World Economic Forum: Nigerian VP on the Nigerian Economy, FOREX, Power and Agriculture

January 18, 2017

The World Economic Forum provides a platform for engaging the World’s top leaders on critical issues that shape the global economy each year. The goal is to improve the state of the world by encouraging collaboration that facilitates sharing of insights and innovations on navigating the future. This year, it is being held in Davos-Klosters, Switzerland, from January 17-20, 2017.

In today's session, a conversation[1] with the Nigerian Vice-President, Yemi Osinbajo gave an insight into the various efforts made by the Nigerian government to drive inclusive growth in Africa’s largest economy. Among the issues addressed by him include: the state of the Nigerian economy, efforts made to address foreign exchange ("FOREX") supply, the power sector, and agriculture. Details of these issues are highlighted below:

 

On the state of the Nigerian economy in a world striving for inclusive growth

 

According to him, the current goal is getting Nigeria out of recession. He indicated that a Nigerian EconomicRecovery and Growth Plan ( ERGP is a 4 year medium term plan) had been developed to address the recession and create the path to sustainable growth. The most important aspects of the plan he highlighted were: attaining macroeconomic stability, diversification of the Nigerian economy, and implementing a robust social investment scheme (which addresses the issue of inclusion). He explained that the social investment scheme involved developing capacity in very young people. An instance he gave was the N-Power Scheme which involved engaging and employing 500,000 young graduates as primary school teachers, public health officials, and farm workers. He stated that the most important aspect of the N-Power Scheme was the training of persons drafted into the scheme in a wide variety of areas such as technology, writing codes, agriculture, entrepreneurship, and critical thinking. This was to ensure improved capacity development.

 

On assuring investors that the economic recovery and growth plan would lead to macro-economic stability

 

Yemi Osinbajo confirmed that the implementation of the plan would achieve macro-economic stability. He however noted that the current problems, such as FOREX availability, were not structural. According to him, this was a supply issue linked to decreased oil production due to the insurgency in the Niger Delta. He stated that once the insurgency problem was resolved, oil production would increase which would bring more dollars into the market. This would in turn facilitate importation of goods

 

On short term solutions to the FOREX problem (which is a concern for foreign investors)

 

He stated that the solution to the problem was increasing dollar supply and implementing the foreign exchange policy to allow more dollars come into the economy. According to him increasing the dollar supply would require an increase in oil production which currently constitutes 94% of FOREX earnings, and ensure a robust foreign exchange market.  He indicated that investors in the oil and gas, and cement industries didn’t pose much of a challenge because they sourced their own dollars. The problem he identified was with manufacturers who imported 80% or more of raw materials. According to him, this problem can be addressed by local investment which the government is trying to direct attention to. He stated that current investments of ₦50 billion were being channeled into export processing zones this year to enable investors invest locally utilizing local resources.

 

On specific time the gap between the official and parallel market (currently at 60%) will close

 

In his words, “it is difficult to give a timing about currency movement…” He however stated that more attention should be focused on the policy that could help bridge that gap. According to him, there is an existing foreign exchange policy and the focus was working with the Central Bank of Nigeria (CBN) to ensure stabilization and implementation of the policy to ensure its success. He noted that the CBN (which is independent) had its constraints in floating the currency because of the need to observe market conditions. But he maintained that if an environment was created which increased dollar supply, the CBN would be more confident in floating the currency.

 

On meeting oil production targets of 2 million barrels per day

 

He stated that if the current insurgency problems in the Niger Delta were resolved, this target could be achieved. He said production of 2.2 million barrels a day could even be achieved. He added that the government previously had cash call difficulties with joint venture partners. But the problem had been resolved (with the major IOCs) by creating a self-financing regime which allowed for cost recovery.

 

On the steps to achieving a turnaround in the power sector which currently had the World Bank’s commitments

 

According to him, the role of the World Bank in the power sector could best be appreciated in terms of ensuring liquidity in the power sector. This in turn helps the market to be self-sustaining. The problem he however identified was getting capital investments from private investors in the areas of electricity generation and distribution. According to him, most of the private sector players, especially the distribution companies, were highly leveraged.

 

On diversification and state of the agricultural sector

 

He noted that agriculture was the second largest contributor to GDP. The current plan, he stated, was achieving self-sufficiency in rice, tomato, and wheat production. He stated that the focus on rice production was particularly important because of its high demand which resulted in a lot of foreign exchange being spent on rice importation. According to him, work on rice production is in place in Kebbi, Sokoto, Jigawa states in the North and Ebonyi in the South East of Nigeria with financing provided through the anchor borrowers’ program[2]. He talked about the collaboration between Kebbi and Lagos States during the Christmas season for the supply of rice which resulted in a drop in price.

 

On accessing the economic turnaround plan to know the timelines in place

 

Yemi Osinbajo confirmed that the EGRP would be formally launched as a document in mid-February, 2017. He stated that the 2017 budget was based on this plan. But people could also know the direction of government by reviewing the Strategic Implementation Plan[3] (which was started in 2016) from which the ERGP was developed from.   

 

Take out’s from the conversation

 

The highlights from Yemi Osinbajo’s conversation reveal the current direction of the Nigerian government in achieving macro-economic stability. For investors, huge potentials exist in investments in the Nigerian power, manufacturing, and agricultural sectors (this is apart from the various tax incentives to be enjoyed which shall be discussed in a subsequent article).

 

 

 

 

[1] Watch the conversation here

 

[2] The Anchor Borrowers’ Programme is an initiative of the Central Bank of Nigeria (CBN) aimed at creating an ecosystem that links growers (small holder farmers) to local processors. It will boost banks’ financing to the agricultural sector, enhance capacity utilization of agricultural firms involved in the production of identified commodities, and increase the productivity and incomes of farmers. See here for more information. 

 

 

[3] See Strategic Implementation Plan (2016) Page 14 – 19

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