NIGERIA DEVELOPMENT UPDATE  |  JUNE 2020 Nigeria in Times of COVID-19: Laying Foundations for a Strong Recovery Nigeria Development Update June 2020 Nigeria in Times of COVID-19: Laying Foundations for a Strong Recovery © 2020 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. Acknowledgements The Nigeria Development Update (NDU) is a World Bank report series produced twice a year (Spring and Fall). The NDU 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 economic and policy issues and an analysis of Nigeria’s medium-term development challenges. 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), Steve Loris Gui- Diby (Economist), and Marco Hernandez (Lead Economist). The team included: Emilija Timmis, Joseph Ogebe, Mohammed Shuaibu, Admasu Maruta, Ifeyinwa Isiekwe, Masami Kojima, Ahmed Rostom, Mariano Cortes, Siegfried Zottel, Max Rudibert Steinbach, Sean Lothrop, Oliver Balch, Tara Vishwanath and Jonathan Lain (welfare impacts of COVID-19 on Nigerian households), Julia Valliant and Andrew Brudevold-Newman (gender impacts of COVID-19), Jakob Engel and Woori Lee (impacts of the border closure), Elliot Mghenyi (agriculture), Supriyo De, Nadege Yameogo, and Samik Adhikari (migration and remittances), and Ayodeji Ajiboye (health financing). 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. Ifeoma Ikenye assisted the team. Anne Grant provided assistance in editing and Budy Wirasmo provided assistance in designing. The dissemination of the report and external and media relations are managed by Mansir Nasir. The report was prepared under the overall supervision of Shubham Chaudhuri (Country Director for Nigeria), Elisabeth Huybens (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/nigeria NIGERIA DEVELOPMENT UPDATE JUNE 2020 Contents Acknowledgementsiii Abbreviations and Acronyms viii Overview1 A closer look at the welfare impacts of COVID-19 and Nigeria’s border closure 3 Spotlights on Nigeria’s agricultural sector and on migration and remittances 4 Part 1: Recent Economic Developments and Outlook for Nigeria 6 Economic Growth: Nigeria’s economy is expected to contract in 2020 due to the twin hits of COVID-19 and collapsing global oil prices 7 Prices: COVID-19 is intensifying inflationary pressures 15 The External Sector: The twin hit of the COVID-19 pandemic and the oil shock is raising Nigeria’s external vulnerabilities 16 Monetary and Exchange Rate Policies: Actions have been taken to mitigate the impact of COVID-19, but further measures are necessary 19 The Financial Sector: The pandemic could slow recent improvements 21 Fiscal Policy: To deal with the impacts of COVID-19 it will be necessary to safeguard revenues and reprioritize spending 22 Economic Outlook 27 References  35 Part 2: Taking a Closer Look 36 The Impact of COVID-19 on Nigerian Households 37 References45 Annex46 Nigeria’s Border Closure: Impacts and the Way Forward 48 References55 Part 3: Spotlights on Nigeria's Development Agenda 56 Spotlight 1: The Role of Agribusiness in Providing Food Security and Supporting the Post-Pandemic Recovery57 References66 Spotlight 2: Leveraging Migration, Remittances, and the Diaspora for Development 67 References74 Nigeria: Key Economic Indicators 76 iv Contents NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY List of Figures  igeria’s economic recovery was fragile when it was hit by COVID-19… Figure 1.1. N 7  with GDP growth below population growth. Figure 1.2. … 7  e collapse in oil prices is weighing on Nigeria’s economic growth prospects… Figure 1.3. Th 8  as Nigeria’s growth, exports, and government revenues are closely correlated with oil prices. Figure 1.4. … 8 Figure 1.5. The COVID-19 pandemic will affect the Nigerian economy through numerous channels. 9 Worldwide, government responses to COVID-19 are more stringent the larger the size of a Figure 1.6.  country’s informal sector. 11 In Nigeria, female workers are over-represented in sectors exposed to COVID-19-related economic Figure 1.7.  disruptions.11  igeria’s planned economic stimulus policies are modest compared to those of peer countries. Figure 1.8. N 11  OVID-19 has dramatically worsened economic forecasts for 2020. Figure 1.9. C 12 Figure 1.10. I nflation edged upward in 2019, driven by rising food prices. 16 Figure 1.11. I n early 2020, northern states had higher inflation rates. 16  e current account balance turned negative in 2019 and is expected to remain so in 2020. Figure 1.12. Th 17 Figure 1.13. F PI were the largest share of capital inflows in 2019, rendering the BoP more vulnerable to COVID-19.17 Figure 1.14. U nlike the 2015–16 oil shock, when COVID-19 emerged Nigeria’s external vulnerabilities were already heightened. 18 Figure 1.15. G oods and services imports will continue to drive changes in the current-account balance in 2020.19 Figure 1.16. I n 2019 issues of CBN securities rose significantly; one-third were held by foreign investors. 19  e adjustment of the official exchange has only partially reflected the strain on the balance of Figure 1.17. Th payments.20 Figure 1.18. The CBN has progressively adapted monetary policy in response to the COVID-19 crisis. 21  e growth of credit to the private sector has been affected by COVID-19. Figure 1.19. Th 22 Figure 1.20. A lthough its deficit is still widening, the Federal Government is moving to reduce its reliance on borrowing from the CBN. 23 Figure 1.21. N igeria’s fiscal buffers were almost depleted when the COVID-19 pandemic precipitated the collapse of global oil prices. 24 Figure 1.22. G lobal COVID-19 infections continue to rise, but the daily rate of new cases has plateaued. 28 Figure 1.23. G lobal manufacturing and services have been hit hard by COVID-19. 28 Figure 1.24. N igeria’s manufacturing and services have been hit hard by COVID-19. 29 Figure 1.25. I n 2021 the current account deficit is expected to narrow, but high inflation rates and large fiscal imbalances will persist. 29 Figure 1.26. P ossible variations in Nigeria’s GDP growth outlook. 31 Figure 2.1. The COVID-19 pandemic will affect Nigerian households’ welfare through several channels. 37  e COVID-19 pandemic may push almost 6 million more Nigerians into poverty by 2022. Figure 2.2. Th 38  disproportionate share of those made poor by the COVID-19 crisis are predicted to be in urban Figure 2.3. A areas and in services. 39  any non-poor Nigerians are vulnerable to falling back into poverty during shocks. Figure 2.4. M 39  ost Nigerian workers are employed in agriculture and non-farm enterprises, especially among Figure 2.5. M the poor. 40  e concentration of different types of jobs varies dramatically across Nigeria's states. Figure 2.6. Th 40  e overlap between different vulnerabilities to the COVID-19 crisis is sizeable. Figure 2.7. Th 43  pproach for simulating household welfare and poverty in Nigeria. Figure 2.8. A 46 Contents v NIGERIA DEVELOPMENT UPDATE JUNE 2020 The predicted poverty rate depends on the underlying macroeconomic forecasts and the modelling Figure 2.9.  assumptions used. 47 Figure 2.10. Following new restrictions, Nigerian rice imports decline and Benin’s imports surge. 49 Figure 2.11. Violence in the year before the closure was most prevalent in regions bordering Niger, Chad and Cameroon.49 Figure 2.12. Overall economic activity stayed constant in Q4… 50 Figure 2.13. …but inflation accelerated after the border closure. 50 Figure 2.14. The additional expenditure needed to maintain the same welfare as before the border closure has been driven by rice price increases. 50 Figure 2.15. The border closure seems to have diverted formal trade from Benin to Nigeria. 51 Figure 2.16. The decline in economic activity along the Benin-Nigeria border was short-lived. 51 Figure 2.17. The border closure did not spur a sustained increase in customs revenues. 51 Growth in agriculture has been less volatile than in other sectors, but it has been declining. Figure 3.1.  58 Nigeria’s agriculture sector is relatively large compared to peers, and its productivity is lower. Figure 3.2.  58 Major crops drove agriculture growth. Figure 3.3.  59 Agriculture growth fell below ERGP targets and historical rates. Figure 3.4.  59 The pandemic and associated lockdown measures have caused Nigeria’s agricultural sector to Figure 3.5.  contract.61 For Nigeria, remittances are a major source of foreign exchange in Nigeria. Figure 3.6.  68 Increasing unemployment in Nigeria has raised migratory pressures. Figure 3.7.  68 At different stages of the migration cycle, Nigeria can implement policies to leverage migration for Figure 3.8.  development.70 A large share of Nigerian emigrants enters host states irregularly. Figure 3.9.  71 Figure 3.10. Nigerians face high emigration costs. 71 List of Tables Table O.1.  Policy areas to mitigate the impacts of COVID-19 in Nigeria and lay the foundation for a strong recovery.3 Table 1.1. To different degrees, the COVID-19 pandemic will affect virtually all economic sectors in Nigeria. 9 Table 1.2. Nigeria: Key Economic Indicators, 2016–2021. 30 Table 1.3. Three Scenarios for Nigeria’s Economic Outlook. 31 Policy options to mitigate the impacts of COVID-19 in Nigeria and lay the foundation for a strong Table 1.4.  recovery.33 Exports to Nigeria and Benin, average year-on-year growth rates before and after border closure. Table 2.1.  51 Incomes and GDP per capita, Nigerian emigrant destination countries. Table 3.1.  69 Incomes and GDP per capita, Nigerian emigrant destination countries. Table 3.2.  70 vi Contents NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY List of Boxes Pre-existing structural challenges left the Nigerian economy especially vulnerable to the COVID-19 Box 1.1.  outbreak and its consequences. 12 Figure B1.1.1. Heatmap of macroeconomic vulnerabilities. 13 Box 1.2. Nigeria’s amended federal government budget for 2020. 25 Table B1.2.1. The original and amended budgets for 2020. 25 Box 1.3. Financing Health in Nigeria: The Basic Health Care Provision Fund. 26 Figure B1.3.1. G overnment health expenditure as a share of GDP versus Gross National Income per capita for Nigeria and comparator countries. 26 Box 2.1. The impact of COVID-19 on women’s economic activities in Nigeria. 41 Figure B2.1.1. Working women are more likely to be entrepreneurs and less likely to have wage employment than working men. 41 Figure B2.1.2. F emale farmers are more likely to be responsible for children both at home and at their plot. 41 An overview of Nigeria’s trade in medical products and potential supply vulnerabilities related to Box 2.2.  COVID-19.53 Box 3.1. Enhancing the competitiveness of Nigeria’s rice production. 59 Figure B3.1.1. Major subsectors that negatively weigh on agriculture growth. 60 Contents vii NIGERIA DEVELOPMENT UPDATE JUNE 2020 Abbreviations and Acronyms bbl Barrels BoP Balance of Payments CBN Central Bank of Nigeria CPI Consumer Price Index ERGP Economic Recovery and Growth Plan EU European Union FCS Fragile and Conflicted affected Situations FDI Foreign Direct Investment FPI Foreign Portfolio Inflows GDP Gross Domestic Product H1 First Half of the Calendar Year H2 Second Half of the Calendar Year IEFX Investors & Exporters Foreign Exchange ILO International Labour Organization IMF International Monetary Fund KNOMAD Knowledge Partnership on Migration and Development LDR Loan-to-Deposit Ratio NBS National Bureau of Statistics NPL Non-Performing Loans OECD Organization for Economic Co-operation and Development OMO Open Market Operations PMI Purchasing Manager’s Index PPP Purchasing Power Parity Q1 First Quarter Q2 Second Quarter Q3 Third Quarter Q4 Fourth Quarter NLSS Nigerian Living Standards Survey SME Small and Medium Enterprise UK United Kingdom US$ United States Dollars VAT Value Added Tax viii Abbreviations and Acronyms NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY Overview Nigeria’s economy was still recovering from the 2016 in remittance-receiving households, of which about a recession when the COVID-19 pandemic emerged in third are poor. Meanwhile, eroding investor sentiment early 2020. The collapse of global oil prices in 2014– is causing a decline in foreign portfolio flows (volumes 16, combined with lower domestic oil production put were down 46 percent in the first quarter of 2020), the brakes on economic activity. Although Nigeria’s thus compounding the pressure on foreign reserves oil sector accounts for less than 10 percent of gross imposed by the widening current account deficit. The domestic product (GDP), it is a key source of export macroeconomic implications of COVID-19 in 2020 and earnings and government revenues. In some ways, the 2021 will be severe even if Nigeria manages to contain 2020 situation resembles the scenario after the oil shock the virus. in 2015‒16. Then, the plunge in oil prices caused the annual real GDP growth rate to fall from an average of Beyond external factors, behavioral changes and 7 percent from 2000 to 2014 to 2.7 percent in 2015 containment measures linked to the domestic and -1.6 percent in 2016—Nigeria’s first recession outbreak of COVID-19 are affecting employment in 25 years. Growth slowly rebounded in 2017 and in all sectors of the Nigerian economy. To limit the 2018, supported by rising oil prices and a recovery in spread of the virus, the government acted promptly to agriculture and services. By 2019, the economic recovery restrict international and domestic flights, interstate road appeared to be strengthening as annual GDP growth traffic, and the movement of people in urban areas. As reached 2.2 percent. experienced by other countries, it is inevitable that such preventive actions will have profound knock-on effects The global spread of the pandemic and the subsequent on services and industry in both the formal and informal collapse of international oil prices are destabilizing sectors. As an unintended consequence, a steep decline Nigeria’s macroeconomic balances. Over the past in output can therefore be expected. Agriculture is the five years, oil has represented more than 80 percent only sector that is projected to grow in 2020—it is of exports, 30 percent of banking-sector credit, and somewhat shielded from the effects of lower oil prices. 50 percent of general government revenues. A large share Nonetheless, it is highly probable that the disruption of the country’s non-oil industrial and service sectors also of supply chains due to lockdown measures will affect relies on foreign-exchange inflows generated by the oil the planting season, lowering agricultural output later industry. The protracted slump in global oil prices has in the year. The difficulties arising from COVID-19 reduced Nigeria’s general government revenue from an inevitably extend to the labor market, with significant already low 8 percent of GDP in 2019 to a projected impacts on employment anticipated for some time to 5 percent in 2020. This sudden drop in revenue comes come. As of May 2020, 4 in 10 workers in Nigeria were just when fiscal resources are urgently needed to contain already reporting a loss of labor income, and disruptions the COVID-19 outbreak and stimulate the economy, to markets and supply chains are impeding agricultural creating a financing gap that threatens to destabilize the activity. Retail trade, for instance, which employs 1 in government’s fiscal position. Meanwhile, the pandemic 6 workers, is being hit especially hard as income losses will reduce global remittances to Nigeria, which in 2019 spread through the economy. Overall, the disruption of were equivalent to 5.3 percent of GDP and 40 percent employment dynamics will affect household incomes of oil exports. The fall in remittances is likely to affect and consumption. household consumption because half of Nigerians live Overview 1 NIGERIA DEVELOPMENT UPDATE JUNE 2020 The COVID-19 pandemic and the associated recovery in oil prices—Nigeria could experience negative lockdown measures are also affecting the supply of growth of -7.4 percent in 2020, and the recession basic services, with both direct and indirect costs would extend into 2021. Failure to contain COVID-19 for Nigerian households. The closure of schools is domestically would not only deepen the recession, but likely to reduce the food intake of some 7 million also impose a major burden on the already strained children who live in poverty and who are enrolled in healthcare system. This, in turn, could cause a spike in the national school feeding program. With out-of- morbidity and mortality rates, especially for low-income pocket expenditures accounting for 77 percent of health households and vulnerable communities. spending in Nigeria, contracting the virus imposes a substantial direct financial burden on households just The human cost of COVID-19 will be high: beyond when they are likely seeing their labor income go down. the loss of life, as the economy contracts and per It is probable that the pandemic will disproportionately capita incomes fall, the pandemic is projected to disrupt the economic activities of women. As health- leave 5 million more Nigerians living in poverty in sector resources shift from preventive care to emergency 2020 relative to the pre-COVID forecast. Household management, women’s health and social outcomes are circumstances already leave Nigerians highly exposed likely to worsen. to the pandemic; a reality that is hard to mitigate without certain reforms within Nigeria’s economy. In In 2020, Nigeria’s economy is expected to experience 2019, about 83 million people—equivalent to 4 in its worst recession in four decades. In the baseline 10 Nigerians—were already living below the national scenario, the economy would contract by 3.2 percent poverty line, with millions only barely above it, this year. This assumes an annual average oil price making them vulnerable to falling into poverty when of $30 a barrel. It also assumes that the spread of shocks occur. Over 75 percent of poor Nigerians live COVID-19 eases by the end of the second quarter and in the north of the country, most of whom depend is contained in Nigeria by the third quarter of 2020. on the informal economy or on smallholder farming. This revised growth projection is over 5 percentage Household incomes are higher in central and southern points below the pre-COVID-19 forecast of 2.1 percent. Nigeria where job creation has traditionally been This will make the predicted 2020 recession at least concentrated. Before COVID-19, the poverty rate was twice as deep as that of 2015–16 and the deepest since expected to increase by about 0.1 percentage points from the 1980s. In this scenario, real GDP growth would 40.1 percent in 2019 to 40.2 percent in 2020, implying recover gradually and by 2022 would converge with the that the number of poor Nigerians would rise by population growth rate of 2.6 percent. 2.3 million, largely due to population growth. However, due to the recession, the poverty rate is now projected The growth outlook is highly uncertain, however, to increase by 2.4 percentage points to 42.5 percent because it depends on how the world economy and in 2020, implying that the number of poor Nigerians oil prices recover. Weakening global demand for oil, would rise by 7.2 million. Thus, the COVID-19 shock compounded by the unpredictable policy decisions of alone is projected to push an additional 4.9 million the Organization of the Petroleum Exporting Countries Nigerians into poverty in 2020. and other major oil producers, are serious threats to Nigeria’s economic outlook. A more severe domestic Today’s unprecedented crisis will require an outbreak and/or a more protracted decline in oil prices equally unprecedented response from the entire relative to the baseline scenario would further deepen Nigerian public sector, together with the private Nigeria’s recession. In a high-risk scenario—one that sector, to contain the outbreak and protect the assumes a severe outbreak of COVID-19 and a slower lives and livelihoods of low-income and vulnerable 2 Overview NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY communities. The trajectory of the global pandemic COVID-19 and lay the foundation for a strong and its long-term economic impact are subject to recovery. These policy options are organized in the five an extraordinary degree of uncertainty. Even so, the areas summarized in Table O.1. government is in a strong position to determine the speed, quality, and sustainability of Nigeria’s economic recovery. Much will depend on how the government’s clear initial response to this unexpected turbulence evolves going forward. In the near term, the next A closer look at the welfare impacts 3 to 6 months, coordinated fiscal and monetary of COVID-19 and Nigeria’s border policy actions will be necessary to ease the human closure and economic costs of COVID-19. In the medium- term, the next 6 to 12 months, a series of bold reforms This edition of the Nigeria Development Update represent the best opportunity for ensuring a robust and analyzes two topics in depth: (  1) how COVID-19 will sustainable recovery. While dealing with the disruption affect the welfare of Nigerian households; and (2) how of the pandemic, a post-COVID-19 reform package the 2019 border will affect the economy. would be needed to overcome some of Nigeria’s more persistent macroeconomic challenges, including its low • Welfare impacts of COVID-19:  In addition to the level of economic productivity. direct health impacts of COVID-19, the pandemic is threatening the ability of Nigerian households to This edition of the Nigeria Development Update generate income to meet their basic consumption provides policy options that Nigerian policymakers needs. The 4 in 10 working Nigerians who work may consider in order to mitigate the impacts of in non-farm enterprises are likely to be particularly  olicy areas to mitigate the impacts of COVID-19 in Nigeria and lay the foundation for a strong Table O.1. P recovery. 5. Supporting economic activity 1. Containing the COVID-19 outbreak and provide relief for poor and preparing to deal with a more and vulnerable communities severe outbreak 4. Reprioritizing public 2. Enhancing macroeconomic spending to protect critical management to boost development expenditures investor confidence 3. Safeguarding and mobilizing revenues Overview 3 NIGERIA DEVELOPMENT UPDATE JUNE 2020 affected as demand contracts and consumers cut and thus lower the risk of contagion. Support for spending. Although agriculture is expected to be transport and logistics services is equally vital to more resilient, working Nigerians employed on farms help maintain international value chains, especially and related industries could see incomes fall due to in essential goods. More generally, reopening land market disruptions. At the same time, non-labor borders once the public health situation permits incomes are likely to decline if foreign remittances would help Nigerian firms export and source foreign fall, as is expected. A high frequency survey inputs for production. The phased removal of conducted in April-May 2020 found that Nigerian nontariff barriers such as import bans and foreign households began to experience significant losses exchange restrictions would also contribute to the in employment and income almost as soon as the sustained competitiveness of Nigeria’s firms and pandemic broke. About 1 in 2 households reported could, if bans were converted into tariffs, increase having had to reduce food consumption to cope. revenue. Medium-term benefits include lowering Since coverage of social protection programs is low, the prices consumers face, boosting regional an expansion of government support is necessary to transportation and logistics networks, and increasing prevent poverty deepening in Nigeria. Nigeria’s participation in international value chains. • The 2019 land border closure: I ncreasing the  competitiveness and value added of Nigeria’s industries is a vital springboard both to combat the immediate effects of COVID-19 and for long-term Spotlights on Nigeria’s agricultural economic growth. It is particularly important to sector and on migration and make it easier for more firms to enter the market, remittances succeed, and create jobs. Analysis of the impact of the 2019 border closure found that it contributed to With the focus squarely on building back better for a higher inflation—especially true for food, despite the post-COVID-19 world, now is an opportune moment relatively little impact on agricultural output. Because for Nigeria to identify and remove any structural of the rises in food prices, Nigerian consumers now bottlenecks to economic productivity. Doing so will need to pay 2 percent more for the same basket of help the country to recover faster while generating goods, with negative effects on their consumption. more jobs. All these outcomes will be invaluable in Another consequence of the closure is a marked helping Nigeria to realize its announced ambition of shift in formal trade to Nigeria and away from lifting 100 million people out of poverty in the next Benin. This has contributed to a moderate increase decade. To help inform the policy debate, this edition in customs revenue, although comparable to that of of the Nigeria Development Update analyzes two vital previous years. In light of the COVID-19 pandemic, topics: (1) advancing food security and job creation in the closure has now been extended indefinitely and agriculture; and (2) leveraging emigration, remittances, broadened to include most of cross-border activity. and the diaspora for development. The shared threat of the COVID-19 pandemic gives Nigeria an opportunity to cooperate more closely • Agriculture: Typically, when oil prices fall, many with its neighbors on shared cross-border priorities, of Nigeria’s displaced urban workers return to among them public health, counterterrorism, trade, agriculture. However, the country’s large agricultural and investment. Streamlining cross-border trade and sector has been performing below its potential, and transit procedures is particularly imperative: in the millions of its workers struggle to move beyond short term, it will reduce excessive border congestion subsistence farming. The COVID-19 pandemic will 4 Overview NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY depress agricultural productivity and will ultimately many Nigerians meet their health needs, not only cause a further drop in farmers’ wages. Supply- in a pandemic like COVID-19 but throughout side effects will include the disruption of input their lives. Recipient households are also shown supply networks and temporary shortages of labor to be more likely to increase their investments in for agricultural production. Movement restrictions education and entrepreneurship, thus helping put related to the pandemic are already interfering with Nigeria on a firm footing for the future. Nigerian food supply chains, leaving farmers with fewer emigrants dispersed across Africa, Europe, and buyers and consumers with less food. To complicate North America are also well positioned to catalyze the situation, the emerging crisis comes on top development through trade, investments, technology of continuing food-price inflation across Nigeria. transfer, and knowledge exchange. At present, intense This steady rise in food prices is linked to import migratory pressures have overwhelmed the capacity restrictions, which have ranged from limits on foreign of established systems to deliver safe, regular, and exchange on the imports of various food commodities organized migration. In response to COVID-19, the to outright border closure. Besides the pandemic, Nigerian authorities now have a timely opportunity agriculture in Nigeria is still remains vulnerable to to strengthen these systems by actively collaborating the effects of agroclimatic change. Collectively, these with counterparts in destination countries. In the challenges call for the government, first, to lessen short to medium term, policy reforms could also the pandemic’s effects on food security and, second, encourage skilled emigrants to return and also to accelerate the creation of more and better jobs attract foreign workers with valuable knowledge and by transforming agricultural and agribusiness value advanced skills. The total effect would be to maximize chains. In the short term, it is important to ensure the developmental impact of Nigeria’s widespread that agricultural systems continue to produce enough diaspora. food for the population. Equally critical is that markets function effectively so that this food is widely available throughout Nigeria. Ideally, domestic production would supply national food reserves for emergency and relief needs and school feeding programs. Taking steps to ease immediate problems will help protect farmers’ livelihoods and provide food security in the coming months. They also serve as building blocks for the longer-term recovery, which targeted measures can help accelerate. Because the sector is inherently resilient, it has considerable potential for creating more and better jobs through targeted investments that transform agricultural and agribusiness value chains. • Emigration and remittances:  Remittances in Nigeria are larger than both foreign direct investment (FDI) and official development assistance. Thus, leveraging the diaspora more effectively in support of the country’s sustainable growth and development is now more important than ever. Remittances help Overview 5 Part 1: Recent Economic Developments and Outlook for Nigeria NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY Economic Growth: Nigeria’s economy is expected to contract in 2020 due to the twin hits of COVID-19 and collapsing global oil prices Before COVID-19, Nigeria’s economy was gradually investment and growing net exports, which more than recovering from the 2016 recession, although per compensated for still declining domestic consumption. capita incomes were still falling because economic As the GDP growth rate remained below the population growth lagged population growth. Nigeria’s GDP growth rate (estimated at 2.6 percent per year), per growth rate improved slightly in 2019, reflecting rising capita GDP declined in 2019 (Figure 1.2). service output and improved oil and gas exports. On the supply side, growth was mainly driven by the Nigeria’s nascent recovery pre-COVID-19 was services sector, which represents about 50 percent of unfolding in a context of continuing structural GDP and last year contributed 1.2 percentage points challenges ( see Box 1.1). As discussions in recent to GDP growth (Figure 1.1). The principal performers editions of this report, Nigeria’s economy suffers from here were telecommunications, driven by an expansion low growth, high unemployment, and high poverty. in broadband connections, and financial services, These challenges reflect longstanding shortfalls in human which expanded mainly because of policies aimed at capital, infrastructure and public services, women’s increasing credit to the private sector. Agriculture and economic inclusion, the business environment, access to the oil industry also contributed to growth positively finance, and governance, as the government recognized (0.5 and 0.4 percentage points, respectively), despite the in its Economic Recovery and Growth Plan 2017‒20. introduction of an OPEC cap on oil production. On For example, access to affordable finance hinders growth the demand side, growth was driven by strengthening because, with inflation high, among other factors, the  igeria’s economic recovery was fragile Figure 1.1. N  with GDP growth below population Figure 1.2. … when it was hit by COVID-19… growth. Contributions to GDP growth GDP and population growth Percent, percentage points Percent 4– 9– 8– 3– 7– 2– 6– 5– 1– 4– 3– 0– 2– -1 – 1– 0– -2 – -1 – -2 – -3 – -3 – -4 – -4 – 20 09 20 10 20 11 20 12 20 13 14 2015 2016 017 018 019e 020f 2015 2016 2017 2018 2019e 2020f 20 2 2 2 2 J Agriculture J Oil industry J Non-oil industry J Services Q Real GDP J Real GDP growth ▬ Population growth Source: NBS and World Bank estimates. Source: NBS and World Bank estimates. Part 1: Recent Economic Developments and Outlook for Nigeria 7 NIGERIA DEVELOPMENT UPDATE JUNE 2020 lending rates offered by Nigerian commercial banks are due to the expected global economic recession; (2) less significantly higher than those in other middle-income private investment; and (3) lower government revenues, countries. particularly at the state level, prompting an expenditure- led fiscal adjustment. Before COVID-19, the closure of land borders and ongoing security issues were impeding growth. The COVID-19 outbreak and its global consequences Nigeria closed its land borders in August 2019 to reduce will weigh on Nigeria’s economic prospects through smuggling, address security concerns, and protect the medium term. Nigeria’s GDP growth rate is closely domestic production. One of the knock-on effects correlated with changes in crude oil prices (Figure 1.3 of the border closure was to slow the growth of trade and Figure 1.4). Due to the COVID-19 pandemic, and transportation, both of which contracted in Q4 output in advanced economies is expected to contract of last year. Meanwhile, among notable examples of by about 7 percent in 2020, putting downward pressure security problems affecting agriculture production were on oil prices. Notably, the pandemic is already slowing continuing conflict in the north-east region and farmer- economic activity in Nigeria’s major trading partners. herder conflicts in the central region. Indonesia’s economy is signaling stagnation in 2020, for instance, and contractions are expected in India The COVID-19 pandemic and the subsequent (–3.2 percent), the United States (–6.1 percent) and collapse of international oil prices abruptly halted the Euro Area (–9.1 percent).1 Although oil prices are Nigeria’s fragile economic recovery. The extraordinary notoriously difficult to forecast, one likely scenario decline in oil prices since March 2020 has profoundly is for the average price of Nigerian crude to fall from impacted the Nigerian economy, downgrading its annual $65 per barrel (/bbl) in 2019 to $30/bbl in 2020, the growth outlook by between 5 to 10 percentage points price assumed in this update. this year and possibly triggering the country’s most severe recession in four decades. The COVID-19 pandemic is The domestic spread of COVID-19 is expected to expected to primarily affect Nigeria’s economy through alter consumer behavior, undermine consumer and three oil-related channels: (1) lower external demand business confidence, and disrupt production, with  he collapse in oil prices is weighing on Figure 1.3. T  as Nigeria’s growth, exports, and Figure 1.4. … Nigeria’s economic growth prospects… government revenues are closely correlated with oil prices. GDP growth and oil prices Oil price, GDP growth, exports and government revenues Percent US$ per barrel Percent GDP US$ per barrel 10 – – 120 25 – – 120 8– – 100 20 – – 100 6– – 80 15 – – 80 4– – 60 10 – – 60 2– – 40 5– – 40 0– -2 – – 20 0– – 20 -4 – –0 -5 – –0 20 10 20 11 20 12 20 13 14 2015 2016 017 018 019e 020f 20 13 14 20 15 20 16 17 18 19 e 20 f 20 2 2 2 2 20 20 20 20 20 J Real GDP growth ▬ Crude oil price (Bonny Light), rhs ▬ Goods and services exports ▬ General government revenue ▬ Real GDP growth ▬ Oil price (Bonny light), rhs Source: NBS, CBN and World Bank estimates. Source: NBS, CBN and World Bank estimates. 