SHUBHAM CHAUDHURI: Nigeria’s Economic Outlook is Challenging

World Bank’s Country Director for Nigeria, Mr. Shubham Chaudhuri

Dr. Shubham Chaudhuri is the World Bank Country Director in Nigeria, a position he has held since October 2019. He speaks with Nosa James-Igbinadolor about the very challenging state of the Nigerian economy, its future outlook and the bank’s intervention strategy and programmes in the country

What is the World Bank’s assessment of the current state of the Nigerian economy?

The Nigerian economy has been hit hard as have economies all over the world as a result of the global crisis which everyone says has become a trite term now. That is unprecedented! And it truly is, as it is a crisis that the global economy has not seen and certainly not in the last 50 years and perhaps not even in the last century. So if you look at the Nigerian economy, you’ve seen the Q1 number, GDP growth has slowed down, but that was really before the full impact of the crisis was felt and we are projecting this year; we are still hopeful that the contraction of the economy might be no more than -3 per cent, meaning growth turning negative. There is the possibility of a much more severe contraction. There is also the possibility of a milder contraction. Here, there are two factors that would matter: the first is, what happens globally with the global economy, in particular with oil prices, and the other is, what the government does and what it is able at the federal and state level to, one, contain the outbreak so as not to peak and the other is the response on the fiscal and socio-economic front in supporting local economic activities and protecting livelihoods and helping firms retain jobs. And so now, outlook is challenging and the numbers have tried to slow down, but we still have half a year to go.

A World Bank report in June asserted that Nigeria is expected to plunge into a severe economic recession as a consequence of the COVID-19 epidemic and the fall in global oil prices. What in the assessment of the bank is this severe recession going to look like, especially its impact on jobs, and medium to long term growth?

At the World Bank, our focus first and foremost is on trying to eliminate poverty, so we always begin with how will policies and programmes and economic crisis like this affect the poor and what will it do to the number of poor? Here if you are talking of the contraction of the economy of the scale of -3 per cent growth or even higher, we are looking at an increase in the number of poor and the percentage of the population that is extremely poor. So, the National Bureau of Statistics, NBS, released the latest result of its latest household survey, which showed that about 40 per cent of Nigerians are in the extreme poverty category. That number could go up by a certain number of percentage, which means for a country such as Nigeria, several more millions of people who are poor and many millions of these people will be newly poor. Newly poor in the sense that those who may just have been getting by above the poverty line and because they’ve lost their jobs, and in many cases, people who rely on the informal sector for livelihoods out on the street and hustling their business. So on top of those who are already poor, we would see a cadre of newly poor Nigerians. Government’s response is critical here, so whether it’s in terms of palliatives or other responses, what is important is that government protects peoples’ livelihoods and not just to rely on palliatives and handouts through support to SMEs, farmers and others that will ensure that their businesses continue and jobs aren’t lost, so that they can also maintain their purchasing power.

Let me give you an example, we worked with the NBS on a mobile phone survey of nearly 2000 households in April and May and these households were part of the larger households in the living standard survey, which the NBS did in 2019 and that larger survey had a lot of details about what kinds of occupation these households are in, income levels and consumption levels and so we know a lot about these households. Now six months later from when that survey was finalised in 2019, the NBS did a random sampling, which represented sub-sampling and basically asked them about their experience during the crisis and what you find there is 42 per cent of the people who were working in mid-March, were no longer working as at the beginning of May. Somewhere north of 70 per cent of the households said they had seen extreme hardships in terms of putting food on the table, that the cost of food items had gone up. So those are the kind of impacts that you see and the government’s response should necessarily focus on ensuring the protection of jobs and hence livelihoods.

Our projection right now, is that most things being equal, we are looking at the impact of these shocks putting millions of people, about 2 per cent of the population into poverty.

For jobs, you will see both in the latest report and the December one, some figures as to what happened during the last recession that Nigeria experienced. So that was in 2016 and 2017. So in between those four years, you had 19 million Nigerians entering the labour force of which only five million were able to find good jobs, with the remaining 14 million unable, either unemployed or under-employed, meaning they had to do something to put food on the table. This was not an occupation of choice. And the big part of that was because you saw the loss of jobs during the last recession, and as the economy recovered, it did not recover fast enough to accommodate the three million young Nigerians of working age every year. That should give you a sense of what could happen in the aftermath of this recession and this recession is even deeper, many more jobs that could potentially be lost and depending on how long it takes the economy to recover, creating new jobs will take longer and in the meantime, the number of young Nigerians who come of working age doesn’t stop and keeps coming.

In terms of the Nigerian government’s response to the debilitating economic crisis and the project recession, what is the World Bank’s advisory?

We exist and that is our basic mission, to eliminate poverty in our 189 member countries, by improving living standards for the bottom half of the population. So that is the reason why we are here in Nigeria, to help the Nigerian government eliminate poverty and this coincides very nicely with President Buhari’s ambition of lifting 100 million Nigerians out of poverty. So, in the context of that work, we try to support the Nigerian government by investing in human capital, in enabling the space for private firms to invest and grow, to strengthening public financial management. In the context of this crisis, one of the biggest challenges that Nigeria face is that government, both at the national and state levels, are fiscally constrained. Why is that? Because the revenue of the federal government even in normal times is among the lowest in the world. To give you an example, in 2019, consolidated government revenue, that is, what comes into the account for the tiers of government to spend was about 8 per cent of GDP. What does that mean? The rule of thumb estimate is that for a government to provide basic functions that any state should provide in terms of security, primary healthcare, basic education, roads, and so on, you need about 15 per cent of GDP. Nigeria was getting half of that and in the context of this crisis, because the bulk of these monies is from oil related revenues, so government needs to do more to get more revenues. So we are supporting the government to understand what can be done to marshal the fiscal resources and there are basically three ways they can do that. Firstly, by identifying other sources of revenue even within the oil sector that can be tapped into. Second, prioritisation of expenditure by cutting back non critical expenditure and third ensuring that agriculture value chains are maintained by making sure that farmers get all the inputs they need and get their products to the market. We also help government to support micro and small enterprises stay afloat to ride out this crisis.

