to obtain it. This constraint affects 44 percent of unvaccinated respondents in the poorest quintile than 36 percent in the wealthiest quintile. These findings show that vaccination—and communication around vaccines—needs to be scaled up, especially for poor and rural households. The supply of an adequate number of doses and their timely administration is paramount to increasing the share of Nigerians vaccinated against COVID-19. Providing information on the vaccination campaign is also crucial to ensure that all Nigerians are aware of the details of its administration.  ear-term macroeconomic and structural policy options to support Nigeria’s rise to its Table 1.2. N potential. Area Options for the next 3 to 6 months Options for the next 6 to 18 months Reducing inflation • Adopt a single, market-responsive • Re-establish the dollar interbank market exchange rate regime and clearly and re-enable commercial banks to trade communicate the exchange-rate FX on their own behalf and not solely to management strategy to build credibility fill client orders. and improve the availability and accessibility of FX. • Review FX restrictions and import bans on non-food goods and assess the • Fully re-open land borders to trade, implications of replacing them with tariffs. and strengthen regional cooperation to combat smuggling. • To further reduce the federal government’s recourse to CBN financing, • Remove import and FX restrictions for enforce the legal limit that prevents the staple foods and medicines, and replace federal government from borrowing from import restrictions with tariffs that reflect the CBN more than 5 percent of the the ECOWAS Common External Tariff. previous year’s fiscal revenues. • Reduce subsidized CBN lending to medium and large firms. Addressing fiscal • Establish a “compact” with the Nigerian • Increase the VAT rate from 7.5 percent pressures people that phases out the petrol subsidy closer to the regional Sub-Saharan while protecting the poor through targeted African average of 15 percent. and time-bound cash transfers. • Re-introduce the VAT on petrol, which is • Introduce a new, sustainable revenue currently exempted. source from a green surcharge on imported vehicles through and • Rationalize tax expenditures granted to amendment of Custom, Excise, Tariff, agriculture, pioneer, and financial sectors. Etc. (Consolidation) Act. • Close legal tax loopholes by issuing • Safeguard the Federation’s oil and gas a regulation that gives the Ministry assets by amending the Petroleum of Finance the sole responsibility for Industry Act (i) to specify that oil and gas granting tax expenditures. assets will belong to the Federation until • Restructure FGN’s debt stock from the when NNPC Ltd. pays the full market CBN into longer-term debt instruments. value for these assets; (ii) to require that government revenues related to • Strengthen the budgeting framework by the oil and gas contracts are paid to the linking budgets to robust macroeconomic Federation Account and verified by the forecasts and cost estimations. Commission; and (iii) to end all in-kind • Develop and publish detailed multi-year fiscal payments and instead use cash rolling borrowing plans that focus on payments. reducing cost of debt servicing. Part 1: Recent Economic Developments and Outlook for Nigeria 31 NIGERIA DEVELOPMENT UPDATE JUNE 2022  ear-term macroeconomic and structural policy options to support Nigeria’s rise to its Table 1.2. N potential (continued) Area Options for the next 3 to 6 months Options for the next 6 to 18 months Catalyzing private • Ensure greater FX flexibility and • Reduce inter-state and international investment to availability by establishing a well-defined trade and transportation costs arising boost job creation schedule of regular FX auctions, apply from border and port clearance delays by and support pre-defined exchange-rate bands (with simplifying and harmonizing documents, stronger and more “circuit breakers”) to control possible streamlining and automating procedures, inclusive growth immediate overshooting, and limit CBN and making more information available. FX interventions to episodes of intense market volatility. • Introduce risk-based management of customs interventions and a streamlined • Deepen power sector reforms to fully trusted trader program. eliminate tariff shortfalls and expand grid and renewable energy capacity. • Simplify and make more transparent the processes related to firm entry, tax administration, and contractual enforcement. • Develop and scale up equity-based financing instruments, and mobilize private capital to cater for the needs of viable MSMEs. • Increase affordable access to broadband, as a key foundation for the use of digital technologies by traditional firms and for the entry of new digital businesses. References Artuc, E., Engel, J., Falcone, G., Lain, J., Porto, G., World Bank, 2022 (forthcoming). Nigeria Country Rijkers, B., & Vishwanath, T. (Forthcoming). Economic Memorandum. Washington DC: The The Welfare and Poverty Impacts of the Ukraine World Bank War on Nigerian Households. Washington DC: World Bank, 2022 (forthcoming). Nigeria Public World Bank. Finance Review. Washington DC: The World Artuc, E., Falcone, G., Porto, G., & Rijkers, B. 2022. Bank. War-induced food price inflation imperils the World Bank, 2022. Global Economic Prospects. Open poor. VoxEU. Retrieved from https://voxeu. Knowledge, World Bank. org/article/war-induced-food-price-inflation- World Bank, 2022. Transforming Agribusiness in imperils-poor Nigeria for Inclusive Recovery, Jobs Creation Artuc, E., Porto, G., & Rijkers, B. 2019. Trading off the and Poverty Reduction: Policy Reforms and income gains and the inequality costs of trade Investment Priorities. Washington DC: The policy. Journal of International Economics 120: World Bank. 1–45. Zeufack, A. G., Calderon, C., Kabundi, A., Raju, D., Hannah R., M., Edouard, L., Rodés-Guirao, C., Appel, Kubota, M., Korman, V., & Girma Abreha, K. C., Giattino, E., Ortiz-Ospina, J., Hasell, B., 2022. Africa's Pulse, No. 25, April 2022. Macdonald, D., Beltekian and M., Roser 2020. Coronavirus Pandemic (COVID-19). Our world in Data. 32 Part 1: Recent Economic Developments and Outlook for Nigeria Part 2: Taking a Closer Look NIGERIA DEVELOPMENT UPDATE JUNE 2022 Oil Production and Associated Revenue in Nigeria  hile oil prices climbed in 2021, oil Figure 2.1. W Summary: Nigeria has not realized its oil production output declined. potential due to high production, high security risks, the Oil production in Nigeria and Brent crude oil price inability of the Federation to pay fully and on time for its movements million bpd US$/bbl share of costs in joint-venture operations, and in the past 3.0 140 uncertainties about the future fiscal terms, now set out in the 120 Petroleum Industry Act. Ending the petrol subsidy will go a 2.5 long way in reversing the decline in oil production. Further, 2.0 100 the global energy transition has made investors increasingly 80 1.5 selective about where to invest. To remain competitive, 60 Nigeria will need to slash gas flaring, venting, and fugitive 1.0 40 methane emissions; concurrently, the government and the 0.5 20 national oil company will need to enhance administrative 0 0 efficiency. 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) Security concerns, tense relationships with workers Sources: World Bank calculations based off NNPC annual statistical bulletins for oil production from 1990 to 2019, government oil production reports for 2020 and 2021, and and communities, high costs, and the Federation’s World Bank commodity annual prices for Brent crude oil. failure to finance the production of its equity oil have plagued Nigeria’s oil production for many years. Attacks on oil production infrastructure, work After rising above 2 million bpd in 1997, oil production stoppages, and disturbances in oil-producing fluctuated between 2 and 2.5 million bpd before falling communities have led to the suspension of oil below 2 million bpd in 2016, due to an unusually high production on numerous occasions. In the second number of attacks on oil production infrastructure that quarter of 2016, as many as five oil terminals were under year. After recovering modestly, production fell to the force majeure (Platts Commodity News 2016). Among lowest level since 1988 in 2021, and fell further during the most damaging events was a series of attacks on the the first five months of 2022. Trans-Forcados Pipeline, one of the main export routes which typically transports 200,000–250,000 bpd. A first Due to uncertainties about future regulatory and bombing in February 2016 forced a declaration of force fiscal frameworks, Nigeria has not held a licensing majeure, followed by an attack in June 2016 and another round for oil blocks other than marginal fields since in November 2016. These attacks halted exports for most 2007. New production has been limited to drilling of the period between February 2016 and June 2017, new wells in existing license areas. Because the natural or almost 16 months. In September 2017, the NNPC production decline in Nigeria, as elsewhere, is about reported that vandalism had affected two pipelines a 10–15 percent a year, the delay in conducting bid total of 42 times that year (Sweet Crude Reports 2017). rounds since 2007—partly because industry players were The NNPC reports various incidents disrupting oil and waiting for the new Petroleum Industry Act, which was gas production—pipeline leaks, equipment failure, work enacted in August 2021 and has made fiscal terms more stoppages for non-payment, community protests for attractive to investors—has contributed to declining oil unpaid compensation and other issues, and vandalism— production. to FAAC on a monthly basis. These reports, which have 34 Part 2: Taking A Closer Look THE CONTINUING URGENCY OF BUSINESS UNUSUAL been publicly disclosed since January 2020, show that capable of delivering the required services, there would disruptions cut oil production by about 100,000 bpd in be inadequate competition and potentially higher prices. 2020 and 175,000 bpd in 2021. The NNPC’s failure to pay for the Federation’s Production in Nigeria is more expensive than in share of costs in joint-venture operations has comparable countries because of higher security had a significant impact on oil production. The and procurement costs. Onshore oil production is Federation’s equity stake in the joint-venture assets particularly vulnerable to vandalism, resulting in higher- is either 55 percent (in joint ventures with the private than-average costs for security and asset repairs. Overall firm Shell) or 60 percent (in all other joint ventures). costs are also high because contract approval processes The Federation, through the NNPC, is supposed to pay have historically been complex, opaque and slow, 55 percent or 60 percent of production costs and receive potentially taking years to complete. All contracts of the corresponding share of total revenue. However, US$1 million or more require approval by the Nigerian the Federation failed to pay its full share and, as of Content Development and Monitoring Board, and March 2022, owed US$972 million in arrears (after a even smaller contracts in joint ventures and production- large write-off negotiated by the Minister of State for sharing arrangements require approval by the NNPC’s Petroleum Resources) for oil production costs up to National Petroleum Investment Management Services or 2016. It then accrued more arrears in 2020 and especially NAPIMS. Furthermore, multi-year contracts have been in 2021 and 2022, as oil revenues were diverted to restricted, potentially discouraging the development of finance the growing petrol subsidy. According to the local capacity. For these reasons the Nigeria National NNPC’s monthly submissions to FAAC, payments Petroleum Policy, published in the official gazette in made to cover the Federation’s share of costs had fallen December 2017, called for a “fundamental overhaul” short of the budgeted amount by US$2.9 billion in of the procurement process to strengthen “efficiency, 2021 and by nearly US$1 billion by the end of April transparency and cost control.” 2022. The combined impact of payment arrears and continuing disruptions to production in onshore fields Striking a balance between strengthening domestic has prompted many experienced oil companies, to exit industrial capacity through local content rules, on the onshore production. one hand, and facilitating competition and efficiency on the other, has been a challenge globally. Countries More generally, the lack of payment discipline has such as Brazil and Nigeria have the domestic industrial threatened Nigeria’s ability to produce oil and gas and capacity to enable meaningful and effective domestic supply electricity. Chronic power shortages—which content rules. Without vigilance and close monitoring, force businesses and households to use back-up power however, such rules may foster corruption and cost generators running on petrol and diesel—are caused increases. Local content rules in Brazil formed the in part by the failure of power generation companies backdrop for Operação Lava Jato (Operation Car Wash), to pay gas producers, which deters delivery of natural a major criminal investigation centering on Petrobras, gas to the power sector. The only market showing full Brazil’s national oil company, and raising questions payment discipline is that for liquefied natural gas, about the local content policy (Lima-de-Oliveira 2020); where Nigeria Liquefied Natural Gas Limited—in which the regulatory agency in 2018 lowered the local content the Federation, through the NNPC, has a 49-percent requirements for the use of locally produced goods stake—is active. Improving payment discipline is and services in oil field development. Even without essential for Nigeria’s energy security and economic corruption, if only a handful of local companies are development. Part 2: Taking A Closer Look 35 NIGERIA DEVELOPMENT UPDATE JUNE 2022 Nigeria has seen periods of high oil prices and The growing petrol subsidy can lead to a downward growing fuel subsidies in the past, but until 2021 spiral of further decoupling and falling oil higher oil revenues more than compensated for fuel production. Consumption of petrol in Nigeria is better subsidies. In constant dollar terms, global oil prices were termed apparent consumption, because there is plentiful about the same in 2010 as today, and markedly higher evidence of smuggling of petrol to neighboring countries in 2012 and 2013. In these years, there were petrol with much higher pump prices. The higher the price of and kerosene price subsidies, although the magnitude oil, the more financially attractive smuggling becomes, of the latter was very small. There are three important and the higher the apparent consumption, increasingly differences resulting in a very different outcome today: benefitting smugglers and consumers in the neighboring countries while reducing the net oil revenue transfers to 1.  Oil production in 2021 and especially in 2022 are the Federation. At the same time, increasing costs of the much lower than in the earlier years. In 2010, the petrol subsidy will continue to make it difficult for the oil production averaged 2.45 million bpd, declining NNPC to pay for the Federation’s cost of production to 2.3 million bpd in 2012 and 2.2 million bpd in of its equity oil and gas in full, thereby keeping oil 2013. These are still 700,000 to 950,000 bpd higher production depressed. Such a possibility points to the than during the first five months of 2022. urgency of phasing out the petrol subsidy. The unit petrol subsidy was much smaller in the 2.  In the future, the global energy transition will earlier years. In 2010, for example, the official price affect investments in Nigeria’s upstream oil and gas covered 60 percent of the cost of supply.13 By the end sector, requiring steps to minimize inefficiencies in of May 2022, the official price is estimated to have administrative approval processes as well as emissions covered only one-third of the cost of supply. from production. According to the International Energy Agency, global oil consumption must halve 3.  Petrol consumption was much lower in the earlier from its 2020 level by 2040 to limit global warming years. According to the oil and gas industry reports by 1.5°C by the end of the century; by more than a of the Nigeria Extractive Industries Transparency quarter to limit global warming to 1.65°C; and by Initiative, the daily consumption was 44 million 5 percent to implement the climate pledges announced liters in 2010, 46.8 million in 2012, and 48 million as of mid-2021 (International Energy Agency 2021).14 in 2013. During the first three months of 2022, the Many investors will seek oil fields and production where NNPC imported an average of 70.5 million liters a greenhouse gas emissions are as close to zero as possible, day. and where the path from final investment decision to commercial operation is short and unencumbered by Th  e higher unit subsidy combined with much higher inefficient administrative processes. Ending routine consumption and much lower oil production at the flaring and venting is the first step towards minimizing same oil price in real terms as in 2010 explains why a greenhouse gas emissions, followed by measures to decoupling of oil revenue from oil prices has emerged for reduce fugitive methane emissions. the first time in 2021 and 2022. 13 Original calculations for this report based on data in NEITI (2013). 14 More pledges were announced prior to or at COP26. 36 Part 2: Taking A Closer Look THE CONTINUING URGENCY OF BUSINESS UNUSUAL References Platts Commodity News. 2016. OIL Q2: "Nigeria shaken by renewed militancy, force majeures but poised to firm lead producer role over Angola." July 1. International Energy Agency. 2021. World Energy Outlook 2021. Paris: IEA. Lima-de-Oliveira, Renato. 2020. "Corruption and local content development: Assessing the impact of the Petrobras’ scandal on recent policy changes in Brazil." The Extractive Industries and Society 7 (2): 274–282. https://doi.org/10.1016/j. exis.2019.08.004. NEITI (Nigeria Extractive Industries Transparency Initiative). 2013. Physical and Process Audit for the period 2009 to 2011. Appendix D: Fuel Subsidy. http://neiti.gov.ng/audits/oil-and-gas Sweet Crude Reports. 2017. "Two pipelines vandalized 42 times this year – Baru." September 15. Part 2: Taking A Closer Look 37 NIGERIA DEVELOPMENT UPDATE JUNE 2022 Picking Up the Pace of Poverty Reduction in Nigeria Summary: Understanding how poverty has changed Specialized statistical techniques, designed to work over time can provide vital insights into the effectiveness around Nigeria’s data constraints, show that in the of poverty-reducing policies. Data constraints have decade prior to COVID-19, poverty reduction was traditionally complicated the assessment of poverty dynamics initially slow, and then it stalled entirely. In particular, in Nigeria, but the application of specialized statistical “back-casting” and survey-to-survey imputation techniques reveals that, even before COVID-19, poverty techniques were applied to estimate Nigeria’s poverty reduction in the country was stalling. Moreover, when trend; these are described in Annex 2.1. While the Nigeria was growing in the early 2010s, it was richer poverty headcount rate dropped in the first half of the Nigerians that benefited the most. This underscores the 2010s, this trend reversed after the 2016 recession, which importance of reforms that not only bolster growth, but was induced by falling oil prices, and real GDP growth also ensure that the proceeds of growth are shared among dipped below population growth (Figure 2.2). Stalling all Nigerians, and especially the poor. Such reforms may progress on monetary poverty broadly matches the include broad macroeconomic transformation to aid job path of non-monetary indicators, including educational creation, supporting productivity in small-scale household attendance and access to basic infrastructure such as enterprises, and investing in infrastructure. These policies, electricity, drinking water, and improved sanitation, as guided by data, can help Nigeria make substantial strides data from Nigeria’s Demographic and Health Survey toward poverty reduction. (DHS) demonstrates. Understanding how poverty has changed over time The fortunes of richer Nigerians waxed and waned can help design policies that lift Nigerians out of in line with the country’s growth, much more so poverty. Nigeria aspires to lift 100 million people out than those of poorer Nigerians. This can be seen by of poverty by 2030. This is an ambitious target: around using the imputed data to construct “growth incidence 4 in 10 Nigerians were living in poverty in 2018/19, curves”, which show which Nigerians—rich or poor— even before the COVID-19 crisis, the subsequent rise in experienced the largest changes in consumption over inflation, and the ongoing uncertainty in global markets time (Figure 2.3). When per capita incomes were stemming from the war in Ukraine.15 growing in the early 2010s, richer Nigerians benefited more than poorer Nigerians; however, the former lost Assessing poverty dynamics has long been a challenge out more when the 2016 recession struck. This matches in Nigeria. The 2018/19 Nigerian Living Standards labor market indicators from the same period. In the Survey (NLSS) provided the first official estimates wake of the 2016 recession, the shift towards farming of poverty in more than a decade. Yet, given a range as a key coping strategy was more pronounced among of improvements in the survey—especially around workers in the top 60 percent of the consumption measuring food consumption—it is difficult to directly distribution than among those in the bottom 40 percent compare its results with those from the previous official (Jenq, Lain, & Vishwanath, 2021). household survey in Nigeria, the 2009/10 Harmonized Nigerian Living Standards Survey (HNLSS).16,17 15 Many key drivers of poverty in Nigeria and potential poverty-reducing policies are considered in detail in a new report, A Better Future for All Nigerians: Nigeria Poverty Assessment 2022 (Lain & Vishwanath, 2022). 