1 World Bank Global Economic Prospects (June 2020). 8 Part 1: Recent Economic Developments and Outlook for Nigeria NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY Figure 1.5. The COVID-19 pandemic will affect the Nigerian economy through numerous channels. International International demand shocks Payments for imports Rest of world Payments for exports demand shocks (direct, wait & see (direct, wait & see behaviour, etc.) Store closures, delivery behaviour, etc.) restrictions, travel bans, etc. Consumer spending International Taxes vt purchas supply chains Go es Households Government Business Disruptions s ing Domestic supply v Sa Bankruptcies chains Wages, salaries, etc. Financial crises Labour layoffs, reduced hours, etc. Financial sector Investments Source: Baldwin and Weder di Mauro (2020). Table 1.1. To different degrees, the COVID-19 pandemic will affect virtually all economic sectors in Nigeria. Level of Share in total Share of Self Unpaid Major Economic Exposure to Share of Employed employment employment female workers employed household Activity COVID-19 male (%) (%) (000's) (%) (%) workers (%) workers (%) Education Low 2,523 4.3 49.3 50.7 17.1 1.0 1.4 Human Health and Social Low 1,974 3.3 38.3 61.7 13.5 0.5 3.4 Services Administrative and Low 434 0.7 81.6 18.4 2.4 0.3 0.3 Support Services Electricity, Gas, Steam & Air Low 7 0.0 100.0 0.0 0.0 0.0 0.0 Conditioning Supply Water Supply, Sewerage, Waste Low 84 0.1 80.1 19.9 0.4 0.1 0.0 Management & Remediation Low- Agriculture 32,358 54.7 74.5 25.5 20.0 61.9 79.9 medium Construction Medium 1,614 2.7 98.0 2.0 6.4 1.9 0.3 Financial and Medium 884 1.5 64.3 35.7 6.8 0.1 0.2 Insurance Mining and Medium 112 0.2 92.2 7.8 0.2 0.2 0.0 Quarrying Arts, Entertainment and Medium- 445 0.8 81.0 19.0 3.4 0.1 0.0 high Recreation Transportation Medium- 2,390 4.0 99.0 1.0 7.2 3.5 0.4 and Storage high Information and Medium- 388 0.7 78.5 21.5 2.5 0.2 0.0 Communication high Accommodation and Food High 935 1.6 12.3 87.7 0.2 1.9 2.3 Services Real Estate High 66 0.1 96.1 3.9 0.0 0.2 0.0 Manufacturing High 4,922 8.3 61.1 38.9 8.2 8.5 6.5 Trade High 10,015 16.9 35.9 64.1 11.9 19.6 5.1 Source: Nigerian authorities, ILO, and World Bank estimates. Notes: (1) Economic activities excludes professional, scientific, and technical services and other services; (2) level of COVID-19 risk adapted from ILO Monitor 2nd edition: “COVID-19 and the World of Work”. Part 1: Recent Economic Developments and Outlook for Nigeria 9 NIGERIA DEVELOPMENT UPDATE JUNE 2020 deeply negative consequences for the economy. Figure with larger informal sectors implemented more stringent 1.5 summarizes the transmission channels through containment measures (Figure 1.6). However, these which COVID-19 affects the economy. Most notably, measures can disproportionately impact informal its spread within Nigeria will likely weaken domestic workers. Not only do these individuals often have low demand as consumers adopt precautionary behaviors income and little savings, but they are also likely to work and government containment measures will hinder in occupations that require face-to-face interaction. In economic activity. Informal workers in Nigeria are Nigeria, the sectors most exposed to COVID-19-related especially vulnerable to the latter type of disruption economic disruptions are also those that have the largest because they have no employment-related protection shares of female workers. Notable examples are trade, and no social safety nets. This is highly significant manufacturing, accommodation, and food services because the informal economy represents 41 percent of (Figure 1.7)—sectors where a total of 9.2 million GDP and employs 53 percent of Nigeria’s active labor female workers in Nigeria earn their living. Meanwhile, force. The domestic outbreak of COVID-19 is pushing diversion of scarce resources to emergency health care up spending on public health, social protection, and measures may reduce preventive care, so that early economic support measures designed to address market childbirth and domestic violence add to the channels disruptions. As its fiscal resources are already severely for disproportionate impact of the pandemic on women, reduced by the oil price shock, a sudden surge in and children. emergency spending may crowd out public investments in physical and human capital, lowering prospects for The Nigerian economy is expected to contract in Nigeria’s long-term growth. 2020 by at least 3 percent. The projection assumes that oil prices will average $30/bbl, the domestic spread Nigeria rapidly put in place strict measures to of COVID-19 will be largely contained, and current contain the domestic spread of COVID-19; though response policies will continue. The slump in global welcome, they are having unintended adverse oil prices will slash exports: more than 80 percent of consequences for growth. The government has, e.g., Nigeria’s exports derive from the oil sector. Although restricted the movement of people, limited the size of softened domestic demand will markedly reduce gatherings, closed air borders, extended its land border imports, it is unlikely to be enough to offset export closures (to include human traffic), tightened controls decline, and Nigeria’s trade balance is projected to on access to seaports, and set a curfew. Coupled with deteriorate. Gross domestic demand is also expected to voluntary behavioral changes by individuals and firms, contract as consumers spend less, there is spending-led the containment measures are having direct impact fiscal consolidation, and uncertainty about the economy on virtually all areas of the economy (Table 1.1). A discourages private investment. Because its fiscal space telephone survey by the research firm SBM Intel found is limited and its external buffers depleted, Nigeria’s that workers are pessimistic about the post-pandemic fiscal and monetary policy response has been modest3 outlook for their own sectors.2 This uncertainty is likely by the standards of comparable countries (Figure 1.8), to devitalize investment in 2020 whether or not the making it harder for the country to avoid recession domestic spread of COVID-19 is contained. (Figure 1.9). However, agricultural output may make a positive contribution to growth in 2020, despite sectoral Women and workers in the informal sector are challenges and the disruption of cross-border trade (see: more likely to be affected by the pandemic and Focus section on the Border Closure). associated containment measures. So far, countries 2 Conducted April 16‒19, 2020, the survey was based on interviews with workers in the financial, entertainment, travel, oil and gas, trade and transportation, construction, and automotive sectors. For more information see: https://www.sbmintel.com/2020/05/chart-of-the-week-post-covid-19-industry-risks/ 3 Both the government and the private sector are contributing to the help fight the COVID-19 pandemic in Nigeria. For instance, the government plans to withdraw US$150 million from Nigeria Sovereign Investment Authority (NSIA) Stabilization Fund to augment Federal Account Allocation Committee (FAAC) disbursements to state and local governments across the country. Also, the private sector Coalition Against COVID-19 (CACOVID) has raised over N27 billion (US$75 million) to help combat the COVID-19 pandemic. 10 Part 1: Recent Economic Developments and Outlook for Nigeria NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY  orldwide, government responses to COVID-19 are more stringent the larger the size of a country’s Figure 1.6. W informal sector. Informality, percent of total employment 110 – 100 – Nigeria 90 – Bangladesh India Indonesia Pakistan 80 – Vietnam 70 – 60 – China 50 – 40 – 30 – 20 – 10 – 0– 40 50 60 70 80 90 100 110 COVID-19 government response stringency index Source: ILO, Oxford COVID-19 Government Response Tracker and World Bank estimates. Notes: (1) Stringency index as calculated by Oxford COVID-19 Government Response Tracker, which covers school closures, workplace closures, cancellation of public events, restrictions on gatherings, closures of public transport, stay-at-home requirements, restrictions on internal movement, international travel controls, and public information campaigns. (2) Bubbles show the relative size of total informal employment in each country, calculated by multiplying the percentage of informal employment by total employment, as per ILOSTAT’s modelled estimates. n Nigeria, female workers are over- Figure 1.7. I  igeria’s planned economic stimulus Figure 1.8. N represented in sectors exposed to COVID- policies are modest compared to those of 19-related economic disruptions. peer countries. Distribution of employment by workers most at risk of Economic stimulus as a share of 2018 GDP COVID-19 disruption Percent Percent 100 – 4 18 – 90 – 16 – 16 80 – 39 14 – 70 – 64 11 12 – 60 – 88 10 – 50 – 96 8– 40 – 6– 30 – 61 4– 5 20 – 36 10 – 2– 3 12 2 0– 0– Accommodation & food services Real estate Manufacturing Trade G20 Aspirational SSA Nigeria Regional J Share of male J Share of female Source: ILO and World Bank estimates. Source: Overseas Development Institute (ODI) and World Bank estimates. Notes: (1) Economic activities excludes professional, scientific, technical, or other services; Notes: (1) Economic stimulus includes both fiscal (aid, grants, and guarantees) and (2) COVID19 risk adapted from ILO Monitor 2nd edition: “COVID-19 and the World of monetary (central banks’ explicit monetary liquidity injection, plus expected impact from Work”. lowering policy interest rates; does not reflect measures by regional central banks); (2) Aspirational peers comprise Brazil, Mexico, Russia, and South Africa. Regional peers comprise Angola, Ethiopia, Ghana, Kenya, Senegal, and Uganda. Part 1: Recent Economic Developments and Outlook for Nigeria 11 NIGERIA DEVELOPMENT UPDATE JUNE 2020  OVID-19 has dramatically worsened economic forecasts for 2020. Figure 1.9. C Real GDP growth pre-COVID and post-COVID, 2019–2020 Percent 5– 4– 3– 2– 1– 0– -1 – -2 – -3 – -4 – -5 – -6 – Nigeria EMDE SSA OPEC+ J 2019 J Pre-COVID 2020 J Post-COVID 2020 Source: Global Economic Prospects and World Bank estimates. Notes: EMDE = Emerging Markets and Developing Economies. SSA = Sub-Saharan Africa.  re-existing structural challenges left the Nigerian economy especially vulnerable to Box 1.1. P the COVID-19 outbreak and its consequences. Before COVID-19 broke out, Nigeria already had structural challenges that made it more vulnerable to a global pandemic, particularly macroeconomic and health issues. This box discusses how Nigeria compares to aspirational and regional countries on these issues. Nigeria’s macroeconomic vulnerabilities relate to the labor market structure, fiscal outturns, and the fragile external stability (Figure B1.1.2). The Nigerian labor force consists disproportionately of informal, part-time, and self-employed workers—83 percent of nonagricultural employment is informal; and 81.4 percent of total employment consists of workers who are self-employment. Moreover, in the national labor market total employment rates are also low. Collectively, this suggests many workers in Nigeria are highly vulnerable to an economic downturn, particularly since social safety nets are inadequate or nonexistent. Meanwhile, the country has limited fiscal buffers because government revenues are low. With the hydrocarbon sector contributing more than half of all government revenues, the current oil price collapse will hit the government budget hard. The level of fiscal outturns and the composition of spending will also limit Nigeria’s response to the crisis. Low oil prices also reduce external buffers as international reserves are relatively low, the exchange rate lacks flexibility, and all major sources of international flows are volatile. The last of these points relates especially to hydrocarbon goods, which represent 94 percent of merchandise exports, and remittance inflows, which comprise 6 percent of GDP. Both these flows are high compared to regional and aspirational peers. The health heatmap suggests there is a need to improve the country’s health system and its preparedness for pandemics ( Figure B1.1.2). Compared with regional and aspirational countries, in Nigeria current per capita expenditure on public health is relatively low and out-of-pocket expenditure relatively high. The first helps explain why Nigeria is under-prepared for pandemics and also clarifies some health system weaknesses 12 Part 1: Recent Economic Developments and Outlook for Nigeria NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY Box 1.1 continued Figure B1.1.1. Heatmap of macroeconomic vulnerabilities. Peer Countries NGA BRA COL IND IDN MEX PER RUS ZAF Self-employed (% of 81.4 32.7 51.2 76.3 51.5 31.7 54.4 6.8 15.6 total employment) Part time employment, total (% of total 41.3 27.2 27.1 na 32.5 23.8 23.3 8.9 15.26 employment) Informal employment (% 1. Labor of total non-agricultural 82.9 26.4 50.0 na 62.7 33.1 40.5 24.3 21.4 Market employment) Informal employment 80.4 30.3 55.9 na 67.5 29.1 69.2 24.4 21.8 (% of total employment) Employment to population ratio, 15+, 48.6 56.2 62.1 46.7 64.3 58.6 75.1 59.0 40.2 total (%) (modeled ILO estimate) Fiscal balance (% of -5.0 -6.0 -2.2 -7.4 -2.2 -2.3 -1.4 1.9 -6.3 GDP) Revenue (% of GDP) 7.9 31.9 31.6 19.7 14.2 23.3 20.0 35.8 29.1 2. Fiscal Expenditure (% of GDP) 12.8 37.9 33.8 27.1 16.4 25.7 21.3 33.8 35.3 Policy Gross Debt (% of GDP) 29.4 89.5 52.9 71.9 30.4 53.4 26.7 14.0 62.2 Interest payment (% of 57.5 29.9 10.8 23.7 13.3 14.5 6.6 2.4 12.1 revenue) Exchange rate 0 1 1 1 1 1 1 1 1 3. Monetary (1-flexible, 0-fixed) Policy Inflation, consumer 11.4 3.7 3.5 7.7 3.0 3.6 2.1 4.5 4.1 prices (annual %) Bank capital to assets 7.3 10.1 17.0 7.5 15.6 11.0 12.5 10.0 8.4 ratio (%) 4. Financial Bank liquid reserves to 52.8 26.2 6.3 na 18.1 6.2 25.5 9.0 3.4 sector bank assets ratio (%) policy Bank nonperforming loans to total gross 6.0 3.1 4.2 9.5 2.4 2.1 3.3 10.1 3.7 loans (%) Current account (% of -3.8 -2.7 -4.3 -1.1 -2.7 -0.2 -1.4 3.8 -3.0 GDP) Goods exports (% of 15.9 12.7 13.4 12.2 17.3 37.0 22.1 26.7 25.6 GDP) Service exports (% of 1.2 1.9 2.9 7.5 3.0 2.4 3.2 3.9 4.3 GDP) Fuel imports (% of 29.7 15.1 6.9 35.3 16.7 10.0 16.0 0.9 18.6 merchandise imports) 5. External Fuel exports (% of 94.0 12.5 60.0 14.9 23.2 6.7 10.4 52.0 11.1 vulnerability merchandise exports) International tourism (% 0.5 0.3 2.0 1.1 1.5 1.9 2.2 1.1 2.7 GDP) Travel/transport exports 27.6 16.6 19.5 9.3 11.5 7.6 22.8 34.2 13.8 (% of services exports) Remittance inflows (% 6.1 0.2 1.9 2.9 1.1 2.9 1.5 0.6 0.3 of GDP) Reserves (months of 5.8 13.6 7.1 6.9 5.6 3.9 11.1 12.8 4.8 imports) Sources: WDI, IMF, ILO, and World Bank estimates. Notes: The indicators for the real, financial, and external sectors and for fiscal and monetary policy present only a limited view of a broad range of factors associated with macroeconomic risks and vulnerabilities. Color coding is based on indicator values relative to each other and should be viewed strictly within the context of the discussion in this note. Darker shades of blue represent heightened vulnerabilities, while lighter shades represent lower vulnerabilities. Part 1: Recent Economic Developments and Outlook for Nigeria 13 NIGERIA DEVELOPMENT UPDATE JUNE 2020 Box 1.1 continued more generally. Drawing on the Global Health Security Index, Figure B1.1.2 shows vulnerabilities in the following areas: prevention of the emergence or release of pathogens; early detection and reporting for epidemics of potential international concern; rapid response to and mitigation of the spread of an epidemic; and health system capacity to treat the sick and protect health workers. The health system would benefit from (1) building the capacities of clinics, hospitals and community care centers; (2) improving communications with health workers during public emergencies; (3) reviewing infection control practices and ensuring the availability of equipment; and (4) upgrading medical countermeasures while ensuring deployment personnel. Figure B1.1.2. Heatmap of vulnerabilities in the health sector. Peer Countries NGA BRA COL IND IDN MEX PER RUS ZAF Current health expenditure per 221 1,472 1,039 253 368 1,036 681 1,404 1,098 capita, PPP (current international $) Out-of-pocket expenditure** 77 27 16 62 35 41 28 40 8 (% of current health expenditure) Number of 9,855 438,238 25,366 173,763 25,216 81,400 141,779 396,575 29,240 Confirmed Cases*** Number of Deaths*** 273 26,754 822 4,971 1,520 9,044 4,099 4,555 611 % Population over 3 9 8 6 6 7 8 15 5 60 GHSI Rank 96 22 65 57 30 28 49 63 34 GHSI Country 38 60 44 47 57 58 49 44 55 Score* GHSI Indicators* Prevention of the emergence or 26 59 37 35 50 46 43 43 45 release of pathogens Early detection and reporting for epidemics 45 82 42 47 68 71 38 34 82 of potential international concern Rapid response to and mitigation of 44 67 44 52 54 51 52 50 58 the spread of an epidemic Sufficient and robust health system to treat the sick and 20 45 34 43 39 47 45 38 33 protect health workers Commitments to improving national capacity, financing 57 42 60 48 73 74 63 53 46 plans to address gaps, and adhering to global norms 14 Part 1: Recent Economic Developments and Outlook for Nigeria NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY Box 1.1 continued Figure B1.1.2. Heatmap of vulnerabilities in the health sector (continued) Peer Countries NGA BRA COL IND IDN MEX PER RUS ZAF Overall risk environment and 34 56 51 54 54 57 58 51 62 country vulnerability to biological threats Health System Analysis* Health capacity in clinics, hospitals and community care centers Medical countermeasures and personnel deployment Healthcare access Communications with healthcare workers during a public health emergency Infection control practices and availability of equipment Capacity to test and approve new medical countermeasures Sources: World Bank, World Health Organization (WHO), Nigerian Center for Disease Control, Global Health Security Index, and World Bank estimates. Notes: The Global Health Security Index ranks 195 countries. Current per capita spending on health is expressed in international dollars at purchasing power parity. See: https:// www.ghsindex.org. In ranking the 195 countries, the higher the ranking the better; e.g., Nigeria scores higher than Algeria. For the prevention, detection, response, health system, norms and risk environment scores, scores are normalized from 0 to 100, with 100 most favorable. * Darker shades of blue represent heightened risks, while lighter shades represent lower risks. ** Share of out-of-pocket payments (spending on health by households themselves) as share of total current health spending. *** Data based on WHO situation reports as of May 31, 2020. Prices: COVID-19 is intensifying the country constrained agriculture and trade activities inflationary pressures and disrupted agricultural supply chains. Moreover, the closure of Nigeria’s land borders for the movement of goods in August 2019 significantly increased food prices Rising food prices were already putting upward (see section on Nigeria’s Border Closure). In December pressure on the inflation rate prior to the emergence 2019, food prices had increased by 14.7 percent (end- of COVID-19. The annual headline inflation rate period), well above the increase of 13.6 percent observed increased from 11.3 percent in H1 2019 to 11.5 percent during the same period a year earlier. in H2 2019. In 2019, food prices rose by an average of 13.7 percent, and food products represent about Monetization by the Central Bank of Nigeria (CBN) 50 percent of the consumption basket (Figure 1.10). of the fiscal deficit and the increase in credit to the Persistent conflict and instability in multiple parts of economy also contributed to inflationary pressures Part 1: Recent Economic Developments and Outlook for Nigeria 15 NIGERIA DEVELOPMENT UPDATE JUNE 2020 nflation edged upward in 2019, driven Figure 1.10. I n early 2020, northern states had higher Figure 1.11. I by rising food prices. inflation rates. Annual headline inflation Annual headline inflation by State, April 2020 Percent, year-on-year Percent 16 – Border closure Sokoto 15 – Katsina Jigawa Kebbi Zamfara Yobe 14 – Kano Borno 13 – Kaduna Bauchi 12 – Gombe Niger 11 – Plateau Adamawa FCT Kwara Nasarawa 10 – Oyo Taraba Ekiti Kogi Osun 9– Benue Ogun Ondo Edo Enugu Lagos 8– Ebonyi Anambra Delta Imo Abia 7– 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 Cross River n-1 eb-1 ar-1Apr-1 ay-1 un-1 Jul-1 ug-1 ep-1Oct-1 ov-1 ec-1 an-2 eb-2 ar-2 pr-2 Bayelsa Ja F M M J A S N D J F M A Rivers ▬ CPI ▬ Food CPI ▬ Non-food CPI ‡ 8.9–12 J 12–13.2 J 13.2–14.4 Source: NBS and World Bank estimates. Source: NBS and World Bank estimates. in 2019. Despite efforts to mop up excess liquidity in Q1 2019. Impacted by increased impediments to in the banking system through the issuance of Open trade (border closure, and foreign exchange restrictions), Market Operations (OMO) bills, the monetization of the food component of the consumption basket over 80 percent of the Federal Government fiscal deficit increased by 14.9 percent in Q1 2020. Extension of contributed to higher inflation. Due to government lockdown measures, further disruptions to domestic revenue shortfalls and borrowing ceilings imposed by agricultural production, and naira depreciation is the legislature, the CBN contributed to additional expected to put additional upward pressure on prices, public spending. Outstanding net claims on the Federal though it will be moderated by lower fuel prices and Government by the monetary authorities increased lower consumer demand. from N1.4 trillion in January 2019 to N4.1 trillion in November 2019. However, the CBN did not completely sterilized the monetization of the public deficit, as N1.1 trillion remained in circulation. As this quasi- fiscal activity crowded out banks’ private-sector lending The External Sector: The twin hit of (see financial sector section), the CBN imposed a the COVID-19 pandemic and the oil minimum Loan-to-Deposit Ratio (LDR) in mid-2019. shock is raising Nigeria’s external The minimum LDR ratio was initially set at 60 percent vulnerabilities and increased to 65 percent in December. The LDR policy spurred rapid credit growth, and bank credit Before COVID-19, Nigeria’s current account deficit increased by 13.7 percent in H2 2019, with consumer was already widening, portfolio flows had reversed, credit (mostly short tenure) expanding by 40 percent. By and external reserves were declining. The current December 2019, net domestic credit was N36.2 trillion, account balance shifted from a surplus of 1.0 percent up 31 percent year-on-year. of GDP in 2018 to a deficit of 3.8 percent by the end of 2019—Nigeria’s first current account deficit since By yearend 2020 the impact of COVID-19 on both the 2015 oil shock (Figure 1.12). The trade balance domestic production and imports is projected to drive deteriorated by 4.5 percent of GDP between 2018 and inflation up to 13.8 percent. The headline inflation rate 2019 as oil exports declined (relative to GDP) while stood at 12.2 percent in Q1 2020, up from 11.3 percent imports rose markedly, though the latter effect was due 16 Part 1: Recent Economic Developments and Outlook for Nigeria NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY in part to the closure of Nigeria’s land border in August, portfolio flows. The collapse of global oil prices led to which boosted formal imports. Meanwhile, net foreign a sharp contraction in the value of Nigeria’s oil and gas portfolio inflows (FPI), the main financing source of exports, which plunged by 19 percent in Q1 2020, in the current account deficit in 2019, sharply reversed, comparison with Q4 2019. As oil and gas represent over dropping from US$17 billion in H1 2019 (when 80 percent of total goods and service exports, the impact they spiked after the February elections) to a negative on the balance on payments was severe. Moreover, the US$8 billion in H2 as foreign investors reacted to slump in global oil prices has persisted, leading major developments in global financial markets and declining producers to partially suspend operations, and due to the volumes and moderating rates of domestic OMO bills, technical difficulty of restarting production in idle fields, of which they held a large share of about a third (Figure Nigeria’s oil and gas exports will be slow to recover even 1.13). External reserves dropped by US$6.5 billion after prices rebound. between end-H1 and end-H2 2019. As in previous years, the services and income accounts were negative, In addition to keeping oil prices low, the economic and current transfers, mainly remittances, remained high downturn in developed countries is affecting at over 5 percent of GDP, equivalent to about 40 percent remittances. Most of Nigeria’s diaspora populations of oil export receipts. In nominal terms, remittance are located in advanced economies, where rising inflows amounted to US$23.8 billion in 2019. Nigeria is unemployment rates are constricting remittances, which the largest recipient of remittances in Sub-Saharan Africa had previously proved less volatile and procyclical than and the sixth largest among low- and middle-income other international capital flows. The simultaneous countries worldwide. decline in both oil prices and remittances is a unique feature of the COVID-19 pandemic. Though oil prices Nigeria’s external position had already eroded before plunged in 2015, remittances were largely unaffected. the COVID-19 pandemic, and the country’s reliance However, now the pandemic-related global economic on oil exports and short-term financial flows left slowdown is impacting both oil prices and remittances, it highly vulnerable to the crisis. Nigeria’s balance of compounding its adverse impact on Nigeria’s balance of payments is especially sensitive to shocks to oil prices, payments. which are transmitted to oil exports, remittances, and  he current account balance turned Figure 1.12. T  PI were the largest share of capital Figure 1.13. F negative in 2019 and is expected to inflows in 2019, rendering the BoP more remain so in 2020. vulnerable to COVID-19. Composition of Nigeria’s balance of payments Composition of Nigeria’s financial account balance Percent GDP US$ billion US$ billion 4– – 50 15 – 3– 10 – 2– – 40 1– 5– – 30 0– 0– -1 – – 20 -2 – -5 – -3 – – 10 -10 – -4 – -5 – –0 -15 – 2015 2016 2017 2018 2019e 2020f 2014 2015 2016 2017 2018 2019e J CAB J Net financial account ▬ External reserves, rhs J Net FDI J Net FPI J Net other inflows Q Net financial account Source: CBN and World Bank estimates. Source: CBN and World Bank estimates. Part 1: Recent Economic Developments and Outlook for Nigeria 17 NIGERIA DEVELOPMENT UPDATE JUNE 2020 A persistent current-account deficit and falling FPI 2015—and its external reserves had fallen to 4.6 months inflows are exacerbating the deterioration of Nigeria’s of import cover, almost half of which were the equivalent external position. In 2019, the current-account deficit of foreign-held short-term fixed income securities. was mainly financed by net FPI inflows of US$9 billion, FDI, affected by policy uncertainty, has fallen sharply, which were attracted by a stable exchange rate and high increasing Nigeria’s reliance on volatile FPI. Finally, returns on fixed-income securities (especially OMO international remittances, which in previous downturns bills) early in the year. However, due to increasing had been a source of stability, are being disrupted by the risk aversion in global capital markets, total FPI impact of COVID-19 and are projected to decline by at flows into Nigeria declined by 54 percent during Q1 least 25 percent in 2020. 