Can budget and stimulus measures facilitate Nigeria’s economic recovery?

The Covid-19 pandemic and the corresponding drop in global oil prices caused both a recession and lower inbound investment in the early months of the health crisis in Nigeria. However, GDP and investment figures improved as the economy reopened. Foreign investors shied away from many emerging markets in the early months of 2020 as the pandemic took hold, but levels of pledged foreign investment picked up towards the end of the year. Even as total announced investment fell from $29.9bn in 2019 to $16.7bn in 2020, the pace of commitments picked up over the course of 2020. According to the Nigerian Investment Promotion Commission (NIPC), foreign direct investment (FDI) announcements slowed from $4.8bn in the first quarter of 2020 to $250m in the second quarter, before rising to $7.8bn in the fourth quarter to outpace the $5.5bn recorded in the same quarter of 2019. Around half of the investment announced in 2020 – worth $8.4bn – was earmarked for manufacturing, while transportation and storage accounted for 28%, or $4.6bn; ICT for 11%, or $1.8bn; mining and quarrying for 6%, or $1.1bn; and other sectors for 5%, or $880m. The NIPC noted that gaps between announced and realised FDI – with actual investment measuring $3.3bn and $1.2bn in 2019 and 2020, respectively – highlighted potential for improvement.

Economic Stability

Nigerian authorities worked quickly during the crisis to supplement budgetary spending with support packages to maintain business continuity, shore up liquidity, retain and create jobs by supporting labour-intensive sectors such as agriculture and construction, facilitate the manufacture of Made in Nigeria products and support vulnerable groups. Central to this was the passage of the Nigeria Economic Stability Plan (NESP) in late June 2020, worth approximately 1% of GDP, or N2.3trn ($6.1bn). Several key projects were proposed under the terms of the 12-month NESP, including an agriculture programme to add between 20,000 and 100,000 ha of new farmland in every state, extensive public works and road construction, and an initiative to build 300,000 homes. The NESP also sought to help micro-, small and medium-sized enterprises (MSMEs) by providing payroll support, as well as guaranteeing the off-take of items such as face masks and shields, other personal protective equipment, hand sanitiser and soap. This is especially important as the country’s nearly 37m MSMEs account for almost half of the economy, and were particularly negatively affected by the pandemic. Other measures included establishing a N500bn ($1.3bn) intervention fund; safeguarding oil revenue by deregulating the price of refined petroleum products, among other moves; increasing the value-added tax rate; and distributing N1trn ($2.7bn) in loans to boost local production and manufacturing.

Targeted Spending & Reforms

The government implemented wide-ranging policy reforms to address the economic headwinds brought on by the health crisis, including lifting a border closure that had contributed to high levels of food inflation, adjusting electricity tariffs, removing fuel subsidies, considering an amended Petroleum Industry Bill, devaluing the naira and reducing the monetary policy rate (see Energy and Banking chapters). These efforts – combined with targeted spending measures – helped lay the groundwork for recovery. In late December 2020 the budget for 2021 was passed into law. Valued at N13.6trn ($36.3bn), it was the largest in Nigeria’s history, with funding directed towards the Ministry of Works and Housing (N399.7bn, $1.1bn); the Ministry of Finance, Budget and National Planning (N376.4bn, $1bn); the Ministry of Education (N226.2bn, $604m); and the Ministry of Health (N220.3bn, $588.2m). The Finance Act 2020 was also passed that month. The legislation included amendments to existing tax and other regulatory measures aimed at providing incentives to mitigate the economic effects of the pandemic, while simplifying regulations to enhance revenue collection.