16 The 2016 Nigeria Poverty Assessment also identified several anomalies in the 2009/10 HNLSS consumption data (World Bank, 2016). 17 A direct comparison of the 2018/19 NLSS with the 2009/10 HNLSS, without accounting for methodological differences, would suggest that poverty dropped by more than 17 percentage points over that decade. 38 Part 2: Taking A Closer Look THE CONTINUING URGENCY OF BUSINESS UNUSUAL  talling poverty reduction in Nigeria in the decade prior to COVID-19. Figure 2.2. S Panel A. Poverty headcount rate Panel B. Poverty headcount Percent Number of poor (millions) 46 85 44 80 42 75 40 70 38 65 36 34 60 10 11 12 13 14 15 16 17 18 19 10 11 12 13 14 15 16 17 18 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 ▬ Backcast Q Survey-to-survey imputation Q 2018/19 NLSS official poverty rate ▬ Backcast Q Survey-to-survey imputation Q 2018/19 NLSS official poverty Source: World Bank and NBS. Note: Estimates exclude Borno. Poverty rate calculated using the international poverty line of US$1.90 (2011 PPP) per person per day. Population estimates from the United Nations, via the World Development Indicators. Further details on back-casting and survey-to-survey imputations provided in Lain, Schoch, and Vishwanath (2022). Source: 2018/19 NLSS, GHS, and World Bank estimates.  onsumption for richer Nigerians is Figure 2.3. C rural areas, and 76.1 percent resided in the country’s more closely linked to Nigeria’s growth trends. North Central, North East, and North West zones. At the same time, just 16.7 percent of workers held wage Consumption growth rate Percent jobs, which are those jobs most conducive to lifting 1.5 people out of poverty, while the vast majority engaged 1.0 in small-scale farm and non-farm enterprise activities, 0.5 which provide relatively little reward. In part, this could 0 stem from a lack of diversity in Nigeria’s economy: while -0.5 crude oil accounts for around 80 percent of exports, -1.0 mining and extractives account for less than 1 percent -1.5 of jobs. -2.0 Poverty reduction in Nigeria hinges not only on -2.5 1 2 3 4 5 6 7 8 9 10 bolstering and sustaining growth, but also on creating Decile of the real consumption distribution opportunities to share the proceeds of growth with ▬ 2010/11–2015/16 ▬ 2015/16–2018/19 Source: World Bank and NBS. poorer Nigerians; three types of reforms could help. Note: Estimates exclude Borno. Further details on survey-to-survey imputations provided in Lain, Schoch, and Vishwanath (2022). Source: 2018/19 NLSS, GHS, and World Bank First, macroeconomic reforms—including to fiscal, estimates. trade, and exchange-rate policy—could help diversify These results emphasize that poverty may be becoming the economy, invigorate structural transformation, entrenched for certain households: Nigeria is spatially and create good, productive jobs, especially wage jobs. unequal and the labor market is not creating the Second, since structural transformation and the creation jobs needed to lift people out of poverty. The findings of productive wage jobs on a large scale may not happen above chime with global evidence that in large countries, overnight, policies to boost the productivity of farm and poverty is increasingly clustered in certain regions—such non-farm household enterprises—by improving access as Nigeria’s largely rural north (Pande & Enevoldsen, to inputs, credit, and markets—will be crucial in the 2021). Indeed, around 84.1 percent of Nigerians living meantime. Third, the bedrock of infrastructure needs below the national poverty line in 2018/19 resided in to be strengthened, by providing access to electricity, Part 2: Taking A Closer Look 39 NIGERIA DEVELOPMENT UPDATE JUNE 2022 drinking water, improved sanitation, and information and communication technologies that can both help households find jobs and reach markets and support the government in rolling out social protection programs. Guided by new data to design, implement, and monitor policies carefully, these reforms can help Nigeria make substantial strides forward along its pathway to poverty reduction. References Bassetti, V., & Landau, K. 2021. Seizing opportunities Lain, J., & Vishwanath, T. 2022. A Better for fuel subsidy reform. Washington DC: Future for All Nigerians: Nigeria Poverty Brookings. https://www.brookings.edu/blog/ Assessment 2022. Washington DC: World up-front/2021/02/25/seizing-opportunities-for- Bank. https://documents.worldbank. fuel-subsidy-reform/ o r g / e n / p u b l i c a t i o n / d o c u m e n t s - re p o r t s / Coady, D., Flamini, V., & Sears, L. 2015. The documentdetail/099730003152232753/ Unequal Benefits of Fuel Subsidies Revisited: p17630107476630fa09c990da780535511c Evidence for Developing Countries. Washington Lain, J., Schoch, M., & Vishwanath, T. 2022. Estimating DC: International Monetary Fund. a poverty trend for Nigeria between 2009 and doi:10.5089/9781513501390.001 2019. Washington DC: World Bank. ICTD (International Centre for Tax and Development). McCulloch, N., Moerenhout, T., & Yang, J. 2021. 2019. The NESG Nigeria Tax and Subsidy "Fuel subsidy reform and the social contract in Perception Data. https://www.ictd.ac/dataset/ Nigeria: A micro-economic analysis." Energy nesg-nigeria-tax-subsidy-perception-dataset/ Policy, 156. doi:10.1016/j.enpol.2021.112336 IEA (International Energy Agency). 2020. Low fuel prices Pande, R., & Enevoldsen, N. 2021. Growing Pains? provide a historic opportunity to phase out fossil A Comment on "Converging to Convergence." fuel consumption subsidies. Paris: IEA. https:// Cambridge: National Bureau of Economic www.iea.org/articles/low-fuel-prices-provide-a- Research. https://www.nber.org/system/files/ historic-opportunity-to-phase-out-fossil-fuel- working_papers/w29046/w29046.pdf consumption-subsidies World Bank. 2016. Poverty Reduction in Nigeria in Jenq, C., Lain, J., & Vishwanath, T. 2021. Good Jobs the Last Decade. Washington DC: World for a New Generation: Delivering Quality Jobs for Bank. https://openknowledge.worldbank.org/ Young Nigerians After COVID-19. Washington handle/10986/25825 DC: World Bank. 40 Part 2: Taking A Closer Look THE CONTINUING URGENCY OF BUSINESS UNUSUAL  stimating Nigeria’s poverty trend Annex 2.1. E  wo specialized statistical techniques have been used to construct a poverty trend for Nigeria during the decade T before COVID-19. The full details of this approach are described in Lain, Schoch, and Vishwanath (2022).  irst, it is possible to “back-cast” Nigeria’s poverty rate. This involves taking household consumption estimates from F the 2018/19 NLSS and using sector-specific GDP estimates—matched to each household through the household head’s sector of work—to roll back the entire consumption distribution and, in turn, calculate poverty. S  econd, survey-to-survey imputations can be used to estimate Nigeria’s past poverty rates. This involves constructing a model that links monetary consumption with non-monetary indicators using the 2018/19 NLSS, then using this model to impute consumption into the General Household Survey (GHS) collected in Nigeria in 2010/11, 2012/13, 2015/16, and 2018/19. The GHS lends itself well to imputation from the 2018/19 NLSS because: (1) the non- monetary variables were collected through the same questions; (2) the surveys were implemented through the same NBS-World Bank collaboration, kickstarted when the first wave of the GHS was collected; and (3) the overlap in the timing of the two surveys in 2018/19 makes it possible to validate the imputation methods used. However, consumption data from the GHS cannot be used to construct poverty estimates directly, because the treatment of non-standard units for food items was adjusted across different survey waves. Part 2: Taking A Closer Look 41 NIGERIA DEVELOPMENT UPDATE JUNE 2022 Attitudes Towards Petrol Subsidy Reform in Nigeria Summary: Rising global oil prices, augmented by the boost Nigerian exports as well as the country’s fiscal war in Ukraine, have intensified debates around fuel balance. Yet these benefits may be subdued because subsidies. This matters in Nigeria: on the one hand, refined oil products, which are imported into Nigeria, exports and government revenues depend on crude oil, are also becoming more expensive. One key refined oil but on the other, Nigeria’s petrol subsidy was already very product—namely petrol—is heavily subsidized after costly. As in many other countries, the potential benefits it is imported. In 2021, Nigeria’s petrol subsidy cost of removing the petrol subsidy in Nigeria—described in around USD 4.5 billion, or roughly 2 percent of GDP, previous editions of the NDU—are clear: richer Nigerians far exceeding federal government spending on health, benefit significantly more than poorer Nigerians from the education, and social protection. Therefore, diverting subsidy—making it regressive—so redirecting spending spending away from the petrol subsidy towards more towards health, education, and targeted social protection pro-poor causes could help spread the gains of growth, instead stands to benefit the poor and vulnerable. Yet, in which is essential for reducing poverty (see the previous the absence of countervailing measures, many poor and edition of the NDU and Section I for further details). vulnerable Nigerians would still lose out in the short run if the subsidy were removed, and petrol prices were allowed Despite several potential benefits, many countries to rise. Political economy constraints—which are described have struggled to remove fuel subsidies; as this section in detail in this section—make reforming the petrol subsidy explains, Nigeria is not alone. Fossil fuel consumption especially difficult in Nigeria: understanding of the petrol subsidies are in place in more than 40 countries subsidy is limited, Nigerians do not support removing the worldwide (IEA, 2020). These subsidies typically benefit petrol subsidy, and Nigerians do not trust the government richer households more than poorer households— to use any fiscal savings for pro-poor causes. Sequencing making them regressive—and “crowd out” government spending on a well-targeted social transfers program first, spending on pro-poor causes such as health, education, alongside a clear, two-way communication campaign, and social protection. Additionally, fuel subsidies may could help overcome these political economy constraints and contribute to environmental damage, especially climate generate the trust needed to build a consensus around petrol change. The benefits of removing subsidies are therefore subsidy reform. clear.18 Yet governments that have attempted to reform fuel subsidies have typically faced strong resistance from With global oil prices rising, debates around fuel the public and have often had to backtrack. Households subsidy reform have reemerged; this is especially recognize that, at least in the short run, the removal of true for Nigeria, where crude oil dominates exports subsidies would cause fuel prices to increase, weakening and government revenues, but the petrol subsidy was their purchasing power, and they do not trust the already very costly. The Nigerian economy depends government to implement measures to compensate on crude oil, which accounts for about 80 percent of these welfare losses. Given this global evidence, Nigeria’s exports and over 30 percent of general government challenge in trying to reform its petrol subsidy is sizeable revenues. The steady rise in oil prices this year— but not unique. accelerated by the war in Ukraine—could therefore 18 For further information on fuel subsidy policies worldwide, see Coady, Flamini, and Sears (2015) and Bassetti and Landau (2021). 42 Part 2: Taking A Closer Look THE CONTINUING URGENCY OF BUSINESS UNUSUAL As the petrol subsidy disproportionately benefits that rely on generators or operate in the transport sector; richer Nigerians, the potential benefits of removing this further exposes them to changes in petrol prices. it are clear; but without countervailing measures, Moreover, poor and vulnerable Nigerians may consume poor and vulnerable Nigerians could still suffer in the petrol indirectly by paying for public transport and other short run. The petrol subsidy benefits richer Nigerians petrol-dependent goods and services. In the absence of more than poorer Nigerians: the share of Nigerians that compensatory measures, these households could lose out report directly purchasing petrol is significantly higher in the short run, if the petrol subsidy is removed. in the higher deciles of the consumption distribution (see Figure 2.4). As such, poor and vulnerable Nigerians Unlocking the potential benefits of petrol subsidy could benefit if spending on the petrol subsidy were reform—even with compensating measures for redirected to health, education, and targeted social the poor and vulnerable—faces three key political protection. However, the share of poor Nigerians and economy constraints in Nigeria; first, the majority of vulnerable Nigerians—those with consumption levels Nigerians do not know how fuel subsidies work. In between 1 and 1.5 times the national poverty line—that 2018, the Nigerian Economic Summit Group (NESG) directly buy petrol is still significant; their purchasing collected nationally representative data on the attitudes power would still be reduced were the subsidy to be and perceptions of Nigerians towards tax compliance removed and prices allowed to rise. Going beyond and fuel subsidies through the Nigeria Tax and Subsidy the data on direct petrol consumption, a significant Perception Survey.19 In this survey, respondents were share of vulnerable Nigerians also live in households asked if they believed the price at which the government that own generators (22.6 percent) and motorcycles purchased petrol was lower, the same, or higher than the (38.4 percent), while some have non-farm enterprises price at which petrol was sold to the public. Less than  icher Nigerians are more likely to Figure 2.4. R  nderstanding of and support for Figure 2.5. U purchase petrol, but many poor and petrol subsidy reform in Nigeria was vulnerable households also buy petrol low in 2018. directly. Share of household population that directly purchase petrol Knowledge of subsidies Percent 70 62.2 60 52.5 Knew how 31.3 48.0 subsidies worked 50 45.9 42.2 40.3 39.7 40 33.4 30.3 30 24.2 18.0 Thought subsidies 29.7 20 should be reduced 10 0 1 2 3 4 5 6 7 8 9 10 Total 20 22 24 26 28 30 32 Decile of the real consumption distribution Share of Nigerians (percent) Source: 2018/19 NLSS and World Bank estimates. Source: 2018 NESG Nigeria Tax and Subsidy Perception Survey and World Bank Note: Estimates exclude Borno. estimates. Note: Knowledge of how the subsidies work was measured by asking respondents if the price at which petrol was purchased by the government was lower, the same, or higher than the price at which it was sold to the public; this variable was coded 0 if the respondent answered “lower” or “the same”, and 1 if the respondent answered “higher.” Support for a reduction of subsidies was measured through the question: “Do you think it would be a good thing if the government reduced the fuel subsidy?” This question was asked after explaining to the respondent how fuel subsidies worked. 19 See McCulloch, Moerenhout, and Yang (2021) for details. Part 2: Taking A Closer Look 43 NIGERIA DEVELOPMENT UPDATE JUNE 2022 one-third of Nigerians (31.3 percent) correctly answered Building support for reform will be a challenge, with the that the government paid a higher price for petrol than baseline level of approval being so low. the price at which it was sold to the public (Figure 2.5). This presents a barrier to reform in Nigeria: it will be Third, Nigerians do not trust the government to use difficult to gather support for removing the subsidy if any resources saved from removing the petrol subsidy people do not understand how subsidies work in the first for causes that would benefit the population at large. place. Afrobarometer data indicates that general levels of trust in the government and other key institutions are low Second, even after information on how the petrol in Nigeria.21 As the 2018 NESG data shows, this also subsidy is delivered is provided, Nigerians still do means that Nigerians do not trust the government to not support its removal. Following the questions on use any money saved from removing the petrol subsidy the respondents’ understanding of the petrol subsidy, on policy areas such as health, education, and social the enumerators for the 2018 NESG survey explained protection. More than half of Nigerians (59.5 percent) clearly to respondents how the petrol subsidy works were “not at all satisfied” or “not very satisfied” with and then asked whether “it would be a good thing if the the way that the state administration had spent money government reduced the fuel subsidy.”20 Less than one- collected from taxes (Panel A of Figure 2.6). Similarly, third of Nigerians (29.7 percent) indicated that they about three-quarters of Nigerians believed it to be supported removing the petrol subsidy (Figure 2.5). “somewhat likely” or “very likely” that the federal, state, While there was some variation, support for reform was and local governments would misuse tax revenue (Panel low across socioeconomic groups and different areas in B of Figure 2.6).22 A lack of trust therefore presents Nigeria: despite being somewhat higher in the north, another major obstacle for petrol subsidy reform in support was below 40 percent in all six of Nigeria’s zones. Nigeria.  igerians’ satisfaction and trust in the government to use resources effectively was low in Figure 2.6. N 2018, limiting people’s support for petrol subsidy reform. Panel A.  Satisfaction with the way that the state  erceived likelihood that different levels of Panel B. P administration has spent money collected from government will misuse tax revenue taxes Percent Percent 100 100 6.2 Very satisfied 90 90 23.4 20.9 22.7 Very likely 21.8 Somewhat satisfied 80 80 70 70 12.5 Neither satisfied nor dissatisfied 60 60 36.8 40.2 40.8 Somewhat likely 50 50 25.8 Not very satisfied 40 40 30 30 20 33.8 Not at all satisfied 20 39.8 38.9 36.4 Not likely 10 10 0 0 Share of Nigerians Federal State Local Source: 2018 NESG Nigeria Tax and Subsidy Perception Survey and World Bank estimates. Note: The statistics exclude respondents who did not know or refused to answer the relevant question. 20 This followed some additional prompts about the nature of fuel subsidies in Nigeria, which were randomized at the respondent level. See International Centre for Tax and Development (2019) for further details. 21 See Afrobarometer data presented in Lain and Vishwanath (2022). 22 Satisfaction and trust appear to be slightly higher among supporters of fuel subsidy reform than among opponents. 44 Part 2: Taking A Closer Look THE CONTINUING URGENCY OF BUSINESS UNUSUAL Sequencing compensatory social transfers first could help overcome these political economy constraints and build support for petrol subsidy reform. Since trust is so low, Nigerians may not perceive the government’s promise of future pro-poor programs as credible. Directing fiscal savings towards expenditure on health, education, and infrastructure takes time, but expanding cash transfers targeted to poor and vulnerable Nigerians can preemptively compensate welfare losses. Indeed, current efforts to expand social protection are explicitly taking inflation into account, reflecting the need to support households that face losses in purchasing power as prices—for fuel and for other goods—rise. A clear, two-way communication strategy will also be essential to provide the bedrock for public support and help build a consensus favoring fuel subsidy reform. On the one hand, effective reform requires that the government listen to the Nigerian public’s legitimate grievances—here, civil society and the media can play a central role. On the other hand, the government must address the low support for petrol subsidy reform by providing information on its potential benefits. As a foundation for this, it will be necessary to explain how the subsidy actually works. The 2018 NESG data hints at some potential avenues for convincing Nigerians of the merits of reform. For example, one-third of petrol- purchasing Nigerians report queuing, paying above the official price, or facing disrupted supply; these issues arise at least partly because subsidies are in place. Those Nigerians facing such issues are also more likely to support reform. Ensuring that such issues are clearly presented, alongside the other potential benefits of removing the petrol subsidy, could help the Nigerian government construct a consensus that allows reforms to move forward, freeing up much-needed resources for pro-poor policies. Part 2: Taking A Closer Look 45 NIGERIA DEVELOPMENT UPDATE JUNE 2022 References Bassetti, V., & Landau, K. 2021. Seizing opportunities Lain, J., & Vishwanath, T. 2022. A Better for fuel subsidy reform. Washington DC: Future for All Nigerians: Nigeria Poverty Brookings. https://www.brookings.edu/blog/ Assessment 2022. Washington DC: World up-front/2021/02/25/seizing-opportunities-for- Bank. https://documents.worldbank. fuel-subsidy-reform/ o r g / e n / p u b l i c a t i o n / d o c u m e n t s - re p o r t s / Coady, D., Flamini, V., & Sears, L. 2015. The documentdetail/099730003152232753/ Unequal Benefits of Fuel Subsidies Revisited: p17630107476630fa09c990da780535511c Evidence for Developing Countries. Washington Lain, J., Schoch, M., & Vishwanath, T. 2022. Estimating DC: International Monetary Fund. a poverty trend for Nigeria between 2009 and doi:10.5089/9781513501390.001 2019. Washington DC: World Bank. ICTD (International Centre for Tax and Development). McCulloch, N., Moerenhout, T., & Yang, J. 2021. 2019. The NESG Nigeria Tax and Subsidy "Fuel subsidy reform and the social contract in Perception Data. https://www.ictd.ac/dataset/ Nigeria: A micro-economic analysis." Energy nesg-nigeria-tax-subsidy-perception-dataset/ Policy, 156. doi:10.1016/j.enpol.2021.112336 IEA (International Energy Agency). 