2020. Meanwhile, in a context of pervasive policy and  nlike the 2015–16 oil shock, when Figure 1.14. U regulatory uncertainty, weakening demand, and rising COVID-19 emerged Nigeria’s external macroeconomic headwinds, net FDI inflows fell in 2019 vulnerabilities were already heightened. by 8 percent from their already low level of less than External and other indicators in 2014 and 2019 Percent Percent Percent GDP Percent GDP Percent US$2 billion, or 0.5 percent of GDP. While FPI and total foreign investments FDI both declined, FDI fell faster, causing the share of 7– 12 – 1– 2.5 – 60 – FPI in total capital inflows to rise to over 50 percent in 6– 2019. The shift from FDI to FPI represents an increase 10 – 0– 2.0 – 50 – in Nigeria’s reliance on “hot money” to finance the 5– 8– -1 – 40 – BoP, which exacerbates the vulnerability of the current 4– 1.5 – account (Figure 1.13). Finally, net external reserves fell 3– 6– -2 – 30 – 1.0 – from US$42.1 billion in 2018 to US$37.8 billion by 4– -3 – 20 – 2– end-2019, equivalent to 4.6 months of imports, and 0.5 – 2– -4 – 10 – intensifying pressures on the naira exchange rate. These 1– variables are all markedly worse than on the eve of the 0– Real GDP 0– -5 – 0– 0– Inflation CAB FPI FPI 2015–16 shock. growth J 2014 J 2019e Source: NBS, CBN, and World Bank estimates. Nigeria is in a significantly weaker macroeconomic position than it was during the 2015/16 recession, In 2020 the current account is expected to hold steady and it has fewer policy instruments to cushion the at about -3.1 percent of GDP in 2020, although shocks induced by the pandemic. In 2014, just before imports and exports are both projected to contract the recession, Nigeria’s GDP growth rate was a robust considerably  (Figure 1.15). Nigeria’s exports are 6.3 percent. By contrast, when the COVID-19 pandemic expected to fall by US$40.3 billion, 9 percent of GDP, struck, Nigeria’s economy was growing at a rate of because of the drop in global oil prices, and imports are 2.2 percent, and its external indicators were generally expected to fall by US$50.5 billion,12 percent of GDP, weaker (Figure 1.14). Moreover, the recent collapse of because of sluggish demand and disruptions in global global oil prices has proven far steeper than the previous supply chains. Meanwhile, international remittances are price shock. Whereas in 2016 Nigeria’s benchmark crude projected to decline by up to US$6 billion, 1.5 percent price (Bonny Light) averaged US$45 per barrel, it could of GDP. The relative stability of the current account average just US$30 per barrel in 2020. Nigeria’s external deficit masks an increase in the vulnerability of external position is also substantially weaker than it was during accounts as the decline in trade flows intensifies Nigeria’s at the start of the 2015–16 shock. At the onset of the sensitivity to future shocks. pandemic, the current account was already running a deficit of 3.8 percent of GDP—its first deficit since 18 Part 1: Recent Economic Developments and Outlook for Nigeria NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY  oods and services imports will continue Figure 1.15. G to drive changes in the current-account Monetary and Exchange Rate balance in 2020. Policies: Actions have been taken Contributions to the change in Nigeria’s current account to mitigate the impact of COVID-19, balance but further measures are necessary Percent GDP 15 – In 2019, the monetization of the fiscal deficit 10 – heightened underlying tensions in monetary and 5– exchange-rate policies objectives. In 2019, the CBN was committed to maintaining a stable nominal 0– exchange rate in both the official and the investors and -5 – exporters foreign exchange (IEFX) windows.4 For most -10 – of 2019, the CBN increasingly issued OMO bills at high yields to attract foreign portfolio investments, -15 – 11 12 13 14 15 16 17 18 19 e 20 f buttress foreign reserves, and stabilize the exchange rate. 20 20 20 20 20 20 20 20 20 20 J Oil exports J G&S exports excl. oil J G&S imports (reduction in) The stock of CBN bills grew substantially during the J Net income and transfers Q Change in CAB year, hitting the equivalent of US$55 billion by yearend Source: CBN and World Bank estimates. with yields at 12.2‒15.3 percent (Figure 1.16), with In line with projections for the global economic about a third of the issues held by foreigners.5 However, recovery, oil exports and remittances are both attractive yields on both CBN bills and government expected to rebound in 2021. A growing agricultural securities weakened incentives for commercial banks sector and support for agro-processing could boost to lend to the private sector. The CBN responded in nonoil exports, providing much-needed diversification early July 2019 by introducing a minimum LDR to of foreign-exchange earnings. Meanwhile, the start compel commercial banks to increase lending to the of operations at the Dangote refinery is expected to n 2019 issues of CBN securities rose Figure 1.16. I reduce both crude exports and fuel imports, with a significantly; one-third were held by modest net impact on the balance of payments due to foreign investors. savings on transportation costs. As global risk aversion Non-Foreign Portfolio Holdings in OMO Bills, Foreign Portfolio Holdings in OMO Bills and CBN Securities, 2018- eases and investors seek returns in recovering emerging 2019. economies, expanding exports and a stronger capital N trillion account are expected to bolster international reserves and 20 – 18 – help accommodate higher demand for imports spurred 16 – by rising levels of public and private investment. The 14 – evolution of food and consumer goods imports will 12 – largely depend on changes in trade policies as part of the 10 – implementation of the African Continental Free-Trade 8– Area agreement. By the end of April, Nigeria’s external 6– 4– reserves declined to US$32.8 billion, with some room 2– still available to facilitate the management of the external 0– 8 8 8 8 9 9 9 9 0 0 balances, supported by the exchange-rate adjustment Ja n-1 Apr-1 Ju l-1 Oc t-1 Ja n-1 Ap r-1 Ju l-1 Oc t-1 Ja n-2 Ap r-2 and increased concessional financing. J Nonresidents J Residents Q CBN securities Source: CBN and World Bank estimates. 4 The CBN also continued to manage the exchange rates via multiple exchange widows and restricted the supply of foreign exchange for imports of 43 groups of products. 5 True yields on CBN securities at the last OMO auction in 2019, for securities with maturities of 180 and 361 days. The naira value of the OMO securities issued through 2019 converted to US$ at the closing rate at Nigerian Autonomous Foreign Exchange Market (NAFEX). Source: CBN Quarterly Statistical Bulletin and website. Part 1: Recent Economic Developments and Outlook for Nigeria 19 NIGERIA DEVELOPMENT UPDATE JUNE 2020 private sector,6 but most new loans were short-term committed to moving to a more flexible exchange-rate and consumption-oriented—and despite the penalties regime, intervening only to smooth large exchange-rate administered through the cash reserve ratio (CRR), not fluctuations and avoiding foreign-exchange rationing. all banks achieved the targets, in part due to concern that However, from late March through May the CBN kept the policy would increase nonperforming loans (NPLs). the official exchange rate, which applies to government To boost growth, the central bank continued subsidized operations, at N360/US$, and the spread between the lending to specific sectors; the impact of that has yet to official and IEFX rates widened, an indication that the be evaluated. The CBN also provided more credit to devaluation of the official exchange rate has only partly the federal government through its overdraft facility, responded to the strain on the balance of payments effectively monetizing over 80 percent of the federal (Figure 1.17). government deficit. Together, the multiple competing policy objectives and fiscal interventions complicated The CBN has introduced measures to lessen the monetary policy and undermined its primary objective economic impact of the COVID-19 crisis. After of price stability. tightening its monetary stance in January by raising the CRR from 22.5 to 27.5 percent, the CBN lowered In early 2020, the CBN began to adjust its policies interest rates on all CBN subsidized interventions from in light of the deterioration in market dynamics 9 to 5 percent and imposed a one-year moratorium on caused by the COVID-19 outbreak. The significant interest payments for CBN facilities. It also established foreign portfolio outflows that began in late 2019 a N50 billion credit facility targeted to households and as the global economy slowed were exacerbated by firms affected by the crisis, provided an additional N100 weakening sentiment toward emerging-market assets billion in healthcare loans to pharmaceutical companies, due to COVID-19. In March, the CBN adjusted the and reached an agreement with the Bankers’ Committee official exchange rate by 15 percent, bringing it closer to avoid laying off bank employees. In May, the CBN to the other rates, a major step toward exchange-rate reduced its Monetary Policy Rate (MPR) from 13.5 to unification. The CBN also stopped intervening in the 12.5 percent, signaling a looser policy stance to support IEFX window and allowed the rate to slide in response economic recovery (Figure 1.18). to market dynamics. The various exchange windows have been converging to the IEFX rate, and in April the CBN  he adjustment of the official exchange has only partially reflected the strain on the balance of Figure 1.17. T payments. Exchange rate, N/US$ IEFX turnover, US$ billion 550 – – 2.0 500 – – 1.8 450 – – 1.6 400 – – 1.4 350 – – 1.2 300 – – 1.0 250 – – 0.8 200 – 150 – – 0.6 100 – – 0.4 50 – – 0.2 0– –0 1-Jul 31-Jul 5-Jan 10-Jun 12-Jul 16-Jan 20-Jun 11-Aug 10-Jan 17-Jun 17-Jul 17-Jan 16-Aug 1-Sep 4-Feb 12-Sep 15-Feb 11-Feb 17-Sep 18-Feb 2-Nov 11-Nov 1-Oct 2-Dec 10-May 12-Oct 13-Dec 19-May 18-Nov 15-May 17-Oct 18-Dec 15-May 8-Mar 8-Apr 17-Mar 19-Apr 13-Mar 12-Apr 19-Mar 14-Apr 2015 2016 2017 2018 2019 2019 2020 J IEFX window (NAFEX) - Turnover ▬ IEFX window (NAFEX) - Closing ▬ Official (Inter-Bank) ▬ Parallel market rate Source: CBN, Financial Markets Dealers Quotation (FMDQ), Aboki FX and World Bank estimates. 6 In October 2019, the CBN also barred all resident nonbank institutions from participation in OMO auctions, officially to boost liquidity in other segments of the money market and drive down interest rates, though it was probably also intended to drive foreign inflows through OMOs. 20 Part 1: Recent Economic Developments and Outlook for Nigeria NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY Figure 1.18. The CBN has progressively adapted monetary policy in response to the COVID-19 crisis. Timeline of government actions to mitigate COVID-19 impacts (I) CBN moved the Naira from (I) FG enforced lockdown in Lagos, (i) CBN resumed the sales of (I) FG extended the gradual easing of the COVID-19 lockdown N307/$1 to N360/$1. Ogun and FCT for 2 weeks. dollars to SMEs for essential across the country by two weeks. (ii) IEFX rate depreciated from (ii) CBN suspended the clearing of imports and to Nigerian (ii) CBN also signed an agreement with the NNPC to spend as much N360/$1 to N380/$1. cheque instruments. students in foreign schools to as N1 billion as quarantine costs for about 3,000 Nigerian returnees. pay their school fees. (I) FG noted that some MSMEs (I) CBN introduced N100 will access NAFDAC registration billion credit intervention to (I) CBN retained (I) CBN lifted the (i) NIRSAL MFB, on behalf at 80% discount over the next 6 mitigate the impacts of MPR at 14%; temporary of CBN, started the months. COVID-19 on businesses, CRR and LR at suspension placed disbursement of the N50 particularly those in the health 27.5% and 30%. on cheque clearing. billion Targeted Credit (ii) FG authorised NAFDAC to grant a waiver on admin. charges sector. (ii) IMF approved Facility to beneficiaries. for overdue/late renewal of expired (ii) CBN also postponed the $3.4 billion as RFI. licenses of products for a period much-awaited May 2020 90 days. Monetary Policy Commission (i) CBN suspended (i) CBN and the (MPC) meeting. (i) MPC reduced FOREX sales to Bankers’ Committee MPR from 13.5% to BDC. ordered banks not 12.5 percent. Other to lay-off any staff. policy parameters were held constant. 20-Mar 24-Mar 25-Mar 27-Mar 30-Mar 14-Apr 28-Apr 29-Apr 30-Apr 2-May 3-May 10-May 12-May 16-May 18-May 19-May 21-May 27-May 28-May (I) CBN tasked industrial conglomerates to support the (i) CBN planned to support Affordable (i) CBN assured foreign FG's efforts to grow the economy. housing, Renewable energy; Cutting investors that repatriating their (ii) CBN Governor warned that edge research and Light manufacturing. funds from the country was the apex bank would not support secured despite forex related the importation of items that revenue shortages. could be produced in Nigeria. (i) CBN and Banker’s Committee (i) CBN extended the (i) CBN disclosed that (I) CBN approved regulatory forbearance to formed the Nigerian Private Sector deadlines issued to MFB to it was developing a restructure credit facilities in the Other Financial Coalition Against COVID-19. comply with its revised framework to provide Institution (OFI) sub-sector. minimum capital requirements. financial support to aid (ii) CBN reduced interest rates on its facilities the fight against through participating financial institutions from COVID-19. 9% to 5% per annum for a year Source: CBN and Nairametrics. The COVID-19 pandemic and associated lockdown The Financial Sector: The pandemic measures have temporarily limited demand for foreign could slow recent improvements exchange; however, the gradual lifting of restrictions may reveal a need for further market adjustment. Markedly lower turnover at the IEFX window reflects The financial system in 2019 performed well on a the pandemic’s dampening effect on imports, travel, range of financial soundness indicators. Profitability government, and public securities activity. The CBN indicators improved considerably—bank returns on also suspended sales of foreign exchange for small and assets rose from 2.0 percent in 2018 to 2.5 percent medium-sized enterprises (SMEs), invisible transactions, in 2019, and bank returns on equity jumped from and Bureaux de Change (BDCs) until the end of 22.7 to 29.4 percent, driven by a surge in both the April. Foreign exchange market turnover is expected to net interest margin and in fee income, as well as lower gradually pick up when full banking activities resume, loan provisioning charges as the quality of the overall and lockdown measures are lifted in early June. loan portfolio improved. Meanwhile the NPL ratio dropped from 11.7 to 6.1 percent, thanks to a 40 percent reduction in NPLs from write-offs and upgrades in loan classification as the government continued to settle arrears with suppliers and a 14 percent increase in the portfolio of gross loans to the private sector. Because growth of capital did not keep pace with growth of risk assets, the capitalization ratio fell from 15.2 to 14.6 percent. As of yearend 2019 bank liquidity remained adequate. Part 1: Recent Economic Developments and Outlook for Nigeria 21 NIGERIA DEVELOPMENT UPDATE JUNE 2020 However, the COVID-19 shock poses serious risks institutions continue to serve the public while adopting to the financial sector, as mounting pressures in new safety measures. However, the global economic Nigeria’s external sector and the intensifying stress downturn and the collapse of global oil prices will in global financial markets threaten its stability. likely reverse the declining trend in banking-sector The economic downturn and the collapse of global oil NPLs, starting with loans to the oil sector, which prices will likely reverse the declining trend in banking- represent almost 30 percent of private-sector credit, sector NPLs, starting with loans to the oil sector, which and progressing through the rest of the economy as represent almost 30 percent of private-sector credit, demand weakens. On-balance-sheet dollar-denominated and progressing through the remaining sectors as exposures—38 percent of bank loan portfolios and demand weakens. On-balance-sheet dollar-denominated 55 percent of their liabilities as 2019 ended—will also be exposures, which represented 38 percent of banks’ loan a source of strain. portfolio and 55 percent of their liabilities at end-2019, will also be a source of strain. The credit to private The CBN has acted to narrow the spread between key sector has severely declined in April 2020 as effects of exchange rates and implement a stimulus package, yet the lock down and constrained economic activity as it the financial sector still remains vulnerable to a trio sharply dropped by 65.7 percent in April 2020 (Figure of COVID-19-related risks: (  1) Shrinking domestic 1.19). Meanwhile, credit to the government grew by demand is expected to cause the nonoil economy to 7.2 percent, rebounding from a 53 percent decline in contract, and despite CBN’s efforts to scale up targeted January 2020. interventions, only agriculture is likely to contribute positively to growth in 2020. (2) The disruption of Pressures in the external sector and the stress global supply chains is expected to push up prices for COVID-19 caused in global financial markets imported goods and services, intensifying inflationary could destabilize Nigeria’s financial sector. As part pressures. (3) The contraction of the oil sector is likely to of its COVID-19 response, the CBN has implemented worsen the NPL ratio, and the banking system could be regulatory measures to safeguard stability, including confronted by capital erosion. That is why asset quality granting regulatory forbearance to banks to restructure must be carefully monitored. With COVID-19 inducing the terms of facilities in affected sectors and triggering capital outflows to safer markets, unless the outflow business-continuity processes to ensure financial pressures are eased Nigeria may find it very difficult to attract investment during the recovery from COVID-19.  he growth of credit to the private sector Figure 1.19. T has been affected by COVID-19. Private sector credit and government credit Nominal month-to-month percent change 60 – 40 – Fiscal Policy: To deal with the impacts of COVID-19 it will be necessary to safeguard revenues 20 – 0– and reprioritize spending -20 – -40 – The pandemic and the collapse of global oil prices -60 – are aggravating Nigeria’s already difficult fiscal -80 – 5 last obs.=Apr-20 position. Its chronically low revenue collection is a 5 5 6 6 6 7 7 7 8 8 8 9 9 9 0 b-1 n-1 t-1 b-1 n-1 t-1 b-1 n-1 t-1 b-1 n-1 t-1 b-1 n-1 t-1 b-2 Fe Ju Oc Fe Ju Oc Fe Ju Oc Fe Ju Oc Fe Ju Oc Fe major structural challenge. Since 2015, the general ▬ Private sector credit ▬ Government credit government revenue-to-GDP ratio has averaged just Source: CBN and World Bank estimates. 22 Part 1: Recent Economic Developments and Outlook for Nigeria NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY  lthough its deficit is still widening, the Figure 1.20. A 6‒8 percent, one of the lowest in the world. About 50 Federal Government is moving to reduce percent of revenue comes from the oil and gas sector, its reliance on borrowing from the CBN. leaving Nigeria extremely vulnerable to global oil-price Federal Government deficit and financing sources Percent GDP shocks. Before the pandemic, Nigeria already mobilized 4.5 – less domestic revenue relative to the size of its economy 4.0 – than almost any other country, severely limiting the fiscal 3.5 – space it had to invest in building human and physical 3.0 – capital. Inadequate resources and inefficient public 2.5 – spending have long undermined the government’s ability 2.0 – to provide enough basic services to address the needs of 1.5 – 1.0 – its rapidly growing population, and the absence of fiscal 0.5 – buffers limits its capacity to respond to shocks. 0– FG l tic er FG l tic er t rna es g Othing t rna es g Othing fici Exte wing omowin c fici Exte wing omowin c de rro D rr an de rro D rr an bo bo fin bo bo fin In 2019, just before onset of the pandemic, the fiscal 2019e 2020f Source: Nigerian authorities and World Bank estimates. deficit had already widened to average 4.4 percent of GDP. Inflows from the main sources of nonoil tax budget was passed on time. Recognizing the urgent revenue—value-added tax (VAT), corporate income tax, need to bring in more nonoil revenue, the passage and customs revenue—were low but stable. However, of the budget was—for the first time—accompanied revenue from the oil sector contracted slightly, ahead by passage of a Finance Act outlining much-needed of the fall in oil prices. Gross collections of royalties revenue reforms, such as raising the VAT rate from 5 to and petroleum taxes were less than in 2018 and short 7.5 percent. Opening the Open Treasury Portal in 2019 of the budget targets. Moreover, revenue deductions— dramatically expanded public access to government fiscal among them US$1.8 billion in compensation for reports, expenditure data, and procurement information. gasoline subsidies—exceeded budget, so that net oil and gas revenues plunged by 0.7 percent of GDP to just The crisis has sharply curtailed both oil and nonoil 50 percent of budget. However, despite the diminished revenue streams at a time when fiscal resources are revenues, the Federal Government continued to increase urgently needed to contain the virus and support capital spending.7 Spending on electricity subsidies, economic activity. By April Nigerian crude oil prices though not fully reflected in the budget, also rose had fallen to US$20 a barrel—down nearly 70 percent slightly. Public spending is still skewed to recurrent in three months—although they have recovered since. expenditures, especially interest payments, which After this extraordinary oil-price shock, which led to a consume 50‒60 percent of the Federal Government’s steep drop in oil production, oil revenues are expected retained revenues. Due to overly optimistic revenue to fall from 3.2 percent of GDP in 2019 to about targets, the budget under-provisioned the issues of 1 percent in 2020. Nonoil revenues are also estimated marketable debt instruments, so that the Federal to head down starting in the second quarter as lower Government deficit was largely financed by borrowing imports reduced customs and VAT revenue; and slowing from the CBN (Figure 1.20). domestic economic activity, coupled with tax relief and postponement measures to relieve the financial Even before the COVID-19 shock, the Federal strain on private firms, reduced corporate income tax Government was acting to mobilize more domestic collections and further depressed VAT revenue. Total revenue and better manage spending. The Budget general government revenue is projected to drop in Office of the Federation had aligned the budget calendar 2020 to 5.3 percent of GDP, and even after spending with the fiscal year, and the 2020 Federal Government cuts Nigeria’s fiscal deficit is projected to rise to about 7 The majority of general government revenues are collected at the federation level and shared among federal, state, and local governments. In 2019 the federal government retained about 30 percent of general government revenues (3 percent of GDP); it was responsible for about 50 percent of public spending and most (3.5 percent of GDP) of the deficit. Part 1: Recent Economic Developments and Outlook for Nigeria 23 NIGERIA DEVELOPMENT UPDATE JUNE 2020  igeria’s fiscal buffers were almost Figure 1.21. N depleted when the COVID-19 pandemic To support its crisis response and limit the pressure precipitated the collapse of global oil on domestic financial markets, the government has prices. sought concessional assistance from international The Excess Crude Account balance and oil prices institutions. With a relatively low debt-to-GDP ratio US$ billion US$/bbl 20 – – 120 by international standards, Nigeria can borrow to 18 – help close the financing gap. Domestic markets have – 100 16 – the capacity to absorb some debt issues, but because 14 – – 80 liquidity is relatively tight, more external financing will 12 – 10 – prevent government borrowing from crowding out credit – 60 8– to the private sector credit, particularly at a time when 6– – 40 banks are likely to see their NPL ratios worsen. On 4– – 20 April 28, 2020, the IMF approached Nigeria’s request 2– for a US$3.4 billion concessional loan as an IMF Rapid 0– 08 009 010 011 012 013 014 015 016 017 018 019e 20f –0 Financing Instrument, and the government is working 20 2 2 2 2 2 2 2 2 2 2 2 20 J ECA balance, end-year (lhs) ▬ Budget oil price benchmark (rhs) with the World Bank, the African Development Bank, ▬ Average crude oil price (rhs) and the Islamic Development Bank to secure more Source: Nigerian authorities and World Bank estimates. budget support for the Federal Government and for 5.5 percent. This extreme fiscal shock has hit Nigeria at state fiscal responses. Despite deficits of 3‒5 percent of a point when its fiscal buffers were still largely exhausted GDP each year since 2015, the country’s public-debt-to- because of the 2015–16 oil shock (Figure 1.21), and GDP ratio of less than 30 percent is relatively low, and additional resources are urgently needed to contain the increased borrowing the amended budget authorizes COVID-19 and stimulate the economy. would not make the debt unsustainable. However, the authorities will need to rev up their revenue- Responding swiftly to the fiscal shock as it emerged, mobilization efforts once the crisis is over to address the authorities adopted an amended federal rising interest-payment-to-revenue ratios.8 Shifting budget for 2020  (Box 1.2). The amended budget was from CBN financing to more transparent borrowing via accompanied by an Addendum to the Medium-Term market instruments will allow the government to reduce Expenditure Framework (MTEF) and Fiscal Strategy its debt-service costs, because CBN financing costs Paper (FSP) 2020‒22 that responds to the impact 15.5‒16.5 percent (the MPR+3 percent), and to free up of COVID-19 on Nigeria’s public finances. The new future fiscal space to support renewed poverty reduction budget revises revenue expectations downward in line and economic recovery. with the collapse of global oil prices and the deteriorating macroeconomic outlook. It cuts nonessential spending and reprioritizes expenditures toward the COVID-19 response; a new N500 billion COVID-19 intervention fund channels resources to emergency health priorities (Box 1.3) and public works programs designed to ease the impact of the economic downturn on the livelihoods of poor and vulnerable Nigerians. A more realistic budget deficit estimate allows for an additional N2.8 trillion in borrowing from domestic and external sources using market instruments. Many state governments are also expected to revise their 2020 budgets. 8 IMF 2020. Nigeria’s public debt is primarily (about 75 percent) contracted by the Federal Government with the rest contracted by State Governments. 24 Part 1: Recent Economic Developments and Outlook for Nigeria NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY Box 1.2. Nigeria’s amended federal government budget for 2020. The amended budget significantly revises revenue projections and incorporates new exchange rates and growth projections. The budget lowers the oil-price benchmark from US$57 to US$28 a barrel, cuts projected aggregate oil production from 2.3 to 1.8 million bpd and reflects the new official exchange rate of N360/US$. The projected GDP growth rate for 2020 was revised down from +2.9 to -4.4 percent, and annual inflation projections were raised from 10.8 to 14.1 percent. Given the new assumptions for the oil sector, federation net oil revenue projections were cut from the N5.4 trillion to N1.9 trillion. The budget reduces customs, VAT, and corporate income tax revenue targets to reflect lower projections for imports, taxable consumption, and corporate profits. It also recognizes that the reevaluation of external debt following the naira devaluation will increase interest payments on that debt, and it includes interest on central bank overdrafts. Finally, the budget introduces a N500 billion COVID-19 intervention fund to be used by Federal and State authorities to finance a health emergency response and support the livelihoods of poor and vulnerable Nigerians. Table B1.2.1. The original and amended budgets for 2020. Original 2020 Parameters Amended 2020 Parameters and Projections and Projections Crude Oil Price (US$/bbl) 57 28 Crude Oil Production (mbpd) 2.3 1.9 Exchange rate (N/US$) 305 360 Inflation (percent, annual 10.8% 14.1% average) Real GDP Growth (percent) 2.9% -4.4% In Naira trillion FG Revenues 7.9 5.1 o/w oil 2.6 0.9 FG Expenditures 9.7 9.7 o/w COVID-19 response 0.0 0.4 Federal Government Deficit 1.8 4.6 Financing 1.8 4.6 External borrowing 0.9 2.0 Domestic borrowing 0.7 2.2 Privatization 0.3 0.1 Other sources 0 0.3 Source: Budget Office of the Federation. Part 1: Recent Economic Developments and Outlook for Nigeria 25 NIGERIA DEVELOPMENT UPDATE JUNE 2020 Box 1.3. Financing Health in Nigeria: The Basic Health Care Provision Fund. Nigeria faces significant health challenges that undermine the country’s human capital and economic development. Nigeria ranks 152nd out of 157 countries in the human capital index despite being a lower- middle income country. This low ranking reflects the country’s prolonged underinvestment in human capital— health, education, and nutrition of its citizens. Health outcomes in the country are among the poorest in the world, and there are large regional and socioeconomic inequalities. Compared to regional and low- and middle-income averages, Nigeria underperforms on life expectancy (53 years in 2016), maternal mortality (576 per 100,000 live births in 2013), and infant mortality (infant mortality rate of 65 per 1,000 live births in 2017). The poor health outcomes and insufficient coverage of essential services demonstrate the need for increased resource allocation and enhanced financial protection for healthcare in Nigeria. The Nigerian government spends less on health than nearly every country in the world. In 2018, only 4.5 percent of the Federal Government’s budget was allocated to health, compared to 7.1 percent for education and 7.8 percent for power, works and housing. Total government expenditure for health in 2017 was 0.5 percent of GDP and as a share of total government expenditure, government health spending is also low at 4.6 percent. Health spending in Nigeria is dominated by out-of-pocket expenditures—77 percent of total health expenditure, one of the highest in the world. Consequently, about a quarter of all households in Nigeria spend 10 percent or more of their total household expenditure on health—this situation is worrisome as the high out-of-pocket expenditure pushes over 1 million people into poverty and causes many more to forgo care.  overnment health expenditure as a share of GDP versus Gross National Income per Figure B1.3.1. G capita for Nigeria and comparator countries. Domestic government health expenditure as share of GDP, 2015, percent 10 – 8– 6– 4– Papua New Guinea 2– Ghana Kenya Philippines Egypt Angola Cote d’Ivoire Indonesia Cameroon Nigeria 0– 250 500 1,000 2,500 5,000 10,000 25,000 50,000 100,000 GNI per capita, 2015 US$ Source: IMF World Economic Outlook. 