With a population of 158 million people, Nigeria is the largest country in Africa and accounts for 47% of West Africa’s population. It is also the biggest oil exporter in Africa, with the largest natural gas reserves in the continent. With these large reserves of human and natural resources, the country is poised to build a prosperous economy, significantly reduce poverty, and provide health, education and infrastructure services to meet its population needs.
Throughout the last 10 years, Nigeria has been carrying an ambitious reform agenda. The most far reaching of those was to base the budget on a conservative reference price for oil, with excess saved in a special, Excess Crude Account (ECA). The economy responded with strong growth between 2003 and 2010 – averaging 7.6%. Nigeria was among the first countries to adopt and implement the Extractive Industries Transparency Initiative (EITI) to improve governance and oil sector. The NEITI Act was passed into law in 2007, and the country became EITI compliant in 2011. The power sector reform initiative was launched in 2005, recognizing that improving power sector performance is critical to address development challenges. The challenging process of implementing reforms was revitalized in August 2010 through the 2010 Roadmap, which clearly outlines the government’s strategy and actions to undertake comprehensive power sector reform to expand supply, open the door to private investment and address some the chronic sector issues hampering improvement of service delivery.
Weaknesses in the oil sector have increased macroeconomic risks. Oil accounts for close to 90% of exports and roughly 75% of consolidated budgetary revenues. The decline in oil output, together with somewhat weaker oil prices, can be associated with a weakening of the balance of payments and shortfalls of budgetary revenues. The balance of payments surplus registered from October 2011 to April 2013 has disappeared; official foreign reserves declined slightly from almost $49 billion in end-April 2013 to $46 billion on September 19, 2013. There is also the issue of short term portfolio capital inflows that reportedly reached more than $17 billion in 2012. These inflows have been targeting primarily the government bond market, with interest rates at 12-14% and a rather stable exchange rate relative to the US dollar. These short term capital flows have added another potential source of volatility to the country's macroeconomic situation. On the positive side, Nigeria still has significant room to borrow to meet possible macroeconomic challenges. In light of the recent Paris Club restructuring, foreign debt is now only 3% of gross domestic product (GDP) while domestic debt is 16% of GDP.
Declining oil revenues have placed increasing pressures on government budgets. As of the second half of the year, total federation revenues available for sharing by the three tiers of government fell short of projections by 21%. The balance of the fiscal reserve of the country (Excess Crude Account) declined from over $9 billion in early 2013 to $5 billion by mid-year. The implementation of the capital budget has been adversely affected as only a little over half of the federal capital budget has been made available to line ministries as of the end of September for the implementation of investment projects. Early indications from the 2014-2016 Medium Term Expenditure Framework (MTEF) point towards a significant fiscal contraction in 2014 although the MTEF is still under consideration by the National Assembly. However, the forthcoming presidential elections would also make compressing budgetary expenditures quite difficult in 2014.
Despite the increased macroeconomic risks, projections for the second half of the year are cautiously optimistic. Most importantly, preliminary indications are that oil production is picking up somewhat in the second half of the year. If oil prices also remain generally strong, this could relieve the short term pressures described about and strengthen the confidence of investors. Prudent macroeconomic policy has finally brought inflation down to single digit levels. Structural reforms in power and agriculture appear to be paying at least some dividends, even if their main potential impact of these measures will be in the longer term. The pre-election environment will pose some particular challenges for sustaining reforms and notably, prudent fiscal policy. During the previous run-up to the 2011 elections, a major fiscal expansion almost destabilized the economy. Growth continued to be broad based, oriented primarily toward the domestic market, and driven by strong performance of the agricultural, trade, telecommunications, and manufacturing sectors. However, strong economic growth has not translated into higher employment rates. Employment remains the major issue with an estimated 50 million underemployed youth. The government has expressed determination to make job creation central to its economic strategy and has specifically targeted the information communication technology (ICT), entertainment, meat, leather, construction and tourism industries.
Nigeria’s population is made up of about 200 ethnic groups, 500 indigenous languages, and two major religions ― Islam and Christianity. The largest ethnic groups are the Hausa-Fulani in the North, the Igbo in the Southeast, and the Yoruba in the Southwest. The fragmentation of Nigeria’s geographical, ethnic and cultural identity lines is effectively balanced by the country’s federal structure and the strong emphasis of the federal government on representing six geopolitical zones and different ethnic and cultural identities. Though Nigeria’s socio-political environment is fairly stable, there are pockets of instability in some parts of the country.
The fourth consecutive national elections were held in April 2011, further consolidating the transition from military to democratic rule that began in 1999. The elections signified substantial progress in electoral and democratic development, and were characterized by observers as freest and fairest in the country's election history. There have been, however, unrelated incidents of violence before and after the elections, calling for resolute actions in bringing sectarian strife under control and signaling the need to make more rapid progress on social inclusion, especially youth employment. The fifth national elections will be held in 2015.
Internationally, Nigeria continues to be a leading player in the African Union, the New Partnership for Africa’s Development (NEPAD), and in the Economic Community of West African States (ECOWAS).
Despite a strong economic track record, poverty is significant, and reducing it will require strong non-oil growth and a focus on human development. Constraints have been identified to enhancing growth, including the investment climate; infrastructure, incentives and policies affecting agricultural productivity; and quality and relevance of tertiary education. In spite of successful initiatives in human development, Nigeria may not be on track for meeting most of the Millennium Development Goals (MDGs). Underpinning these challenges is the core issue of governance, in particular at the state level. Fiscal decentralization provides 36 states and 774 local governments considerable policy autonomy, control of 50% of government revenues, and responsibility for delivery of public services. Capacity is weak in most states, and improving governance will be a long term process.