2020. Low fuel prices Pande, R., & Enevoldsen, N. 2021. Growing Pains? provide a historic opportunity to phase out fossil A Comment on "Converging to Convergence". fuel consumption subsidies. Paris: IEA. https:// Cambridge: National Bureau of Economic www.iea.org/articles/low-fuel-prices-provide-a- Research. https://www.nber.org/system/files/ historic-opportunity-to-phase-out-fossil-fuel- working_papers/w29046/w29046.pdf consumption-subsidies World Bank. 2016. Poverty Reduction in Nigeria in Jenq, C., Lain, J., & Vishwanath, T. 2021. Good Jobs the Last Decade. Washington DC: World for a New Generation: Delivering Quality Jobs for Bank. https://openknowledge.worldbank.org/ Young Nigerians After COVID-19. Washington handle/10986/25825 DC: World Bank. 46 Part 2: Taking A Closer Look Part 3: Spotlights on Nigeria's Development Agenda NIGERIA DEVELOPMENT UPDATE JUNE 2022 Spotlight 1: The Unintended Consequences of Nigeria’s Trade Policies Summary: Trade and investment have been key drivers Increasing and diversifying exports and of global growth and poverty reduction over the past FDI is central to advancing Nigeria’s 30 years. The increased participation of firms from industrialization and development developing countries in regional and global value chains objectives has contributed significantly to job and wealth creation. However, widespread skepticism remains in Nigeria about Increased trade and investment can play an integral the benefits of export-led growth and increased integration. role in fostering economic development and Despite economic diversification being a long-standing poverty reduction.23 Trade has historically contributed policy aim, Nigeria’s efforts to achieve it have largely significantly to prosperity by supporting the creation of remained unsuccessful; similarly, foreign investment has not new, higher-paying jobs and enhancing the efficiency reached its potential and has been declining in recent years. of firms, as well as by providing consumers with Nigeria’s trade policy has moved in a heavily protectionist cheaper and better products. Across countries, a one direction, with an escalation of import restrictions through percentage point increase in trade has been found higher tariffs and levies, import bans, foreign exchange to raise per-capita incomes by 0.5 percent.24 Deeper limitations, and border closures. Although these measures participation in regional and global value chains can were intended to support the country’s industrialization help drive industrialization and support the structural and security goals, they have had numerous unintended transformation of the economy, by enabling access consequences. For one, import restrictions result in high to intermediate goods, attracting strategic FDI, and levels of tariff evasion, and thus a loss in revenue estimated building capabilities in key industries to increase at 0.4 percent of GDP, or US$1.8 billion annually. domestic value added. In the context of the COVID-19 Secondly, these policies also adversely affect poverty by pandemic, trade plays a crucial in providing access raising consumer prices. Finally, they inhibit the efficiency to imports and key production inputs and in the of domestic firms by raising the cost of their production production and distribution of vaccines and other inputs, thereby constraining their competitiveness and essential medicines. limiting their potential to export to regional and global markets. There is an urgent need for a change in policy This Spotlight provides an overview of Nigeria’s and approach to focus on: (i) reviewing trade policy to recent export performance and focuses on some of safeguard revenues, reduce poverty and support domestic its key underlying features. It also examines the role firms, (ii) reducing domestic and international trade and of import restrictions that shield some incumbents from transport costs, and (iii) creating an appropriate policy and competition while hurting consumers and most firms, institutional infrastructure that supports Nigeria’s trade and and constraining government revenues. These policies industrialization priorities. have been central to the country’s limited success in diversifying the economy and furthering the growth of the manufacturing sector. 23 See Coulibaly et al. (2022). Africa in the New Trade Environment: Market Access in Troubled Times. Washington, DC: World Bank, and World Bank and WTO (2022). The role of trade in developing countries’ road to recovery: Joint policy note. Washington, DC and Geneva: World Bank and WTO. 24 Feyrer, J. (2019). ‘Trade and Income - Exploiting Time Series in Geography’, American Economic Journal, vol. 11, no. 4, pp. 1-35. 48 Part 3: Spotlights on Nigeria's Development Agenda THE CONTINUING URGENCY OF BUSINESS UNUSUAL Nigeria has ample room to harness the development 3. Services exports account for a small but growing potential of increased trade and investment. This is share of total exports. Albeit still limited, service especially apparent when considering five dimensions of exports have increased significantly, more than Nigeria’s recent trade performance: doubling between 2008 and 2019. In 2013, services made up 2.5 percent of total exports; by 2019, 1. Nigeria remains one of the world’s least diversified this share had increased three-fold to 7.5 percent. countries. Although experiences differ globally, Nevertheless, in other large African countries, such countries that achieved greater diversification over as Ghana and Egypt, services exports make up the past decades grew more quickly and had more approximately 40 percent of total exports. In Ghana’s consistent growth overall.25 In Nigeria, however, case, this is driven in particular by the export of most exports are concentrated in oil, while remaining services supporting the booming extractives sector exports are mostly basic agricultural goods that add (World Bank, 2022). The bulk of Nigeria’s services little value (Figure 3.1). Moreover, the dominance exports have been in travel and transport, while of mineral and fuel exports has increased over the growth has been driven by travel and “other services”, past 50 years. Dependence on oil exports makes the which includes financial services, entertainment, ICT country vulnerable to price shocks. In the early 1970s, and other high-skill services. oil exports made up approximately 74.5 percent of Nigeria’s total merchandise exports, but in the 4. Foreign direct investment (FDI), especially in three years leading up to the COVID-19 pandemic extractives, has been declining both as a share of (2017–19), this share had increased to 92.4 percent. GDP and relative to comparator countries. FDI, Notably, Nigeria’s global share of exports in the oil which goes hand-in-hand with trade, is a critical sector was approximately 1.5 percent in 2020 (a ingredient to economic growth, contributing to decline from a 3 percent market share in 2010), while increased productivity, innovation, and technology its share of global non-oil exports was 0.02 percent. transfer. FDI supports the diversification of the economy and helps domestic firms export more. 2. Nigeria exports relatively little to the rest of Africa, Nigeria’s FDI inflows as a share of GDP have as oil exports are primarily directed outside the dropped from over 2 percent a decade ago to continent. Nigeria’s formal intra-regional exports less than 1 percent in recent years (Figure 3.2). make up less than 10 percent of its total exports, Some comparator countries, such as Ghana, have while almost one quarter of South Africa’s exports consistently seen FDI inflows in excess of 6 percent go to the African region. Nigeria’s share of intra- of GDP. The decline in FDI in Nigeria has been regional trade within ECOWAS has also remained driven by the weak performance of the mining and low—approximately 2–4 percent of Nigeria’s total oil and gas sectors. The services sector, on the other recorded exports between 2019 and 2021. However, hand, has attracted the largest share of Nigeria’s FDI, the ECOWAS region accounts for a far greater share potentially indicating greater diversification away of Nigeria’s non-oil exports—close to 10 percent in from extractives. Between 2009 and 2019, FDI in recent years. This shows the potential for Nigerian services made up 50.3 percent of all inflows, followed industries from greater continental integration, for by manufacturing (28.4 percent) and extractives example through the African Continental Free Trade (21 percent). Area, if the productivity of exporting firms can be strengthened and trade costs reduced. 25 A recent International Monetary Fund analysis (Yao and Liu, 2021) contrasts Nigeria’s experience with that of three Asian countries—Indonesia, India and Malaysia—that had a similar focus on import substitution during the second half of the 20th century but were able to diversify. All three countries trailed Nigeria in GDP per capita in 1980 but now far exceed it. Key drivers of change in these three countries included: economic crises that created a window of opportunity for reform, which entailed a focus on education and knowledge accumulation; and the gradual reduction of trade and investment barriers. Part 3: Spotlights on Nigeria's Development Agenda 49 NIGERIA DEVELOPMENT UPDATE JUNE 2022  xtractives exports have dominated for Figure 3.1. E  DI inflows as a share of GDP have Figure 3.2. F the past decades. been low and declining. US$ billion Percent 120 3.5 100 3.0 2.5 80 2.0 60 1.5 40 1.0 20 0.5 0 0 02 04 06 08 10 12 14 16 18 20 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 J Agriculture J Manufacturing J Minerals ▬ Nigeria ▬ LMICs ▬ SSA Source: Own calculations based on WITS Comtrade. Source: Own calculations based on WDI. 5. High trade and transport costs, and delays at Nigeria’s restrictive and unpredictable borders and ports, are major impediments to trade policies increase smuggling, export growth. Although Nigeria has taken some diminish revenues, hurt consumers, and steps to facilitate trade, these improvements are raise production costs happening at a slower pace than in other countries. For example, Nigeria’s Logistics Performance Index rank has significantly deteriorated, from 92nd in The scale and scope of Nigeria’s 2016 to 147th (out of 160) in 2018.26 Central to protectionist policies have increased this is the inefficiency of Nigeria’s ports: in a recent significantly global assessment of container port performance, Lagos and Tin Can Island ports were ranked 340th Nigeria’s weak trade performance in recent years has and 343rd, respectively, among 351 evaluated ports been exacerbated by its highly restrictive trade regime. (World Bank/HIS Markit 2021). Given its favorable The Federal Ministry of Industry, Trade and Investment geographic location, improvements in this area could is mandated to formulate Nigeria’s trade policy, but position the country as a logistics hub for the region the CBN plays a major role, and has been increasingly and a springboard for Nigerian firms into regional directing trade policy towards import substitution. The value chains. CBN’s interventions extend beyond its core mandate, and have influenced trade and industrial policy through direct lending schemes and foreign exchange restrictions on certain imports. The effectiveness of these measures in boosting domestic production has been limited, due to the country’s highly porous borders, a large informal sector, and an underdeveloped domestic supply chain. 26 This decline was driven in particular by a deterioration in the “logistics competence” sub-category, i.e. the quality of transport operators, customs brokers and related service providers. 50 Part 3: Spotlights on Nigeria's Development Agenda THE CONTINUING URGENCY OF BUSINESS UNUSUAL In recent years, there has been a significant escalation for capital, intermediates, and consumption goods in the scale and scope of import restrictions. Such (7th, 11th, and 9th percentile, respectively) (Figure restrictions are intended to support the development of 3). The overall structure is also highly complex with domestic production and processing, especially for staple numerous ad-hoc and opaque exemptions that food items, but are also often the result of the successful further complicate compliance for importing firms lobbying of individual firms and industries. Notable (Figure 3.3). restrictions include:  igeria’s tariffs are among the highest Figure 3.3. N in the world, especially for capital, • FX restrictions: In 2015, the CBN announced intermediate and consumer goods. restrictions on access to foreign exchange for the Rank import of certain products that could be produced 0 7 9 locally, with the aim of both bolstering foreign 10 11 20 exchange reserves and supporting domestic 30 industries. However, as noted above, the resulting 40 43 boost to domestic production has been modest. 50 60 • Import bans: Th  e Nigeria Customs Service and 70 the CBN have long imposed a prohibition to 80 90 import certain products. The Nigeria Customs 100 Servicecurrently lists the import of 44 products as Raw materials Capital Intermediates Consumer Source: own elaboration based on Nigeria’s customs data and UN Trains data. “prohibited”. Import bans, in combination with Note: the variable plotted is Nigeria’s normalized ranking (0 highest tariffs, 100 lowest) within 170 countries with data.28 unpredictable enforcement and cumbersome customs procedures, result in large volumes of smuggling. • An anti-export bias in tariffs:  Nigeria’s system of import duties and levies reduces the incentives to • Border closures: Th e Nigerian government export. Nigeria has a cascading scheme in place for closed its land borders from August 2019 until a import duties and levies—i.e., products upstream partial reopening in January 2021, in a bid to curb in the supply chain (raw materials/intermediates) smuggling—especially from Benin. This closure face lower tariffs and duties than final consumer coincided with a significant rise in inflation, products. Most countries impose some level of especially for food products that are subject to cascading in their tariff schedule to protect final import restrictions. Moreover, the closure only had consumer industries which tend to be associated with a temporary effect in impeding the transit of illegal higher value addition. However, tariff cascading is trade through Benin into Nigeria.27 not innocuous: it distorts relative prices, potentially impacting production efficiency, and Nigeria’s • High tariffs:  Nigeria’s tariff regime is highly cascading is particularly ‘steep’ compared to other restrictive. Statutory tariffs (the sum of import countries. This strategy has created a bias against duties, levies, and excise taxes) are above the global exporting because domestic producers focus more on median for raw materials (43rd percentile) and exploiting the protected domestic market rather than near or at the top 10 percent of countries globally on exporting. 27 This is supported by interviews with border officials who claim that the closure resulted in the creation of new smuggling routes. For example, in the case of rice, Benin’s imports from Nigeria declined by 84 percent from July 2019 to January 2020, but recovered to pre-closure levels by August 2020, five months before a partial reopening of the borders. 28 To construct the graph, we obtain from UN Trains the simple average tariff for each broad economic category per country; for Nigeria we construct it using customs data. We then classify these categories into Raw materials, Intermediates, Capital goods, Consumer goods and Other. We then calculate the simple average of the BEC categories that correspond to each product group. Part 3: Spotlights on Nigeria's Development Agenda 51 NIGERIA DEVELOPMENT UPDATE JUNE 2022 As tariffs increase, evasion increases. Figure 3.4.  • Non-tariff measures:  Numerous policies and Trage gap (logs) regulations, also known as non-tariff measures , 4 add costs to exports and imports. While in some cases non-tariff measuresensure product quality 2 and address public safety concerns, often they exist primarily to protect importers from competition. 0 Currently, almost 4,000 products are affected by at least one non-tariff measure(equivalent to 86 percent of traded products and 95 percent of value added). -2 A notable and pervasive non-tariff measurewas pre- shipment inspection, which required inspecting -4 0 10 20 30 40 goods before they arrived. Although officially Tariff abolished in 2019, it has merely been replaced by Source: authors’ own calculations using COMTRADE. Note: The graph shows a binned scatterplot of the association between log evasion gaps, more onerous procedures upon arrival (International defined as log exports to Nigeria reported by partner source country minus log imports recorded in Nigeria, versus tariffs over the period 2010–2019. Observations are grouped into equally-sized bins. Monetary Fund, 2021). • Import and FX bans foster evasion:  Evasion gaps Import restrictions encourage smuggling are on average significantly higher for products whose and reduce revenues import is banned and for those subject to foreign exchange restrictions, suggesting that protectionism One of the areas where Nigeria’s trade restrictions induces evasion. Evasion is also highly responsive to have had the most impact is customs evasion. Import tariffs: a 10 percentage-point increase in tariffs leads bans, in combination with unpredictable enforcement to an increase in evasion by 1.38 percentage points. and cumbersome customs procedures, result in large volumes of smuggling. New World Bank analysis (Artuc Nigeria lost US$1.8 billion every year between et al. 2022a) provides crude estimates of tariff evasion 2010 and 2019 due to tariff evasion arising from (i.e., the illegal and intentional non-payment of tariffs), protectionist measures. This is a conservative estimate and how it has changed with the introduction of foreign and is equivalent to 0.4 percent of GDP and 6.6 percent exchange restrictions, based on mirror statistics analysis. of current overall tax revenues.31 Based on this estimate, Key results from this analysis include: overall tariff revenues would have been roughly 45 percent higher each year in the absence of evasion.32 • As tariffs go up, evasion increases: T  ariff evasion is higher for goods subject to higher tariffs and import Foreign exchange bans imposed in 2015 led to a (Figure 3.4). The average evasion gap29 restrictions  substantial drop in reported imports, which fell by for a product that is subject to above-median tariffs more than two-thirds. However, exports to Nigeria is about 28 percent, compared to the average evasion of the same products as recorded by trade partners fell gap in low-income countries of 9 percent.30 substantially less, roughly halving over the same period. 29 Evasion gaps are the result of discrepancies in trade flows reported by countries exporting to Nigeria (mirror imports) and imports reported by Nigerian customs authorities (direct imports reported by Nigeria). To measure potential evasion, discrepancies in trade flows reported by countries exporting to Nigeria and imports reported by Nigerian customs authorities are exploited following Fisman and Wei (2004) using HS6-source country year “trade gaps”. The “trade gap” is defined here as the difference between exports to Nigeria reported by source countries and imports reported into Nigeria for each product and year. A correlation between tariffs and trade gaps (defined here as the difference between exports to Nigeria reported by source countries and imports reported into Nigeria at the HS6-country-year level), suggests tariff evasion. For example, importers may choose to misclassify goods subject to high tariffs as goods subject to lower tariffs, a practice that is especially common for differentiated products. Alternatively, importers may choose to declare lower prices than those actually paid and submit falsified invoices. 30 See Jean, S., & Mitaritonna, C. (2010). Determinants and Pervasiveness of the Evasion of Customs Duties. CEPII, Working Paper No 2010-26. 31 GDP in 2020 was US$432.8 billion and the tax-to-GDP ratio was 6.1 percent. 32 This calculation does not take into consideration the impact of evasion on trade flows (e.g., stricter enforcement of tariffs might reduce trade flows). 52 Part 3: Spotlights on Nigeria's Development Agenda THE CONTINUING URGENCY OF BUSINESS UNUSUAL While part of the fall in reported imports may have been The revenue impact of foreign exchange bans driven by slumping growth in Nigeria at that time, the alone between 2015 and 2019 was approximately abovementioned discrepancy attests to an uptick in tariff US$1.4 billion, or about US$275 million annually evasion, which increased by roughly 20 to 30 percent (Figure 3.6). This estimate considers revenue that would  (Figure 3.5). have been collected from the formally recorded trade that disappeared because of the introduction of the ban.  oreign exchange ban led to increased Figure 3.5. F evasion. This estimate and those mentioned above are based on Impact relative to 2014 preliminary data, and therefore to be interpreted with 0.50 caution; nevertheless, it is clear that Nigeria’s restrictive 0.25 trade policies cause substantial evasion. 