26 Part 1: Recent Economic Developments and Outlook for Nigeria NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY Box 1.3 continued More recently, the Nigerian government has demonstrated a renewed commitment to universal health coverage for its citizens. The Universal Health Coverage (UHC) Declaration adopted at the 2014 Presidential Summit states that “[it] holds the key to unlocking the door for equitable, qualitative and universally accessible healthcare for all Nigerians without suffering financial hardship”. In the same year, the National Health Act was passed, entitling all Nigerians to a Basic Minimum Package of Health Care Services and establishing the Basic Health Care Provision Fund (BHCPF) as a funding vehicle. To further demonstrate its commitment to the UHC agenda, the Federal Government allocated N 55.15 billion to the BHCPF in the 2018 budget and made the BHCPF a statutory transfer starting from the 2020 budget cycle. With only about 4.2 percent of Nigerians on any type of health insurance coverage, health reforms are also underway at the subnational level, with almost all the states in the federation having passed or in the process of passing a state health insurance law. The COVID-19 pandemic presents an opportunity for Nigeria to prioritize increased health financing and fast track the implementation of BHCPF. In response to the challenging health situation, and broader fiscal and economic cost of the pandemic, the federal and state governments have mobilized additional domestic funds, including contributions from the private sector, support from development partners and external borrowings. However, given the existing poor health outcomes, the low level of government health expenditure and the low capacity of the country to prevent and respond to health crisis, the COVID-19 pandemic can rapidly overwhelm Nigeria’s entire health system. It is important that the country seizes the opportunity of this pandemic to improve government spending on health (focused on both public-health and facility-based care, especially primary health care) and fast track the implementation of the BHCPF and other policy measures to improve financial protection. There is no better time for health financing to take the center stage in Nigeria as critical investments are needed now. Economic Outlook In addition to constituting a major worldwide health emergency, COVID-19 is inflicting on the world complex economic shocks whose ramifications are unpredictable. As of June 15, 2020, 216 countries were Global Prospects: In 2020 the world affected, the number of confirmed cases had reached economy will contract and, for the near about 7 million (Figure 1.22), and there had been over term, oil prices will remain below pre- 350,000 total COVID-19-related deaths. To cope with COVID-19 levels the pandemic and ease pressure on national healthcare The global recovery was expected to be slow even systems, governments around the world have restricted before COVID-19. The world economy grew at domestic and international movement, closed schools 2.4 percent in 2019—its lowest rate since 2009—as and other public facilities, shuttered nonessential stores weakening trade and investment dampened activity. and firms, established curfews, and banned public The January 2020 edition of the World Bank’s Global gatherings. These measures, coupled with consumer Economics Prospects anticipated a strengthening behavioral changes, are disrupting economic activity. recovery, with growth edging up to 2.5 percent, Now The pandemic has hit the services sector especially hard, the emergence of COVID-19 has shifted global growth and the Purchasing Manager’s Index (PMI) for services projections into negative territory. has fallen to a record low (Figure 1.23) because most Part 1: Recent Economic Developments and Outlook for Nigeria 27 NIGERIA DEVELOPMENT UPDATE JUNE 2020  lobal COVID-19 infections continue to Figure 1.22. G  lobal manufacturing and services have Figure 1.23. G rise, but the daily rate of new cases has been hit hard by COVID-19. plateaued. Global COVID-19 infections Global Purchasing Managers Index Thousands Thousands 7,000 – – 140 60 – 6,000 – – 120 55 – 5,000 – – 100 50 – 45 – 4,000 – – 80 40 – 3,000 – – 60 35 – 2,000 – – 40 30 – 1,000 – – 20 25 – 0– –0 0 0 0 0 0 0 0 0 0 -20 -20 -20 -20 -20 -20 -20 20 – a n-2 an-2 eb-2 eb-2 eb-2 ar-2 ar-2 ar-2 pr-2 p r pr pr ay ay ay un 7 7 08 09 10 11 12 12 13 4 5 16 7 7 18 19 20 - J J A A A - -F -F -F -M -M -M 2- 11- 0- 9- 8-M 7-M 6-M 4- A J n-0 v-0 p- l- y- r- n- v- p- l-1 y-1 r- n-1 v-1 p- l- y- 21 30 8 17 26 6 15 24 2 2 1 2 Ja No Se Ju Ma Ma Ja No Se Ju Ma Ma Ja No Se Ju Ma ▬ Cases (world) ▬ Daily new cases (7-day moving average, rhs) ▬ Manufacturing ▬ Services Source: European Center for Disease Prevention and Control (ECDC), Roser et al. 2020. Source: Haver Analytics and World Bank estimates. and World Bank estimates. activities requiring face-to-face interaction have come to average US$30/bbl in 2020 and US$40/bbl in 2021. Oil a halt. prices are projected to begin recovering gradually in H2 of 2020, but accumulated inventories will continue to While the uncertain evolution of the pandemic push prices down through 2021 even as global demand continues to cloud global growth forecasts, emerging recovers, and the COVID-19 crisis subsides. data suggests that in 2020 the global economy will contract by at least 5.2 percent as several of Nigeria’s major trading partners experience recessions. Scenario Nigeria’s Prospects: With the right pace analyses suggest that output growth rates could contract of reforms, despite downside risks a by as much as 3.2 percent in India, 6.1 percent in the sustained recovery is possible United States, and 9.1 percent in the Euro Area; in China In a baseline scenario—in which oil prices in 2020 while growth is expected to reach 1.0 percent and in average US$30/bbl, the COVID-19 outbreak in Indonesia about 0 percent. However, in 2021 the global Nigeria is contained, and the authorities carry out economy is expected to recover at rates ranging from a package of economic-relief policies—in 2020 the 1 to 5 percent. If in 2020 H2 the current COVID-19 Nigerian economy would still contract by at least outbreaks persist for several more months or restrictions 3 percent. Government oil revenue would be down on movements and interactions are reintroduced, global by over 70 percent, cutting total general government growth would reach no more than 1 percent. In an revenue to 5.3 percent of GDP for the year. Faced with upside scenario with consumer and investor confidence large and widening fiscal deficits, mounting pressure rising due to fiscal and monetary policy responses, the on health spending, and less room to borrow, Nigeria global economic recovery could be brisk. can be expected to cut capital spending, especially subnational, further diminishing its already low levels Oil prices are expected to stay below pre-pandemic of investment and limiting service delivery at all levels. levels in 2020–21 because of slowed economic activity Falling domestic demand, which is sensitive to oil- and a persistent supply glut. After averaging US$65 dollar liquidity, will cause the nonoil economy to per barrel (bbl) in 2019, the baseline scenario for this contract. With manufacturing and services hit hard by report assumes that prices of Nigerian crude oil will COVID-19 in April–May 2020 (Figure 1.24), only 28 Part 1: Recent Economic Developments and Outlook for Nigeria NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY  igeria’s manufacturing and services Figure 1.24. N have been hit hard by COVID-19. at all tiers of the government will need to continue Nigeria’s Purchaser Managers Index responding to the health crisis and start to again provide 70 – other health services; protect the livelihoods of the poor 60 – and vulnerable and support economic recovery. As the financing gap widens, the public debt stock is expected 50 – to rise from 24 percent of GDP in 2019 to 30 percent 40 – in 2020 and continue up in the medium term. Nigeria’s 30 – relatively low debt would allow increases in public debt, 20 – especially if it is sourced from concessional sources (please see the discussion on fiscal policy). In 2021, the 10 – government’s commitment to step up efforts to mobilize 0–8 n-1 y-1 8 p-1 8 n-1 9 y -19 p-1 9 n-2 0 y-2 0 domestic revenue are projected to narrow the fiscal Ja Ma Se Ja Ma Se Ja Ma ▬ Stanbic IBTC PMI ▬ CBN PMI (non-manufacturing) deficit marginally to 4.9 percent of GDP and moderate ▬ CBN PMI (manufacturing) - - - PMI threshold the share of federal government revenue devoted to Source: Stanbic IBTC, CBN and World Bank estimates. interest payments.9 The government plans to further agriculture is expected to make a positive contribution to rationalize tax expenditures and advance the launch of economic growth (Table 1.2). state-level property taxes. Improvements in tax and customs administration, especially the orderly rollout of In the baseline scenario, in 2021 Nigeria’s growth the VAT reform, will further bolster revenues. could recover to 1.7 percent and over the medium term gradually converge with population (Table The current account deficit is expected to narrow in 1.2). The economy is projected to recover gradually. 2021 to 0.6 percent of GDP as oil prices rebound Agricultural growth would recover as supply-chains and remittances recover  (Table 1.2). Oil exports and normalize. In nonoil industry, the recovery is expected remittances, both important current account inflows, to be slow due to weak demand, but the opening of the are expected to decline in 2020 as the global economy private Dangote refinery should boost the growth of enters recession, but both are expected to rise in 2021 manufacturing and lower domestic fuel prices. Public in line with the global economic recovery. Imports are investment programs and power-sector reforms are projected to decline in 2020 as domestic investment expected to boost demand for industrial inputs and spur n 2021 the current account deficit is Figure 1.25. I the growth of utilities. Though oil production is expected expected to narrow, but high inflation to stabilize, it would not immediately contribute much rates and large fiscal imbalances will persist. to growth because investment in the sector is likely to remain subdued until the price outlook becomes more Fiscal balance favorable. 100 – After widening during the crisis and into 2021, in the medium term the fiscal deficit would moderate to about 4 percent of GDP. Despite spending cuts, 0– the general government fiscal deficit is expected to go up from 4.4 percent of GDP in 2019 to 5.5 percent in 2020, due largely to the expected 70 percent drop in oil Current Inflation account balance revenues. While cuts in some nonessential spending may ▬ 2020 relative to 2019 ▬ 2021 relative to 2019 ▬ Unity benchmark relieve pressure on public spending, fiscal authorities Source: NBS, CBN and World Bank estimates. 9 Due to low revenue, the federal interest-payments-to-revenue ratio is expected to exceed the current 60 percent. Part 1: Recent Economic Developments and Outlook for Nigeria 29 NIGERIA DEVELOPMENT UPDATE JUNE 2020 Table 1.2. Nigeria: Key Economic Indicators, 2016–2021. Difference 2020 Pre-COVID Historical in forecast Baseline baseline (absolute) Description Unit 2016 2017 2018 2019e 2020f 2021f 2020f 2021f 2020f 2021f Oil Oil price (Bonny Light) US$/bbl 45 55 72 65 30 40 63 64 -33 -24 Oil production (including condensate, mbpd) mbpd 1.8 1.9 1.9 2.0 1.8 1.9 2.1 2.1 -0.3 -0.3 Growth Total GDP (constant market prices) %, yoy -1.6 0.8 1.9 2.2 -3.2 1.7 2.1 2.1 -5.3 -0.4 Agriculture %, yoy 4.1 3.4 2.1 2.4 2.4 2.8 3.1 3.3 -0.7 -0.5 Industries %, yoy -8.9 2.1 1.9 2.3 -10.1 2.4 1.9 1.4 -12.0 1.0 Industry-Oil %, yoy -14.4 4.7 1.0 4.6 -10.6 2.8 1.7 0 -12.3 2.8 Industry-NonOil %, yoy -5.0 0.6 2.4 0.9 -9.7 2.1 2 2.4 -11.7 -0.3 Services %, yoy -0.8 -0.9 1.8 2.2 -2.9 0.9 1.6 1.7 -4.5 -0.8 Fiscal Accounts - general government Fiscal balance % GDP -3.8 -4.0 -4.2 -4.4 -5.5 -4.9 -4.1 -4.0 -1.4 -0.9 Revenues % GDP 5.9 6.7 8.1 8.4 5.3 6.0 8.5 8.6 -3.2 -2.6 o/w oil % GDP 1.6 2.3 3.6 3.2 1.0 1.7 … … … … Expenditures % GDP 9.7 10.7 12.3 12.8 10.8 10.9 12.7 12.7 -1.9 -1.8 Public Debt (net) % GDP 17.3 19.1 20.9 23.7 30.0 32.4 25.8 27.4 4.2 5.0 BOP Current account balance % GDP 0.7 2.8 1.0 -3.8 -3.5 -0.6 0.0 0.2 -3.5 -0.8 Current account balance US$ bn 2.7 10.4 3.9 -17.0 -13.5 -2.7 0.5 1.4 -14.0 -4.1 G&S Exports US$ bn 38.4 50.8 66.0 69.9 29.6 42.5 67.3 68.5 -37.7 -26.0 o/w oil US$ bn 32.0 42.3 56.6 54.5 22.8 30.8 56.1 57.0 -33.3 -26.2 G&S Imports US$ bn 47.0 50.9 71.6 100.8 50.3 55.3 77.5 77.7 -27.2 -22.4 Net Income US$ bn -8.6 -11.5 -14.7 -12.5 -12.0 -12.3 -15.7 -15.7 3.7 3.4 Net transfers US$ bn 19.9 22.0 24.1 26.4 19.3 22.3 26.3 26.3 -7.0 -4.0 Financial account US$ bn 0.7 8.2 -9.8 13.6 -1.5 6.8 5.1 6.9 -6.6 -0.1 Foreign Direct Investment US$ bn 3.1 2.2 0.6 1.8 … … … … … … Foreign Portfolio Investment US$ bn 1.7 8.5 -2.3 9.0 … … … … … … Other Investment US$ bn -4.2 -2.5 -8.1 2.8 … … … … … … Errors and Omissions US$ bn -4.4 -6.4 9.2 -1.1 … … … … … … Change in Reserves (+ Decrease) US$ bn 1.0 -12.2 3.5 4.5 … … … … … … Gross External Reserves (end period) US$ bn 25.8 38.8 43.1 38.6 … … … … … … Equivalent months of Imports 6.6 9.1 7.2 4.6 … … … … … … Inflation CPI % yoy 15.6 16.5 12.1 11.4 13.8 12.4 12.2 11.4 1.6 1.0 Source: Nigerian authorities and World Bank estimates. 30 Part 1: Recent Economic Developments and Outlook for Nigeria NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY falls. A growing agriculture sector and support for households, and to support broader economic recovery, agro-processing could boost nonoil exports, providing would worsen the decline in per capita income and a much-needed diversification of foreign-exchange undermine aggregate demand. Together, these factors earnings. would prolong the recession into 2021 (Figure 1.26), and the poverty rate would continue to rise over the medium term. Three Scenarios By contrast, the government undertaking structural Nigeria’s growth outlook faces external headwinds and economic reforms that go beyond its current domestic challenges. It is subject to an extraordinary objectives could accelerate the recovery. in this degree of uncertainty due to the unpredictable trajectory scenario, the government would seize the opportunity of the pandemic and its effects on global demand and for major reforms to enhance Nigeria’s competitiveness oil prices. Short-term domestic risks are primarily related and position it for an especially robust post-crisis to the domestic spread of the virus and the speed and  ossible variations in Nigeria’s GDP Figure 1.26. P adequacy of the crisis response; long-term challenges growth outlook. relate to what happens with structural economic reforms Real GDP growth, percent to improve competitiveness. Three risk scenarios are 8– evaluated (Table 1.3). 6– 4– An insufficient macroeconomic policy response in 2– 2021 would prolong economic recession. In this 0– scenario, because the government makes no adjustment -2 – to nominal exchange rates external reserves are depleted -4 – or capital controls are imposed, and the resulting -6 – deterioration of investor confidence reduces investment -8 – flows. Instead of expanding by 1.7 percent in 2021, as 2018 2019 2020 2021 2022 the baseline scenario projected, the economy would ▬ Baseline (crisis management) - - - No macro adjustment (downside 1) - - - Domestic outbreak (downside 2) - - - Structural reforms (upside) contract by 0.2 percent. Meanwhile, the lack of fiscal ▬ Historical average (2004–14) - - - Pre-COVID-19 projections measures to lessen the health and economic impacts - - - Population growth, percent Source: Nigerian authorities and World Bank estimates. of the COVID-19 crisis on poor and vulnerable Table 1.3. Three Scenarios for Nigeria’s Economic Outlook. Scenarios Major Assumptions • A timely response from fiscal and monetary authorities, with support from Baseline development partners, helps manage Nigeria’s external and fiscal financing gaps Scenario 1: No macroeconomic • Fiscal and monetary policies do not adjust to cope with the current crisis. adjustment Scenario 2: Structural • The government seizes the opportunity to undertake major reforms to make reforms Nigeria more competitive. • Uncontrolled domestic spread of COVID-19 is combined with a prolonged oil-price Scenario 3: Multiple shock, aggravating the 2020 recession. shocks and an inadequate policy • The government does not adjust nominal exchange rates; external reserves are response then depleted, or capital controls are imposed; and the resulting deterioration of investor confidence reduces future investment. Source: World Bank. Part 1: Recent Economic Developments and Outlook for Nigeria 31 NIGERIA DEVELOPMENT UPDATE JUNE 2020 recovery, which would boost real GDP growth rate in policy responses do not adequately stimulate a recovery 2021 to 2.6 percent. These reforms would help mobilize in advanced economies. domestic revenue, increase market competition, improve competitiveness, attract private investment, and enhance governance and service delivery. Gradual opening of Policy Recommendations to Mitigate the border, supported by measures to achieve security the Impacts of COVID-19 and Lay the and domestic development objectives, would help ease Foundation for a Strong Recovery inflationary pressure. These reforms would entail short- The unprecedented COVID-19 pandemic requires an term costs, but they would also help to build a more equally unprecedented policy response. Even if Nigeria productive and diversified economy, create jobs, and can contain the spread of the virus, its impact will be accelerate poverty reduction through the long term. severe. Moreover, before COVID-19 the challenges Nigeria must deal with were already formidable, among An uncontrolled domestic epidemic, a deeper, more them falling per capita incomes and rising poverty. Table protracted decline in oil prices, or both in 2020 could 1.4 provides policy options that Nigerian policymakers produce a steeper economic contraction(Figure 1.26). might consider in order to minimize pandemic impacts Any such shock would aggravate the 2020 recession and and lay the foundation for a strong economic recovery. exacerbate the human cost of the crisis. In this scenario, the economy could contract by as much as 7.4 percent in 2020 and 2 percent in 2021. A major domestic outbreak in a country like Nigeria, with densely populated cities, high poverty, and inadequate health systems, would have severe human and economic consequences. If oil prices remain below the cost of production, project cancellations and a steep reduction in investment could permanently reduce oil production. Nigeria’s economic recovery hinges on global economic recovery, and the anticipated oil price rebound may not materialize if the pandemic is not contained or the policy responses of advanced economies is inadequate. The possibility of multiple COVID-19 waves10 is an especially serious risk— renewed spread of the virus could derail the global recovery. The re-imposition of lockdowns in different countries at different times over the next 18 months could have economic consequences that are impossible to predict. Based on the experience of the 1918 Spanish flu pandemic,11 scientists recognize that waves of COVID-19 outbreaks could continue until a vaccine or herd immunity is available. The global economic recovery could also be sluggish if consumer and investor confidence remains weak, or if fiscal and monetary 10 For instance, Singapore and Hong Kong have been experiencing repeated surges in coronavirus infections https://www.ft.com/content/bdd48cc5-3d03-4741-8a68- 20530a61c09e?shareType=nongift 11 The Spanish flu started in 1918 and ended in 1919 after three waves: winter 1917‒18, fall 1918, and winter 1918‒19. 32 Part 1: Recent Economic Developments and Outlook for Nigeria NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY  olicy options to mitigate the impacts of COVID-19 in Nigeria and lay the foundation for a strong Table 1.4. P recovery. Near-term options (next 3 to 6 months) Medium-term options (6 to 15 months) Containing the COVID-19 outbreak and preparing to deal with a more severe outbreak • Continue improving surveillance and testing • Scale up coverage of life and health insurance to capacity. provide an additional indemnity and safety net. • Ensure provision of necessary protective gear for • Ensure safe resumption of non-emergency primary health workers; upgrade isolation and treatment care functions, such as vaccinations and preventive facilities. care. • Strengthen community engagement to facilitate flows of credible information on, e.g., social distancing, wearing of masks, and other international best practice recommendations. • Improve the referral network system, including diagnostic (laboratory), and treatment and care (hospitals). Enhancing macroeconomic management to boost investor confidence • Unify exchange rates into a single, market- • Refocus management of monetary policy determined window. toward the primary objective of price stability, • Ensure clear separation and improved coordination with more transparent operational and liquidity of fiscal, financial, and monetary policies, starting management mechanisms (e.g. by reducing the with review and more transparent reporting of use of discretionary CRR); and ensuring a clear CBN quasi-fiscal interventions (e.g., financing of distinction between public borrowing and liquidity government functions through the overdraft facility, management. subsidized lending schemes) and use of CBN bills • Continue making management of public debt more to manage monetary policy beyond standard open transparent by, e.g., securitizing CBN overdrafts and market operations. adhering to statutory limits for its use; and regularly • Define measures for rescheduling and restructuring updating the medium-term debt management the loans of borrowers affected by COVID-19 strategy. and heighten monitoring of bank assets and the • Review regulations that affect bank recovery and effectiveness of temporary forbearance measures. resolution planning to ensure that the management • Ease foreign exchange restrictions to limit of banking system risks is transparent and effective. inflationary pressures and increase supply of food • Review prudential requirements related to and key staples (e.g., health-related products). bank sales of nonperforming loans to the Asset • Phase out land border closures as soon as the Management Corporation of Nigeria (AMCON) and health situation permits. similar companies to transparently streamline the process for efficient resolution of nonperforming loans. Safeguarding and mobilizing revenues • Ensure business continuity of revenue collecting • When the crisis passes, accelerate domestic agencies and facilitate tax payments through online revenue mobilization reforms; review and eliminate platforms. revenue-leaking incentives; adjust excise duties • Enhance the collection of oil and gas revenues to bring in more revenue, from, e.g., alcohol, and communicate a clear timeline for repayment cigarettes, and fuel; and introduce measures to of nonoil tax relief measures at both federal and counter international tax avoidance by amending subnational tiers of government. the international tax rules related to corporate and personal income taxes, VAT, and capital gains taxes. • Increase the transparency of oil and gas revenue reporting through regular publication of financial • Enhance oil-revenue remittances by managing reports audited financial statements to formulate the unbudgeted deductions and underpayments by the reform agenda. Nigeria National Petroleum Corporation. • Introduce new petroleum industry legislation to safeguard oil revenues and strengthen the management, governance, and competitiveness of the oil sector. Part 1: Recent Economic Developments and Outlook for Nigeria 33 NIGERIA DEVELOPMENT UPDATE JUNE 2020  olicy options to mitigate the impacts of COVID-19 in Nigeria and lay the foundation for a strong Table 1.4. P recovery (continued) Near-term options (next 3 to 6 months) Medium-term options (6 to 15 months) Reprioritizing public spending to protect critical development expenditures • Ensuring that execution of the 2020 Amended • Formulate and adopt COVID-19‒responsive 2021 Budgets and both federal and state COVID-19 budgets with fiscal stimulus measures to support stimuli are effective and transparent, including economic recovery. accounting, procurement, and auditing for • Identify fiscal savings through, e.g., evaluation of COVID-19 expenditures. off-budget federal government spending. • Create fiscal space by ensuring full implementation • Roll out the Treasury Single Account to include all of the new market-based gasoline pricing federal government entities and agencies. mechanism. • Expand the coverage of the expenditure • Accelerate the implementation of the Power Sector commitment management and control module of Recovery Program, including reducing electricity the Government Integrated Financial Management tariff shortfalls while protecting the poor. System to cover all expenditures, budgetary and • Continue tightening fiscal coordination across tiers nonbudgetary, of Federal ministries, departments, of government to ensure the most efficient use of and agencies. very scarce fiscal resources. • Accelerate action on the recommendations of the Public Expenditure and Financial Accountability (PEFA) and Public Investment Management Assessment (PIMA) diagnostics to strengthen public financial management. • Evaluate the effectiveness of fiscal rules and review their design. • Review current public sector guarantees, monitor any added during the crisis, and devise a strategy for managing fiscal risks. • Continue tightening budgeting practices (revenue modelling and forecasting, expenditure allocation), to improve budget execution, spending efficiency and debt management and transparency, and eliminate recourse to central bank financing. Supporting economic activity and provide relief for poor and vulnerable communities • Issue guidelines for adapting procurement • Facilitate recovery and enhance capabilities of procedures to support and encourage SMEs to SMEs by extending credit support to distressed participate in public procurement. and vulnerable enterprises; and providing one-off • Increase cash, basic services, and livelihood grants to SMEs, to cover operational costs and IT support to poor and vulnerable households, through solutions. targeted cash or in-kind transfers for consumption • Activate e-procurement. support, livelihood grants to active households and • Increase the efficiency of social protection spending groups, labor-intensive public works, and support for by improving both traditional and nontraditional infrastructure microprojects. targeting methods, such as geographical, • Ensure food security and safe functioning of categorical, or community-based targeting, with food supply chains for poor households through delivery methods that are consistent with social distribution of seeds and fertilizers, and service distancing. provision; labor-intensive agricultural infrastructure for canals, feeder roads, and warehouses; provision of block grants for assets and equipment; upgrading sanitary infrastructure in markets; and providing equipment for small-scale processing and packaging. 