Last updated October 2013
The FY2010-2013 Country Partnership Strategy (CPS) focuses on three themes to transform and diversify Nigeria’s economy: improving governance, maintaining non-oil growth and promoting human development.
To achieve better governance, the CPS determines how the Bank can help the government strengthen its own systems over the long term (beyond fiduciary control over International Development Association (IDA) funds given that the Bank is a small player in Nigeria). Governance is both a core and cross-cutting theme; an integral part of virtually every form of support. Each partner focuses on these three areas, with varying degrees of emphasis. The partnership also provides support to the government to deal with the global crisis.
Governance support covers five areas: transparency and accountability; participation; sector governance; capacity development; judicial reform and democratic governance. All partners take part in strengthening government systems to improve outcomes in human development and growth; but only the Department for International Development (DFID) and USAID focus on judicial reform and democratic processes.
To help Nigeria maintain non-oil growth, development partners will concentrate on sector governance and targeted interventions in the following areas: infrastructure to support growth clusters; greater private sector involvement by streamlining the bureaucracy in such areas as land registration, planning approvals, and building permits; technical and vocational education to address the skills gap in employment-intensive value chains (sub-sectors); and reducing import bans and high tariff barriers.
Support for human development will work to improve access and utilization of services. Support to education will focus specifically on girls’ education in the North. In health, the priority will be to support maternal and child health. Partners will also support vertical disease programs on a more modest scale than in the past and with greater emphasis on health systems.
Partnership assistance at the federal level spans all three pillars. In governance, for example, support will continue for initiatives to strengthen procurement, public financial management, civil service reform, and statistical capacity building. Under non-oil economic growth, the partnership will engage in policy dialogue and projects such as DFID and the Bank’s joint Growth and Employment (GEM) project and USAID projects, including MARKETS II and Trade Capacity Development.
Under human development, the partnership focus on the social safety net agenda, both to respond to global crises and to improve targeted programs such as the Youth Empowerment and Employment Program.
The FY2010-2013 CPS includes the African Development Bank (AfDB), USAID, DFID, and the World Bank Group. The partners account for more than 80% of Nigeria’s development assistance. By agreeing to a single joint strategy, partners will strengthen the likelihood of development effectiveness.
Partners will continue to work closely with Nigeria’s other main development partners, including the UN funds, programs and agencies, Japanese International Cooperation Agency, the French Agency for International Development, Canadian International Development Agency, and the European Commission. Some of these partners expect to join the partnership during the CPS period.
DFID will focus on infrastructure and policy advice, investment climate and business enterprise programs, health systems, immunization, girls’ education, and strengthening of National Assembly. USAID priorities are state-level fiscal policy and public procurement reform, human resource development, agriculture value chain development, food security, trade reform, energy, and climate change investments. The African Development Bank (AfDB) will target energy, transportation, water supply and health systems. In many areas, partners will work jointly: DFID, USAID and the World Bank in investment climate, enterprise development, health systems, HIV/AIDS, girls’ education in Northern Nigeria; and with AfDB in energy and transportation. Further integration of trust fund activities will be expanded over the CPS period.
Last updated October 2013
Increased power generation and transmission: The Bank’s investment and technical support for the power sector reform contributed to the following notable achievements:
Development of a commercial framework for domestic gas-to-power sales, supported by partial risk guarantees (PRGs) totaling US$400 million for the Nigeria Electricity and Gas Improvement Project (NEGIP), which helped to significantly increase gas-based generation capacity;
Implementation in June 2012 of a cost-reflective multi-year tariff order (MYTO2), which was instrumental in attracting private investment for the privatization of state generation and distribution utilities, which reached its final stages in early 2013;
Effectiveness of a three-year contract with Manitoba Hydro International (MHI) for management of the Transmission Company of Nigeria (TCN); and launch of an Energy Business Plan (EBP) developed jointly by International Development Association (IDA) and International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA), to help mobilize private investment in new generation capacity totaling 1,500 MW, for the benefit of independent power producers (IPPs).
Increased agriculture production: The community-driven development (CDD) approach increased the productivity and income of beneficiary farmers in every state, providing a model that could potentially be scaled up by the government. The Bank’s assistance through the Agricultural Development Policy Operation (DPO), which responds to the government’s Agriculture Transformation Agenda (ATA), supports policy reforms aimed at improving farmers’ access to improved technologies, inputs, and markets.
Improved health care services: The FY10-FY13 Country Partnership Strategy contributed significantly to progress in polio eradication, and the Bank has made the response to HIV/AIDS more evidence based and effective. As of June 14, 2013, 28 states have been polio free for one year, and coverage of oral polio vaccine (OPV) in Northern endemic states increased from 44 to 90% during the project period. Bank interventions helped to stabilize the HIV epidemic by:
Strengthening prevention efforts aimed at the most at-risk persons, such as commercial sex workers
Carrying out an epidemiological analysis to identify states with the highest HIV prevalence rates
Increasing access to critical HIV-related services such as prevention of mother to child transmission (PMTCT)
Strengthening the institutions responsible for coordinating programs at national and state levels.
Improved quality of basic and post-basic education: The Bank supported government efforts to expand access to post-basic education, primarily through the Lagos Eko Project and the Science and Technology Education Post-Basic (STEP-B), which, like Eko, featured competitive funding and performance incentives. The outcomes were quite compelling: senior secondary school students’ grades in Lagos state surpassed expectations, and the proportion of students obtaining grade B and above in science and technology was more than double the expected result.