0 -0.25 Import restrictions are pushing millions of Nigerians into poverty -0.50 -0.75 Trade can contribute to poverty reduction, although -1.00 its impact depends on where people live, their occupations and income. In turn, reforms in trade 10 11 12 13 14 15 16 17 18 19 20 20 20 20 20 20 20 20 20 20 Time policy—as in all other areas of policy—create winners Imports Mirror imports Evasion Source: authors’ own calculations using COMTRADE. and losers. Trade can influence household welfare Note: The graph shows event study analyses of the impact of foreign currency restriction on (log) official imports, (log) mirror imports, and evasion gaps. Standard errors are through direct price effects in two ways: i) trade policies clustered two ways by product and source country. The sample includes only products that were ever subject to import bans. Sample period: 2010–2019. have an impact on the prices of products that households need to buy, and ii) they influence how households  ithout tariff evasion, Nigeria’s Figure 3.6. W revenues would be significantly higher. generate income by changing the prices of the goods Tariff revenue from goods subject to foreign exchange bans they produce.33 US$ million 1,000 Introduction of foreign exchange restrictions Distortionary trade policies can decrease overall 900 purchasing power and, in turn, increase poverty.34 800 700 The 2019 border closure, for example, coincided with 600 a significant rise in inflation, including for domestically 500 produced goods. In principle, households’ exposure 400 to protectionist price shocks depends on the specific 300 200 goods that they buy; but it is apparent that buying local 100 goods, which poorer Nigerians might do more, offers 0 little insulation against such price shocks. Indeed, when Nigeria’s land border was closed in 2019, the prices of 10 11 12 13 14 15 16 17 18 19 20 20 20 20 20 20 20 20 20 20 ▬ Evasion ▬ Counterfactual revenue ▬ Actual revenue both imported and local varieties of rice increased. Since Source: authors’ own calculations using COMTRADE. Note: The graph depicts the evolution of tariff revenue of goods subject to foreign international and domestic markets are so integrated, exchange bans (introduced in 2015). The dotted line “counterfactual revenue” depicts the estimated revenue that would have been collected had foreign exchange bans not been introduced. The red line “Evasion” denotes the tariff evasion induced by the introduction of it may be difficult to escape the price increases and foreign exchange restrictions. Sample period: 2010–2019. purchasing power drops brought about by protectionist policies. 33 There are also indirect effects. For example, trade can alter the mix of jobs—and the earnings from those jobs—available in the economy through its impact on private investment, and by exposing domestic firms to international competition. Trade policy may also indirectly influence household welfare because tariffs are a source of government revenue, which could determine spending on health, education, and social protection, and may be reduced as trade is liberalized. 34 This section in part draws on the World Bank’s 2022 Nigeria Poverty Assessment. Part 3: Spotlights on Nigeria's Development Agenda 53 NIGERIA DEVELOPMENT UPDATE JUNE 2022 The price increases recorded between mid-2019 prohibitions hurt poorer households relatively more. The and 2020, following the border closure, meant that largest welfare gains for households across all income households needed to spend around 1.8 percent groups would come from eliminating the import ban more to maintain the same level of welfare. Although on household supplies, followed by that on textiles welfare losses during this time were not fully attributable and clothing. More recently, Dabelan and Nga (2018) to the border closure, they could have increased poverty estimated that eliminating import bans would reduce by around 1.1 percentage points. This is estimated national poverty rates by as much as 2.6 percentage by calculating the “compensating variation”, i.e., the points. amount of money needed to maintain household welfare at the same level while prices rise (Figure 3.8).35 Reductions in tariffs and levies are likely to lead to increased welfare. New analysis using the “household Preliminary World Bank estimates suggest that impacts of tariffs” tool looks at the value of what import bans caused the prices of affected goods to households produce as well as what they consume.36 increase by as much as 38 percent. Conversely, the The analysis considers what would happen if trade were removal of foreign exchange restrictions would lead to fully liberalized in Nigeria: while this is unlikely, at least sizeable price reductions (Artuc et al. 2022b). This is in the short run, it remains a useful benchmark for in line with previous findings in the literature: Treichel assessing trade policy. According to household impacts et al. (2012) estimated that replacing import bans of tariffsanalysis, fully liberalizing trade would increase with tariff duties would result in a 9.4 percent increase household income—the amount of goods households in household real income for all income groups, and can buy in naira terms—on average by 3.8 percent a 10 percent increase for the first (poorest) quartile and reduce the share of people living in poverty by of the income distribution. This is because import 2.3 percentage points. This is because liberalizing trade  he price of both imported and Figure 3.7. T  hanges in welfare and poverty linked Figure 3.8. C domestic rice increased after the to price changes after the border border closure. closure. Price of 1kg of rice (naira) Compensating variation (percent) 600 2.4 Fish Dairy Poultry, eggs Other meat 550 Vegetables Oils, fats 1.8 Total compensating 500 variation Starchy roots, tubers, plaintains 450 Other grains, bread, maize 1.2 400 Imported rice 350 0.6 300 Local rice 250 0 Pulses, nuts, seeds 200 Petrol Ap -17 Ju 17 O -17 Ja -17 Ap -18 Ju 18 O -18 Ja -18 Ap -19 Ju 19 O -19 Ja -19 Ap -20 Ju 20 O -20 Ja -20 Ap -21 Ju 21 O -21 1 -2 -0.6 r- r- r- r- r- n l ct n l ct n l ct n l ct n l ct Compensating variation Ja … Border closure ▬ Local ▬ Imported Source: 2018/19 NLSS (for consumption data), NBS (for price data), and World Bank Source: 2018/19 NLSS (for consumption data), NBS (for price data), and World Bank estimates. estimates. Note: Figure shows price movements for the goods labelled “Rice local sold loose” and Note: Estimates exclude Borno. Welfare losses calculated for purchased goods only; own- “Rice, imported high quality sold loose” in NBS price data. produced items are excluded from the calculations. 35 This can be calculated by multiplying the change in price for each good—from NBS price data—by the share of the consumption basket devoted to purchasing that good—taken from the 2018/19 NLSS. In previous analysis, including the Nigeria Development Updates from June 2020 and June 2021 (see World Bank (2020) and World Bank (2021)), purchased food and own-produced food were not separated out. However, here the analysis focuses on purchased food only. This is because only purchases would be exposed to price shocks. 36 Full details will be available in Artuc, E., G. Porto and B. Rijkers. Welfare Enhancing Evasion: Evidence from Nigeria, Mimeo. The household impacts of tariffsSimulation Tool can be accessed at https://www.worldbank.org/en/research/brief/hit/ 54 Part 3: Spotlights on Nigeria's Development Agenda THE CONTINUING URGENCY OF BUSINESS UNUSUAL  he impact of liberalizing trade would vary by state depending on what households consume Figure 3.9. T and produce. Sokoto Sokoto Katsina Jigawa Katsina Jigawa Kebbi Zamfara Yobe Kebbi Zamfara Yobe Kano Borno Kano Borno Kaduna Bauchi Kaduna Bauchi Gombe Gombe Niger Adamawa Niger Plateau Plateau Adamawa FCT FCT State-level changes in Kwara Kwara Nasarawa Nasarawa poverty headcount rate Oyo Taraba Oyo Taraba (percentage point change) Ekiti Kogi State-level changes in Ekiti Kogi No data Osun Osun Benue average welfare (percent) Benue 0–1.5 Ogun Ondo Ogun Ondo Edo No data Edo -1.1–0.0 Lagos Less than 0 Lagos -2.1–-1.0 Ebonyi Ebonyi Enugu 0.1–3.0 Enugu -3.1–-2.0 Cross River Cross River Anambra Delta Imo 3.1–4.0 Anambra Delta Imo -4.1–-3.0 Abia Abia 4.1–5.0 -6.1–-4.0 Bayelsa Akwa Ibom Bayelsa Akwa Ibom Rivers 5.1–6.0 Rivers -8.1–-6.0 Source: 2018/19 NLSS (for consumption data), NBS (for price data), Humanitarian Data Exchange (for map shape files), and World Bank estimates. Note: Estimates exclude Borno. Poverty calculated using Nigeria’s national poverty line. Income and poverty changes were calculated using the HIT model, in which 2018/19 NLSS data were incorporated. Income captured by households’ consumption, a measure of their welfare. NBS price data from 2015 to 2017 and information on previous trade policies were used to estimate the pass-through from trade policies to prices. would lower prices, and the resulting gains in purchasing in multiple locations, and cross borders many times power outweigh any income losses for households before they are assembled into a final product. For producing the goods that end up being cheaper. example, a mobile phone manufacturer will require as inputs a circuit board, keyboard and display produced Even without full liberalization, targeted reductions by upstream manufacturers in other countries. Tariffs on to trade barriers for key consumer goods would these inputs would increase their cost, which would be make a major difference. If trade levies (i.e., taxes on passed on to the cost of the mobile phone. Tariffs can, imports that are additional to tariffs) on rice, sugar in turn, affect the competitiveness of firms in two ways: and wheat were reduced by 50 percent, overall welfare they increase the prices of imported inputs necessary for would increase by 0.8 percent and extreme poverty could completing their products, and reduce the incentives decrease by 0.4 percent (Figure 3.9). However, these for firms to export by making the domestic market results vary from state to state, with some northern states artificially more atractive (via effective protection) than seeing the largest total reduction in poverty. In Benue the unprotected export market. and Kebbi, on the other hand, poverty would increase slightly as gains in terms of consumer expenditure would New analysis shows that the average industry in not exceed losses for producers. Nigeria pays 13.7 percent more for its inputs than what it would have paid in the absence of tariffs and other related taxes (Ganz 2021).37 The total output Trade policy reforms could reduce of an industry can be divided into three parts: the production costs for firms while intermediate consumption of commodities (goods), preserving revenues the intermediate consumption of services, and the value added. This offers three ways to measure how Trade policy reforms that reduce tariffs on upstream much higher production costs are due to the existence sectors can help firms become more competitive of import taxes in Nigeria: as a share of total output and integrated into global value chains. In modern (the orange points plotted in Figure 9); as a share of production processes, firms rely on imported inputs to intermediate consumption of both goods and services; produce finished goods. These inputs are manufactured or as a share of the intermediate consumption of 37 This analysis draws on two tools developed by the World Bank: the Tariff Reform Impact Simulation Tool, which allows for the estimation of the impact of tariff reform on fiscal revenue; and the Upstream Tariff Simulator (UTAS), which allows us for the estimation of the impact of tariff reform on production costs and effective protection. Part 3: Spotlights on Nigeria's Development Agenda 55 NIGERIA DEVELOPMENT UPDATE JUNE 2022 mport taxes and restrictions result in higher production costs and domestic industry Figure 3.10. I protection.38 Output tariffs, upstream tariffs, and effective protection in Nigeria, by industry Percent Percent 60 600 50 500 40 400 30 300 20 200 10 100 0 0 -10 -100 Animal products n.e.c. Fishing Crops n.e.c. Metals n.e.c. Wheat Coal Electricity Chemical, rubber, plastic pro Forestry Transport equipment n.e.c. Minerals n.e.c. Plant-based fibers Oil seeds Gas Manufactures n.e.c. Vegetables, fruit, nuts Food products n.e.c. Oil Ferrous metals Meat products n.e.c. Metal products Dairy products Cereal grains n.e.c. Gas manufacture, distribution Sugar cane, sugar beet Bovine meat prods Raw milk Petroleum, coal products Bovine cattle, sheep, goat Machinery, equipment n.e.c Vegetable oils, fats Beverages, tobacco product Sugar Paddy rice Processed rice Motor vehicules and parts Textiles Wool, silk-worm cocoons Mineral products n.e.c. Wearing apparel Wood products Leather products Electronic equipment Paper products, publishing J Effective protection Q Output tariff ‹ Upstream tariff Source: Ganz (2021) based on ASYCUDA and NICIS data and the upstream tariff simulator (UTAS) simulator. Note: industries are classified according to global trade analysis projectand ranked by effective protection. Inputs for UTAS: Nigeria’s effective import duties (all collected import taxes, excluding VAT, as a percentage of imports) and 2006 global trade analysis project‘sinput-output table for Nigeria, using the homogeneous goods framework (perfect substitutability between imported and domestic varieties). For more details, see UTAS. Effective protection is defined as the difference between the output tariff and the upstream tariff, divided by the share of value added in the industry’s output. goods. The average increase in total output costs (i.e., (a flat collection rate almost 3 percentage points below the upstream tariff) across industries is 3.2 percent; the current average statutory tariff), while cutting import the average increase in the cost of all intermediates is duties on intermediates by 50 percent. This would 8.2 percent; finally, the average increase in the total cost require removing numerous exemptions on consumer of goods used as intermediates is 13.7 percent. Higher goods while cutting the tariff for intermediates. Tariff production costs in turn make it difficult for Nigerian revenue collection would increase slightly, but most firms to compete against producers based in countries of that increase is compensated by a reduction in VAT that levy lower tariffs on inputs. collection associated to slightly fewer imports. Overall, the proposed change implies a 0.5 percent increase in The government could reform its tariffs to reduce total revenues. However, this reform would reduce the production costs, while still preserving fiscal revenue. production costs of most industries (Figure 3.11). The While Nigeria is somewhat constrained in setting of upstream tariff as a percentage of total output falls on tariffs by the five bands in the ECOWAS Common average 0.3 percent across industries, and 1.8 percent External Tariff (0, 5, 10, 20 and 35 percent), it still has for goods used as production inputs. While this is just some flexibility of where to set tariffs within the tariff bad an example, it highlights that there is not necessarily structure and how high to set levies beyond these tariffs. a trade-off between tariff reforms that support the We consider a hypothetical scenario in which Nigeria competitiveness of local industries and revenue sets effectively collected import duties (tax collected as collection. a share of imports) on consumer goods at 17 percent 38 Industries are classified according to global trade analysis projectand ranked by effective protection. Inputs for UTAS: Nigeria’s effective import duties (all collected import taxes, excluding VAT, as a percentage of imports) and 2006 global trade analysis projectinput-output table for Nigeria, using the homogeneous goods framework (perfect substitutability between imported and domestic varieties). For more details, see UTAS. Effective protection is defined as the difference between the output tariff and the upstream tariff, divided by the share of value added in the industry’s output. 56 Part 3: Spotlights on Nigeria's Development Agenda THE CONTINUING URGENCY OF BUSINESS UNUSUAL  igeria could reform its tariff schedule to reduce production costs while increasing Figure 3.11. N revenues. Impact of tariff schedule reform removing exemptions on consumer goods and reducing tariffs on intermediate goods on upstream tariff, by industry Percentage points 0 -0.5 -1.0 -1.5 -2.0 -2.5 -3.0 -3.5 -4.0 GAS - Gas I_S - Ferrous metals NFM - Metals n.e.c. FMP - Metal products OMF - Manufactures n.e.c. ELY - Electricity FRS - Forestry OIL - Oil OMN - Minerals n.e.c. CMT - Bovine meat prods OMT - Meat products n.e.c. MIL - Dairy products PCR - Processed rice SGR - Sugar OFD - Food products n.e.c. CRP - Chemical, rubber, plastic products NMM - Mineral products n.e.c. MVH - Motor vehicules and parts OTN - Transport equipment n.e.c. ELE - Electronic equipment OME - Machinery and equipment n.e.c. GDT - Gas manufacture, distribution FSH - Fishing COA - Coal TEX - Textiles LEA - Leather products LUM - Wood products P_C - Petroleum, coal products WHT - Wheat GRO - Cereal grains n.e.c. V_F - Vegetables, fruit, nuts OSD - Oil seeds C_B - Sugar cane, sugar beet PFB - Plant-based fibers OAP - Animal products n.e.c. RMK - Raw Milk WOL - Wool, silk-worm cocoons VOL - Vegetable oils and fats OCR - Crops n.e.c. B_T - Beverages and tobacco products WAP - Wearing apparel PPP - Paper products, publishing PDR - Paddy rice CTL - Bovine cattle, sheep and goats, horses J Percent of goods inputs ▬ Percent of output Source: Ganz (2021) based on ASYCUDA and NICIS data and the UTAS simulator. Finding the right balance: how industrial to develop a domestic implementation plan. African and trade policy can contribute to Continental Free Trade Areaimplementation will require Nigeria’s development aims substantial preparation and engagement across the federal and state governments, the private sector and Increased openness to trade can help Nigeria achieve other stakeholders, but holds significant potential for longstanding policy goals of economic diversification the country to use regional integration in support of and industrial development. Nonetheless, widespread private sector-led growth. Nigeria has also developed skepticism remains about the benefits of increased a new National Investment Policy and is preparing a integration. In recent years, trade policy has moved in new Trade Strategy. Moreover, at the sub-national level, a protectionist direction, with an escalation of import state governments across the country are implementing restrictions through higher tariffs and levies, import ambitious business environment reforms. bans, foreign exchange limitations and border closures. The analysis presented in this Spotlight highlights some Further continental integration can help enhance of the unintended consequences of this policy stance the competitiveness of Nigeria’s manufacturing on smuggling and tariff evasion, poverty and consumer sector. By making manufacturing more competitive, prices, and on the production costs of domestic Nigeria could leverage regional market integration to producers. achieve economies of scale, lower costs, and increase its broader international competitiveness. Regional Nigeria is embarking on an ambitious course towards value chains can, in turn, offer a stepping stone toward greater integration and policy reform. This is most global value chains. Increased competitiveness from evident through its active participation in African regional integration can lead to greater diversification of Continental Free Trade Areanegotiations and its efforts export products and markets and incentivize domestic Part 3: Spotlights on Nigeria's Development Agenda 57 NIGERIA DEVELOPMENT UPDATE JUNE 2022 producers to compete with foreign firms. The vibrant value added, and reducing the price of goods that entrepreneurial ecosystem in Nigeria would benefit Nigerians buy. All such effects may contribute to from being connected to technological and process reducing poverty. Yet, the benefits from trade are not innovations, know-how, diaspora mentorship, research automatic. There is a need for careful sequencing, broad and development. This could include supporting existing consultation, and finding a way to maximize the gains networks of research and development institutions to from trade while taking proactive measures to support foster innovation. the adjustment process. This includes understanding how to facilitate labor mobility, as well as the importance Trade offers a vital, but often untapped pathway to of complementary policies such as business environment poverty reduction. Through its effects on investment, reforms and supporting skills development. The technology transfer, and competition, trade can help following policy options provide an overview of the way growth—boosting job creation, increasing domestic forward. Policy options What measures are being proposed? Why are the measures What is the likely impact that needed? Short-Medium Term Medium-Long Term measures will have? (6–18 months) (18–36 months) Reform trade policy to safeguard revenues, reduce poverty and support producers Nigeria’s highly • Facilitate imports • Following a review of • Tariff revenues will increase. restrictive trade regime of staple foods the impact of existing has a negative impact and medicines by restrictions, replace • Prices that consumers face for on domestic revenues, removing them from import bans and FX many key products would be the welfare of citizens, the list of import restrictions with tariffs. lower, allowing them to increase and the productivity bans, and applying their consumption and reduce and competitiveness of • Reform tariff schedule tariffs that reflect the poverty. firms. ECOWAS common to reduce input costs, external tariff. including by reducing • Cheaper intermediate inputs for the number of duties many industries would foster • Review FX restrictions and charges on substantial growth and job and import bans on imports. creation in these sectors. non-food goods, and • A more predictable trade policy asses the implications with fewer ad-hoc exemptions of replacing them with could increase investment and tariffs. production efficiency. • Review tariffs to reduce the costs of key inputs for domestic producers. 