34 Part 1: Recent Economic Developments and Outlook for Nigeria NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY References Baldwin, R., and Weder di Mauro, B. (2020). Mitigating the COVID Economic Crisis. London: Centre for Economic and Policy Research. Campos, F., Coleman, R., Conconi, A., Donald,A., Gassier, M., Goldstein, M., Chavez, Z; Mikulski, J., Milazzo, A., Paryavi, M., Pierotti, R., O'Sullivan, M. and Vaillant, J. (2019). Profiting from Parity: Unlocking the Potential of Women’s Business in Africa. Washington, DC: World Bank. Food and Agriculture Organization of the United Nations. Gender and Land Rights Database. IMF (2020). Nigeria: Request for Purchase Under the Rapid Financing Instrument. International Monetary Fund Country Report No. 20/142, Washington, D.C. 20090. NBS (National Bureau of Statistics), Small and Medium Enterprises Development Agency. (2017). National Survey of Micro Small & Medium Enterprises (MSMEs). Available at: http:// smedan.gov.ng/images/NATIONAL%20 S U RV E Y % 2 0 O F % 2 0 M I C RO % 2 0 SMALL%20&%20MEDIUM%20 ENTERPRISES%20(MSMES),%20%20 2017%201.pdf. Max Roser, M., Ritchie, H., Ortiz-Ospina, E. and Hasell, H. (2020). Coronavirus Disease (COVID-19) – Statistics and Research. OurWorldInData.org. Retrieved from: 'https://ourworldindata.org/ coronavirus'. World Bank (2020). Global Economic Prospects, June 2020. Washington, DC: World Bank. h t t p s : / / o p e n k n ow l e d g e . w o r l d b a n k . o r g / handle/10986/33748 License: CC BY 3.0 IGO. Part 1: Recent Economic Developments and Outlook for Nigeria 35 Part 2: Taking a Closer Look NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY The Impact of COVID-19 on Nigerian Households Summary: Alongside the direct health impacts, COVID-19 The COVID-19 crisis threatens Nigerian households’ threatens Nigerian households’ ability to generate welfare both through direct health channels—with income and meet their basic consumption needs: absent the illness or death of family members—and at least any countervailing measures, an additional 6 million five economic channels ( Figure 2.1). First, households Nigerians are projected to live in poverty by 2022 due may lose labor income as vulnerable jobs—especially to the economic effects of the crisis. Even before the crisis, those in non-farm enterprises, selling agricultural about 4 in 10 Nigerians were already poor and millions produce, and in informal wage work—suffer as demand more lived only just above the poverty line, making them contracts and work is disrupted by social distancing vulnerable to shocks. Moreover, with 40.6 percent of the measures. Household earnings will also be reduced if Nigerian workforce employed in non-farm enterprises and income-generating members contract the virus. Second, 42.7 percent employed in agriculture—activities that may non-labor income sources may decline. For example, suffer as demand contracts, markets are disrupted, and social remittances will fall if sending households have lower distancing measures are implemented—labor incomes are income or if the infrastructure for effecting transfers is susceptible to the effects of COVID-19. This is compounded interrupted. Third, disruptions to markets could increase by potential losses in non-labor incomes, since about half the prices of key food items, reducing households’ of Nigerians live in households receiving remittances. purchasing power, while also preventing agricultural The overlap between these pre-crisis vulnerabilities leaves workers from selling their produce. Fourth, service some households especially exposed. Respondents to a high delivery may be disrupted by social distancing measures, frequency survey conducted in April, report significant including the closure of schools. Finally, direct out-of- losses in employment and income. One in two households pocket health expenditures for those households whose have had to reduce food consumption to cope with the crises. members contract the virus will limit expenditure on Since the coverage of social protection programs is currently other essential items. low, an expansion of government support is needed to prevent poverty increasing and deepening in Nigeria. Combining macroeconomic forecasts with the latest micro-data, it is possible to simulate how Nigerian Figure 2.1. The COVID-19 pandemic will affect Nigerian households’ welfare through several channels. Losses of labor income (40.6 percent of working Nigerians are employed primarily in non-farm enterprises and a further 42.7 percent work in agriculture) Direct health Losses of non-labor income (half of Nigerians live in households that receive domestic remittances) effects COVID-19 Disruption to markets and supply chains (of the 32.7 million Nigerians Pandemic working primarily in agriculture, 11.7 million mainly sell what they produce) Economic Disruption of basic service provision (6.9 million poor school-age children effects live in households enrolled in the national school feeding program) Out-of-pocket health expenditures (Nigerians devote 6.4 percent of their consumption to health, on average) Source: Adapted from World Bank’s note on “Poverty and distributional impacts of COVID-19” based on data from the 2018/19 NLSS and World Bank estimates. Part 2: Taking a Closer Look 37 NIGERIA DEVELOPMENT UPDATE JUNE 2020 households’ consumption may evolve through the however, the national poverty headcount rate is instead COVID-19 crisis. Bringing the growth forecasts to the forecast to jump from 40.1 percent today to 42.5 percent household consumption data provides a simple, forward- in 2020 and 42.9 percent in 2022, implying that the looking approach to capture the channels described number of poor people will be 90.2 million in 2020 above (see Part 1 for details of the macroeconomic and 95.7 million in 2022. Thus, taking the difference forecasts; see annex for details on methods). Two between these two scenarios, the crisis alone is forecast scenarios are compared. The ‘main prediction’ draws to drive an additional 4.9 million people into poverty on the latest available macroeconomic forecasts, which this year, with an additional 5.7 million people living in incorporate the downturn expected from the COVID-19 poverty by 2022.13 crisis. A ‘counterfactual’ scenario then uses the growth forecasts that were in place before the COVID-19 A disproportionate share of those pushed into poverty outbreak.12 by the COVID-19 crisis are predicted to be in urban areas and depend on income from services. More than The COVID-19 pandemic is predicted to drive up one-third of the additional people forecast to be pushed the poverty rate in Nigeria, pushing almost 6 million into poverty by the COVID-19 crisis are expected to be additional people into poverty by 2022. With real per in urban areas, while just 15.9 percent of the current capita GDP growth forecast to be negative in all sectors poor are urban dwellers (Figure 2.3). Only 13.1 percent in 2020, poverty will deepen for the current poor, while of the additional poor people in 2022 are predicted to those households that were just above the poverty line be in households where the head works primarily in prior to the COVID-19 crisis will fall into poverty. Were agriculture, while, today, 56.0 percent of poor Nigerians the crisis not to have hit (the counterfactual scenario), live in agricultural households. the poverty headcount rate would be forecast to remain virtually unchanged, with the number of poor people set Many Nigerians who are not poor today are to rise from 82.9 million today to 85.2 million in 2020 vulnerable to falling below the poverty line during and 90.0 million in 2022 due to natural population the COVID-19 crisis. People living only just above growth (Figure 2.2). Given the effects of the crisis, the poverty line are more susceptible to becoming poor  he COVID-19 pandemic may push almost 6 million more Nigerians into poverty by 2022. Figure 2.2. T Panel A. Poverty Headcount Rate Panel B. Absolute Number of Poor People Percent Million of poor people 44 – 100 – 43 – 95 – 5.7m 2.7 pp 2.6 pp 5.9m 2.3 pp 42 – 90 – 4.9m 41 – 85 – 40 – 80 – 39 – 75 – 2019e 2020f 2021f 2022f 2019e 2020f 2021f 2022f J Main prediction J Counterfactual J Main prediction J Counterfactual Source: 2018/19 NLSS, United Nations population projections, and World Bank estimates. Notes: Estimates exclude Borno. Real consumption deflated temporally and spatially to compare with the new national poverty line. Pass-through from per capita real GDP growth to household consumption set to 1. 12 The simulations presented have many caveats, and the results are sensitive to different modelling assumptions (see the Annex at the end of this section). 13 Under a less optimistic growth scenario, where real GDP drops by 7.4 percent in 2020 and rises by just 0.9 percent in 2021 and by 1.90 percent in 2022, the increase in poverty would be even larger. Under this scenario, the poverty headcount rate would jump to 44.7 percent in 2020 and 46.1 percent in 2022, meaning there would be 94.8 million poor Nigerians in 2020 and 102.8 million poor Nigerians in 2022. 38 Part 2: Taking a Closer Look NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY  disproportionate share of those made poor by the COVID-19 crisis are predicted to be in urban Figure 2.3. A areas and in services. Panel A. By Urban-Rural Panel B. By Sector Millions of additional poor people Millions of additional poor people 7– 7– 6– 6– 5– 5– 4– 4– 3– 3– 2– 2– 1– 1– 0– 0– 2020f 2021f 2022f 2020f 2021f 2022f J Urban J Rural J Agriculture J Industry J Services J Mixed sector or not working Source: 2018/19 Nigeria Living Standard Survey (NLSS), United Nations population projections, and World Bank estimates. Notes: Estimates exclude Borno. The bars compare the main prediction to the counterfactual prediction for a non-COVID-19 scenario. Real consumption deflated temporally and spatially to compare with the new national poverty line. Pass-through from per capita real GDP growth to household consumption set to 1. Mixed sectors arise as some household heads work primarily in non-farm enterprises in households with more than one enterprise. when shocks occur. Those with consumption levels 18.0 percent—around a quarter of the population is between the poverty line and 1.5 times the poverty line vulnerable to shocks. may be defined as ‘vulnerable’.14 Nationally, 40.1 percent of Nigerians (82.9 million people) live below the poverty Most Nigerian workers—especially those in poor line, while another 25.4 percent (52.6 million people) households—are employed in agriculture or non- are vulnerable by this definition (Figure 2.4). In rural farm enterprises, which may be more susceptible areas, more than three-quarters of the population are to the COVID-19 crisis. As Figure 2.5 shows, just either poor or vulnerable, yet even in urban areas— 16.8 percent of working Nigerians (12.9 million where the poverty headcount rate is far lower at workers) are employed primarily in wage jobs, according  any non-poor Nigerians are vulnerable to falling back into poverty during shocks. Figure 2.4. M Panel A. By Urban-Rural Panel B. By Zone Proportion of the population poor or vulnerable, percent Proportion of the population poor or vulnerable, percent 100 – 100 – 90 – 90 – 80 – 80 – 70 – 70 – 60 – 60 – 50 – 50 – 40 – 40 – 30 – 30 – 20 – 20 – 10 – 10 – 0– 0– North North North South South South National Urban Rural central east west east south west J Poor J Vulnerable J Neither poor nor vulnerable J Poor J Vulnerable J Neither poor nor vulnerable Source: 2018/19 NLSS and World Bank estimates. Notes Estimates exclude Borno. Real consumption deflated temporally and spatially to compare with the new national poverty line. The vulnerable are those with consumption levels between 1 and 1.5 times the poverty line. 14 In the 2016 Nigeria World Bank Poverty Assessment, two vulnerability lines were used at 1.4 and 1.8 times the poverty line. Panel data from other countries has shown that households between 1 and 1.5 times the poverty line are vulnerable in the sense that they have at least a 10 percent chance of falling back into poverty each year (see, for example, ‘Aspiring Indonesia - Expanding the Middle Class’, World Bank, 2019). Additionally, the World Bank’s ‘moderate’ poverty line of 3.20 United States Dollar PPP per day is around 1.7 times the World Bank’s ‘extreme’ poverty line of 1.90 United States Dollar PPP per day. Part 2: Taking a Closer Look 39 NIGERIA DEVELOPMENT UPDATE JUNE 2020  ost Nigerian workers are employed in agriculture and non-farm enterprises, especially among the Figure 2.5. M poor. Panel A. By Urban-Rural Panel B. By Poverty Status Proportion of working Nigerians, percent Proportion of working Nigerians, percent 100 – 100 – 90 – 90 – 80 – 80 – 70 – 70 – 60 – 60 – 50 – 50 – 40 – 40 – 30 – 30 – 20 – 20 – 10 – 10 – 0– 0– Neither poor Urban Rural National Poor Vulnerable nor vulnerable J Wage J Agriculture J Non-farm enterprise J Wage J Agriculture J Non-farm enterprise Source: 2018/19 NLSS and World Bank estimates. Notes Estimates exclude Borno. Graphs focus on primary job, the job in which the most hours were worked in the previous seven days. Sample restricted to workers aged 15 or more. Real consumption deflated temporally and spatially to compare with the new national poverty line. The vulnerable are those with consumption levels between 1 and 1.5 times the poverty line. to the 2018/19 NLSS.15,16 Around 42.7 percent work workers) work primarily in wage-employment, while primarily in agriculture (32.7 million workers), and 59.3 percent of poor Nigerian workers are primarily 40.6 percent work primarily in non-farm enterprises engaged in agriculture (15.5 million workers). There (31.1 million workers). Social distancing measures pose is also substantial geographical variation in the way a serious threat to non-farm enterprises that rely on that different types of jobs are dispersed across Nigeria, face-to-face interactions with customers, as well as those with urban areas in the south of the country having a agricultural workers that need to buy inputs and sell larger share of wage jobs and agriculture being more produce.17 Agriculture is particularly dominant for the concentrated in rural areas and in the north (see Figure poor and vulnerable, and wage-employment is limited: 2.6). only 7.7 percent of poor Nigerian workers (2.0 million  he concentration of different types of jobs varies dramatically across Nigeria's states. Figure 2.6. T Panel A. Proportion of Workers in Wage-Employment Panel B. Proportion of Workers in Agriculture Percent Percent J 21.1,39.4 J 16.5,21.1 J 12.6,16.5 J 9.5,12.6 J 3.2,9.5 ‡ No data J 65.1,83.7 J 47.7,65.1 J 45.3,47.7 J 34.5,45.3 J 1.3,34.5 ‡ No data Source: 2018/19 NLSS, Humanitarian Data Exchange (for map shape files), and World Bank estimates. Notes Estimates exclude Borno. Maps focus on primary job, the job in which the most hours were worked in the previous seven days. Sample restricted to workers aged 15 or above. 15 The primary job is defined as the job that the individual spent the most time doing in the previous seven days. The sample is restricted to workers aged 15 or above 16 Even among Nigerians holding wage jobs, formal contracts and in-work benefits that might help alleviate the effects of the COVID-19 crisis are not universal. Less than two-thirds of wage-employed Nigerians have a formal contract (8.1 million workers) and only around one-third have access to paid sick, maternity, or paternity leave (4.5 million workers). 17 While most farm work is in subsistence agriculture, many agricultural workers sell or barter their products in external markets. Even among poor and vulnerable households, sale or barter of agricultural products is not uncommon: around one-third of poor agricultural workers (4.9 million workers) declare their agricultural output to be ‘mainly for sale or barter’ or ‘only for sale or barter’. 40 Part 2: Taking a Closer Look NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY Around half of all Nigerians live in households There is also a substantial overlap among Nigerian receiving domestic remittances, a source of non-labor households’ different vulnerabilities to the COVID-19 income which may be interrupted by the COVID-19 crisis, making some households particularly crisis. Moreover, despite being more common for richer susceptible to falling back or falling further households, remittances are still widespread among into poverty. In particular, many households that the poor and vulnerable. As many as 39.4 percent of depend on vulnerable employment—defined as those poor Nigerians (32.7 million people) and 53.0 percent households in which the household head did not work of vulnerable Nigerians (27.9 million people) live in in contracted wage work or in subsistence agriculture— households receiving domestic remittances. are also remittance recipients. Indeed, there are around Box 2.1. The impact of COVID-19 on women’s economic activities in Nigeria. The COVID-19 pandemic is likely to disproportionately disrupt women’s economic activities. Ongoing analytical work by the Nigeria Gender Innovation Lab has found that just under half of working women in Nigeria are self-employed entrepreneurs who sell to final consumers (Figure B2.1.1). These workers are likely to be particularly hard hit by social distancing policies, which limit person-to-person interactions to slow the spread of COVID-19. Additionally, working women in Nigeria are more likely than working men to serve as primary caregivers (illustrated for women farmers in Figure B2.1.2). COVID-19 is likely to exacerbate their burden of care responsibilities as family members fall ill and children stay away from closed schools: these increased caretaking responsibilities are likely to come, at least in part, at the expense of income generating activities. Finally, women in Nigeria are more likely to finance entrepreneurial activities through informal lending—such as savings and loan groups—which is likely to be affected by the pandemic, and which may make it difficult to raise funds to reopen after the pandemic.  orking women are more likely to Figure B2.1.1. W  emale farmers are more likely to Figure B2.1.2. F be entrepreneurs and less likely be responsible for children both at to have wage employment than home and at their plot. working men. Share of workers who spend most of their working time Share of farmers reporting that they tend to their children in agriculture, entrepreneurship, and wage work at home and at their plot Percent Percent 50 – 80 – 70 – 40 – 60 – 30 – 50 – 40 – 20 – 30 – 20 – 10 – 10 – 0– 0– Agriculture Entrepreneurship Wage Responsible for children at home Responsible for children at plot J Women J Men J Women farmers J Men farmers Source: World Bank estimates based on Nigeria’s General Household Survey (GHS) 2018–2019 and Nigeria’s High-Frequency Agricultural Labor Surveys 2018–2019. Notes: Figure B2.1.1 plots the percentage of working women and men by the type of income generating activity (agriculture, entrepreneurship, and wage work) in which they report spending the most time working. Figure B2.1.2 plots the percentage of women and men farmers who report being responsible for tending to their children at home and at their agricultural plot. Part 2: Taking a Closer Look 41 NIGERIA DEVELOPMENT UPDATE JUNE 2020 Box 2.1 continued The COVID-19 pandemic may also affect reproductive health and domestic violence. With the government response constrained by very low global commodity prices, public health resources are likely to shift from preventative care, such as family planning services, to emergency response. Shifting resources in this way is likely to increase unintended pregnancies for women of all reproductive ages, with particularly harmful impacts for young women for whom childbirth is especially dangerous. Further, households may marry off young daughters to bring in a dowry and reduce consumption, setting the stage for additional early childbirth. The combination of confinement and increased stress may also increase intimate partner violence. Cash transfers and Adolescent Girls Clubs may help mitigate harm during containment. Impact evaluations in Nigeria and throughout Sub-Saharan Africa have found broad positive impacts of cash transfers on a range of welfare outcomes, including increased food security, reduced stress, and decreased intimate partner violence. A recent Nigeria Gender Innovation Lab project found that the positive impact of cash transfers for women are just as strong when they are delivered on a quarterly basis as when they are delivered monthly, yielding the same impact at a lower cost, and with fewer person-to-person interactions. Shifting to digital delivery of cash transfers could further reduce in-person interactions, but any adaptations must recognize that women in Nigeria are over 20 percentage points less likely than men to have their own phone and twice as likely to have no access to a phone. Evidence on Adolescent Girls Clubs, which pair mentoring with vocational and life skills trainings, suggests that they may help insulate participants in times of crisis: adapting such programs to a virtual format could help protect girls during confinement due to COVID19. The post-pandemic policy response needs to be informed by rigorous evidence. There is a growing body of evidence on the impact of women-centered programs designed to jump-start growth in Nigeria. In addition to their potential to protect households during the crisis, cash transfers could also fuel growth coming out of the pandemic as demonstrated by a cash transfer program in Kebbi state that led women to start businesses. Similarly, large business plan competitions have demonstrated broad growth impacts: Nigeria’s YouWin competition increased firm profits and sales, survival, and employment. Other promising policies include innovative financial products, such as uncollateralized, cash-based, or psychometric-based loans, which can unlock lending to women who typically lack the collateral of men. Finally, personal initiative training—which teaches women entrepreneurs to be proactive and demonstrate perseverance—has shown promise for women entrepreneurs in Togo and may help women in Nigeria bounce back from the economic ramifications of COVID-19. References World Bank (Forthcoming). Nigeria Gender Diagnostic Report. Washington, D.C.: The World Bank. World Bank. (2020a). Gender Dimensions of the COVID-19 Pandemic. Washington, D.C.: The World Bank. Available at: http://documents.worldbank.org/curated/en/618731587147227244/Gender- Dimensions-of-the-COVID-19-Pandemic World Bank. (2020b). Supporting Women Throughout the Coronavirus (Covid-19) Emergency Response and Economic Recovery. Washington, D.C.: The World Bank. Available at https://openknowledge. worldbank.org/handle/10986/33612 42 Part 2: Taking a Closer Look NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY  he overlap between different Figure 2.7. T 18.9 million poor Nigerians and 48.4 million non- vulnerabilities to the COVID-19 crisis is poor Nigerians living in households that both depend sizeable. on vulnerable employment and receive remittances (Figure 2.7). There is also a large overlap between vulnerable employment and living in urban areas, as would be expected given that non-farm enterprises and informal wage jobs are concentrated in towns and cities. Overall, 52.0 million urban Nigerians live in households depending on vulnerable employment. Since the virus appears to spread faster in large settlements and social distancing measures are more likely to affect urban areas, the welfare of these urban dwellers is at increased risk from the COVID-19 crisis. ▬ Monetary poverty ▬ Vulnerable employment ▬ Remittances Number Percentage of people Despite high poverty and vulnerability leaving of population (millions) many households susceptible to the COVID-19 Monetary poor, but not in crisis, coverage of social protection in Nigeria is low. vulnerable employment or 11.5 23.8 receiving remittances According to the 2018/19 NLSS, just 1.6 percent of Vulnerable employment, Nigerians live in a household enrolled in the National but not monetary poor or 17.0 35.1 Social Safety Net Program (also known as ‘Beta Don receiving remittances Come’). Coverage of most other social-assistance Receiving remittances, but not monetary poor or in 10.7 22.2 programs is even lower. The only exception is the school vulnerable employment feeding program: 20.1 percent of school-age children Monetary poor and in (11.0 million children) live in households receiving vulnerable employment, 12.8 26.4 but not receiving support from this program.18 Closing schools to control remittances the spread of COVID-19 therefore not only threatens Monetary poor and children’s education, but also their nutrition, potentially receiving remittances, 6.7 13.8 but not in vulnerable exacerbating any negative effects on their human capital employment development. Vulnerable employment and receiving remittances, 23.4 48.4 but not monetary poor High-frequency micro-data collected during the All three 9.14 18.9 first months of the COVID-19 crisis confirm Source: 2018/19 NLSS and World Bank estimates. that households, especially poor and vulnerable Notes: Estimates exclude Borno. Monetary poverty calculated using the new national poverty line. Vulnerable employment defined as any household in which the head was not households, have already suffered severe income working in a wage job with a contract and was not in subsistence agriculture. Remittances refers to those households receiving domestic remittances. Observations weighted to represent the proportion of people in each type of household. shocks and are adopting costly coping strategies.19 By April-May 2020, 42.2 percent of individuals who were had increased since the start of the COVID-19 crisis. working before March 2020 were no longer working. As a result, households are adopting coping strategies The share of individuals who stopped working was that not only reduce welfare in the short-term but also highest among the poor and, echoing the simulations, have long-term negative consequences for human capital those in service-sector jobs. Purchasing power has development. One in two households reported that they also been threatened by rising prices: 85.3 percent of had reduced their food consumption to cope with the households reported that the price of major food items effects of the crisis. 18 School age is defined as children aged 5-13 years old. 19 To monitor the effects of the crisis, the COVID-19 National Longitudinal Phone Survey (NLPS) collected information between April 20 and May 11 on a sub-sample of households that had already been interviewed for the 2018/19 GHS. Part 2: Taking a Closer Look 43 NIGERIA DEVELOPMENT UPDATE JUNE 2020 Policy Implications of the school feeding program, which may be interrupted if schools are closed. Addressing the health crisis and saving lives is the top priority. This hinges on containing the spread of Nigeria also needs a medium-term policy package COVID-19 and ensuring that Nigerians have access to to help create the conditions for fast and inclusive testing and treatment for the disease. Such policies will growth, once the COVID-19 crisis subsides. In need to be especially geared towards poor and vulnerable particular, the pandemic poses a serious threat to human households, whose access to medical facilities lags richer capital development, given the disruptions to education households, and did so even prior to the COVID-19 and nutrition, alongside the direct health consequences crisis. Only half of poor Nigerians had any kind of of the virus. Since individuals’ and households’ exposure health facility—be it a health center, public hospital, to the virus—both in terms of health effects and private hospital, or private clinic—in their community economic effects—is unequal, a policy agenda that compared to around two-thirds of non-poor Nigerians. helps the poor and vulnerable access new, post-crisis opportunities will be vital for Nigeria’s long-term path In the short term, targeted cash or in-kind transfers towards reducing poverty and sharing the proceeds of will be needed to stop households falling back into growth. or further into poverty, but such social assistance needs to be adapted to the realities of the COVID-19 crisis. With just over 135 million Nigerians being poor or vulnerable and the COVID-19 crisis, the rapid rollout of policies that help households meet their basic consumption needs is essential. Since the virus must be contained, social assistance policies need to adhere to social distancing, and thus public works programs would need to be carefully considered. Given that coverage of current social protection programs is low, traditional targeting methods must be augmented with new alternatives, such as simple geographical, categorical, or community-based targeting, which can be implemented quickly. Delivery methods that are consistent with social distancing will also be required to ensure that cash or in- kind benefits reach their intended beneficiaries. The government may need to intervene to ensure that households can access essential supplies, including foods and medicines. Providing cash may not be sufficient if markets cease to offer the goods that households need at prices they can afford. Poverty as measured in Nigeria is anchored in households’ ability to buy enough food to meet caloric requirements. Since poverty by this measure is so widespread, ensuring Nigerians have access to enough nutritious meals will be crucial. This is especially important given the prevalence 44 Part 2: Taking a Closer Look NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY References Corral, P., Irwin, A., Krishnan, N., Gerszon Mahler, D., and Vishwanath, T. (2020). Fragility and Conflict: On the Front Lines Against Poverty. Washington, DC: World Bank. World Bank. (2016). Poverty Reduction in Nigeria in the Last Decade. Washington, DC: World Bank. World Bank. (2018). Poverty and Shared Prosperity 2018: Piecing Together the Poverty Puzzle. Washington, D.C.: The World Bank. World Bank. (2019). Aspiring Indonesia: Expanding the Middle Class. Washington, DC: World Bank. World Bank. (2020). Poverty and Distributional Impacts of COVID-19: Potential Channels of Impact and Mitigating Policies. Washington, DC: World Bank. Part 2: Taking a Closer Look 45 NIGERIA DEVELOPMENT UPDATE JUNE 2020 Annex The simulation results are highly sensitive to the macroeconomic forecasts and the modelling assumptions used. Under less optimistic macroeconomic forecasts, the predicted increase in Changes in household welfare and poverty can be poverty would be even more severe. Panel A of Figure simulated by combining macroeconomic forecasts 2.9 shows how the poverty headcount rate in the main with the latest micro-data taken from the 2018/19 prediction and counterfactual scenarios discussed above NLSS. The model used to do this is summarized in compare with a less optimistic growth scenario where Figure 2.8. First, predictions for per capita real GDP real GDP drops by 7.4 percent in 2020 and rises by growth can be calculated for each sector of the economy just 0.9 percent in 2021 and by 1.90 percent in 2022. using the World Bank’s forecasts for real GDP growth In this scenario, the poverty headcount rate would jump (see Part 1) and the United Nation’s projections for to 44.7 percent in 2020 and would reach 46.1 percent population growth. Then, according to some pass- in 2022. Changing the modelling assumptions also through factor, the per capita consumption of each alters the poverty predictions: assuming a weaker pass- household observed in the 2018/19 NLSS can be through from per capita real GDP growth to household forecast, with the sectoral per capita growth forecasts consumption growth would dampen the effects of being matched to each household according to the sector the recession on poverty (see Panel B of Figure 2.9). of the household head’s primary job. The population While it is not possible to calculate a pass-through rate weights are also adjusted according to the population for Nigeria, the pass-through rates for other countries projections. No further adjustments are made for prices, in Sub-Saharan Africa and for Fragile and Conflicted because the GDP forecasts are already deflated. As such, affected Situations (FCS) are estimated to be below 1.20 the model forecasts the entire consumption distribution Indeed, if the average FCS pass-through rate of 0.42 is in real terms, which can then be compared with the applied, the increase in the poverty headcount rate is current poverty line to predict the poverty rate and the forecast to be far more muted, rising to 41.0 percent in number of poor people. In principle, the model can also 2020 and 41.2 percent by 2022. be augmented with poverty-reducing policies, including social protection measures, but such policies have not The model has at least five key caveats, which should been included in the present version of the model. be borne in mind when interpreting the results. First, and most crucially, the model focusses entirely on  pproach for simulating household Figure 2.8. A welfare and poverty in Nigeria. the economic effects on households coming from the COVID-19 crisis via the contraction of GDP: the health Increasing factors Poverty line Remains fixed effects that households may suffer are not captured. Ÿ Sectoral real GDP growth Ÿ Social assistance Second, the mapping of the sector-level per capita real Temporally GDP growth forecasts into the micro-data is very coarse. adjusted Consumption Consumption By focusing only on the household head’s primary job, now (2019) Pass-through next period (2020) the income-generating activities of other household Spatially adjusted members are ignored. Third, the model does not allow Decreasing factors household heads to switch sectors. In reality, workers NLSS Ÿ Population growth 2018/19 micro-data Ÿ Inflation Forecast poverty in industry and services may switch into agriculture to mitigate the effects of the crisis. Fourth, the assumption rate Source: World Bank’s elaboration. that pass-through from real GDP per capita growth to household consumption growth is the same for all households—regardless of whether they are rich or 20 A pass-through rate cannot be calculated for Nigeria because the 2018/19 NLSS adopted a new and improved methodology for measuring consumption, such that it cannot be straightforwardly compared to previous household surveys in Nigeria. 