In December 2019, the World Bank came out with a report that posited that productivity would be critical to support robust growth and job creation and to keep an additional 30 million people from falling into extreme poverty. What should be the government’s strategy to ramp up productivity in view of the fact that manufacturing levels in Nigeria is very abysmal? What are these bold reforms the World Bank believes should be enacted?

So, by productivity, we mean, what is the value-added? Each Nigerian worker should be able to add to the economy. Why do we care about value-added per worker? Because in most cases, what a worker earns will be linked to his value-added. So, whether it is a family farm where everyone works and the farm is able to produce more, the value-added per worker on that family farm goes up. So, when you think about an entire economy, the way to get value-added per worker up or productivity per worker up is to have a structural transformation to get more workers employed in the sectors that are naturally value-added. So manufacturing is one area, so is services. It doesn’t have to be just manufacturing, some of the highest value-added sectors are in services. So, it’s a two-part strategy. Wherever workers are, you try to find ways of adding value per worker, but more importantly, you try to help people transition out of the low value-added sectors to the high value-added sectors. So what’s keeping that from happening in Nigeria is that transition. If you look at places like China and South Asia, that transition has to be like a natural draw from the low value-added sectors to the high value-added sectors, which means that there has to be enough jobs being created in the high value-added sectors that firms start offering higher wages to draw workers out from the low value-added sectors to the high ones. So, it is essentially a challenge of how do you help high value-added sectors grow faster than the rest of the economy and create more jobs. What is getting in the way of that in Nigeria is infrastructure which takes more and more time, but more than that it is policy clarity and certainty. Most businessmen require clarity and certainty to make informed business decisions and make profits. So, in Nigeria, we need infrastructure, but much more than that, regulatory policy clarity and consistency. Of all the different infrastructure sectors, power is the lifeblood and that is why we are supporting the Nigerian government with its power sector roadmap. Nigeria also needs to deepen its financial market and make access to finance more accessible and inclusive. One of the things that struck me about Nigeria, is that Nigeria has one of the highest rate of entrepreneurship in the emerging economies. A lot of young Nigerians have ideas and are ready to do business and that is a dynamism that Nigeria should tap into. They do need access to finance, including inputs especially domestically and from outside. In addition, it is critical that Nigeria allows competition to thrive by allowing new entrants into the varied sectors of the economy.

The present Nigerian government has been in office since 2015 and has undertaken several programmes aimed at stimulating the economy with little success in terms of growth and FDI. What could be done right and what does the bank see as the entry barriers to critical FDI inflows into the non-oil sector?

Instead of FDI, I would want to know what has hindered investment inflow including local and foreign into the country. All investors, not portfolio ones, but those who want to set up industries and enter into services to create jobs are all looking at policy and regulatory certainty, infrastructure availability that can get their goods and services into markets, what is trade facilitation like? Can they bring the inputs they need and freely export their finished products? Additional concerns would be; can they repatriate their profits? So a situation where an investor finds that he or she can invest, but cannot buy inputs because of foreign exchange scarcity in the market does not engender confidence in the economy. Same with uncertainty over ability to repatriate profits. Policy and regulatory certainty is fundamental in this regard along with power and infrastructure

The World Bank asserted in 2016 that its strategy to ending extreme poverty and boosting prosperity is through investment in agriculture. What has the bank’s intervention been like in this regard, and what has been the outcome with respect to impact?

The anchor of the World Bank’s investment really has been this programme called Fadama, which works with farmers, gets them into cooperatives and tries to figure out ways to get more yields and reach markets and improve incomes. Coming in as the new Country Director and looking at what we have been able to do in the past, my reaction is, that is great. Programmes like this have had positive impacts, but for a country the size of Nigeria, both in terms of economy and population, have we done this at a large scale and fast enough? And when I spoke earlier of the need to not only find ways of increasing value-added in agriculture but also transitioning workers out of agriculture, because nowhere in the world is the agricultural sector the main value-added per worker sector, especially for a large economy like Nigeria. So, the ambition going forward is to continue to work on agriculture and agriculture business chains as a way of increasing value-added, but beyond that is, how do we help Nigeria with structural transformation? In the context of Nigeria, what people often call it, is economic diversification. So we are focusing on supporting Nigeria in areas where it has competitive advantage and help realise its potentials. One area, where we think Nigeria has competitive advantage is all things digital. A lot of Nigerians are active in this area and we want to help the country scale up in all things digital.

The bank approved $2.2 billion in February and $750 million in June for Nigeria. There is a growing fear amongst Nigerians of the country entering into a new debt trap. What is the bank’s total loan portfolio in Nigeria and is there a fear in the bank about how these credits are being efficiently utilised?

First, in February, the total was actually about $1.6 billion and only $650 million has been approved and the approval of the remaining tranche depends on how well the initial release would be utilised. Our total loan portfolio in Nigeria since 2011 is about $11 billion.