58 Part 3: Spotlights on Nigeria's Development Agenda THE CONTINUING URGENCY OF BUSINESS UNUSUAL What measures are being proposed? Why are the measures What is the likely impact that needed? Short-Medium Term Medium-Long Term measures will have? (6–18 months) (18–36 months) Reduce domestic and international trade and transport costs Nigeria stands to gain • Advance the • Introduce National • The benefits from reducing from reforms that simplification and Single Window. delays in customs and address high costs harmonization trade costs are expected to and delays at the of documents, • Expedite be significantly higher for border, positioning the streamline implementation of Nigeria than other African country as a logistics and automate reforms required countries. Improved trade hub for the region and procedures, and for Nigeria’s full facilitation would provide an a springboard into improve governance, alignment with the expanded platform for Nigerian regional value chains. impartiality of WTO TFA (high- and manufacturers and service decision-making, medium-priority providers to connect with and availability of measures) under the regional and continental value information. African Continental chains. Free Trade Area. • Put in place a Trusted Trader Program that • Continue to expand makes processes the capacity of port easier and smoother infrastructure and for pre-approved upgrade roads near businesses. ports. • Streamline import documentation requirements and enhance the transparency and efficiency of customs procedures, speeding up clearance time. • Address bottlenecks such as port processes and transportation costs. Create an appropriate policy and institutional infrastructure to support trade priorities Nigeria’s approach to • Review and update • Strengthen trade • Laws and regulations will be trade policy is based the trade policy and policy management, updated to create a trade on an outdated policy legal framework, agencies’ policy framework that is fit to framework and relies including by implementation address current challenges and on numerous ad-hoc reviewing, updating or capacity, and opportunities. decisions. eliminating outdated performance Policy making is also laws, and establishing surveillance. • Trade policy formulation will fragmented across a more effective improve, and become more numerous institutions. monitoring framework • Clearly delineate independent from ad-hoc to evaluate the impact the role of different institutional interventions. of trade policy. institutions in the trade policy process, • Trade policy strategy will • Improve awareness and improve become embedded in the and consultation coordination. national development and process around poverty reduction strategy. AfCFTA, and advance the implementation of a national AfCFTA Strategy. Part 3: Spotlights on Nigeria's Development Agenda 59 NIGERIA DEVELOPMENT UPDATE JUNE 2022 References Artuc, E., Engel, E., G. Falcone, Lain, J., G. Porto, B. Lain, J., & Vishwanath, T. 2022. A Better Rijkers and M. Shuaibu. 2022a (forthcoming) Future for All Nigerians: Nigeria Poverty “Quantifying Tariff Evasion in Nigeria” Mimeo. Assessment 2022. Washington DC: World Artuc, E., G. Porto and B. Rijkers. 2022b (forthcoming). Bank. https://documents.worldbank. Welfare Enhancing Evasion: Evidence from o r g / e n / p u b l i c a t i o n / d o c u m e n t s - re p o r t s / Nigeria, Mimeo. The household impacts of documentdetail/099730003152232753/ tariffs Simulation Tool can be accessed at https:// p17630107476630fa09c990da780535511c www.worldbank.org/en/research/brief/hit/ NBS. (2019). “Nigeria - Living Standards Survey Coulibaly, Souleymane; Kassa, Woubet; Zeufack, Albert 2018-2019”. Retrieved 25 May 2022, from G. 2022. Africa in the New Trade Environment: https://microdata.worldbank.org/index.php/ Market Access in Troubled Times. Washington, catalog/3827 DC: World Bank. https://openknowledge. Treichel, V., Hoppe, M., Cadot, O. and Gourdon, J. worldbank.org/handle/10986/36884 License: 2012. Import Bans in Nigeria Increase Poverty. CC BY 3.0 IGO. Africa Trade Policy Notes No. 28, World Bank, Dabelan, A. and Nga, T.V.. 2018. The Short-Run Washington, D.C. Impact of Import Bans on Poverty: The Case of World Bank. 2020a. Nigeria in Times of COVID-19 Nigeria (2008–2012). World Bank Economic - Laying Foundations for a Strong Recovery; Review, vol. 32(2). https://doi.org/10.1093/ Nigeria Economic Update, June 2020 edition. wber/lhw030 Washington, D.C.: The World Bank. Feyrer, J. 2019. “Trade and Income - Exploiting Time World Bank. 2020b. Resilience through Reforms; Series in Geography”. American Economic Nigeria Economic Update, June 2021 edition. Journal, vol. 11, no. 4, pp. 1-35. Washington, D.C.: The World Bank. Fisman, R. and Wei S.J. Tax rates and tax evasion: World Bank and WTO. 2022. The role of trade in Evidence from “missing imports” in China - developing countries’ road to recovery: Joint Journal of Political Economy 2004, vol.112, policy note. Washington, DC and Geneva. no.2 https://www.wto.org/english/tratop_e/devel_e/ International Monetary Fund (2021). Selected joint_policy_note_jan22.pdf Issues paper on Nigeria. IMF Country Yao, J. and Yang L. 2021. Diversification of The Nigerian Report No. 22/34. https://www.imf. Economy. Nigeria: Selected Issues. IMF Country org/-/media/Files/Publications/CR/2022/ Report No. 21/34 English/1NGAEA2022002.ashx Jean, S., & Mitaritonna, C. 2010. “Determinants and Pervasiveness of the Evasion of Customs Duties”. CEPII, Working Paper No 2010–26 60 Part 3: Spotlights on Nigeria's Development Agenda THE CONTINUING URGENCY OF BUSINESS UNUSUAL Spotlight 2: Investing in Adolescent Girls to Defuse Nigeria’s Demographic Timebomb Summary: As Nigeria enters a phase of rapid expansion Introduction and Context of the working-age population, there is a window of opportunity to benefit from the “demographic dividend”—a Nigeria’s demographic transition has stalled, period in which the share of those who are working starts to prolonging its placement as a “pre-dividend” outnumber the share of young and old dependents, and the country with a decline in fertility rates that lags other increase in labor supply boosts economic growth. However, countries and regions.39 The country’s population Nigeria’s transition into this window of demographic structure remains heavily skewed towards young opportunity has been sluggish. Nigeria’s persistently high dependents because of high fertility rates. fertility rates, especially in the northern regions and among adolescent girls, the poor, and those with low educational F  igure 3.12 (Panel A) plots the rate of decline in Total attainment, threaten to derail the demographic transition. Fertility Rate (TFR)40 over the last two decades among Poverty, low prevalence of and demand for modern countries in the African continent and provides three contraception, and lack of quality secondary schools and job categorical breakdowns: (a) countries where TFR decline market opportunities, all contribute to high rates of teenage has been less than 0.05 per year are categorized as having pregnancy, early marriage, and low educational attainment a “stalled” transition; (b) countries where TFR decline among Nigeria’s adolescent girls. To reap the demographic has been between 0.05 and 0.1 per year are categorized dividend, Nigeria must kickstart the stalled demographic as “early transition”; and (c) countries where TFR transition and ensure that the children of today have the decline has been more than 0.1 per year are categorized means to grow into healthy and productive adults. On as in “transition”.41 Nigeria is one of only four countries these fronts, Nigeria’s performance thus far has fared poorly in Africa with TFR above 5 and a pace of decline of TFR compared to its structural and aspirational peers. Policy of less than 0.05 a year, along with Niger, the Republic recommendations focus on ensuring adolescent girls remain of Congo, and the Gambia. Most other countries with in school longer, and are provided opportunities and services a stalled demographic transition have TFR below 3 and to enable their school-to-work transition. mostly lie in Northern Africa (Egypt, Morocco, Libya, Algeria, and Tunisia) and Southern Africa (South Africa, Botswana, and Eswatini). Nigeria’s prospects of reaping the demographic dividend are grim, owing to persistently high fertility rates. Between 2020 and 2050, Nigeria’s working age population is projected to increase by 132 million. This represents 20 percent of the expected increase in the 39 A country is classified in a pre-dividend typology when the working-age population is projected to grow within the next 15 years, and the total fertility rate is above four. Early dividend countries follow a similar definition, except they have a total fertility rate below four. The demographic dividend, which is in essence an economic surplus, is triggered when, owing to the fast decline of fertility, the working-age population becomes relatively larger and the dependency ratio for young people becomes more favorable. 40 The World Health Organization (WHO) defines the TFR as the average number of children a hypothetical cohort of women would have at the end of their reproductive period, if they were subject during their whole lives to the fertility rates of a given period and if they were not subject to mortality. It is expressed as children per woman. 41 A decline in TFR of 0.05 a year roughly corresponds to a decline by 1 child every 20 years. Part 3: Spotlights on Nigeria's Development Agenda 61 NIGERIA DEVELOPMENT UPDATE JUNE 2022 working age population across all of Sub-Saharan Africa, areas, but it has only declined by 0.5 percentage points and places Nigeria second only to India among countries in the latter compared to 0.4 percentage points in the expected to see the largest growth in their working-age former over the last 30 years. Comparing Nigeria’s trends population by 2050. Advancements in medical sciences in TFR with other regions and countries, Figure 3.12 and public health have ensured a rapid decline in child (Panel D) shows that the decline in TFR in Nigeria lags mortality rates in Nigeria and Sub-Saharan Africa. those in sub-Saharan Africa and other regions across the However, the decline in fertility rates have not kept pace globe. For example, South Africa’s TFR declined from 6 with the decline in child mortality, as Nigeria’s TFR has in 1960 to 2.4 in 2019. failed to diminish substantially over the last five decades. Fertility rates in Nigeria are highest in the North,  igure 3.12 (Panel C) shows that the TFR in Nigeria F among women in the poorest quintile, and among has declined by only 0.7 percentage points over the last women with no secondary education. Figure 3.12 30 years, from 6 in 1990 to 5.3 in 2018. As expected, shows the TFR disaggregated by urban/rural zones, the TFR is higher in rural areas compared to urban education level of the mother giving birth, and wealth Figure 3.12. Nigeria's Stalled Demographic Transition. Panel A.  Rate of TFR decline over the last two decades  atio of working age population (15–64) to young Panel B. R dependents (0–14), Nigeria and peer countries, 2020–2050 Ratio Morocco 4.5 Algeria Libya Egypt 4.0 Mauritania Niger Mali Sudan Eritrea Chad Senegal Burkina Faso 3.5 Guinea Somalia Nigeria Central Ghana South Ethiopia Sierra Cote African Leone Cameroon Republic Sudan d'Ivoire 3.0 Uganda Gabon Kenya Democratic Republic of Republic the Congo of Congo Tanzania 2.5 Angola Zambia Mozambique 2.0 Zimbabwe Madagascar Namibia Botswana Less than 0.05 - Stalled 1.5 0.05–0.1 - Early Transition South Africa More than 0.1 - Transition 1.0 2020 2025 2030 2035 2040 2045 2050 … VNM … BGD ▬ IDN ▬ EGY ▬ PAK ▬ GHA ▬ TGO ▬ SSA ▬ NGA Panel C. Nigeria's TFR, rural and urban areas, 1990–2020 Panel D. Rate of TFR decline, Nigeria and comparator regions and countries, 1990–2020 Ratio Ratio 6.5 8 6.3 6.3 6.2 6.1 6.0 7 6.8 6.0 5.9 6.4 5.7 6.5 6.1 5.7 5.8 6 6.5 5.5 5.5 6.0 5.3 5.5 5.3 5.0 5 5.0 4.0 5.0 4.9 4 4.7 4.7 4.5 3 2.7 4.5 2.6 2.4 2 4.0 1 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 1960 1970 1980 1990 2000 2010 2020 ▬ Rural ▬ Urban ▬ Total ▬ EAP excl. high income ▬ LAC excl. high income ▬ MENA excl. high income ▬ Nigeria ▬ South Asia ▬ SSA excl. high income ▬ South Africa Source: World Bank estimates based off WDI (Panel A; Panel C; and Panel D) and UN World Population Prospects (2019) (Panel B). 62 Part 3: Spotlights on Nigeria's Development Agenda THE CONTINUING URGENCY OF BUSINESS UNUSUAL quintile. The North West region in Nigeria has a TFR population in 2020, and will continue to represent more of 6.6, which would be the second-highest fertility rate than 20 percent of the population by 2050.44 Second, of any country in the world, behind only Niger. On and similar to TFR, Nigeria’s adolescent fertility rate of average, the state with the lowest TFR is Lagos with 3.4, 104 births per 1,000 women aged 15–19 is very high and the state with the highest fertility rate is Katsina compared to its income level, and substantially higher with 7.3. Similarly, the TFR among women with no than average in the northern regions of the country.45 education (6.7) is almost twice that among women Nigeria’s adolescent fertility ratehas failed to decline who have completed secondary education (3.4), and below 100 over the last 50 years, and its pace of decline the TFR among women in the poorest quintile (6.7) is lags that of Sub-Saharan Africa and peer countries. It is 3 percentage points higher than among women in the also worth noting that Nigeria recorded increases in birth richest quintile (3.8). rates by girls aged 10 to 14 between 2007 and 2017.46 Third, and most importantly, interventions that help This stall in the demographic transition dims adolescent girls reach their full potential, by increasing Nigeria’s prospect for a demographic dividend in the their education and skills and delaying childbearing near future. The demographic transition is the phase and early marriage, can create a virtuous cycle that in which the conditions to capture a demographic improves adolescent and child health and paves the way dividend are created, because of declines in child for women empowerment—ultimately leading to higher mortality and fertility, and the increase in the share of economic growth.47 working-age population relative to dependents. Figure  he TFR in Nigeria is highest in Figure 3.13. T 3.12 (Panel B) plots the ratio of the projected working- the North, among females with no age population (15–64) to the projected population of education, and among the lower wealth quintiles. young dependents (0–14) in Nigeria and peer countries between 2020 and 2050.42,43 It shows that in 2050, TFR in Nigeria, 2018, national and disaggregates Ratio for every young dependent, Nigeria will only have 7 1.5 people in the working-age population, compared to 6 2.1 in Ghana, 2.6 in Pakistan, 3.4 in Indonesia and 4.2 5 in Bangladesh. In other words, comparator countries will 4 3 have a greater share of economically active people who 2 contribute to the economy. 1 0 Se est M nd Fo le H rth st rb l or R n N en l N th E l th st So uth st So S st N uth uth uc st Pr tion an co ary co ary Lo ry Adolescent girls are a crucial demographic group l C ra a ra a ed e d he or tr or a e ut Ea a th u co u So W W ve w id o m se nd nd a ig U i O h to fast-track Nigeria’s demographic transition. th e S o N There are several reasons why addressing the needs of e or M adolescent girls and empowering them presents Nigeria J NGA J Urban/rural J Zone J Education level J Wealth quintile with the best opportunity to harness a demographic Source: World Bank calculations based off Nigeria Demographic and Health Survey (NDHS), 2018. dividend. First, adolescents between the ages of 10 Note: Total fertility rate for the three years preceding the survey among women between the ages of 15–49. and 19 constitute an estimated 23 percent of Nigeria’s 42 Structural and aspirational peers are identified in the World Bank Systematic Country Diagnostics for Nigeria (2019). Available at: https://openknowledge.worldbank.org/ handle/10986/33347 43 Population projections are estimated using the “medium” variant scenario in the World Population Prospects data. Available at: https://population.un.org/wpp/ 44 Population projections are estimated using the “medium” variant scenario in the World Population Prospects data. Available at: https://population.un.org/wpp/ 45 The WHO defines the AFR as the annual number of births to women aged 15–19 per 1,000 women in that age group. It is also referred to as the age-specific fertility rate for women aged 15–19. 46 United Nations. 2020. Fertility among young adolescents aged 10 to 14 years. Available at: https://www.un.org/en/development/desa/population/publications/pdf/fertility/Fertility- young-adolescents-2020.pdf 47 Canning, D., Raja, S. and Yazbeck, A.S. eds., 2015. Africa's demographic transition: dividend or disaster? World Bank Publications. Part 3: Spotlights on Nigeria's Development Agenda 63 NIGERIA DEVELOPMENT UPDATE JUNE 2022 Constraints to Demographic Transition being and early marriage, teenage pregnancy, and low Through the Lens of Nigeria’s Adolescent educational attainment are established using recent data, Girls where available.49 Adolescent girls are a key demographic group to break the intergenerational transmission of poverty in Demand-Side Constraints developing countries.48 Previous analysis from Nigeria supports this view. With adolescents likely to be the A high poverty rate is one of the strongest second-largest demographic group, after young children, determinants of early marriage and high fertility rates for the foreseeable future, policies that help adolescent among adolescent girls. Prevalence of early marriage girls realize their potential will help Nigeria kickstart its and teenage pregnancy in Nigeria is much higher in the stalled demographic transition. On the demand side, lower wealth quintiles. Figure 3.15 (Panel A) shows that three constraints are assessed: (i) economic deprivation compared to 68 percent of women aged 20–49 who were and poverty; (ii) constraining social norms that curtail married before the age of 18 in the poorest quintile, only demand for family planning; and (iii) low child health 17 percent of women in the richest quintile were married outcomes which raise the need for more children. On before the age of 18 in 2016/17. Similarly, compared to the supply side, four constraints are assessed: (i) lack of almost 200 births per 1,000 women aged 15–19 in the access to quality secondary schools; (ii) inequity in access poorest quintile, Nigeria reported 35 births per 1,000 to quality health and reproductive services; (ii) lack of women aged 15–19 in the richest quintile. opportunities in the labor market; and (iv) insufficient national laws and regulations. The linkages of demand- Poverty also restricts demand for adolescent girls’ and supply-side constraints with adolescent well- education. Female educational attainment—one of the Adolescent well-being, demographic transition, and consequences for potential Figure 3.14.  demographic dividend in Nigeria. 1 Adolescent girls in Nigeria are 2 Poor outcomes for adolescent girls 3 Stalled demographic transition delays constrained by demand and supply stalls the demographic transition prospects for demographic dividend side factors that hinder their well-being process as the vicious cycle of early as dependency ratios remain high and and prevent them from realizing their marriage, teenage pregnancy and low human capital outcomes continue to potential educational outcome reinforce each suffer other Less than 10 percent Demand side constraints: 43 percent of of Nigeria’s secondary Ÿ Poverty prevents low-income households from Nigeria’s girls school age females HIGH enrolling girls in schools get married were attending secondary school Ÿ Constraining social norms and beliefs prevent before the age of 18 or higher in 2016/17 Ÿ Dependency ratio demand for modern contraceptives Ÿ Poverty Ÿ High child mortality and low child health outcomes raise the number of desired children Ÿ Gender inequality Early Low marriage education Supply side constraints: attainment Ÿ Lack of quality schools for adolescent girls pushes them out of school and raises their chances of early fertility Ÿ Lack of quality health and reproductive services Teenage Ÿ Human capital outcomes increases child mortality and illness and intensifies pregnancy desire/need for additional children Ÿ Economic growth LOW Ÿ Lack of job market opportunities for school to work Ÿ Women empowerment transition accelerates early marriage and childbearing Four of Nigeria’s Northern States Ÿ National laws and regulations are unable to deter (Bauchi, Jigawa, Zamfara, and Katsina) have early marriage and childbearing adolescent fertility rates higher than that of the country with the highest AFR (Niger) Source: Adopted from: Bergstrom, K. and Ozler, B., 2021. Improving the Well-Being of Adolescent Girls in Developing Countries. 48 Levine, R., Lloyd, C., Greene, M. and Grown, C., 2008. Girls Count: A global investment & action agenda. 49 While this section provides several correlational analyses linking demand- and supply-side constraints with indicators of adolescent well-being, these should not be interpreted as causal. More careful analysis is needed to establish causality and isolate the impact of individual constraints on outcomes of interest. 64 Part 3: Spotlights on Nigeria's Development Agenda THE CONTINUING URGENCY OF BUSINESS UNUSUAL Figure 3.15. Early marriage and teenage pregnancy rates in Nigeria in 2016/17, by wealth quintile. Panel A.  Marriage Before Age of 18, by Wealth Quintile  dolescent Fertility Rate, by Wealth Quintile Panel B. A 70 200 180 60 160 50 140 120 40 100 30 80 20 60 40 10 20 0 0 Poorest Second Third Fourth Fifth Nigeria Poorest Second Third Fourth Fifth Nigeria Source: World Bank calculations based off data from UNICEF, Multi-Indicator Cluster Survey (MICS) 2016/17.  ercentage of Nigerian children of secondary school age attending secondary school or Figure 3.16. P higher, by location and wealth quintile, 2016/17. Panel A.  