46 Part 2: Taking a Closer Look NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY  he predicted poverty rate depends on the underlying macroeconomic forecasts and the modelling Figure 2.9. T assumptions used. Panel A. Different Growth Scenarios Panel B. Different Pass-Through Assumptions Poverty headcount rate, percent Poverty headcount rate, percent 47 – 44.0 – 46 – 43.5 – 45 – 43.0 – 44 – 42.5 – 43 – 42.0 – 42 – 41.5 – 41 – 41.0 – 40 – 40.5 – 39 – 40.0 – 38 – 39.5 – 37 – 39.0 – 2019e 2020f 2021f 2022f 2019e 2020f 2021f 2022f ▬ Main prediction ▬ Counterfactual ▬ Less optimistic ▬ One-to-one (baseline assumption) ▬ Newly FCS average (0.86) ▬ Sub-Saharan Africa average (0.75) ▬ FCS country average (0.42) Source: 2018/19 NLSS, United Nations population projections, and World Bank estimates. Notes: Estimates exclude Borno. Real consumption deflated temporally and spatially to compare with new national poverty line. ‘FCS’ means fragile and conflicted-affected situations. Pass-through estimates for FCS settings taken from ‘On the Front Lines of the Fight Against Poverty’, Corral et al., 2020. Pass through estimates for sub-Saharan Africa taken from the World Bank Poverty and Shared Prosperity Report 2018. In Panel A, pass-through is set to 1. In Panel B, the main prediction growth scenarios are used. poor—is very strong. Fifth, the model does not capture the possibility that purchasing power may be further threatened if prices for food and other basic goods rise faster—perhaps due to market disruptions—than the GDP deflator used to place GDP growth in real terms. Part 2: Taking a Closer Look 47 NIGERIA DEVELOPMENT UPDATE JUNE 2020 Nigeria’s Border Closure: Impacts and the Way Forward Summary: Nigeria’s decision to close its land borders to Background on the border closure trade in August 2019 precipitated a significant deterioration in economic relations with neighboring countries. According As with many countries in the world, in March 2020 to public statements, the closure was intended to address Nigeria closed its land borders indefinitely to limit the three main problems: (i) the illegal export of subsidized fuel spread of the COVID-19 pandemic. While ports have from Nigeria; (ii) the import of banned or illegally trans- remained in operation, both major airports in Lagos and shipped goods, or of those in competition with Nigerian Abuja have been closed to international arrivals. Nigeria’s priority industries; and (iii) security concerns related to land borders have been sealed off completely, and cross- drugs, guns, and criminals entering the country through border travel and trade have declined dramatically. highly porous borders. In light of the COVID-19 pandemic, the closure order has now been extended indefinitely and However, Nigeria’s cross-border trade with its broadened to include any kind of cross-border activity. This neighbors had already come to a halt more than six analysis highlights six key impacts of Nigeria’s border closure months beforehand. On August 22, 2019, the Federal and subsequent COVID-19 restrictions. These comprise: Government of Nigeria announced the closures of (i) an increase in inflation, especially for food products; the border crossings at Ekok (to Cameroon), Seme (ii) lower household consumption due to higher food prices, and Chikanda (both to Benin). These closures were with the average Nigerian now having to pay two percent subsequently extended to all other land border crossings. more for the same basket of goods; (iii) a decrease in welfare The rationale for these measures has varied, but one of standards among Nigeria’s neighbors, especially Benin; (iv) three reasons are generally given: (i) the illegal export of a marked shift in formal trade to Nigeria and away from subsidized fuel from Nigeria; (ii) the import of banned Benin, leading to some improvement in customs revenues; or illegally trans-shipped goods, as well for those goods (v) a short-term but not potentially not sustained reduction Nigeria is aiming to increase domestic production; in smuggling; and (vi) a decline in trade for some private- and (iii) security concerns related to drugs, guns, and sector businesses, although precise outcomes vary greatly criminals entering the country. depending on the industry sector, import requirements, and customer base of individual firms. The COVID-19 The border closure precipitated a deterioration in crisis provides an opportunity for Nigeria to cooperate more economic relations between Nigeria and its neighbors. closely with its neighbors on shared priorities, including Over the past decade, the Federal Government has public health, counterterrorism, trade and investment. implemented partial border closures, tightened Nigeria’s industries will stand to benefit from streamlining restrictions on imports, and increased the presence of cross-border trade. Making transit procedures and logistical security forces at borders. This was in response to small- services more efficient would also present advantages. scale informal trade and organized smuggling, both Among the anticipated benefits of these measures would be of which are prevalent in Nigeria.21 During the recent to strengthen Nigeria’s participation in regional and global past, a relationship has existed between the Nigerian value chains, lower the prices consumers face, accelerate government’s imposition of import restrictions on goods, economic diversification, and increase value addition and on the one hand, and Benin’s importation of these competitiveness of domestic firms. goods, on the other (Figure 2.10). Moreover, Nigeria’s 21 Little reliable data exist on informal trade volumes, yet a 2011 estimate places the ratio of informal to formal trade for Nigerian imports from Benin stands at about five to one, and at one to one for Nigeria’s exports (Bensassi et al. 2019). 48 Part 2: Taking a Closer Look NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY  ollowing new restrictions, Nigerian rice Figure 2.10. F  iolence in the year before the closure Figure 2.11. V imports decline and Benin’s imports was most prevalent in regions bordering surge. Niger, Chad and Cameroon. Rice imports to Nigeria and Benin (million United States Number of fatalities (per one million) and violent events dollar) 1,600 – 2013: 60% import 2015: Rice forex restrictions 180 – – 400 levy on rice 1,400 – 160 – – 350 1,200 – 140 – – 300 120 – 1,000 – – 250 100 – 800 – – 200 80 – 600 – – 150 60 – 400 – – 100 No land border Benin Kwara Benin Lagos Benin Niger Benin Ogun Benin Oyo Benin Kebbi Niger Jigawa Niger Katsina Niger Kebbi Niger Sokoto Niger Zamfara Chad Borno Cameroon Adamawa Cameroon Benue Cameroon Cross River Cameroon Taraba 40 – 200 – 20 – – 50 0– 0– –0 10 11 12 13 14 15 16 17 18 20 20 20 20 20 20 20 20 20 ▬ Benin ▬ Nigeria J Battles J Strategic developments J Violence against civilians J Riots J Explosions/remote violence Q Number of fatalities, rhs Source: World Bank estimates using COMTRADE mirror data. Note: HS Code 1006 used Source: World Bank estimates using ACLED data for August 2018–July 2019. Average for rice. number of fatalities in states with no land borders is population-weighted; violent events are the mean value of states. North East and North West of the country, bordering Impacts of the border closure Chad, Cameroon and Niger, has had the highest levels of violence in recent years (Figure 2.11). The overall macroeconomic impact of the border closure is relatively minor according to GDP data However, the prevalence of smuggling has at least (Figure 2.12). The effect of the border closure on  partially been driven by Nigerian trade and industrial individual sectors is less clear and it is too early to tell policy over the past decade. The border closure whether the desired import substitution impact has been follows longstanding policies by the government to achieved. Impacts will likely depend on a particular restrict imports of select goods. It has opted to do so firm’s industry, its import requirements, and its customer through outright import prohibitions, foreign exchange base. The most recent figures show a contraction of the restrictions, and high tariffs, which have in turn created trade sub-sector in the fourth quarter, which lowered significant incentives for smuggling. Yet, the impact has overall 2019 GDP growth by 0.1 percent. In addition, been limited. Even for prohibited items, the exchange the transport sector contracted for the first time since rate pass-through remains high, meaning that prices the recession ended in early 2017. According to the remain externally driven (Lundback and Yao 2020, CBN’s monthly Business Expectations Survey of forthcoming). Instead, these measures have primarily 1,050 firms, business confidence related to the closure led to increased prices for consumers, on the one hand, exhibited no notable change. Moreover, concerns about and to strong incentives for smuggling, on the other.22 competition remained stable and no decline was seen Meanwhile, the benefits for Nigerian industries have in the perception of “lack of material inputs” as a key been limited. In summary, not only have past restrictions constraint. proved ineffective at achieving their intended goals, but Nigerian citizens have seen their welfare standards However, the border closure had an immediate and decline as a result. significant impact on inflation, especially for food (Figure 2.13). Overall inflation rate increased from  11 percent in August 2019 to 12.1 percent in January 22 See Treichel et al. (2012), Bensassi et al. (2016) and Dabalen and Nguyen (2018) for past analyses on the impact of Nigeria’s import bans. Part 2: Taking a Closer Look 49 NIGERIA DEVELOPMENT UPDATE JUNE 2020  verall economic activity stayed Figure 2.12. O  but inflation accelerated after the Figure 2.13. … constant in Q4… border closure. Economic activity and the border closure Annual headline inflation Percent Year-on-year, percent 25 – Recession Border 16 – Border closure closure 15 – 20 – 14 – 15 – 13 – 10 – 12 – 5– 11 – 10 – 0– 9– -5 – 8– -10 – 7– 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 -16 -16 -16 -16 -17 -17 -17 -17 -18 -18 -18 -18 -19 -19 -19 -19 n-1 b-1 r-1 r-1 y-1 n-1 l-1 g-1 p-1 t-1 v-1 c-1 n-2 b-2 r-2 r-2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Ja Fe Ma Ap Ma Ju Ju Au Se Oc No De Ja Fe Ma Ap ▬ Transportation and storage ▬ Trade ▬ Real GDP growth ▬ CPI ▬ Food CPI ▬ Non-food CPI Source: World Bank estimates using NBS data. Source: World Bank estimates using NBS data. 2020. This was particularly driven by food inflation,  he additional expenditure needed to Figure 2.14. T maintain the same welfare as before the which makes up half of the Consumer Price Index (CPI) border closure has been driven by rice basket and which rose from 13.2 percent in August 2019 price increases. to 14.8 percent in January 2020. In some cases, these Additional food expenditures (in nominal Naira per capita changes have been quite dramatic. In the three months per year) 5,000 – after the border closure (October–December 2019), for example, rice prices increased by 15.1 percent (local) 4,000 – and 20.3 percent (imported). Prices for staples such as 3,000 – tomatoes and frozen chicken also rose sharply, jumping by 10.2 percent and 14.5 percent, respectively.23 2,000 – 1,000 – Faced with these price changes, households need to spend about 2 percent more to maintain their 0– consumption  (Figure 2.14). The additional expenditure -1,000 – Sep–Nov 2019 Dec 2019–Feb 2020 required to maintain consumption has also increased Compared to May–Jul 2019 J Local rice J Imported rice J Other grains/bread/maize since the border closure, from 0.8 percent (1,452 Naira J Starchy roots, tubers, plaintains J Pulses, nuts, seeds J Oils and fats in 2018/19 prices) in September 2019 to 1.7 percent J Vegetables J Poultry and eggs J Other meat J Fish Q Total compensating variation (3,194 Naira in 2018/19 prices) in December 2019.24 Source: World Bank estimates using price data from NBS and consumption data from Price increases for rice make up 76 percent of the total NLSS. Estimates exclude Borno state. additional expenditure that Nigerian householders now prices can have long-run impacts, especially if they face as a consequence of the border closure.25 In addition reduce children’s nutritional intake. to higher prices, households that rely on cross-border trade are likely to suffer from lost income, as well as Imports that had previously been smuggled into longer distances to markets and potentially less variety. Nigeria began entering formally after the closure, Even relatively modest and temporary increases in food at least initially. According to official data, the border 23 These changes, which compare to average prices in May-July 2019, far exceed normal seasonal fluctuations. For the same May-July period in 2016-18, for instance, average frozen chicken prices increased by 14.5 percent, while tomatoes prices declined by 19.3 percent. Rice prices, on the other hand, remained relatively constant, ranging from a decline of minus 0.4 percent for some local varieties to an increase of 2.5 percent for imported varieties. 24 The mean is used to aggregate across different food items in the official price data so they can be mapped into the food items in the household consumption data from the 2018/19 Nigerian Living Standards Survey (NLSS). 25 This assumes a constant consumption basket. Substitution between goods may lessen these welfare effects on households, although these effects may be downplayed as current data do not cover the entire consumption basket. 50 Part 2: Taking a Closer Look NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY  he border closure seems to have Figure 2.15. T  he decline in economic activity along Figure 2.16. T diverted formal trade from Benin to the Benin-Nigeria border was short-lived. Nigeria. Global exports to Nigeria and Benin Night lights at the Benin border and Lagos port Annual growth rates, year-on-year, percent Sum of night lights over area (log) 80 – 20.0 – 60 – 19.5 – 40 – 19.0 – 20 – 0– 18.5 – -20 – 18.0 – -40 – 17.5 – -60 – -80 – 8 8 8 8 8 8 9 9 9 9 9 9 17.0 – 8 8 8 8 8 8 9 9 9 9 9 9 n-1 ar-1 ay-1 Jul-1 ep-1 ov-1 an-1 ar-1 ay-1 Jul-1 ep-1 ov-1 b-1 pr-1 un-1 ug-1 Oct-1 ec-1 eb-1 pr-1 un-1 ug-1 Oct-1 ec-1 Ja M M S N J M M S N Fe A J A D F A J A D ▬ To Nigeria ▬ To Benin ▬ Border with Benin ▬ Lagos port Source: IMF Direction of Trade Statistics and World Bank estimates. Source: Lundback and Yao (2020, forthcoming). closure coincided with a striking decline in Benin’s global The impact on customs revenues has been limited. imports and a temporary increase in Nigeria’s imports The Federal Government’s fiscal data show a spike in (Figure 2.15). This is consistent across some of the major customs revenue in the month that the first closure non-African trading partners, including the United was imposed (i.e. August 2019), but evidence no large States, India, China and the European Union. Product- increase thereafter (Figure 2.17). Overall, the 2019 level data show that goods with import restrictions such customs (import, excise, and fees) revenue growth as footwear and carpets saw rapid increases in recorded averaged 20 percent. This compares to 14 percent exports to Nigeria following the border closure, whereas nominal, year-on-year growth in 2018. If one includes in Benin they fell. However, it is unclear whether these the increase of 6 percent that had already been expected effects were sustained. It is notable, for example, that from revisions to the nominal exchange applicable to the initial boost in exports to Nigeria tapered off after  he border closure did not spur a Figure 2.17. T the first few months. According to IMF analysis of sustained increase in customs revenues. economic activity proxied by night lights (Yao, 2020f ), Customs revenue growth (year-on-year, percent) 2019 vs trade in border areas initially slowed while trade in port 2018 areas grew, although activity patterns now appear to have 40 – Border closure reverted to pre-closure levels (Figure 2.16). 30 –  xports to Nigeria and Benin, average Table 2.1. E year-on-year growth rates before and after 20 – border closure. Jan–Aug 2019 Sept–Dec 2019 10 – Origins Benin Nigeria Benin Nigeria China 25% 19% -46% 14% 0– India 44% 31% -55% 34% United States 15% 20% -21% 18% -10 – n b r r y n l g p t v c Ja Fe Ma Ap Ma Ju Ju Au Se Oc No De EU -16% 5% -23% 4% ▬ Gross customs revenue growth, 2019 ▬ Gross customs revenue growth, 2018 ECOWAS 57% 36% -1% 162% ▬ Expected impact from applying higher nominal rate for customs, 2019 Source: IMF Direction of Trade Statistics and World Bank estimates. ▬ Average 2019 growth ▬ Average 2018 growth Notes: ECOWAS = Economic Community of West African States. ECOWAS trade flows ▬ Average 2019 growth pre- post-border closure exclude Burkina Faso, Cabo Verde, Guinea-Bissau, and Liberia for Nigeria, and Cabo Verde, the Gambia, and Liberia for Benin (due to data availability). Source: World Bank estimates based on Nigerian Customs Service data. Part 2: Taking a Closer Look 51 NIGERIA DEVELOPMENT UPDATE JUNE 2020 customs (to N326/US$), then customs revenue growth 2019. Two months later, it also agreed to the creation in 2019 is largely in line with that of the previous year. of a committee approved by the Economic Community of West African States, led by President Roch Marc Impacts of the border closure are likely to be more Christian Kabore of Burkina Faso, to study and report significant in neighboring Benin, where the country’s on the land border closure. The spread of the COVID-19 dependence on economic relations with Nigeria pandemic has diverted the attention of Economic are far greater. As in Nigeria, higher food and energy Community of West African States, thus delaying the prices since the closure have also led to inflation in committee’s progress. As shown in Box 2.2, COVID-19 Benin. On the fiscal side, meanwhile, Benin’s tax revenue has created new trade-related challenges for Nigeria as it collection fell short of expectations in 2019, most likely seeks to ensure sufficient supply of medical products to in part due to the closure’s negative impacts on customs address the pandemic. revenue. In total, the estimated monthly loss in Benin’s customs revenue due to the closure is 10–15 billion The COVID-19 pandemic provides an opportunity West African CFA (Communauté Financière Africaine - for Nigeria to cooperate more closely with its Financial African Community) francs. This implies that neighbors on shared priorities. For example, a focus on the measures were partially successful. A case in point is addressing smuggling can form part of a broader agenda the price of fuel smuggled from Nigeria, known as kpayo, around facilitating legitimate trade, improving security which increased up to 40 percent in some districts of and counterterrorism, and increasing cooperation on Benin. In November 2019 and February 2020, shortages public health. A common focus on trade facilitation in kpayo caused fuel prices to double overnight, before measures can contribute to the response to COVID-19 stabilizing back at the levels immediately after the by expediting the movement, release, and clearance of border closure’s introduction.26 These highly asymmetric goods (including those in transit). In the medium term, impacts are also supported by new World Bank analysis. this would also improve health protection as Nigeria Lebrand (2020, forthcoming) shows that a complete would have greater access to essential products to fight border closure between Benin and Nigeria would lead the pandemic. Joint actions could include bilateral to a 4.9 percent gap loss in welfare, with some border cooperation on border management, joint information districts losing 11 percent. This is especially noteworthy campaigns, coordinated purchasing of medical as these districts are already poorer on average. Less equipment, partnering on repurposing production to information exists on the fiscal effects of the border produce medical goods, and management of health closure on Niger. Estimates by the IMF, however, point specialists to deal with emerging hotspots in the region. to a significant deterioration of its current account shortfall, resulting in a 0.4 percent gap in GDP relative Trade facilitation reforms would benefit Nigeria’s to projections (IMF 2020). businesses and consumers, as well as helping tackle corruption. Such reforms would allow better and faster access for businesses to production inputs from abroad Supporting Nigeria’s economic recovery and support greater participation in global value chains by safely reopening and managing its (GVCs). Countries where inputs can be imported land border once the immediate spread of and exported in a quick and reliable manner are more COVID-19 has been addressed attractive for FDI. Consumers also benefit from lower Nigeria has agreed to several regional initiatives to prices, higher quality products, and a greater goods reopen the border in the recent past. Notably, the variety. Trade facilitation reforms especially help small government consented to a joint border force being and medium-sized enterprises (SMEs) to participate in set up between Benin, Niger, and itself in November trade, reducing unnecessary costs. 26 No conclusive statements could be drawn from the currently available Nigeria National Petroleum Corporation (NNPC) data on the impact of the border closure on the changes in volumes of Nigeria’s imports of fuel, nor the impact on the fuel subsidy. 52 Part 2: Taking a Closer Look NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY  n overview of Nigeria’s trade in medical products and potential supply vulnerabilities Box 2.2. A related to COVID-19. The high concentration of imports in COVID-19 medical products makes Nigeria vulnerable to potential shortages in supplies from top producer countries. The World Health Organization COVID-19 Disease Community Package (DCP) contains 46 items for surveillance, triage, screening, and clinical management. Among them, 17 products have been prioritized as key critical items to deal with the current crisis. These include essential items for diagnosis and treatment processes, such as enzymes, liquid soap, personal protection equipment, and oxygen concentrators. In Nigeria, the top three exporters represent an average of 80 percent of Nigeria’s imports. Import concentration is particularly high for key products, such as heavy-duty aprons, gloves, nitrile and sterile gloves, medical masks, and protective goggles. Over 90 percent of Nigeria’s imports of medical masks are currently subject to export restrictions from suppliers, resulting in an estimated price rise of around 40 percent. Similar levels of restrictions are placed on bougies, catheters, drains and probes, leading to a price hike of around 20 percent. Compared to the global average, Nigeria has moderate tariffs on medical products, with higher tariffs for selected products. Average tariffs for key COVID-19 medical products are 8 percent. Import restrictions are particularly high for personal protective equipment and hygiene products. These tariffs cause prices to rise and negatively affect Nigeria’s ability to respond to the pandemic. In terms of non-tariff measures, Nigeria imposes import licensing requirements for protective garments, medicine, and ventilators. In addition, the majority (70 percent) of COVID-19 products are subject to pre-shipment inspection requirements. The same is true for all personal protection equipment. Imports of tissue paper and disinfectant, meanwhile, are banned. To effectively and safely deal with the current health crisis, Nigeria can take action on various fronts. Options include diversifying import sources, eliminating unnecessary import restrictions, reducing other taxes such as VAT, and streamlining non-tariff measures on COVID-19 medical products. Source: Espita et al. (2020). In parallel, there is an urgent need to address some decline in oil prices and the resultant fiscal crisis present of the underlying policy-related causes that have an opportune moment to reduce or even remove the been driving smuggling and that motivated the country’s regressive gasoline subsidies. As it stands, these initial closure of the border. Low-income Nigerians subsidies primarily benefit middle and high-income are especially well-placed to benefit from the removal household, while also acting as a driver of smuggling. of import prohibitions because import bans restrict the domestic availability of imported goods and limit Any changes need to be complemented by efforts competition in price and quality. As a result, prices for to diversify the economy and increase the export these protected products are higher in Nigeria than in competitiveness of Nigerian firms. Helping to the world market. This negatively impacts consumers’ achieve these twin objectives would be a broader welfare as they have fewer varieties to choose from and economic agenda focused on value addition. Specific have to pay more. Another channel through which the measures in this regard include: (i) improving domestic domestic price of protected goods is driven up relates transportation connectivity so as to reduce prices to higher input prices to industries that use protected and leverage Nigeria’s limited physical, financial, and products, such as cement and timber. Moreover, the human resources; (ii) ramping up business environment Part 2: Taking a Closer Look 53 NIGERIA DEVELOPMENT UPDATE JUNE 2020 reforms put forth by the Presidential Enabling Business Environment Council; (iii) facilitating the use of imported inputs in production process through an open and transparent trade and foreign exchange policy; and (iv) integrating and upgrading into targeted regional and global value chains by investing in human and physical capital. 54 Part 2: Taking a Closer Look NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY References IMF (2020). Niger: Fifth Review Under the Extended Credit Facility Arrangement. International Monetary Fund, Africa Department, January 14, 2020. Bensassi, S., Jarreau, J., and Mitaritonna, C. (2016). Lundback, E. and Yao, J. (2020), Partial Land Border Informal Trade and the Price of Import Bans: Closure, forthcoming IMF Selected Issues Paper. Evidence from Nigeria. AGRODEP Working Paper No. 26. Treichel, V., Hoppe, M., Cadot, O., and Gourdon, J. (2012). Import bans in Nigeria increase poverty. Bensassi, S., Jarreau, J., and Mitaritonna, C. (2019). Africa Trade Policy Notes, 28. Regional integration and informal trade in Africa: evidence from Benin’s borders. Journal of World Bank. (2019a). Jumpstarting Inclusive Growth: African Economies, 28(1), 89-118. Unlocking the Productive Potential of Nigeria’s People and Resource Endowments; Nigeria Dabalen, A., and Nguyen, N. T. V. (2018). The Short- Economic Update, Fall. Washington, D.C.: The Run Impact of Import Bans on Poverty: The World Bank. Case of Nigeria (2008–2012). The World Bank Economic Review, 32(2), 245-267.