Percentage of female children of secondary  ercentage of female and male children of Panel B. P school age attending secondary school or higher secondary school age attending secondary school (adjusted net attendance ratio), Nigeria, 2016–17 or higher (adjusted net attendance ratio), Nigeria, 2016–17, by wealth quintile 80 Sokoto Katsina Jigawa 70 Kebbi Zamfara Yobe Kano Borno 60 Kaduna Bauchi 50 Gombe Niger Adamawa Plateau 40 FCT Kwara Nasarawa Oyo Taraba 30 Ekiti Kogi Osun Adolescent Birth Rate Benue per 1,000 Ogun Ondo 20 Edo 18 Lagos Ebonyi Enugu Cross River 10 Anambra Delta Imo 118 Abia Bayelsa Akwa Ibom 0 Rivers 218 Poorest Second Third Fourth Richest Overall J Female J Male Source: World Bank calculations based off UNICEF, Multi-Indicator Cluster Survey (MICS) 2016/17. strongest predictors of fertility rates—is much lower senior secondary education are not free. In 2015, around in the north than in the south of the country (Figure 18 percent of Nigerian girls aged 6 to 16 who were out 3.16, Panel A). In 2016/17, the percentage of Nigerian of school reported the monetary cost of schooling among girls of secondary school age attending school was just the main reasons for their predicament.50 Another 9.3 percent in the poorest wealth quintile compared to constraint identified by families for not sending their 80.6 percent in the richest quintile, a staggering gap of daughters to school was losing a key income earner who 70 percentage points (Figure 3.16, Panel B). For poor is critical to meeting their basic family needs, as girls are households and their families, it is difficult to cover often more involved in generating family income in rural the direct and indirect cost of schooling. Although areas. Nigeria’s universal basic education (UBE) Program aims to provide nine years of free, compulsory, and universal Compared to the regional average, or to structural and primary education to all children, the three years of aspirational peers, the use of modern contraceptive 50 2015 Nigeria National Education Data Survey (NEDS). Available at: https://shared.rti.org/content/2015-nigeria-national-education-data-survey-neds Part 3: Spotlights on Nigeria's Development Agenda 65 NIGERIA DEVELOPMENT UPDATE JUNE 2022 methods for family planning in Nigeria is low. Figure increasing by two percentage points between 2008 and 3.17 (Panel A) shows that only 12 percent of Nigerian 2018. Compared to the national average, and similarly women aged 15–49, who were married in 2018, used to trends in TFR, there is substantial variation across modern contraceptive methods for family planning, geopolitical zones and states in the use of modern lagging the Sub-Saharan African average (27.5 percent) contraceptive methods. For example, 24 percent of and considerably behind some aspirational peers married Nigerian women aged 15–49 in the South such as South Africa (54 percent).51 The percentage of West use modern contraceptive methods, compared Nigerian women using modern contraceptive methods to 6 percent in the North-West (Figure 3.17, Panel has remained largely the same in the last decade, only B). However, even in the south, modern contraceptive  igeria has very low prevalence of modern contraceptives nationally, and especially in the Figure 3.17. N North East and North West. Panel A.  Countries in Africa by contraceptive prevalence,  ontraceptive prevalence, any modern method Panel B. C any modern method (percent of married women (percentage of married women aged 15–49), by ages 15–49), last available year zones, 2018 Percent of married women ages 15–49 25 Morocco Algeria Libya Egypt Mauritania 20 Mali Niger Sudan Eritrea Senegal Burkina Chad Faso Guinea Ethiopia Somalia Sierra Leone Cote Ghana Nigeria Central African South 15 d'Ivoire Cameroon Republic Sudan Uganda Gabon Kenya Democratic Republic of Republic the Congo of Congo Tanzania 10 Prevalence of modern Angola contraceptives Zambia 0.9 Mozambique 5 Zimbabwe Madagascar Namibia Botswana 33.35 South Africa 0 65.8 North North North South South South Nigeria Central East West East South West Overall Source: World Bank Calculations based on World Development Indicators (Panel A) and Nigeria Demographic and Health Surveys (NDHS), 2018 (Panel B).  ost fertility in Nigeria is wanted fertility with low demand for family planning, especially Figure 3.18. M among adolescents. Panel A.  Trends in total wanted fertility and unwanted  otal demand for family planning (met and unmet) Panel B. T fertility, 1990–2018, Nigeria of women aged 15–49, by education level and wealth quintile 6 0.2 60 0.4 0.4 0.3 5 0.5 50 40 4 30 3 5.8 5.3 5.3 5.2 20 4.8 2 10 1 0 y y ar n t nd ird th st ll 9 n es ra ar ar –1 io nd tha he y ur co Th or ve at im nd 15 Fo ic Se uc co re Po O 0 Pr co R es seMo ed 1990 2003 2008 2013 2018 Se Ag o NDHS NDHS NDHS NDHS NDHS N J Total wanted fertility J Unwanted fertility J Married women J All women Source: World Bank calculations based off Nigeria Demographic and Health Surveys (NDHS), 2018. 51 DHS, most recent available year is 2018 for Nigeria, 2017 for sub-Saharan Africa, and 2016 for South Africa. Available at: https://data.worldbank.org/indicator/SP.DYN.CONM. ZS?most_recent_value_desc=false 66 Part 3: Spotlights on Nigeria's Development Agenda THE CONTINUING URGENCY OF BUSINESS UNUSUAL prevalence among married women ranges between 13 of them survive beyond childhood. Nigeria’s U5MR and 24 percent, lower than the national averages in has declined from 183 per 1,000 live births in 2000 to Burkina Faso, Ghana, and Senegal, and lower than the 117 per 1,000 live births in 2019. Yet, Nigeria has the average for low-income countries (29 percent) worst U5MR of any country in the world. In the North West, U5MR is 187 per 1,000 live births, higher than Demand for family planning is especially low for the national average in the year 2000. adolescents between the ages of 15 and 19. Figure 3.18 (Panel A) shows the trends in wanted and unwanted The risk of neonatal, post-neonatal, infant, child, fertility in Nigeria between 1990 and 2018. It reveals and under-five mortality is substantially higher for that the gap between actual and wanted fertility is very adolescent mothers. U5MR in 2018 was 160 per 1,000 small, reflecting both a desire for large families and the live births among adolescent mothers, compared to 120 relative realization of desired family size. As with the among women aged 20–29 and 124 among women use of modern contraceptive methods, there is national aged 30–39. Similarly, the infant mortality rate— variation in demand for family planning. 50 percent defined as the number of deaths of children under one of married women who have more than secondary year of age, and expressed per 1,000 live births—was education demand family planning services, compared to 85 among births by adolescents, substantially higher 20 percent of married women with no education (Figure than 59 among the 20–29 age group, and 64 among 3.18, Panel B). Total demand for family planning is the 30–39 age group. In developing countries such as 15 percent among married adolescents between the ages Nigeria, wanted fertility often depends on infant and of 15 and 19. child mortality rates, as families consider the need for additional children to replace potential losses. Therefore, Although there has been progress in reducing when a country decreases its infant and child mortality the Infant Mortality Rate (IMR) and Under-Five rates, it can trigger a fertility decline as more children Mortality Rate (U5MR), Nigeria is still among the survive into adulthood.52 Not only do women who begin countries with the highest U5MR and IMR, causing childbearing early are more likely to have more children women to have more children in the hope that more throughout their lives, but there is also a greater risk  igeria has the highest under-5 mortality rate in the world despite a rapid decline in the last Figure 3.19. N 50 years, largely due to the high prevalence of childbearing among adolescents. Panel A.  Neonatal, Infant, Child, and Under-5 mortality rates  nder 5 Mortality Rate (per 1,000 live births), Panel B. U by type and mother’s age at birth, Nigeria, 2018 Nigeria and comparator countries/region 160 300 281.4 140 250 211.8 120 209.5 200 183.1 100 150 136.0 80 117.2 60 100 40 50 20 0 0 <20 20–29 30–39 40–49 1970 1980 1990 2000 2010 2019 J Neonatal mortality J Postneonatal mortality J Infant mortality ▬ Nigeria ▬ Sub-Saharan Africa ▬ Pakistan ▬ Ghana J Child mortality J Under 5 mortality ▬ Rwanda ▬ Bangladesh ▬ Indonesia Source: World Bank calculations based on Nigeria Demographic and Health Surveys (NDHS), 2018 (Panel A) and World Development Indicators (Panel B). 52 Conley, D., McCord, G.C. and Sachs, J.D., 2007. Africa's lagging demographic transition: Evidence from exogenous impacts of malaria ecology and agricultural technology. Part 3: Spotlights on Nigeria's Development Agenda 67 NIGERIA DEVELOPMENT UPDATE JUNE 2022 of death, disease, and illness for the mother and their shortage of secondary schools, with only 31,000 junior children, constraining their ability to contribute to secondary schools and 23,000 senior secondary schools society. compared to 112,000 primary schools, implying a ratio of approximately 3.6 primary schools for every junior More than one-third of Nigeria’s children under five secondary school and 4.9 primary schools for every are stunted, severely denting their hopes of realizing senior secondary school. The lack of secondary schools their full potential. In 2018, close to 37 percent of is significantly greater in the north, with an average of children between the ages of 6 and 59 months in Nigeria 4.1 primary schools for every junior secondary school. were stunted, or too short for their age.53 The prevalence COVID-19 has further affected access to schooling of stunting widely varies across geopolitical zones. among Nigeria’s adolescents, with girls in the north most In the North West it is 57 percent, or 20 percentage likely not to return when schools reopened. points more than the national average. In contrast, the prevalence of stunting is 18 percent in the South Adolescent mothers are less likely to give birth in the East, less than half the national average. With 2 out of presence of skilled providers, and often cite distance every 5 children under the age of five stunted, Nigeria’s from health facilities and lack of providers as barriers prospects for reaping the demographic dividend in the to accessing health services. Between 2008 and 2018, near-term look even more distant, as studies consistently the percentage of Nigerian women giving birth in show that stunting in early life is associated with lower presence of a skilled birth attendant increased from educational attainment, productivity, and wages during 39 percent to 43 percent. Despite this improvement, adulthood.54 fewer than 40 percent of newborns delivered in Nigeria in 2018 were born in a health facility.56 In the five years preceding the survey in 2018, only 31 percent of Supply-Side Constraints adolescent mothers delivered in the presence of skilled birth attendants compared to 46 percent in the 20–34 More than one in five primary schools in Nigeria do age group and 43 percent in the 35–49 age group,57 not have a junior or senior secondary school within significantly increasing the risk of death and illness for 3 km radius and one in ten primary schools do not both child and mother. In a study of utilization of skilled have a junior or senior secondary school within birth attendance considering 400 women in northern 5 kilometer radius. Lack of access to a secondary school Nigeria, lack of healthcare providers and lack of supplies is much worse in northern states than in southern and equipment were found to be major barriers to states. 32 percent primary schools in northern states do accessing skilled birth attendance, along with poverty.58 not have a junior secondary school within 3 kilometer radius as compared to just 8 percent primary schools Adolescents and young girls in Nigeria face limited in southern states55. The expansion of secondary school labor market opportunities in their school-to-work infrastructure has not kept pace with the rapid growth transition. According to NBS, Nigeria’s youth aged in primary enrollment or the rising transition rates 15–24 faced unemployment rates of 53 percent at the to secondary schools. Nationally, there is an acute end of 2020 (Figure 3.20).59 Both unemployment and 53 Nigeria Demographic and Health Surveys (NDHS), 2018. 54 McGovern, M.E., Krishna, A., Aguayo, V.M. and Subramanian, S.V., 2017. A review of the evidence linking child stunting to economic outcomes. International journal of epidemiology, 46(4), pp.1171-1191. 55 National Personnel Audit 2008. 56 Nigeria Demographic and Health Surveys (NDHS), 2018. 57 Ibid. 58 Adewemimo AW, Msuya SE, Olaniyan CT, Adegoke AA. 2014. Utilization of skilled birth attendance in Northern Nigeria: a cross-sectional survey. Midwifery. PMID: 24139686. Available at: https://pubmed.ncbi.nlm.nih.gov/24139686/#:~:text=Barriers%20to%20SBA%20utilisation%20identified,husband's%20approval%20and%20affordable%20 service. 59 NBS defines unemployment rates as the percentage of the labor force population who could not find at least 20 hours of work in the reference period. 68 Part 3: Spotlights on Nigeria's Development Agenda THE CONTINUING URGENCY OF BUSINESS UNUSUAL  igeria's youth faced an Figure 3.20. N unemployment rate of 53 percent at Despite the existence of national laws and the the end of 2020. ratification of relevant international treaties, child Percent marriage continues to plague Nigerian society. Nigeria 60 passed the Child Right Act in 2003 that guarantees the 53.4 50 rights of all children in Nigeria. Part III of the Child Rights Act includes protection from child marriage, 37.2 35.2 40 33.3 as well as punishments for the act on the adult parties 31.8 27.2 25.9 25.7 25.4 involved. However, only 26 out of Nigeria’s 36 states 24.4 24.2 30 23.6 22.8 21.8 21.6 19.8 20 have so far adopted the Act, while 10 northern states where child marriage rates remain high have yet to 10 adopt it.64 Even in some northern states that have 0 adopted the Act, provisions against child marriage Female Nigeria 15–24 25–34 35–44 45–54 55–64 Male Overall is yet to be incorporated in state laws, making it J Unemployment J Underemployment Source: National Bureau of Statistics (NBS). inadequate to protect children from forced marriages.65 As a consequence, Nigeria has one of the highest rates underemployment rates were higher for women. When of child marriage in the world, much higher than peer women do work, they consistently earn less than men.60 countries, with around 44 percent of Nigerian women Recent research shows that unemployment can accelerate currently aged between 20 and 49 married before the age the transition to motherhood for women.61 In Nigeria, of 18.66 It is estimated that child marriage costs Nigeria about 65 percent of working women in households about US$7.6 billion in lost earnings and productivity with children under five worked less than 40 hours per every year.67 week, compared with 57 percent of working women in households without children under five.62 Poor female The inability of Nigeria’s laws and regulations to labor market outcomes and high fertility rates reinforce prevent child marriage also stems from incongruities each other. Higher participation of women in the in the relevant laws. Although the Child Rights Act of labor force, especially when combined with secondary 2003 stipulates the minimum age of marriage to be 18, education completion, is associated with lower fertility the Constitution states that “any woman who is married rates, while higher fertility rates tend to decrease shall be deemed to be of full age.”68 Efforts to remove women’s work rates.63 Not only do poor labor market this inconsistency have so far met with stiff opposition in outcomes discourage young women from participating the Nigerian senate, as lawmakers and religious leaders in the market and increase their likelihood of having in the northern states often cite Islam’s lack of an age more children, but they also take away from young requirement for betrothal as a justification for early women’s contribution to the economy, thereby reducing marriage.69 the prospects of a demographic dividend. 60 World Bank. 2022. Closing Gaps, Increasing Opportunities: A Diagnostic on Women’s Economic Empowerment in Nigeria. Washington, DC: World Bank. 61 Andersen, S.H. and Özcan, B., 2021. The effects of unemployment on fertility. Advances in Life Course Research, p.100401. 62 World Bank.2021. Good Jobs for a New Generation: Delivering Quality Jobs for Young Nigerians After COVID-19. Available at: 63 Bloom, D.E., Canning, D., Fink, G. and Finlay, J.E., 2009. Fertility, female labor force participation, and the demographic dividend. Journal of Economic growth, 14(2), pp.79- 101. 64 Human Rights Watch. 2021. Nigerian States Should Protect Girls by Ending Child Marriage. Available at: https://www.hrw.org/news/2021/09/24/nigerian-states-should-protect- girls-ending-child-marriage# 65 Ibid. 66 UNICEF, Multi-Indicator Cluster Survey (MICS) 2016/17. Data based on 67 World Bank. 2018. The Cost of Not Educating Girls: Educating Girls and Ending Child Marriage: A Priority for Africa. Available at: https://documents1.worldbank.org/curated/ en/268251542653259451/pdf/132200-WP-P168381-PUBLIC-11-20-18-Africa-GE-CM-Conference-Edition2.pdf 68 Constitution of the Federal Republic of Nigeria. 1999. Available at: http://www.nigeria-law.org/ConstitutionOfTheFederalRepublicOfNigeria 69 Human Rights Watch. 2021. Nigerian States Should Protect Girls by Ending Child Marriage. Available at: https://www.hrw.org/news/2021/09/24/nigerian-states-should-protect- girls-ending-child-marriage# Part 3: Spotlights on Nigeria's Development Agenda 69 NIGERIA DEVELOPMENT UPDATE JUNE 2022 Policy Measures to Accelerate the Policy Message 1: Support measures Demographic Transition to Harness the that help keep girls in school, to delay Demographic Dividend marriage/pregnancy and improve learning outcomes. To accelerate Nigeria’s sluggish demographic transition and realize the demographic dividend, There is an urgent need to expand access to secondary this note proposes policy recommendations around schools, and make it free for poor households who four complementary pillars. Together, the four pillars find it hard to cover the direct and indirect cost of aim to achieve two key objectives to take advantage secondary schooling. Although Nigeria’s universal basic of the demographic window of opportunity in the education (UBE) Program aims to provide nine years of near term. First, the policy measures will help Nigeria free, compulsory, and universal primary education for all accelerate the demographic transition by reducing high children, the three years of senior secondary education fertility and child mortality rates, causing a shift in the are not free. For poor families, sending their daughters to age structure. Second, the measures will allow Nigerian school means losing a key income earner who is critical youth, particularly girls, to effectively contribute to the to meeting their basic family needs, as girls are often economy as they become equipped with the necessary more involved in generating income for the family in skills and capabilities. The four pillars are presented rural areas. Keeping girls in school will require removing below (in summary). the direct cost of schooling and compensating parents for the forgone income. In terms of school access, the F  igure 3.21 illustrates the mutually reinforcing nature lack of secondary schools is significantly greater in the of these policy actions, and how targeting support to north, with an average of eight primary schools for every adolescent girls can accelerate progress across all pillars. secondary school. For girls to transit to or complete Table 3.1 highlights the need for the policies proposed, secondary school, the government should provide the the short- and medium-term actions to support the necessary infrastructure to create safe learning spaces in policies, and the likely impact the policy measures will their communities. have.  argeting adolescent girls with holistic support is critical to reducing fertility and Figure 3.21. T accelerating the demographic transition in Nigeria. Accelerating Demographic Transition… 1 Support measures that keep girls in 2 Expand access to and demand for family 3 Increase investments in maternal and school planning child health Keeping girls in school until they complete Expanding access to and demand for family Increasing investments in maternal and secondary education (or higher) delays planning addresses informational and child health, and in turn reducing child early marriage and childbearing, reducing financial constraints to contraceptive use, mortality, reduces the desired number of family size, expands demand for family addressing unwanted fertility children and improves health outcomes for planning, and increases investments per adolescent girls and their future children child on health Examples of short-term Examples of medium-term measures measures Ÿ Provide cash transfers Ÿ Engage community elders and supplementary and leaders to address services discriminatory norms Ÿ Expand immunization 4 Boost women’s labor force participation Ÿ Expand supply of quality Ÿ Provide information on and earnings secondary schools benefits of family Expanding women’s economic opportunities Ÿ Improve access to quality planning reduces fertility by increasing the opportunity technical, vocational, and cost of women’s time socioemotional skills training for women ...to harness the Demographic Dividend in Nigeria Note: World Bank Illustration. Additional measures are highlighted in Table 3.1. 70 Part 3: Spotlights on Nigeria's Development Agenda THE CONTINUING URGENCY OF BUSINESS UNUSUAL Policy Message 2: Expand access to and Policy Message 4: Support programs and demand for family planning. interventions that address constraints to women’s participation in the labor force Nigeria needs to implement strategies that improve and increase their earnings. access to and increase demand for family planning services. There is a need to prioritize improvement in Nigeria needs to prioritize interventions that address demand for family planning—as current unmet needs constraints to women’s economic empowerment, for family planning are low across the country—by including helping the school-to-work transition focusing on both inter-personal and societal behaviors for adolescent girls. There is growing global evidence and norms, and engaging with women’s groups and that ensuring economic opportunities for women is community, religious and traditional leaders. Other an important entry point for reducing high fertility policies should focus on providing information on the and early childbearing, and ensuring better education, pros and cons of different family planning methods, and health, and nutrition outcomes for children. Measures targeting family planning vouchers to adolescent girls. that provide adolescent girls with a comprehensive set of vocational, socio-emotional, and technical tools to navigate the labor market seem to hold the most Policy Message 3: Increase investments in promise. multi-sectoral interventions that improve maternal and child health outcomes. Increasing fiscal resources available for health and social protection programs—focusing on those that come with evidence of reducing child mortality and stunting and improving maternal mortality rates— will diminish the need for more children. In 2019, Nigeria’s low public expenditure on education and health reflected its standing as the country with the sixth lowest Human Capital Index (HCI) in the world.70 There is a need to reduce the high child- and under-five mortality rates and to increase the utilization of maternal health services, especially among adolescent girls. Concurrently, interventions should be expanded to reduce childhood stunting, as this is strongly associated with lower productivity and earnings during adulthood. Despite the government launching several safety net programs in recent years, social protection coverage remains low, even if well targeted. Social protection measures that improve the demand for human capital services, and health measures that provide cost-effective preventative interventions to reduce under-five mortality, must be prioritized.71 70 World Bank, 2020. The Human Capital Index 2020 Update: Human Capital in the Time of COVID-19 71 These include including maternal tetanus toxoid vaccination, exclusive breastfeeding, clean-cord care, kangaroo mother care, immunizations, vitamin A supplementation, prevention of mother-to-child transmission of HIV, and expansion of the use of insecticide-treated mosquito nets. Part 3: Spotlights on Nigeria's Development Agenda 71 NIGERIA DEVELOPMENT UPDATE JUNE 2022  igeria needs to ensure adolescent girls remain in school longer and are provided services Table 3.1. N and opportunities as they come of working age. What measures are being proposed? Why are the measures What is the likely impact the needed? Short-Medium Term Medium-Long Term measures will have? (6–18 months) (18–36 months) Policy Message 1: Support measures that keep girls in school. • Less than 10 • Provide safe learning • Advocate for reforms, • Decrease in fertility percent of secondary spaces to adolescent including enacting and increased use of school-age girls in girls, in which they a law mandating 12 contraception. A multi- the lowest wealth meet inside or outside years of free and faceted program for girls in quintile attend of school to socialize compulsory education Uganda (Empowerment and secondary school, and receive vocational for girls. Livelihoods for Adolescent compared with 80 and life skills training Girls - ELA) combining clubs percent in the richest (including on sexual • Implement social with vocational and life-skills quintile. and reproductive and behavior change training led to decrease in health), such as in the communication, fertility and increased use of • 23 percent of World Bank-supported including community- contraception.72 primary schools in Adolescent Girls level dialogue, and Nigeria’s north do Initiative for Learning campaigns at the • Increase in school enrollment. not have a junior or and Empowerment federal, state, and Bergstrom and Ozler found senior secondary (AGILE) project. community levels to that school construction can school within 5 km change discriminatory lead to very large gains in of their communities, • Expand construction of social norms, increase educational attainment in compared to 5 community secondary demand for girls’ areas where schools are percent of primary schools and / or education, and reduce far away. They also found a schools in southern expansion of primary the prevalence of child promising impact on reduced/ Nigeria. schools to include marriage. delayed fertility.73 JSS and SSS, and renovation of existing • Encourage 10 states secondary schools that are yet to adopt to provide conducive the Child Rights Act of learning environment in 2003 to increase and the north of the country. enforce the minimum age of marriage of 18 for girls. Policy Message 2: Expand access to and demand for family planning. • Total demand for • Provide vouchers to • Engage community • Increased demand for family family planning is adolescent girls to leaders in the north planning services. A family 15 percent among access family planning and women’s groups to planning (FP) program in India married adolescents services. address societal norms that offered women vouchers between the ages of and behaviors leading to seek care and services with 15 and 19. • Provide information to low uptake of family their peers increased visits on the benefits of planning services. to an FP clinic for FP and • Prevalence delaying, spacing, reproductive health services.74 of modern and limiting births, contraceptive and on the pros and • Increased use of family method among cons of different family planning measures. In Kenya, women aged 15–49 planning methods, a 45-minute information is just 12 percent. especially in the north. session delivered by an outside facilitator with a focused message on the heightened risk of HIV faced by girls having sex with older partners was effective at reducing unprotected sex and consequently pregnancy among adolescent girls.75 72 Bandiera, O., Buehren, N., Burgess, R., Goldstein, M., Gulesci, S., Rasul, I. and Sulaiman, M., 2013. Empowering adolescent girls in Uganda. 73 Bergstrom, K. and Ozler, B., 2021. Improving the Well-Being of Adolescent Girls in Developing Countries. 74 Anukriti, S., C. Herrera-Almanza, and M. Karra. 2021. Women’s access to family planning: experimental evidence on the role of peers and vouchers. Forthcoming. 75 Dupas, P., 2011. Do teenagers respond to HIV risk information? Evidence from a field experiment in Kenya. American Economic Journal: Applied Economics, 3(1), pp.1-34. 72 Part 3: Spotlights on Nigeria's Development Agenda THE CONTINUING URGENCY OF BUSINESS UNUSUAL  igeria needs to ensure adolescent girls remain in school longer and are provided services Table 3.1. N and opportunities as they come of working age (continued) What measures are being proposed? Why are the measures What is the likely impact the needed? Short-Medium Term Medium-Long Term measures will have? (6–18 months) (18–36 months) ncrease investments in multi-sectoral interventions that improve maternal and child health Policy Message 3: I outcomes. • Nigeria has the • Expand immunization • Supplement the • Reduction in childhood third-highest infant and vitamin-A delivery of cash stunting. The Child mortality rate and supplementation in transfers with advice Development Grant Program the highest U5MR lagging areas. and counselling on (CDGP), a multi-faceted mortality rate in the • Expand and provide nutrition and health. program that provided cash world. unconditional cash transfers and information to • Close to 37 percent transfers to women extremely poor households, of Nigerian children during pregnancy and led to large and sustained between 6 and 59 until the child reaches improvements in children’s months are stunted. two years of age. anthropometric and health outcomes, including an 8 percent reduction in stunting four years post-intervention.76  upport programs that address constraints to young women’s participation in the labor force Policy Message 4: S and increase their earnings. • Adolescents and • Provide labor market • Encourage women • Increase in productivity young girls in interventions targeting to become involved among women farmers. A Nigeria face limited women and youth with in male-dominated psychology-based training opportunities in comprehensive job occupations/sectors, by called Personal Initiative their school-to- facilitation support, broadening the range led to increased profits for work transition. In including vocational of programs offered women entrepreneurs in 2020, the youth and socio-emotional in technical colleges Togo, and to increases in unemployment rate skills training. aimed at digital jobs surface cultivated, input use, was 20 percent. • Support adolescent and trades with good and adoption of cash crops • A significant portion girls by providing employment prospect among women farmers in of young Nigerian mentorship programs for women, integrating Mozambique.77 women are unable to and mitigating specific socio-emotional • Increased participation of make the school-to- constraints to their skills training in the women in male-dominated work transition: boys participation in the curriculum, supporting sectors. The Nigeria Business and girls are equally labor market, such the recruitment of Process Outsourcing likely to either attend as transportation or female teachers Youth Employment project school or work until childcare costs. and instructors, and provided information and the age of 14, after improving facilities communications technology • Deliver comprehensive in technical colleges which women’s packages to ultra-poor training which significantly participation drops. to make them more increased the likelihood women that combine attractive to females. grants, training, and of women working in ICT- linkages to markets • Sustained policy enabled service sectors and services. engagement to (traditionally male-dominated). promote reforms This was especially true • Establish vocational boosting women’s labor among women who initially and STEM programs force participation, held self-defeating bias to help girls build skills including enacting a against associating women and easily access the law against gender- with professional attributes in labor market. based discrimination in male-dominated sectors.78 work and laws around parenthood, as well as lifting restrictions on mobility and sectors of work. 76 Carneiro, P.M., Kraftman, L., Mason, G., Moore, L., Rasul, I. and Scott, M., 2020. The impacts of a multifaceted pre-natal intervention on human capital accumulation in early life. 77 Campos, Francisco; Frese, Michael; Goldstein, Markus; Iacovone, Leonardo; Johnson, Hillary; McKenzie, David; Mensmann, Mona. 2018. Personal Initiative Training Leads to Remarkable Growth of Women-Owned Small Businesses in Togo. Gender Innovation Lab Policy Brief; No. 22. World Bank, Washington, DC. 78 Croke, Kevin; Goldstein, Markus, and Holla, Alaka. 2017. The Role of Skills and Gender Norms in Sector Switches: Experimental Evidence from a Job Training Program in Nigeria. https://documents1.worldbank.org/curated/en/879141499698936934/pdf/The-Role-of-Skills-and-Gender-Norms-in-Sector-Switches-Experimental-Evidence-from-a- Job-Training-Program-in-Nigeria.pdf Part 3: Spotlights on Nigeria's Development Agenda 73 NIGERIA DEVELOPMENT UPDATE JUNE 2022 References Adewemimo AW, Msuya SE, Olaniyan CT, Adegoke Carneiro, P.M., Kraftman, L., Mason, G., Moore, L., AA. 2014. Utilization of skilled birth Rasul, I. and Scott, M., 2020. The impacts of a attendance in Northern Nigeria: a cross- multifaceted pre-natal intervention on human sectional survey. Midwifery. PMID: 24139686. capital accumulation in early life. Available at: https://pubmed.ncbi.nlm. Conley, D., McCord, G.C. and Sachs, J.D., 2007. nih.gov/24139686/#:~:text=Barriers%20 Africa's lagging demographic transition: to%20SBA%20utilisation%20 Evidence from exogenous impacts of malaria identified,husband's%20approval%20and%20 ecology and agricultural technology. affordable%20service. Croke, Kevin; Goldstein, Markus, and Holla, Alaka. Andersen, S.H. and Özcan, B., 2021. The effects of 2017. The Role of Skills and Gender Norms unemployment on fertility. Advances in Life in Sector Switches: Experimental Evidence Course Research, p.100401. from a Job Training Program in Nigeria. Anukriti, S., C. Herrera-Almanza, and M. Karra. 2021. https://documents1.worldbank.org/curated/ Women’s access to family planning: experimental en/879141499698936934/pdf/The-Role-of- evidence on the role of peers and vouchers. Skills-and-Gender-Norms-in-Sector-Switches- Forthcoming Experimental-Evidence-from-a-Job-Training- Bandiera, O., Buehren, N., Burgess, R., Goldstein, M., Program-in-Nigeria.pdf Gulesci, S., Rasul, I. and Sulaiman, M., 2013. Dupas, P., 2011. Do teenagers respond to HIV risk Empowering adolescent girls in Uganda. Africa information? Evidence from a field experiment Region Gender Practice Policy Brief; No. 4. in Kenya. American Economic Journal: Applied World Bank, Washington, DC. Economics, 3(1), pp.1-34. Bergstrom, K. and Ozler, B., 2021. Improving the Human Rights Watch. 2021. Nigerian States Well-Being of Adolescent Girls in Developing Should Protect Girls by Ending Child Countries. Bloom, D.E., Canning, D., Fink, Marriage. Available at: https://www.hrw.org/ G. and Finlay, J.E., 2009. Fertility, female news/2021/09/24/nigerian-states-should- labor force participation, and the demographic protect-girls-ending-child-marriage# dividend. Journal of Economic growth, 14(2), Jenq, C., Lain, J., & Vishwanath, T. (2021). Good pp.79-101. Jobs for a New Generation: Delivering Quality Canning, D., Raja, S. and Yazbeck, A.S. eds., 2015. Jobs for Young Nigerians After COVID-19. Africa's demographic transition: dividend or Washington DC: World Bank. disaster? World Bank Publications Levine, R., Lloyd, C., Greene, M. and Grown, C., 2008. Campos, Francisco; Frese, Michael; Goldstein, Girls Count: A global investment & action Markus; Iacovone, Leonardo; Johnson, Hillary; agenda. McKenzie, David; Mensmann, Mona. 2018. National Bureau of Statistics (NBS) and United Nations Personal Initiative Training Leads to Remarkable Children’s Fund (UNICEF). 2017 Multiple Growth of Women-Owned Small Businesses in Indicator Cluster Survey 2016-17, Survey Togo. Gender Innovation Lab Policy Brief;No. Findings Report. Abuja, Nigeria: National 22. World Bank, Washington, DC. Bureau of Statistics and United Nations Children’s Fund. 74 Part 3: Spotlights on Nigeria's Development Agenda THE CONTINUING URGENCY OF BUSINESS UNUSUAL Nigeria Demographic and Health Surveys (NDHS), 2018. National Population Commission. The DHS Program. Maryland: USA World Bank. 2018. The Cost of Not Educating Girls: Educating Girls and Ending Child Marriage: A Priority for Africa. Available at: https://documents1.worldbank.org/curated/ en/268251542653259451/pdf/132200-WP- P168381-PUBLIC-11-20-18-Africa-GE-CM- Conference-Edition2.pdf World Bank. 2020. The Human Capital Index 2020 Update: Human Capital in the Time of COVID-19. World Bank, Washington. World Bank. 2022. Closing Gaps, Increasing Opportunities: A Diagnostic on Women’s Economic Empowerment in Nigeria. Washington, DC: World Bank. Part 3: Spotlights on Nigeria's Development Agenda 75 NIGERIA DEVELOPMENT UPDATE JUNE 2022 Spotlight 3: Bringing Nigeria’s Children Back to School Summary: Nigeria has more than 11 million out-of-school around schools. It is also critical to involve communities (OOS) children between the ages of 6 and 15, representing and provide foundational skills to those attending Qur’anic 1 in 12 of all OOS children globally. Children from poor education. Finally, systemic financial and governance rural families in northern states are most likely to be OOS. reforms are key to improving access to education in a cost- Solving the OOS children challenge is a race against time: effective manner. achieving universal access to basic education by 2030 will require growth of the in-school population to be four times higher than the predicted growth of the school-age Nigeria’s Out of School Children population. The phenomenon of OOS children has multiple causes, and addressing it will require a combination of Nigeria has experienced a significant expansion in interventions. On the demand side, critical measures include access to education during the last few decades. reducing the cost of education by eliminating school fees and However, the country still has the highest number providing cash transfers, as well as shifting socio-cultural of out-of-school (OOS) children in the world. norms that prevent school enrollment. On the supply side, 11.1 million children aged between 6 and 15 were out of Nigeria needs to expand the availability of schools, optimize school in 2020, representing 1 in 12 of all OOS children their location through geo-referenced data, improve the globally and 22 percent of all children in this age group conditions of dilapidated schools, and ensure safety in and in Nigeria.  rojected share of in-school 6–15 Figure 3.22. P  chool attendance status for children Figure 3.23. S children if in-school population grows aged 6–15, by state and geopolitical at double (5 percent per year) or four- zones. times (10 percent per year) the rate of school-age population (2.5 percent per year). Percent Percent 1.0 100 90 0.9 80 70 60 0.8 50 40 0.7 30 20 0.6 10 0 So h S ral 1 at t 2 Ba bbi Yo i G be m e N ra Ji ger So wa Ka oto Ad Bo a am no Ta wa K a du o th O a So Ce yo So uth uth l h na h st Za mb in b Ka an n N es uc fa ut Ea r ra ga a Ke ts io 0.5 k ut nt o i W o 20 f f f f f f f f f f f 22 24 26 28 30 32 34 36 38 40 42 20 or 20 20 20 20 20 20 20 20 20 20 20 N ▬ North Central (10%) ▬ North East (10%) ▬ North West (10%) J Attend formal J Attend Islamic J Drop-out J Never attended ▬ South (10%) ▬ North Central (5%) ▬ North East (5%) ▬ North West (5%) ▬ South (5%) Source: NEDS (2020). Source: NEDS (2020). 76 Part 3: Spotlights on Nigeria's Development Agenda THE CONTINUING URGENCY OF BUSINESS UNUSUAL  e number of in-school children aged 6–15 increased Th age group (6 to 15 years), school attendance is associated from about 20 million in 2003 to 40 million in 2020, with geography and wealth. but the number of OOS children declined only slightly, from 14.9 million in 2003 to 11.1 million in 2020, Costs associated with educational attainment can as the population of children aged 6–15 grew from be prohibitive for children from poor households. 35 million to 51 million during the same period, given The Compulsory, Free Universal Basic Education Act the high fertility rate previously mentioned. of 2004 mandates that the government provide free basic education to every child of primary and junior  igeria’s OOS challenge, therefore, is a race that can N secondary school (JSS) age; however, a significant only be won if the rate of increase of the in-school number of primary and JSS students report paying children population is much higher than the rate of school fees. Even among students attending government increase of the school-age children population. Figure schools, 43 percent of those attending primary schools, 3.22 shows that the in-school population will have to 60 percent of those attending JSS, and 64 percent of grow by nearly 10 percent per year in states in the North those attending senior secondary schools (SSS) report East and North West to attain universal access to basic paying examination fees, and between 23 percent education in those states by 2030, and at 5 percent per (primary) and 52 percent (SSS) students in government year to attain it by 2040. schools report paying at least some school fees.  elationship between household Figure 3.24. R  e number and type of OOS children vary widely Th wealth and formal school attendance, across states. About 90 percent (or 10 million) of all by gender and region. OOS children in Nigeria come from the northern states, Proportion in school 1.0 where 1 in 3 school-aged children are out of school. In 0.9 general, OOS children can be divided into three groups: 0.8 about half of them have never attended any schooling; 0.7 27 percent are drop-outs; and the remaining 23 percent 0.6 attend traditional Islamic learning centers outside of the 0.5 formal school system. 0.4 0.3 0.2 0.1 What are the main reasons for the large 0 number of OOS children in Nigeria? 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Wealth index ventiles ▬ North female ▬ North male ▬ South female ▬ South male Household poverty is one of the main predictors of Source: NEDS 2020. school attendance in Nigeria, as stated in Spotlight 2. About 77 percent of all OOS children come from The opportunity cost of attending school also households in the bottom two quintiles of the household matters. For instance, about 21 percent of rural children consumption distribution.79 Children from poor rural and 17 percent of urban children mention domestic households are less likely to attend formal schools in obligations, and the need to work in a household most regions of the country, except the South West. As enterprise or farm, as the main reasons for not attending shown in Figure 3.24, for children in the basic education school.80 79 The numbers are even larger when considering the household asset index. About 84 percent of all OOS children come from households in the bottom two quintiles of the asset index distribution, and 56 percent of children from the bottom asset index quintile are outside the formal school system. 80 Based on NEDS 2020. Part 3: Spotlights on Nigeria's Development Agenda 77 NIGERIA DEVELOPMENT UPDATE JUNE 2022 Prevalent socio-cultural norms, which tend to impact exercises show that around 4.2 million children aged children from poorer households more significantly, between 5 and 9 do not have access to a primary school are also contributing to low school attendance, within 2 km, and 6.7 million children aged between 10 particularly in northern states. Many poor rural and 14 do not have access to a junior secondary school families in northern states who cannot afford formal within 3 km. As highlighted in Spotlight 2, the lack of schooling send their children, mostly young boys, to schools also affects the transition to secondary schools. distant locations to acquire Qur’anic education under For instance, in Katsina state there is only one junior the Almajiri system. Almajiri children account for almost secondary school for every ten primary schools. 