\ World Bank. (2019b). Managing Oil Markets: Insights from Benin, Burkina Faso, Cote d’Ivoire and Espita, A., Lee, W., Rocha, N. and Ruta, M. (2020). Togo. Nigeria: COVID-19 Trade Snapshot. World Bank Group Trade and COVID-19 Guidance World Bank. (2020). Poverty and Distributional Impacts Note. of COVID-19: Potential Channels of Impact and Mitigating Policies. Lebrand, M. (2020). Quantifying the spatial effects of the Nigeria-Benin border closure, Unpublished Yao, J. (2020f ). Partial Land Border Closure, manuscript. forthcoming IMF Selected Issues Paper. Part 2: Taking a Closer Look 55 Part 3: Spotlights on Nigeria's Development Agenda NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY Spotlight 1: The Role of Agribusiness in Providing Food Security and Supporting the Post-Pandemic Recovery Summary: By the standards of middle-income countries, The agricultural sector has been Nigeria’s agricultural sector has limited linkages with broadly resilient to previous crises, manufacturing. Boosting agribusiness would improve food but productivity remains low security in Nigeria by reducing the reliance on food imports while building resilience to the volatility of agricultural Due to its relative economic isolation and commodity prices and import supply chains. Despite longstanding role as an employer of last resort, the government interventions, however, the agricultural sector’s agricultural sector has proven broadly resilient to growth rate has failed to meet the objectives of the Economic economic volatility over the past decade. Crops and Recovery and Growth Plan, averaging 2.6 percent during livestock contribute about 90 percent and 7 percent to 2017–19, well below the average GDP growth rate of the sector’s total output, respectively, and Nigeria’s top 3.8 percent recorded during the past decade. The COVID-19 three agricultural products are cassava, rice and maize. pandemic and related containment measures are expected Agriculture was the only sector that did not contract to adversely affect agriculture supply chains and the rural during the 2016 recession, and it was the most stable labor market, with negative effects on the 2020 planting sector in the turbulent years preceding the recession season and subsequent agricultural output. Small farmers (Figure 3.1). The relative stability of agriculture is due will have difficulty bringing their products to market, and in part to weak its weak linkages with other sectors. large farmers will face higher costs of production, both of Inter-sectoral linkages are weak because it is estimated which are expected to increase food prices. In the context that about 50 percent of the manufacturing sector of the COVID-19 pandemic, the expected increase in food GDP involves processing of agricultural raw materials prices poses a major threat to food security, especially for the (agribusiness) but a significant proportion of these raw 26 million undernourished Nigerians. An effective response materials is imported.27 to these challenges will require a sequenced approach, with initial interventions designed to mitigate the effects of the The industrial sector relies on imports, and changes pandemic on food security followed by measures to accelerate in agricultural imports are correlated with changes recovery and create inclusive growth by supporting the in manufacturing output. A significant share of development of agribusiness value chains. raw materials for agribusiness are imported (about 47 percent of food and beverage imports in Nigeria are inputs for industrial food production). Imports of agricultural commodities peaked when output growth in the manufacturing sector was at its highest and declined sharply as manufacturing growth plunged (Figure 3.1). Nigeria’s reliance on food and beverage imports contributed to a cumulative import bill worth N3.7 trillion (US$12.1 billion) in 2015–17 and an average agriculture trade deficit of US$3 billion during the same period. 27 World Bank 2020: Transforming Agriculture for More and Better Jobs, forthcoming. PART 3: SPOTLIGHTS ON NIGERIA’S DEVELOPMENT AGENDA 57 NIGERIA DEVELOPMENT UPDATE JUNE 2020  rowth in agriculture has been less Figure 3.1. G  igeria’s agriculture sector is relatively Figure 3.2. N volatile than in other sectors, but it has large compared to peers, and its been declining. productivity is lower. Sectoral growth patterns in Nigeria Agriculture as a share of employment and sectoral labor productivity, 2017 Percent 2010 US$, thousands 25 – 30 – 20 – 25 – 15 – Aspirational peers 20 – 10 – 5– 15 – Industry Gap 0– 10 – Services -5 – Agriculture Nigeria 5– -10 – -15 – 0– 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 9e 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 201 0 10 20 30 40 50 60 70 80 90 100 Cumulative sectoral shares of employment, 2017 ▬ Agriculture ▬ Industry ▬ Manufacturing ▬ Services Sources: NBS and World Bank estimates. Sources: World Development Indicators and World Bank estimates. To foster economic diversification and ease reliance The agricultural sector has grown on imported food, the Nigerian government has slowly despite government launched a range of agricultural programs and interventions included a sectoral development strategy in the Economic Recovery and Growth Plan for 2017–19. The agriculture sector grew at an average annual The government launched The Green Alternative in rate of 2.6 percent in 2017–19, well below the 2016 and the Presidential Initiative on Fertilizer in decade average of 3.8 percent for the economy as a 2017. The Green Alternative focuses on enhancing whole. A broad range of subsectors drove agricultural productivity, crowding in private investment, and growth in 2017–19, including cereals, cash crops, addressing institutional issues relevant to agriculture and vegetables (Figure 3.3). The crop that grew at the and rural development. The Presidential Initiative on fastest rate was millet, a staple food grown mainly in the Fertilizer is designed to facilitate access to fertilizers at northern parts of the country. However, the increase in reduced prices through public and private partnerships. millet production reflected a return to historical levels The ERGP aimed to increase agricultural output at an following a collapse during 2010–14. Other agricultural average annual rate of 6.92 percent between 2017 and subsectors that performed well in 2017–19 include 2020, significantly reduce food imports and become sesame seed, which has emerged as a major export crop a net exporter of key agricultural products and achieve in recent years, cashew nuts, and soya beans, the latter self-sufficiency in several key staple crops by 2020. of which are grown mostly in the middle belt and are However, the strategy was not able to achieve these becoming an increasingly important source of feedstock ambitious goals. for the poultry and fish sectors in the southern states. Tomato and wheat grew at average rates of 8 percent and 5 percent, respectively, during the post-recession period, rebounding from contractions of 8 percent and 17 percent, respectively in 2015 and 2016. However, during the past three years the growth of the agricultural 58 PART 3: SPOTLIGHTS ON NIGERIA’S DEVELOPMENT AGENDA NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY sector has fallen short of its historical average (Figure growth of an increasingly significant export crop. 3.4), and the COVID-19 pandemic and looming By contrast, wheat yields declined by 11.1 percent economic downturn are expected to disrupt production even as the total area under cultivation expanded over the near term. by 17.6 percent. Yields for other major agricultural commodities remained broadly stable, including cocoa While the expansion of cultivated area drove beans (-1.5 percent), millet (1.4 percent), and soya beans production growth for several crops, tomatoes and (0.8 percent). sesame experienced increases in marginal yields. Tomato yields increased by 27.4 percent, while the area Low productivity continues to inhibit the growth under cultivation contracted by about 14.0 percent. of agriculture. Technological uptake and efficiency Meanwhile, sesame yields grew by 7.0 percent and gains both require that farmer have access to improved cultivated area expanded by 6.0 percent, indicating inputs, better management practices, technical advice, that both extensive and intensive cultivation are driving and external markets for commodities. However,  ajor crops drove agriculture growth. Figure 3.3. M  griculture growth fell below ERGP Figure 3.4. A targets and historical rates. Output growth, by crop Agriculture growth and ERGP targets Percent Percent 40 – 12 – 30 – 10 – 20 – 8– 10 – 6– 4– 0– 2– -5 – 0– -10 – Growth Pre-recessionRecession Sesame period period period 2017 2018 2019e Cocoa beans Millet seed Soybeans Tomatoes Wheat (2001–09) (2010–14) (2015–16) J Growth period (2001–09) J Pre-recession period (2010–14) J Agriculture GDP growth ▬ ERGP target J Recession period (2015–16) J Recovery period (2017–18) Sources: FAOSTAT and World Bank estimates. Sources: NBS, ERGP and World Bank estimates. Box 3.1. Enhancing the competitiveness of Nigeria’s rice production. Rice output contracted sharply after the 2016 recession. This downturn was preceded by a half-decade of rapid production growth driven by import restrictions. Annual output growth averaged over 12 percent between 2010 and 2016, then plunged to -5 percent after 2016 (Figure 3.25). Import restrictions caused a steep decline in official imports, which fell to near zero by 2019, spurring the increase in domestic production. However, output growth was almost due to the expansion of cultivated area, as rice increased from 6.7 percent of total cultivated land in 2010–14 to 10.6 percent during 2015–16. This model was not sustainable, and the sudden increase in rice output was followed by a deep and sustained contraction in 2017–19. Nigeria’s marginal rice yields have remained persistently low relative to those of major world producers. Other major agricultural commodities—including maize, sorghum, groundnuts, sugarcane, and yams—followed the same pattern, growing swiftly before the recession and then contracting during it. However, poultry production PART 3: SPOTLIGHTS ON NIGERIA’S DEVELOPMENT AGENDA 59 NIGERIA DEVELOPMENT UPDATE JUNE 2020 Box 3.1 continued bucked this trend, contracting by about 6.1 percent in 2010–14, then recovering modestly, during the recession, and then contracting again in the post-recession period. Figure B3.1.1. Major subsectors that negatively weigh on agriculture growth. Growth in the agriculture sector by product Percent 15 – 10 – 5– 0– -5 – -10 – Groundnut Maize Rice Sorghum Sugar cane Yam Chicken meat J Growth period (2001–09) J Pre-recession period (2010–14) J Recession period (2015–16) J Recovery period (2017–18) Source: FAOSTAT and World Bank estimates. Rice output cannot sustainably increase unless the subsector’s competitiveness issues are addressed. The rice sector is not competitive in the domestic market due to consumer preferences, high production costs, and logistical issues. Domestic consumers tend to regard local rice varieties as inferior to imported varieties. Low yields increase production costs above the levels of many rice exporters. Weak post-harvest management leads to contamination and reduces quality. Import restrictions appear to have boosted domestic production but did not address any of these underlying factors. Technological upgrading is vital to support the rice subsector. Enhancing the competitiveness of the rice sector will require improving the technology of production, introducing higher-yield varieties with more desirable attributes, disseminating agronomic practices that increase yields and use fewer less inputs (especially water), developing plot-specific knowledge of soil nutrient profiles and providing access to blended fertilizers with specific nutrient compositions, building efficient irrigation systems, and investing in on-farm post-harvest management capacity. Nigerian farmers need more effective extension service and agronomic education to apply new technologies effectively. While productivity-focused agricultural interventions are far harder to design and implement than trade restrictions, their returns are higher, more equitably distributed among small-scale farmers, more beneficial to consumers and agribusiness firms, and more sustainable. many Nigerian farmers are unable to access improved Technological upgrading could help mitigate the technology, production processes, and commodity negative effects of climate change on agriculture markets due to inadequate investment in agricultural output. Nigeria is one of the fifteen countries in the research and development, fragmented agribusiness world most vulnerable to natural disasters, such as value chains that prevent producers from coordinating floods, droughts, heat waves, and storms. Climate with buyers and instead rely on spot transactions, lack models for Nigeria predict that these effects will be most of access to finance for agriculture, and an unpredictable intense in the North, which is both deeply impoverished policy environment. and heavily reliant on agriculture. In the North, climate 60 PART 3: SPOTLIGHTS ON NIGERIA’S DEVELOPMENT AGENDA NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY change will increase temperatures and reduce rainfall, al. (2020) find that agricultural output declined by while in the South it will increase flooding, soil erosion, an estimated 14 percent, year-on-year, in April/May and land degradation. Overall, the effects of climate 2020 (Figure 3.5). The social distancing, transport change will diminish the productive capacity of the land restrictions, and partial closure of food retail markets and lower agricultural productivity, further undermining are already affecting agricultural livelihoods and food food security and increasing dependence on food security through multiple channels. In the near term, imports. farmers could lose part of the current planting season if immediate mitigation measures are not implemented. Disruptions during the planting season would reduce food production later in the year, threatening the livelihoods of the more than 90 percent of the population The COVID-19 crisis could threaten who derive income from agriculture. A contracting food agricultural output and food supply could fuel an increase in food prices, especially in security remote and economically isolated areas. The COVID-19 pandemic and associated economic The COVID-19 pandemic and associated lockdown downturn are the most daunting challenges facing measures are disrupting input supply networks and the agriculture sector in the short term. While the causing short-term labor shortages. Social distancing agriculture sector proved quite resilient during the and restrictions on the movement of people and goods recession of 2016, the COVID-19 pandemic presents have curtailed the supply of labor and agricultural new challenges that could severely affect growth in inputs. The effects will be more pronounced in labor- the sector. After a five-week lockdown, Andam K. et intensive subsectors that dependent on migrant and  he pandemic and associated lockdown measures have caused Nigeria’s agricultural sector to Figure 3.5. T contract. Changes in agricultural output by subsector in April/May 2020, % year-on-year Change in GDP -14% Agriculture Share of agricultural during the lockdown GDP in 2019 -14% Crops -28% Cereals 13.5% -48% Pulses & oilseeds 3.4% Root crops are the largest food group and agriculture subsector in Nigeria, but home -5% Root crops 43.3% production accounts for a large share of domestic supply -15% Fruits & vegetables 26.9% -47% Sugarcane 0.6% Export crops hurt by falling export demand & input supply disruptions (greater use of -45% Beverage crops 0.2% inputs than other crops) -58% Traditional export crops 0.2% -16% Livestock -16% Meat & eggs 6.8% -16% Dairy 1.5% Decline in investment spending & construction activities reduces demand for timber & wood -25% Forestry 1.1% products -9% Fishing 2.5% Source: Andam K. et al., Impact of COVID-19 on Production, Poverty and Food Systems. International Food Policy Research Institute (IFPRI) 2020. PART 3: SPOTLIGHTS ON NIGERIA’S DEVELOPMENT AGENDA 61 NIGERIA DEVELOPMENT UPDATE JUNE 2020 hired labor, such as poultry and aquaculture, as well the depreciation of the naira is expected to narrow the as among smallholder farms that rely on traditional scope for ramping up food imports. Consequently, labor-sharing arrangements during field preparation although global food markets are well stocked, and and planting activities. Short-term effects on labor food prices are lower and more stable than in previous movements could be exacerbated by COVID-19 years, shocks that affect domestic production or imports morbidity and/or the widespread adoption of voluntary could increase speculation in the domestic market and precautionary measures. Restrictions on movement have push food prices higher. Furthermore, the experience of already disrupted supply networks for seeds, fertilizers, the 2007/08 food crisis shows that export restrictions or agrochemicals, and technical advice, reducing the large-scale imports can disrupt markets and precipitate availability of key inputs and increasing their cost. a global food crisis even when their food stocks are adequate. Job losses in the urban economy are expected to ease shortages in the agricultural labor supply. As urban The potential for food-price inflation is a major unemployment rates rise, a share of urban labor is likely risk to food security, especially for the 26 million to return to the agricultural sector as an employer of last undernourished Nigerians. Food insecurity was already resort. However, the prospective influx of additional increasing before the COVID-19 pandemic: between labor will likely arrive late in the current season and may 2006 and 2018, the number of people facing food not be able to contribute effectively to production. insecurity/undernutrition in Nigeria increased by more than 180 percent, from 9.1 million to 25.6 million.28 COVID-19 is adversely affecting food markets as well The situation is worse in the conflict-affected areas of the as input supply chains. Wet markets appear to have North East, as ongoing insecurity and increasing reliance been affected more than supermarkets or formal retailers. on emergency food relief have disrupted production, Wet markets tend to operate with a high density of inhibited the provision of public agriculture services, buyers and sellers and without ample sanitation services. and compromised the functioning of food value chains. Farmers who rely on wet markets are facing difficulties In March 2020, it was estimated that around 5 million moving goods to markets, which is lowering farmgate people,29 in the North East and North West regions, are prices and increasing food loss and waste at the farm experiencing a Phase 3+ food crisis, and this number is level. Welfare losses among farmers relying on spot expected to reach 7.1 million by June–August 2020. transactions are expected to be greater than those of farmers who are integrated into formal value chains. The pandemic and resulting economic contraction Perishable commodities, including fruits and vegetables, are expected to contribute to rising levels of meat and dairy products, and fish, are especially unemployment and poverty, with negative vulnerable to market disruptions. implications for food security and nutrition. Perishable commodities tend to have both greater The COVID-19 pandemic is increasing the risk nutritional value and higher income elasticities of of food-price inflation. The COVID-19 pandemic demand than grains. Consequently, households facing materialized at a time when Nigeria’s food stocks were a loss of income are likely to adjust their consumption already largely depleted, due in part to the seasonal baskets away from perishables, and undernourishment nature of agricultural production and in part to import may increase. Meanwhile, the supply-side disruptions restrictions on various food commodities, including created by the pandemic are increasing food waste, and rice. Rice production was already contracting prior to shocks that drive up prices for perishable commodities the pandemic (Box 3.1), and the supply-side effects of could have an especially significant impact on food COVID-19 could further reduce production. Moreover, consumption. 28 FAO (2019). The State of Food Security and Nutrition in the World 2019. Rome: FAO (http://www.fao.org/3/ca5162en/ca5162en.pdf; accessed on June 15, 2020). 29 Famine Early Warning System Network (FEWS NET) West Africa. 62 PART 3: SPOTLIGHTS ON NIGERIA’S DEVELOPMENT AGENDA NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY Policy recommendations productive capacity of the agricultural sector and laying the foundation for a faster recovery. These investments could include the construction or rehabilitation of An effective response to these challenges will require public irrigation systems (i.e., secondary and tertiary a sequenced approach, with initial interventions canals), small-scale irrigation equipment, tertiary roads designed to mitigate the effects of the pandemic on that connect farmers to markets, and warehouses and food security followed by measures to accelerate other post-harvest infrastructure. Such projects should recovery by supporting the development of be implemented with the understanding that the agribusiness value chains. In the short term, the infrastructure would be offered to the private sector authorities must focus on protecting livelihoods and under concession agreements. Increased warehousing food security by ensuring that agricultural systems capacity will facilitate the expansion of warehousing- continue to produce at adequate levels, that markets receipt systems and commodity exchanges. These function effectively, and that national reserves are projects could be complemented by investments sufficient to provide emergency relief and support school designed to increase the agricultural asset base of farmers feeding programs. Over the long term, accelerating and improve capital formation in agriculture, such as the recovery of the agricultural sector will require block grants for micro-level power generation and biogas targeted investments aimed at transforming agricultural equipment to enable the environmentally sustainable production and developing agribusiness value chains. management of agricultural waste. Ensuring that food supply chains continue to Enhancing food security and protecting function is critical to national food security. Shocks agricultural livelihoods to supply chains and markets are reducing productivity and increasing waste, but these effects can be mitigated Farmers urgently require inputs and services during at the farm level by increasing the processing capacity the current and the next planting season. The of farmers and producer organizations. For example, COVID-19 pandemic is already affecting agricultural providing small-scale processing equipment for drying, livelihoods and food security through multiple milling, smoking, curing, and packaging agricultural channels. Programs that deliver inputs to farmers must commodities could reduce waste and increase value be rapidly expanded before the end of the planting addition. Infrastructure in wet markets can be improved season. In addition to distributing inputs directly to by enhancing water and sanitation services, which would farmers, the government should offer working-capital further reduce waste while increasing the safety of buyers support to upstream segments of the agricultural value and sellers. chain (i.e., input distributors and retailers). Extending mechanization services to the farmers and leveraging Improved policy guidelines are needed to ensure the new technologies to share productive capital could help safety of activities along agricultural value chains, offset the short-term shock to the labor supply. improve the functioning of input markets, and inform a rules-based approach to the procurement and The authorities can help prepare the agriculture release of food from national reserves. Improved safety sector to absorb returning workers from the urban guidelines should cover farm operations, the construction economy. Investing in labor-intensive agriculture and maintenance of agricultural infrastructure, infrastructure would provide short-term jobs for processing of agricultural commodities, the operation displaced urban workers, mitigating the wage effects of wet markets, and related subjects. Special guidelines of reverse rural-urban migration while enhancing the for maintaining social distancing during agricultural PART 3: SPOTLIGHTS ON NIGERIA’S DEVELOPMENT AGENDA 63 NIGERIA DEVELOPMENT UPDATE JUNE 2020 production (especially land preparation and planting), investments can be mobilized faster than greenfield food processing and handling, and the operation investments. Moreover, greenfield investors may be of formal and wet markets will necessary to enable less willing to invest in new ventures during a time of agricultural supply and marketing systems to function profound economic uncertainty and in a segment that is effectively during the pandemic. Tighter oversight of already considered inherently risky. input supply networks and commodity value chains is necessary to discourage oligopolistic behavior. A rules- Improving the enabling environment for agribusiness based system for managing national reserves would will catalyze private investment. The enabling support decisions regarding the volume of imports environment includes upstream primary production and needed to manage domestic prices without distorting downstream nonfarm enterprises involved in processing, production incentives. Finally, the government will need input supply, trading, and food service. A holistic to monitor domestic agricultural production and global approach is necessary to encourage investment in both markets carefully and develop contingency plans to segments. The World Bank’s 2019 Enabling the Business respond to crises and ensure food security. of Agriculture report identified critical gaps in upstream segments in Nigeria, including seed and fertilizers markets, access to finance, equipment registration, Accelerating the recovery and plant health, food trading, and sustainable livestock transformation of agriculture and production. The inadequate regulatory framework for the agribusiness value chains warehouse-receipt system is a major constraint on access The growth of agriculture and agribusiness value to finance. Currently, warehouse receipts are limited as chains can be accelerated through coordinated negotiable instruments and cannot be used as collateral “brownfield” investments that link organized farmers in the commercial banking sector. Consequently, farmers with growth-oriented SMEs in downstream market and traders cannot use stored commodities as collateral segments. The Nigerian government has recognized to obtain credit from commercial lenders. Furthermore, the enormous employment potential of the agribusiness the financial sector’s regulatory framework constrains sector and has targeted the creation of six million jobs the development of fintech, mobile money, and in agricultural value chains by 2023. The authorities are crowdfunding solutions. Countries with more enabling also aiming to attract US$10-15 billion in investments financial regulatory frameworks (e.g., Kenya) have seen in the agriculture and agribusiness sectors.30 Meeting this enormous growth in digital finance. These innovations jobs target would require an annual employment growth have proven highly effective in unlocking financing for rate of about 6.7 percent in both primary agriculture and small and informal agribusinesses with needs that are not nonfarm agribusiness, far above the rate of 3.9 percent well served by conventional banking products. projected prior to the COVID-19 crisis.31 Implementing agroclimatic adaptation measures and Coordinated investments in agricultural value chains addressing the causes of conflict in rural areas will can help farmers to move away from spot transactions be necessary to sustainably increase productivity and develop vertical integration with agribusiness. and improve the management of land, soil, and “Greenfield” investments involve large capital injections water resources. Collaboration between scientific by multinational agribusiness corporations, while organizations, farmers, and extension service providers “brownfield” investments build on existing agribusiness will enable the collaborative development of solutions SMEs that can leverage established relationships with tailored to the local context. Digital technologies can upstream primary producers. Because they rely on help build the resilience of food systems to agroclimatic preexisting firms and market linkages, brownfield change by monitoring climate risks and facilitating 30 Delivering on the Government’s Priorities 2019-2023; Federal Government of Nigeria. 31 World Bank 2020: Transforming Agriculture for More and Better Jobs, forthcoming. 64 PART 3: SPOTLIGHTS ON NIGERIA’S DEVELOPMENT AGENDA NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY responses at the regional, community, and farm levels. Automated irrigation systems, soil sensors, drones, and other innovations can increase the efficiency with which agricultural resources are used. In addition, Nigeria cannot ensure food security without addressing the agriculture-related drivers of conflict and fragility and their consequences for agricultural production. Managing competition for natural resources in fragile areas, especially between herders and crop farmers, will be essential to mitigate conflict. To leverage local knowledge and ensure local ownership, the authorities must build the capacity of local institutions and actors to design and implement community-based approaches to effectively and equitably manage natural resources. PART 3: SPOTLIGHTS ON NIGERIA’S DEVELOPMENT AGENDA 65 NIGERIA DEVELOPMENT UPDATE JUNE 2020 References Andam, K., Edeh, H., Oboh, V., Pauw, K., and Thurlow, J. (2020). Impact of COVID-19 on Production, Poverty and Food Systems. Washington, D.C.: International Food Policy Research Institute (IFPRI). World Bank. (2019). Enabling the Business of Agriculture Report. Washington, D.C.: The World Bank. 66 PART 3: SPOTLIGHTS ON NIGERIA’S DEVELOPMENT AGENDA NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY Spotlight 2: Leveraging Migration, Remittances, and the Diaspora for Development Summary: Maximizing the opportunities created by Economic and demographic factors emigration and minimizing its negative effects would help have been driving remittances; and achieve the government objectives of lifting 100 million pressures emigrate are expected to people out of poverty in the next decade. For the past remain high 15 years, remittances have surpassed inflows of foreign investment, and more recently oil rents. Remittances are In the past 15 years, remittances have become a major a major source of foreign exchange for Nigeria and an source of foreign exchange for Nigeria and of income important source of income source for households. The rise for its households. Remittances averaged 5.3 percent in remittances is explained by the large number of Nigerian of GDP in 2004‒18; during the 2009 global financial emigrants, their capacity to generate financial resources, crisis they were more stable and countercyclical than and their education. Some Nigerians use formal channels other international capital flows. In 2018, remittances to emigrate. However, the less fortunate use informal to Nigeria amounted to about US$24.3 billion— channels or risk irregular migration routes. Lack of jobs and more than FDI and Official Development Assistance economic hardships have pushed up pressures to emigrate. (ODA) combined (Figure 3.6).32 Notably, remittances For 2020 the COVID-19 outbreak is expected to cut contribute as much as oil rents to Nigeria’s GDP and deeply into remittances to Nigeria. It is also expected that are less volatile. Remittances can be used to improve the fewer Nigerians will emigrate in 2020. Yet, the Nigerian country’s creditworthiness and access to international diaspora will continue to grow over the medium term. With capital markets (World Bank 2019). At the micro level remittances a major source of foreign exchange revenue for they help households diversify their sources of income Nigeria, the decline will intensify pressures on the balance of while providing much-needed savings and capital for payments, and investments will be postponed. Among policy investment. Households invest remittances productively priorities through the medium term should be harnessing in physical and human capital: 46 percent are used investment by Nigeria’s diaspora, accurately capturing for business development, 10 percent for housing, remittance data, and reducing remittance costs. 20 percent for education, and 12 percent for health care (Plaza and Ratha, 2011). The magnitude of remittances to Nigeria can be explained by the large number of Nigerian emigrants, their capacity to generate financial resources, and their education. There are 15 to 17 million Nigerians dispersed across Africa, Europe, and North America, where they are well- positioned to catalyze development at home through remittances, trade, investments, 32 World Bank estimates based on data reported by the CBN to the IMF, which meet Balance of Payments Manual 6 (BPM6) standards. The BPM6 requires that both formal and informal flows, and both cash and in-kind transfers, be reported. Some remittances are hand-carried or come informal operators (hawala) etc. For those arriving through formal channels, banks and money transfer operators may mislabel some formal remittances as trade or tourism receipts, so a variety of estimation techniques were used based on macro and micro data. Thus, remittances as reported by the CBN to the IMF may vary from the remittance information reported by formal channels. PART 3: SPOTLIGHTS ON NIGERIA’S DEVELOPMENT AGENDA 67 NIGERIA DEVELOPMENT UPDATE JUNE 2020  or Nigeria, remittances are a major Figure 3.6. F ncreasing unemployment in Nigeria has Figure 3.7. I source of foreign exchange in Nigeria. raised migratory pressures. Remittances, FDI, Portfolio flows, and ODA Index of employed, unemployed and inactive people (Q4 2014=100) US$ billion Q4-2014=100 30 – 350 – Recession 325 – 25 – 300 – 20 – 275 – 250 – 15 – 225 – 10 – 200 – 175 – 5– 150 – 125 – 0– 100 – -5 – last obs.=2019e 75 – 90 992 994 996 998 000 002 004 006 008 010 012 014 016 018 -14 -15 -15 -15 -15 -16 -16 -16 -16 -17 -17 -17 -17 -18 -18 -18 1 9 1 1 1 1 2 2 2 2 2 2 2 2 2 2 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 ▬ FDI ▬ FPI ▬ Remittance ▬ ODA ▬ Unemployed ▬ Employed ▬ Inactive Source: Nigerian authorities, Global Knowledge Partnership on Migration and Development Source: NBS and World Bank estimates. (KNOMAD), IMF, and World Bank estimates. entrepreneurship, and knowledge exchange.33 Estimated unemployment rates have been persistently high continental dispersion of Nigerian diaspora is Africa (Figure 3.7). During that time, 19 million Nigerians 44 percent; Europe 31 percent; North America entered the labor force but only 15 million found jobs. 22 percent; Asia 2 percent; and Oceania 1 percent. Youth and women struggle more than men to find Members of the diaspora thus have a great opportunity jobs: 66.6 percent of young Nigerians are unemployed to tap into resources in their countries of residence. or inactive—double the adult rate; 70 percent of The annual savings of Nigerian migrants amount to women aged 20‒24 were not in work in 2018, and of about $5 billion, suggesting that they could contribute these 50 percent were neither employed nor in school. to their home economy through investment and According to the 2017 Afrobarometer survey, 33 percent capital market participation.34 The savings of Nigerian of Nigerians have considered emigrating, and among emigrants residing in the United States in 2017 was them about 36 percent had secondary and 44 percent about $2.65 billion, the highest in any destination had post-secondary education. Among urban dwellers country, and the savings of those in the United Kingdom 42 percent would like to emigrate, as would 30 percent reached about $1.1 billion. According to the OECD, of rural residents. 51.2 percent of Nigerian migrants in OECD countries have tertiary education. Disaggregated OECD data In the long run, driven by income gaps and on skill levels by gender demonstrate that 47.4 percent demographic imbalances, emigration from Nigeria of female Nigerian emigrants have tertiary education. is expected to go up. Most Nigerian migrants move Nigeria’s emigrants are clearly skilled and could facilitate to countries where per capita incomes are much larger transfer home of technology, knowledge, and FDI. Thus (Table 3.1). Per capita incomes are 30 times greater than they can help unleash the benefits of economic migration Nigeria’s in the US, 20 times in the UK. and 17 times in for development. Italy. This makes the prospect of earning higher incomes a major pull factor for high-income countries. Nigeria In the past few years lack of jobs and economic will soon have one of the youngest and largest working- hardships have created tremendous pressures age populations in the world, Considering the scale of to emigrate from Nigeria. For the past five years, opportunities and challenges of Nigeria's growing youth 33 Based on previous diaspora estimates from sources below: https://www.migrationpolicy.org/article/nigeria-multiple-forms-mobility-africas-demographic-giant; https://publications. iom.int/system/files/pdf/nigeria_diasporas.pdf 34 KNOMAD-World Bank estimates based on the methodology in: http://documents.worldbank.org/curated/en/819641468147573586/Preliminary-estimates-of-diaspora-savings 68 PART 3: SPOTLIGHTS ON NIGERIA’S DEVELOPMENT AGENDA NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY ncomes and GDP per capita, Nigerian emigrant destination countries. Table 3.1. I Destination Countries Numbers of Migrants % Total Migrants GDP per Capita Income Gap (US$) United States 309,699 22 62,795 -60,767 United Kingdom 205,698 14 42,944 -40,916 Cameroon 148,076 10 1,534 494 Niger 130,982 9 414 1,614 Benin 86,226 6 902 1,126 Italy 80,235 6 34,483 -32,455 Ghana 79,023 5 2,202 -174 Canada 45,188 3 46,233 -44,205 High-income 802,598 56 44,787 countries Low- and middle- 635,733 44 4,971 income countries World 1,438,331 100 11,313 Sources: United Nations Population Division (2019 mid-year estimates) and World Development Indicators. Note: United Nations High Commissioner for Refugees (UNHCR) 2018 midyear refugee estimates for Nigeria are 0.27 million. GDP per capita data are 2018 nominal US$. The 2018 nominal GDP per capita rate for Nigeria is US$2,028. population, new approaches are crucial. in the next few and the East African Community has a mechanism for years about 300,000 young people will be entering the channeling diaspora financing to investment projects labor force every month, and unless changes are made, in partnering states. Nigerian emigrants can also 80 percent of them could be unemployed. Nigeria has facilitate development of the country’s financial and a higher ratio of youth to general population than high- capital markets. Thus, they can diversify the investor income countries. Thus, younger Nigerians could help base, introduce new financial products, and provide a respond to labor shortages in OECD markets where the reliable source of funding. For example, Indians who population is aging. For example, by 2030 the ratio of have emigrated invest in Indian stock markets through old persons (65+) to young (15‒24, would be 3 to 1 in appointed intermediaries or use online trading facilities Germany and Italy, and 2 to 1 in the UK and US. For themselves. Nigeria the ratio would be 1 to 7. It is, however, necessary to encourage emigrants to move into a wider range of productive investments, such as agricultural equipment, farm improvements, and land purchases. Buying a house may be the first The anticipated rise in migration stage of a broader investment relationship between and remittances can spur emigrants and their countries of origin. Some development governments have eased restrictions on foreign land ownership to attract investments from their emigrants, The Nigerian diaspora can be a catalyst for FDI as demonstrated by the Rwanda Diaspora General inflows, capital market growth. and development Directorate and Credit Financier de Cameroon. Collective finance. Its members can use information about Nigeria remittances can be a tool for financing specified local to invest themselves and bring in foreign investors. Those projects and community development initiatives, who emigrate are more willing than other investors to Collective remittances may also be used to supplement take on risks in their country of origin and they possess public funds and spur local area development. For valuable information about opportunities and regulatory example, diaspora associations have provided substantial requirements. For example, multinationals seek out funds to some African communities for public works, professionals from Taiwan for their operations in China, mostly in small towns. Matching grant programs in PART 3: SPOTLIGHTS ON NIGERIA’S DEVELOPMENT AGENDA 69 NIGERIA DEVELOPMENT UPDATE JUNE 2020 Mexico and Colombia provide government funding to has affected remittance services and may have prevented match emigrant group funds (Plaza and Ratha, 2011). further reduction in costs. Also, in an apparent example of policy incoherence, remittance costs tend to include Carefully drafted policies can accelerate transfers of a premium, that is a cost mark-up, when national post technology and skills through the Nigerian diaspora. offices have exclusive partnership arrangements with a For example, governments in Japan, the Republic of dominant MTO. Harmonized regulation and adoption Korea, Taiwan, and China have promoted the return of innovative technologies could lower remittance costs of foreign-educated students or established networks by reducing intermediaries, enabling standardized and for knowledge exchange. Policies to encourage return verifiable transactions, and smoothing AML/CFT of skilled emigrants and attract foreign workers might regulatory processes. include (1) tax incentives; (2) help in finding housing  t different stages of the migration cycle, Figure 3.8. A or investing in real estate; (3) education for children; Nigeria can implement policies to leverage (4) smoother transfer of financial and material assets; migration for development. (5) residency, education, and work permits for foreign Policy options across the migration cycle Ÿ spouses or foreign-born noncitizen children; and Ÿ Preparation to migrate Reduce migration costs (6) ability to switch employers. For example, the Ÿ Documentation Ÿ Financing Malaysian government designed a Talent Roadmap as Ÿ Choice of recruitment agency Ÿ Pre-departure training part of the country’s strategic plan to become a high- income economy.35 Ÿ Ÿ Return & reintegration Job search Ÿ Arrival & stay in transit and destination Ÿ Home search Ÿ Safety and human rights ncomes and GDP per capita, Nigerian Table 3.2. I Ÿ Technical accreditation Ÿ Assistance in banking Ÿ Reduce remittance costs emigrant destination countries. Ÿ Integration (language, culture). Corridor Q3 2019 Q4 2019 Ÿ Preparation to return Ghana to Nigeria 16.41 22.20 Ÿ Psychological preparation South Africa to Nigeria 18.51 16.96 Ÿ Financial preparation and funds transfer Source: World Bank. United States to Nigeria 6.11 6.23 UK to Nigeria 6.74 7.24 Italy 8.81 7.85 Nigeria’s growing emigration pressures need to Global Average 6.84 6.82 be met with better pathways for safe, regular, and 2030 Target 3 organized emigration. The quality of the experience Sources: World Bank Remittance Prices Worldwide database. could be improved by providing support throughout the However, the cost of sending remittances to Nigeria migration cycle (Figure 3.8). Presently, lack of regular are far above the global average and the sustainable migration channels leads to irregular migration. In 2016 development goal target of 3 percent by 2030 Nigerians constituted the largest group of migrants (Table 3.2). Low volumes of formal flows, inadequate  arriving in Italy by sea—more than 35,000 Nigerians penetration of innovative technologies, and lack of a completed the dangerous sea crossing into the European competitive market make it difficult to cut costs. De- Union (EU) and in Italy 82 percent of Nigerians risking by international correspondent banks—i.e., surveyed entered irregularly, compared to 65 percent of closing the bank accounts of money transfer operators Senegalese (Figure 3.9). In 2018 16,520 Nigerians were (MTOs) to avoid rather than manage the risk in their identified as irregular migrants in EU in 2018, 20,535 efforts to comply with anti–money laundering and in 2016, and 19,380 in 2017. The migration cost for countering financing of terrorism (AML/CFT) norms— Nigerian workers is the highest among West African 35 It included creation of Talent Corporation Malaysia Berhad (TalentCorp) to assess and fulfill Malaysia’s talent needs. TalentCorp has two initiatives to attract and retain global talent, including the Malaysian diaspora: the Returning Expert Program and Residence Pass-Talent. The Returning Expert Program is directed to returning Malaysians. The Resident-Pass Talent targets high-skilled immigrants from other countries. The World Bank reported that the REP has been effective in attracting people with the skills that Malaysia needs. See: (1) https://www.talentcorp.com.my/resources/press-releases/world-bank-recommends-changes-to-improve-rep-and-rp-t; 2) http://documents. worldbank.org/curated/en/979921468185948875/pdf/104625-WP-PUBLIC-Report-Talent-Corp-Final-June-23-PUBLIC.pdf; and (3) http://pubdocs.worldbank.org/en /375771474454575067/Malaysia-DOTW-Migration-of-Talent-and-Taxes-March-2016.pdf 70 PART 3: SPOTLIGHTS ON NIGERIA’S DEVELOPMENT AGENDA NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY  large share of Nigerian emigrants enters Figure 3.9. A Figure 3.10. Nigerians face high emigration costs. host states irregularly. Nigerian Migrants Entering Italy, by Means of Arrival, 2016, Costs of Emigration from West African Countries, US$, 2016 percent 100 – 2,500 – – 4.0 90 – – 3.5 80 – 2,000 – – 3.0 70 – 60 – 1,500 – – 2.5 50 – 98 – 2.0 94 82 87 40 – 1,000 – – 1.5 30 – 65 – 1.0 20 – 500 – 10 – – 0.5 0– 0– –0 Other Other Senegal Nigeria Mali Gambia countries Senegal Nigeria Mali Gambia countries J Didn’t have a Visa J Family reunification J Study J Work Visa J Tourist Visa J Average cost (US$), lhs Q Average cost (in months of earnings, rhs Source: KNOMAD. Source: KNOMAD. nations (Figure 3.10). Lower migration costs could help in EU-28 countries jumped from 11.1 percent in migrant workers avoid high financial burdens and place 2007 to 16.4 percent in 2009, which was much more more money in the hands of households. Regulation than the increase for native workers. Moreover, in the and encouragement of formal recruitment agencies and current situation the pandemic has affected migrant ranking them publicly (as Singapore and Indonesia communities in a variety of ways and some workers have do), bilateral labor agreements, access to information been infected; for all, incomes will shrink, and many (publication of itemized data on migration costs), and will have no money to send home. Even if they do have access to finance (formal loans to migrate) could all be incomes, because of social distancing many MTOs have beneficial to both emigrants and ultimately to Nigeria. reduced their services and some have switched entirely to online money transfer. Nigerians elsewhere, like other emigrants, will not be able to help their families as they had been doing. In the near term the COVID-19 Under normal circumstances, migrants losing their pandemic is expected to reduce jobs would consider returning home. However, travel remittances and emigration bans, and suspension of transportation services have made that nearly impossible. As a result, the rate of Beyond its impact on the global economy, the voluntary return is likely to fall, except in a few cross- pandemic has hugely complicated cross-sectoral border migration corridors and irregular migration flows mobility of workers, particularly, it seems likely, for in the South (e.g., between Nigeria and neighboring lower-skilled, informal, and undocumented migrant countries). In other words, more people will stay in the workers. During the 2009 global financial crisis, host country than would be typical. many migrant workers moved from construction to agriculture and retail. They tend to be more vulnerable In 2019 remittances to Nigeria fell from $24.3 million than native-born workers to loss of jobs and wages and in 2018 to about $23.8 billion. For 2020, however, in an economic crisis in their host country they usually they are expected to plunge by over 25 percent, because have little or no access to social protection. In the 2009 of the protracted interruption of economic activity in crisis, average unemployment for foreign-born workers the main destinations of Nigerian emigrants, the US and PART 3: SPOTLIGHTS ON NIGERIA’S DEVELOPMENT AGENDA 71 NIGERIA DEVELOPMENT UPDATE JUNE 2020 the UK. The United States accounts for 23 percent of emigrant host countries that may cause remittances to Nigerian emigrants, and this does not include naturalized rebound by over 6 percent (World Bank 2020). Nigerians in the United States. A recent Gallup survey (Hrynowski, 2020)36 found that nearly one in three Americans have experienced a temporary layoff, reduction in hours, permanent job loss, or reduction of income as a result of the pandemic. Among those Policy recommendations earning less than $36,000, about 32 percent have seen income loss and about 24–25 percent of those earning more than $36,000 have lost income. It is expected Leveraging financial innovation will reduce that such problems will have greater impact on migrant remittance costs: Making full use of technology and workers, so that this year remittances from the United innovation can help reduce remittance costs. Payment States to Nigeria are expected to plummet. The situation services in Nigeria are a successful example of use of is likely to be similar in most OECD countries especially financial technology (fintech), measured by both the the UK, which host 15 percent of Nigerian emigrants; number of ventures and consumer uptake. But use in Italy, which hosts 5 percent of Nigerian emigrants, Nigeria of fintech for remittances is low compared to and Spain, hosting 3 percent, have both been hit hard Kenya and other African countries. For this to become a by COVID-19. Remittances from Canada, Germany, significant channel for diaspora remittances will depend Ireland, and other destinations of Nigerian migrants on an enabling laws, reliable infrastructure, reliable are also likely to go down this year. In the South, technology, and integration with cross-border service Cameroon, hosting 9 percent of Nigerian emigrants, providers. More effort should also to identifying sound Niger, 8 percent, Ghana, 5 percent, and Benin, 4 percent investment opportunities that will attract diaspora were less severely affected by the COVID-19 pandemic savings—potential that can be realized by establishing itself but the global slowdown in economic activities dedicated private equity funds with transparent will undoubtedly affect businesses there and thus could investment policies and well-defined disclosure further cut into remittances to Nigeria. provisions. Because remittances are a major source of foreign Creating profiles of Nigerian emigrants and organize exchange revenue for Nigeria, their loss will worsen investment forums and focus groups for them will pressures on its balance of payments, and investments help attract investment from the diaspora. To design could be postponed. With COVID-19 affecting effective strategies for tapping into the opportunities source as well as recipient countries, lower remittance the diaspora represents, Nigeria will need a clear picture and export revenues are likely to put great pressure on of its emigrants by location, economic activity, skills Nigeria’s balance of payments. Though the effects will be profile, earnings, savings, and investment profile. The highest among irregular and informal migrants living in top priority would be surveys of the diaspora to get the OECD countries, even if Nigerian emigrants in high- necessary information. A second priority would be focus end health care jobs still have good incomes, slowdowns groups in their countries of residence to discuss emigrant of other interruptions in cash-based remittance channels investment preferences, challenges they face in investing would be barriers to remittance transactions. Moreover, back home, and how the Government could help as expected returns in Nigeria fall, investment-oriented facilitate their greater engagement with Nigeria. A third remittances from wealthy emigrants may slow. In 2021, priority is to organize investment forums in destination however, the forecast is for a tentative recovery in countries not only for emigrants but also for potential 36 https://news.gallup.com/poll/309299/covid-disrupts-americans-jobs-finances.aspx 72 PART 3: SPOTLIGHTS ON NIGERIA’S DEVELOPMENT AGENDA NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY foreign investors to discuss government strategies to facilitate FDI to Nigeria. Designing diaspora investment and innovation strategies will also help attract investment. Based on all the information to be collected through surveys and consultations, Nigeria could prioritize areas that might be of interest, such as diaspora bonds, investment in housing, and investment in private sector capital markets. Members of the diaspora can be a useful source and facilitator of research and innovation, technology transfer, and skills development. It is necessary to explore ways successful emigrants can accelerate transfers of technology and skills. Possible options might be fellowships and academic residencies, summer and short- term teaching/research assignments for overseas Nigerian researchers and academics, and encouraging interaction with overseas mentors in sectors important to Nigeria’s development, such as health care, telecommunications, and finance. Better data will help assess and catalyze the development impact of emigration and remittances. The data on migrant numbers in destination countries are based on national censuses in those countries, which may not capture all migrants. Migrants may also prefer not to disclose their origins in destination countries because they fear xenophobic attacks. Improving channels for safe, regular, and orderly emigration and designing better emigration systems is critical to leverage emigration for Nigeria’s development. Emigration from Nigeria will not only continue but increase. Many of the Nigerians in Europe are irregular migrants; if found to be illegally present in the EU, they risk deportation and would need viable channels for return and reintegration. PART 3: SPOTLIGHTS ON NIGERIA’S DEVELOPMENT AGENDA 73 NIGERIA DEVELOPMENT UPDATE JUNE 2020 References Plaza, S., and D. Ratha eds. (2011). Diaspora for development in Africa, https://www.knomad. org/publication/diaspora-development-africa World Bank. (2019). Leveraging Economic Migration for Development: A Briefing for the World Bank Board. Washington, DC: World Bank. h t t p s : / / w w w. k n o m a d . o r g / s i t e s / d e f a u l t / files/2019-08/World%20Bank%20Board%20 B r i e f i n g % 2 0 Pa p e r - L E V E R A G I N G % 2 0 E C O N O M I C % 2 0 M I G R AT I O N % 2 0 FOR%20DEVELOPMENT_0.pdf World Bank. (2020). Migration and Remittances: Recent Developments and Outlook. Special Topic: COVI 19 Through a Migrations Lens. Migration and Development Brief 32, World Bank, Washington, DC, April. 74 PART 3: SPOTLIGHTS ON NIGERIA’S DEVELOPMENT AGENDA Nigeria: Key Economic Indicators NIGERIA DEVELOPMENT UPDATE JUNE 2020 Nigeria: Key Economic Indicators Economy 2015 2016 2017 2018 2019e 2020f Real GDP Growth (% yoy) 2.7 -1.6 0.8 1.9 2.2 -3.2 Nominal GDP (Naira tr) 95 103 115 129 146 155 Oil Production (mb/d) 2.1 1.8 1.9 1.9 2.0 1.8 Oil Price (Bonny light, US$/bbl) 54 45 55 72 65 30 Inflation (%, average) 9.0 15.6 16.5 12.1 11.4 13.8 Real sectoral growth (%, yoy) 2015 2016 2017 2018 2019e 2020f Real GDP Growth 2.7 -1.6 0.8 1.9 2.2 -3.2 Agriculture 3.7 4.1 3.4 2.1 2.4 2.4 Industries -2.2 -8.9 2.1 1.9 2.3 -10.1 Industry-Oil -5.4 -14.4 4.7 1.0 4.6 -10.6 Industry-NonOil 0.1 -5.0 0.6 2.4 0.9 -9.7 Services 4.8 -0.8 -0.9 1.8 2.2 -2.9 Oil GDP -5.4 -14.4 4.7 1.0 4.6 -10.6 Non-Oil GDP 3.7 -0.2 0.5 2.0 2.1 -2.1 GDP Composition (%) 2015 2016 2017 2018 2019e 2020f Total GDP 100.0 100.0 100.0 100.0 100.0 … Agriculture 20.9 21.2 21.1 21.4 22.1 … Industries 20.4 18.4 22.5 26.0 27.7 … Industry-Oil 6.4 5.3 9.1 10.5 8.6 … Industry-NonOil 14.0 13.1 13.4 15.5 19.1 … Services 58.8 60.4 56.4 52.6 50.2 … Oil GDP 6.4 5.3 9.1 10.5 8.6 … Non-Oil GDP 93.6 94.7 90.9 89.5 91.4 … Source: Nigerian authorities and World Bank calculations. 76 Nigeria: Key Economic Indicators NIGERIA IN TIMES OF COVID-19: LAYING FOUNDATIONS FOR A STRONG RECOVERY Monetary and Financial Sector (% change yoy, end of 2015 2016 2017 2018 2019e 2020f period, unless indicated otherwise) Money Supply (M2) 5.9 17.8 2.3 12.1 6.3 … Narrow Money 24.1 31.5 -0.9 5.2 -10.4 … Net Foreign Assets -18.7 61.8 69.6 18.5 -68.5 … Net Domestic Credit 12.1 24.3 -3.5 6.3 31.2 … Credit to Government 152.0 68.6 -25.4 33.7 94.9 … Credit to Private Sector 3.3 17.4 1.4 1.9 17.6 … Monetary policy parameters: Monetary Policy Rate (absolute rate, end of period) 11.0 14.0 14.0 14.0 13.5 … Liquidity Ratio (absolute rate, end of period) 30.0 30.0 30.0 30.0 30 … Cash Reserve Requirement (absolute rate, end of 20.0 22.5 22.5 22.5 22.5 … period) Financial Market Indicators (end of period) Stock Market (NSE) Index 28,642 26,875 38,243 31,431 26,842 … Fitch Sovereign Long Term Foreign Debt Rating BB- B+ B+ B+ B+ … Moody's Sovereign Long Term Foreign Debt Rating Ba3 B1 B2 B2 B2 … S&P Sovereign Long Term Foreign Debt Rating B+ B B B B … External Sector 2015 2016 2017 2018 2019e 2020f Exchange rate - official (N/US$, end of period) 197 305 306 307 307 … Exchange rate - parallel (N/US$, end of period) 267 490 363 363 362 … Real effective exchange rate index (end of period) 67 86 99 87 79 … Current Account Balance (%GDP) -3.2 0.7 2.8 1.0 -3.8 -3.5 Current Account Balance (US$ bn) -15 3 10 4 -17 -14 Exports of Goods and Services (US$ bn) 49 38 51 66 70 30 o/w oil and gas exports (US$ bn) 42 32 42 57 55 23 Imports of Goods and Services (US$ bn) 72 47 51 72 101 50 Net Income (US$ bn) -13 -9 -12 -15 -12 -12 Net transfers (including remittances) (US$ bn) 20 20 22 24 26 19 Net Direct Investment (US$ bn) 2 3 2 1 2 … Net Portfolio Investment (US$ bn) 1 2 9 -2 9 … Net Other Investment (US$ bn) -9 -4 -2 -8 3 … External Reserves (US$ bn, end of period) 29 26 39 43 39 … Equivalent months of imports of G&S 5 7 9 7 5 … Source: Nigerian authorities and World Bank calculations. Nigeria: Key Economic Indicators 77 NIGERIA DEVELOPMENT UPDATE JUNE 2020 Nigeria: General Government Fiscal Summary - preliminary Actual (%GDP) 2015 2016 2017 2018 2019e 2020f Total revenues 7.5 5.9 6.7 8.1 8.4 5.3 Federally collected 6.4 4.8 5.4 6.6 6.1 3.4 Oil and gas revenues 3.2 1.6 2.3 3.6 3.2 1.0 Non-oil revenues and other revenues 3.2 3.1 3.1 3.0 2.9 2.4 Independent and other revenues 1.1 1.2 1.3 1.5 2.3 1.9 Total expenditure 10.7 9.7 10.7 12.3 12.8 10.8 Overall balance (general government) -3.2 -3.8 -4.0 -4.2 -4.4 -5.5 Public Debt (net) 14.2 17.3 19.1 20.9 23.7 30.0 Source: Nigerian authorities and World Bank calculations. Notes: /1 After budgeted and discretionary deductions, but before derivation. /2 Includes Solid Minerals, NLNG Dividend, and Signature Bonus; exchange rate difference, excess petroleum profit tax. Nigeria: Federal Government Fiscal Accounts - preliminary Actual (%GDP) 2015 2016 2017 2018 2019e 2020f Total Revenue 2.7 2.0 2.4 3.0 3.3 2.1 Share of federally collected revenues 2.5 1.7 2.0 2.5 2.4 1.3 Oil, Gas and Mineral Revenue (incl. signature 1.5 0.7 1.0 1.5 1.5 0.5 bonus) Non-Oil Revenue 1.0 1.0 1.0 1.0 0.9 0.8 FG Independent revenues and grants 0.3 0.3 0.4 0.6 0.9 0.8 Total Expenditure 5.0 4.7 5.7 6.3 6.8 6.4 Recurrent Expenditure 4.4 3.9 4.4 4.8 5.1 5.3 Personnel Cost (including Pensions) 2.2 1.8 1.8 1.8 1.8 2.1 Overhead Cost 0.1 0.1 0.2 0.1 0.2 0.2 Other recurrent (incl. COVID-19 intervention na 0.7 1.1 1.2 1.5 1.1 and power sector) Interest payments 1.1 1.2 1.4 1.7 1.7 1.8 Capital Expenditure (incl. COVID-19 intervention) 0.6 0.7 1.2 1.5 1.7 1.1 Overall Fiscal Balance -2.2 -2.7 -3.3 -3.2 -3.5 -4.3 Source: Nigerian authorities and World Bank calculations. Notes: The reported revenue and fiscal balance figures differ from the published Federal Government budget figures as the World Bank excludes the non-revenue items under international classification. Total expenditure for some years differs from the Federal Government reports as the World Bank excludes debt amortization payments from expenditure. Figures exclude government-owned enterprises and donor funding. /1 Includes other extractives revenues. /2 The actual capital spending reported for the calendar year. /3 Other Outflows include irregular items. 78 Nigeria: Key Economic Indicators Nigeria Development Update June 2020 View this report online: www.worldbank.org/en/country/nigeria Riding the Tide by Lilian Chizoba Pilaku Lilian Chizoba Pilaku was born in Benue State, Nigeria. She is a well-rounded artist with a master’s degree in art from Southwest University, Chongqing, China, a Post- graduate diploma in administration from the University of Abuja, and a bachelor’s degree from the University of Nigeria, Nsukka. Pilaku engages her energy in painting and video art. She also works as a resident artist, curator at the National Gallery of Art, Nigeria. Pilaku has exhibited her works in numerous platforms within and outside Nigeria and her works adorn public spaces and private homes. Pilaku’s work “Riding the Tide” represents the race against the COVID-19 pandemic plaguing the world. The women racing against the storm are a metaphor for our collective struggle to abide by safety measures and guidelines in a bid to keep us all safe from the deadly virus in the midst of uncertainties and challenges posed by the present situation. The work was produced in isolation and during the peak of the lockdown. 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.