1 in 4 Nigerian children aged 6–15 who are denied a formal education. The high prevalence of practices such When schools are available, learning conditions are as child marriage, which results in teen pregnancies usually suboptimal. About 50 percent of all primary and increased domestic obligations, also contributes to classrooms and 40 percent of all JSS classrooms are low school attendance and performance for girls at the reported to be dilapidated (NPA 2018). The average secondary education level. Notably, Nigeria has more students-per-classroom (SPC) ratio at primary level is than 22 million child brides, the most in the world 55, but most northern states have an average SPC ratio (UNFPA/UNICEF), which is an important factor over 60, and as high as 103 in Katsina. On average, affecting the demographic trends mentioned inSpotlight only about 31 percent of primary schools report having 2. a drinking water facility, and 47 percent a toilet facility. Furthermore, the number of available teachers is much Safety in and around schools also affects enrollment lower than that required to maintain a pupil-teacher rates. The number of attacks on educational facilities has ratio of 40, as stipulated in the Minimum Standard increased significantly (De Simone et al, 2021): from 22 for Basic Education guidelines of the Universal Basic in 2010 to 116 in the first half of 2021. In particular, Education Commission (UBEC). school kidnappings have skyrocketed. In the first six months of 2021, Nigeria recorded three times the In addition to supply- and demand-side constraints, number of people kidnapped in or around schools than Nigeria faces a series of systemic bottlenecks. These in any previous year, and four times more kidnapping include weak capacity for planning, implementation, incidents. School closures due to safety issues impacted monitoring, and evaluation; inadequate accountability an estimated 1.3 million children in the 2020/21 due to overlapping roles and responsibilities; academic year, and prolonged school closures tend to politicization of teacher management; and lack of create permanent dropouts. Additionally, a recent study commitment to addressing inadequate, inefficient, has shown that, in Nigeria, one additional conflict and inequitable financing. Underfunding of the basic event in a 5-km radius from a child's village during the education sector deprives federal and state agencies, previous academic year reduced the child's probability schools and teachers of the resources they need. At the of school enrolment by two percentage points (Bertoni same time, there are institutional overlaps and gaps in et al., 2019). This entails that even attacks not directly core oversight and accountability functions at the state targeted at schools affect educational outcomes. and local government level, and between the three tiers of implementing agencies–UBEC, state universal basic Even if demand-side constraints were addressed, education boards, and local government education supply-side issues remain a critical bottleneck. About authorities. Overall, basic education in Nigeria needs 23 percent of rural school-age children who have never both a substantially greater resource mobilization and a attended school mention the absence of a school nearby more effective use of the resources mobilized. as the main reason for their lack of education. Mapping 78 Part 3: Spotlights on Nigeria's Development Agenda THE CONTINUING URGENCY OF BUSINESS UNUSUAL From challenges to opportunities gains in access and learning outcomes (Ingwersen et al. 2019, Deschenes 2019), and has a positive impact on Despite its challenges, Nigeria has several employment prospects and wages in the long run (Duflo opportunities to increase access to education and 2001; Akresh, Halim, and Kleemans 2021). The country reduce the number of OOS children. First, there is a can benefit from geo-referenced data on the location of strong government commitment to basic education current schools to optimize the location of new ones. at the federal level and in many states. The UBE program, UBEC intervention fund, and the executing Improving access to basic education will require agencies UBEC and state universal basic education bringing early-grade primary schools closer to boards provide a foundation to refine and scale up communities to encourage the enrollment of young the programs aimed at reducing the number of OOS children and establishing more JSS to prevent children. Recently, the Nigeria Governors’ Forum has dropout after grade 6. Dropouts could be contained shown a strong interest in the use of performance- by using the existing infrastructure of primary schools based financing modalities, which can be adapted to to provide junior secondary education in locations allocate UBEC funds and achieve improved results and where there are no secondary schools. Improving effectiveness. infrastructure in existing schools, by adding on to or renovating dilapidated classrooms, is also critical for Leadership, institutional and financing reforms must improving learning conditions.81 Notably, it is estimated be the cornerstone of a successful strategy. A high that Nigeria would have to spend US$2.5 billion to level of sustained political commitment is indispensable build classrooms to accommodate all OOS children to catalyzing change. Nigeria also needs to improve its aged 6–15. Another essential step is improving access institutional scaffolding so that multiple stakeholders to Early Childhood Development Education programs can better coordinate to achieve the common goal of for vulnerable children from poor families, who are reducing the number of OOS children. Additionally, otherwise more likely to not attend school or to join Nigeria would benefit from rethinking financing Almajiri centers. mechanisms to increase funding for basic education and the efficiency of expenditures. The current structure It is crucial to ensure safety in and around schools. provides guaranteed funding for non-salary expenditures In addition to the creation of safe learning spaces under the UBEC fund, but it also presents multiple mentioned in the previous spotlight, the development challenges in terms of equity across states and efficiency. of early-warning systems and the implementation of In summary, better leadership, governance, and the Safe Schools Declaration and the recently approved financing are enabling pillars to maximize the impact of Implementation Guidelines for National Policy on interventions on both the demand and supply side. Violence-Free Schools are key measures as part of a gradual process. Additionally, schools can be leveraged to reduce violence in the medium term, and after-school Tackling supply-side constraints programs can help reduce the probability of children being recruited by criminal or extremist organizations Nigeria needs to continue expanding the availability (World Bank, forthcoming). and accessibility of schools. As mentioned in the second spotlight of this report, building schools produces 81 School infrastructure has been linked to increased enrollment rates, retention rates, and equity (Barret et al., 2019). Prioritizing wash, sanitation and hygiene (WASH) infrastructure and separate toilets for girls can increase adolescent girls’ attendance rates. Evidence from Niger shows that a program that constructed schools with separate latrines for boys and girls, a water source, and housing for female teachers in rural areas increased school enrollment by 8.3 percentage points, decreased absences of more than two consecutive weeks by 7.9 percentage points, and had a larger impact for girls than for boys (Bagby et al. 2016). Part 3: Spotlights on Nigeria's Development Agenda 79 NIGERIA DEVELOPMENT UPDATE JUNE 2022 For those who are not in formal education but attend households. Eliminating fees has also shown additional Islamic schools, a different set of interventions is benefits, such as reduced adolescent marriage and appropriate. Introducing content from the official pregnancy and increased employment and financial curriculum—especially basic literacy and numeracy— inclusion (Moussa and Omoeva 2018; Ajayi and Ross into Qur’anic schools can make a strong impact. This 2020; Boahen and Yamauchi 2017). strategy can be pursued via different formats, including “integration” of Qur’anic and secular education within Properly designed cash transfers or student stipends the same schools, as well as “articulation”, with children have been proven effective, when they constraint is spending some time in Qur’anic schools or informal the opportunity cost from school attendance.82 World learning centers to cover the official curriculum in an Bank-supported projects, such as the Adolescent Girls accelerated fashion (World Bank, 2021). The Better Initiative for Learning and Empowerment (AGILE), Education Service Delivery for All (BESDA) program, plan to deliver cash transfers for vulnerable adolescent for instance, has been supporting government efforts girls in select states. State and federal governments to provide children with a non-formal basic literacy implement such programs in a systematic manner. curriculum, by deploying teachers, offering learning materials and other forms of support. Shifting socio-cultural norms is also key for easing non-monetary demand-side constraints, as stated Finally, it is key to rely on communities to expand in the first pillar of the solutions proposed under the supply of education services. There is strong global the previous spotlight. This requires the active and regional evidence on how communities can play a participation of religious and traditional community. key role in creating and managing schools to reduce the Large-scale multimedia campaigns that use lessons number of OOS children. Sahel countries such as Chad, from behavioral science can be complemented with Mauritania, and Mali have shown that communities information campaigns about the income-earning can be empowered to manage schools that government benefits of education and the quality of local schools, services cannot reach. which are among the most cost-effective interventions to increase education access (World Bank, 2020). In summary, Nigeria would benefit from expanding the Addressing demand-side constraints range of interventions and scaling up successful efforts, while strengthening governance structures and financing Easing supply-side constraints will not be enough mechanisms for education. Impactful interventions to tackle the issue of OOS children in Nigeria. can be adapted from the forthcoming Africa West and Constraints that lead to lower demand for schooling Central Regional Education strategy (World Bank, are equally important. On the demand side, it is forthcoming). essential to reduce the cost of education. For example, reducing out-of-pocket expenses on education for Reducing the number of out-of-school children and children attending government schools, through the adolescents and the efforts to harness a demographic elimination of school and exam fees and free distribution dividend cannot be considered in silos. Increasing of textbooks, will have a positive effect on enrollment access to schools, with a focus on adolescent girls is and completion rates among children from poor one of the key priorities to accelerate the demographic 82 Randomized evaluations consistently find that reducing the out-of-pocket cost of schooling or instituting subsidies increases school participation, often dramatically (e.g., Glewwe & Olinto, 2004; Maluccio & Flores 2005; Schady & Araujo 2006; Fiszbein & Schady, 2009). Some studies also show effects on secondary education in countries in West Africa (Blimpo et al., 2016), Ghana (Duflo et al., 2021), and East Africa (Brudevold-Newman, 2019; Masuda et al., 2019). The design of these interventions is as important as their existence. For instance, deferring payment of conditional cash transfers to coincide with the time when fees are required for the next level of education has a greater impact on subsequent enrollment than evenly spaced transfers throughout the year (Barrera-Osorio et al. 2007). 80 Part 3: Spotlights on Nigeria's Development Agenda THE CONTINUING URGENCY OF BUSINESS UNUSUAL changes that can bring a demographic dividend. Thus, the recommendations that are part of the two spotlights of this report need to be part of a systematic strategy. Building coalitions to increase demand for education, as well as partnerships with stakeholders from communities, the civil society, development organizations, and the private sector is essential to achieving a coordinated approach and providing access to education for every Nigerian child. What Impact these Reforms Why Reforms Are Needed Which Reforms Are Critical Could Have • About 43 percent of primary, • Reduce out-of-pocket expenses Positive effect on enrollment 60 percent of JSS and for education in government and attendance rates. Reduced 64 percent of SSS students schools. adolescent marriage and in government schools report pregnancy, and increased paying examinations fees. About employment and financial inclusion. 23 percent of primary, 47 percent of JSS, and 52 percent of SSS students in government schools report paying at least some tuition or school fees. • In northern Nigeria, widespread • Shift social norms through Increased attendance rates and socio-cultural norms such as appropriate public campaigns. reduced child marriages and early child marriage leads to teen pregnancies. pregnancies and a decline in school attendance and performance. • About 23 percent of rural school- • Expand the availability and Increased enrollment rates, age children who have never accessibility of schools, including retention rates, and equity. attended school mention the through non-public provision with absence of schools nearby as public funding (communities), the main reason for their lack of and optimize the location of new education. schools using geo-referenced data. • About 50 percent of all primary • Improve school infrastructure, Increased retention rates and better classrooms and 40 percent of all including WASH facilities. learning conditions. JSS classrooms are dilapidated. • School closures due to safety • Ensure safety in and around Increased enrollment and issues impacted an estimated schools. attendance rates. 1.3 million children in the 2020/21 academic year. • 23 percent of OOS children • Integrate secular and Increased enrollment in formal attend traditional Islamic learning religious education and education and better learning centers outside the formal school include communities in school outcomes on foundational skills. system. management. • Financing for basic education is • Increase budget allocation to Improvement in adequacy of inadequate and insufficient. basic education. Institute policies financing of education. More to improve efficiency and equity equitable and efficient distribution of in funds allocation, including UBEC funds to states. institutional reforms. • Decision-making in education is • Promote institutional mechanisms Better performance of education fragmented. for a whole-of-government interventions. approach to education. Part 3: Spotlights on Nigeria's Development Agenda 81 NIGERIA DEVELOPMENT UPDATE JUNE 2022 References Ajayi, K. and P. Ross. 2020. The effects of education Brudevold-Newman, A., 2016. The impacts of free on financial outcomes: Evidence from Kenya. secondary education: Evidence from Kenya. Economic Development and Cultural Change, Working paper. 69(1), pp.253-289. De Simone, M., W. Mosuro, C. Stefano, S. Yevgeniya, Akresh, R., D. Halim, M. Kleemans. 2021. Long-Term and W Jason. 2021. “How can we protect and Intergenerational Effects of Education education from attack? 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Part 3: Spotlights on Nigeria's Development Agenda 83 Nigeria: Key Economic Indicators THE CONTINUING URGENCY OF BUSINESS UNUSUAL Economy 2015 2016 2017 2018 2019 2020 2021 2022f 2023f 2024f Real GDP Growth (% yoy) 2.7 -1.6 0.8 1.9 2.2 -1.8 3.6 3.4 3.2 3.2 Nominal GDP (Naira tr) 95 103 115 129 146 154 176 203 235 265 Oil Production (mb/d) 2.1 1.8 1.9 1.9 2.0 1.8 1.6 1.6 1.7 1.7 Oil Price (Bonny light, US$/bbl) 54 45 55 72 65 41 66 85 75 75 Inflation (%, average) 9.0 15.6 16.5 12.1 11.4 13.2 17.0 15.5 13.5 11.0 Real sectoral growth (%, yoy) 2015 2016 2017 2018 2019 2020 2021 2022f 2023f 2024f Real GDP Growth 2.7 -1.6 0.8 1.9 2.2 -1.8 3.6 3.4 3.2 3.2 Agriculture 3.7 4.1 3.4 2.1 2.4 2.2 2.1 3.2 2.5 3.0 Industries -2.2 -8.9 2.1 1.9 2.3 -5.8 -0.5 1.9 3.2 3.0 Industry-Oil -5.4 -14.4 4.7 1.0 4.6 -8.9 -8.3 -1.3 3.1 1.2 Industry-NonOil 0.1 -5.0 0.6 2.4 0.9 -3.9 4.4 3.6 3.3 3.9 Services 4.8 -0.8 -0.9 1.8 2.2 -2.2 5.6 4.0 3.6 3.4 Oil GDP -5.4 -14.4 4.7 1.0 4.6 -8.9 -8.3 -1.3 3.1 1.2 Non-Oil GDP 3.7 -0.2 0.5 2.0 2.1 -1.3 4.4 3.7 3.2 3.4 Source: NBS and World Bank estimates. External Sector 2015 2016 2017 2018 2019 2020 2021 2022f 2023f 2024f Exchange rate - official 197 305 306 307 307 380 413 - - - (N/US$, end of period) Exchange rate - parallel 267 490 363 363 362 465 570 - - - (N/US$, end of period) Real effective exchange rate 67 86 99 87 79 79 - - - - index (end of period) Current Account Balance (%GDP) -3.2 1.3 3.4 1.6 -3.3 -3.8 -0.4 2.8 1.8 0.9 Exports of Goods and Services 49.0 38.4 50.8 66.0 69.9 39.9 50.9 63.2 62.6 60.9 (US$ bn) o/w oil and gas exports 42.4 32.0 42.3 56.6 54.5 31.4 45.1 52.6 51.3 48.8 (US$ bn) Imports of Goods and Services 71.9 47.0 50.9 71.6 100.8 72.2 66.1 69.3 72.7 76.2 (US$ bn) Net transfers (including 20.2 19.9 22.0 24.1 26.4 21.0 22.0 25.3 26.0 26.6 remittances) (US$ bn) Net Direct Investment (US$ bn) 1.6 3.1 2.1 0.2 2.0 0.1 1.5 1.6 1.6 1.7 Net Portfolio Investment 0.9 1.9 10.3 0.0 3.1 -3.6 5.9 2.9 2.8 3.5 (US$ bn) External Reserves 29 26 39 43 39 35 41 48 51 51 (US$ bn, end of period) Equivalent months of imports of 5 7 9 7 5 6 5 5 5 5 G&S Source: CBN, FMDQ, Nairametrics and World Bank estimates Nigeria: Key Economic Indicators 85 NIGERIA DEVELOPMENT UPDATE JUNE 2022 Monetary and Financial Sector (% change yoy, end of period, 2015 2016 2017 2018 2019 2020 2021 2022f 2023f 2024f unless indicated otherwise) Money Supply (M2) 5.9 17.8 2.3 12.1 6.3 31.0 15.6 - - - Narrow Money 24.1 31.5 -0.9 5.2 -10.4 51.7 17.6 - - - Net Foreign Assets -18.7 61.8 69.6 18.5 -68.5 26.4 -22.9 - - - Net Domestic Credit 12.1 24.3 -3.5 6.3 31.2 17.6 18.9 - - - Credit to Government 152.0 68.6 -25.4 33.7 94.9 30.8 34.6 - - - Credit to Private Sector 3.3 17.4 1.4 1.9 17.6 12.9 13.8 - - - Monetary policy parameters: … Monetary Policy Rate 11.0 14.0 14.0 14.0 13.5 11.5 11.5 - - - (absolute rate, end of period) Liquidity Ratio 30.0 30.0 30.0 30.0 30.0 30.0 30.0 - - - (absolute rate, end of period) Cash Reserve Requirement 20.0 22.5 22.5 22.5 22.5 27.5 27.5 - - - (absolute rate, end of period) Financial Market Indicators (end of period) Stock Market (NSE) Index 28,642 26,875 38,243 31,431 26,842 40,271 41,815 - - - Fitch Sovereign Long Term BB- B+ B+ B+ B+ B B - - - Foreign Debt Rating Moody's Sovereign Long Term Ba3 B1 B2 B2 B2 B2 B2 - - - Foreign Debt Rating S&P Sovereign Long Term B+ B B B B B- B- - - - Foreign Debt Rating Source: CBN, NGX, FITCH, Moody and S&P. 86 Nigeria: Key Economic Indicators THE CONTINUING URGENCY OF BUSINESS UNUSUAL Nigeria: General Government Fiscal Summary - preliminary Actual (%GDP) 2015 2016 2017 2018 2019 2020 2021 2022f 2023f 2024f Total revenues 7.5 5.9 6.8 8.2 7.4 6.5 6.5 5.7 6.7 7.0 Federally collected 6.4 4.8 5.4 6.6 5.9 5.2 5.0 4.5 5.5 5.8 Oil and gas revenues 3.2 1.6 2.3 3.6 3.0 2.0 1.8 1.3 2.3 2.6 Non-oil revenues and other 3.2 3.1 3.1 3.0 2.9 3.1 3.2 3.2 3.2 3.2 revenues Independent and other revenues 1.1 1.2 1.4 1.6 1.5 1.4 1.5 1.2 1.2 1.2 Total expenditure 10.7 9.7 10.8 11.9 12.0 11.9 13.0 11.5 11.0 10.8 Overall balance -3.2 -3.8 -4.1 -3.6 -4.6 -5.4 -6.5 -5.8 -4.3 -3.8 (general government) Public Debt (net) 14 19 22 26 28 33 35 36 38 39 Domestic debt 12 16 17 20 22 25 26 26 28 29 External debt 2 3 5 6 6 8 9 10 10 10 Nigeria: Federal Government Fiscal Accounts - preliminary Actual (%GDP) 2015 2016 2017 2018 2019 2020 2021 2022f 2023f 2024f Total Revenue 2.7 2.0 2.4 3.0 2.8 2.2 2.4 1.9 2.3 2.4 Share of federally collected 2.3 1.5 1.8 2.4 2.3 1.7 2.3 1.8 2.0 2.1 revenues Oil, Gas and Mineral Revenue 1.5 0.7 1.0 1.5 1.4 0.9 1.2 0.5 1.0 1.1 (incl. signature bonus) Non-Oil Revenue 0.9 0.8 0.8 0.9 0.9 0.8 1.1 1.3 1.0 1.0 FG Independent revenues and 0.4 0.5 0.6 0.6 0.5 0.5 0.1 0.3 0.3 0.3 grants Total Expenditure 5.0 4.7 5.7 6.1 6.9 6.6 7.4 6.7 6.5 6.5 Recurrent Expenditure 4.4 3.9 4.4 4.7 5.2 5.4 5.0 5.0 5.0 5.0 Personnel Cost 2.2 1.8 1.8 1.8 1.8 2.1 2.0 1.8 1.6 1.5 (including Pensions) Overhead Cost 0.1 0.1 0.2 0.1 0.2 0.2 0.2 0.1 0.1 0.1 Other recurrent (incl. COVID-19 intervention 1.0 0.7 1.1 1.0 1.5 1.0 0.8 1.0 1.0 1.0 and power sector) Interest payments 1.1 1.2 1.4 1.7 1.7 2.2 2.0 2.1 2.3 2.4 Capital Expenditure 0.6 0.7 1.2 1.5 1.7 1.2 2.4 1.3 1.2 1.1 (incl. COVID-19 intervention) Overall Fiscal Balance -2.2 -2.7 -3.3 -3.1 -4.1 -4.4 -5.0 -4.4 -4.2 -4.1 Source: National authorities and World Bank estimates. Notes: The reported revenue and fiscal balance figures differ from the published FGN budget figures as the World Bank excludes the non-revenue items under international classification. Figures exclude GOEs. Nigeria: Key Economic Indicators 87 Nigeria Development Update June 2022 View this report online: www.worldbank.org/en/country/nigeria Transition by Jimmy Nwanne Jimmy Nwanne is a Nigerian artist who lives and works in Kaiserslautern, Germany. Born in Kaduna, Nigeria, he studied Fine Arts with Painting as his major at Nnamdi Azikiwe University in Awka, Nigeria. Whether as portraiture or composition, Nwanne’s works look at the relationship between life, identity and migration. The freedom to make a composition, a portraiture, by rearranging the natural place of something into another, in order to communicate an idea is what is usually being explored. His solo exhibition is slated for 11th of June to the 12th of July 2022 at SACHS Gallery in Lagos, Nigeria. His work, Transition, speaks to the two dimensions man can experience as a being; the physical and the incorporeal. The focus is on one’s self-awareness, ability; desire and will to transcend material sense to the sixth sense (the soul), aligning one’s consciousness with the universe rather than submitting one’s consciousness consciously or unconsciously to the will of the external world. People forge ideas, people mold dreams, and people create art. To connect local artists to a broader audience, the cover of this report and following editions will feature art from Nigeria.