MACROECONOMIC FRAMEWORK FOR SUSTAINABLE GROWTH AND POVERTY REDUCTION IN NIGERIA #

1. MACROECONOMIC FRAMEWORK FOR SUSTAINABLE GROWTH AND POVERTY REDUCTION IN NIGERIA# By O.J. NNANNA, Phd* DIRECTOR OF RESEARCH & STATISTICS DEPARTMENT CENTRAL BANK OF NIGERIA *Dr. Nnanna is the Director of Research & Statistics of the Central Bank of Nigeria #Paper presented at the NEEDS Implementation Workshop organised by the World Bank and the Office of the Economic Adviser to the President at Bolingo Hotel, Abuja on 8th March, 2005

2. Outline • INTRODUCTION • ECONOMIC GROWTH AND POVERTY PROFILE IN NIGERIA • A REVIEW OF NIGERIA’S PAST MACROECONOMIC FRAMEWORK • NATIONAL ECONOMIC EMPOWERMENT DEVELOPMENT STRATEGY (NEEDS) • MAKING NEEDS WORK • CONCLUDING REMARKS

3. 1. Introduction • Nigeria has great potentials for economic growth and development, given her vast natural resources in agricultural lands and minerals, as well as abundant manpower. • In the last two decades, economic growth rate has been very low and in many years less than the population growth rate. The general macroeconomic outcome has been poor, resulting to high poverty level. • Many reform programmes introduced to address the twin problems of low economic growth and high incidence of poverty failed. • The National Economic Empowerment Development Strategy (NEEDS) that was introduced in 2004, has provided a robust and efficient framework for addressing the lingering economic problems of the economy. • This paper, therefore, represents the NEEDS agenda as a very viable framework

4. 2. ECONOMIC GROWTH AND POVERTY PROFILE IN NIGERIA • Economic Growth • The growth of the real gross domestic product (GDP) in Nigeria averaged 3.7 per cent between 1994-2003, thus exceeding the average population growth rate of 2.8 per cent by only 0.9 percentage point. • One factor that impacted negatively on growth was high lending interest rates which promoted savings, but discouraged the flow of credit and investments to the real sector. • Another economic phenomenon that affected growth was large budget deficits that were financed by the banking sector. Deficit/GDP ratio averaged 4.7 per cent in the last decade. The high level of deficit financing meant that the bulk of credit available to the economy was diverted to funding government, thus crowding out the private sector in the credit market. • The most serious problem was inflationary pressure that devalued the currency and induced uncertainty that made entrepreneurs to postpone investment decisions. Inflation promoted the diversion of resources from productive to speculative activities with serious consequences for employment and growth.

5. ECONOMIC GROWTH AND POVERTY PROFILE IN NIGERIA Cont. • Poverty Profile in Nigeria • Available data on poverty profile in Nigeria showed that the incidence of poverty rose from 28.1 per cent in 1980 to 46.3 per cent in 1985, but dropped slightly to 42.7 per cent in 1992. It rose persistently to 65.6 per cent in 1996. • Based on her low Gross National Product (GNP) per capita, Nigeria has since 1990 been classified as a “poor nation” • The incidence of poverty was more pronounced in the rural areas than the urban areas: Urban Rural 1980 17% 28% 1985 38% 51% 1996 59% 72% • In terms of geopolitical occurrence, there has been pronounced regional differences in poverty rates with the rates higher in the Northern parts of the country. • A UNDP report shows that highest income earning status was concentrated on 10 per cent of the population consuming 31.4 per cent of the national income while the poorest 10 per cent received only 1.3 per cent

7. POLICY CHALLENGES The goals of macroeconomic policy include promotion of growth, full employment, price stability, balance of payments equilibrium and equitable income distribution. All policy measures of government are geared towards the attainment of these goals. • Fiscal Policy: This deals with revenue generation and expenditure profile, transfer or distribution operation of the government Some of the problems experienced in fiscal policy management were: • Over dependence on the oil sector for revenue has been a major source of instability in the economy as government income is dictated by the swings in the volatile international oil market. • Increased budget deficits with all its associated problems • Predominance of recurrent over capital expenditure • Inflationary pressures which succeed in crowding out private sector in the credit market • Adoption of Fiscal Rule (Benchmark oil price), to prevent procyclicality of Govt expenditure • Monetary Policy • Medium term monetary framework adopted in 2003 • Reactionary and short term monetary policy intervention, leading to missed targets and ineffectiveness in performance • Lack of coordination between monetary and fiscal policies • High level of credit demand by the public sector thereby crowding out the private sector

8. TARGETED INSTRUMENTS FOR PROTECTING VULNERABLE GROUPS . GrOUP: INSTRUMENTS AND INTERVENTIONS Rural poor: Access to credit and land; participation in decision making,agricultural extension services; improved seeds, farm inputs and IMPLEMENTS; strengthening of traditional thrift, savings, and insurance schemes. Urban poor: Labour intensive public works schemes, affordable housing, water and sanitation, skills acquisition and enterpreneurial development, access to creit;scholarships and adult education. Women: Affirmative action (to increase women’s representation to at least 30 percent) in all programmes,education, including adult education; scholarships; access to credit and land, matenal and child health. .

9. TARGETED INSTRUMENTS FOR PROTECTING VULNERABLE GROUPS cont. • Youth: Education; enterprenurial development, skill acquisition; access to credit; prevention and control of HIV/AIDS and other sexually transmitted diseases. • Children: Children’s Parliament; juvenile administration; universal basic education; education for girls; care of orphans and vulnerable children (children affected by HIV/AIDs; prevention and treatment of childhood diseases. • Rural Communities: Water, rural roads; electricity; schools; health facilities; communications.

10. SPECIFIC MEASURES • Poverty Reduction Strategy Programme • Poverty alleviation measures adopted are focussed on promoting growth, satisfying basic needs, pursuit of rural development and direct attack on poverty • Most of the programmes are intended to enhance employment generation, agricultural output and income and stemming the tide of rural-urban migration • Generation of 7 million jobs between 2004-2007 through the combined efforts of private/public partnership

11. WHY PAST PROGRAMMES FAILED • Microfinance Several micro credit programmes adopted by government failed in reducing poverty because: • the institutions could not shed their urban toga which resulted in disbursement of funds mobilised in rural areas to urban dwellers • banking hours were not structured to suit the occupational pattern of rural dwellers • Most of the agencies were government sponsored and the availability of funds to them depended on the buoyancy of government In an effort to ensure that this sub sector plays the important role expected of it, the CBN is putting in place a regulatory framework for microfinance operations in Nigeria

12. NEEDS - PRIVATE/PUBLIC SECTOR PARTNERSHIP • Growing the private sector • Make the private sector the engine of growth as direct investor, executor and manager of businesses • Make the government the enabler, facilitator and regulator through: • Privatisation of public enterprises • Deregulation and liberalisation of economic activities • Provision of adequate and quality physical infrastructure • Environmental protection and conservation • Trade and regional integration • Implementing a social charter for the people • NEEDS is about people, their welfare, health, education, employment, poverty reduction, empowerment and security of lives and property • Created to give voice to the weak and vulnerable groups through increased participation in decision-making and implementation • Re-orientation of the people with enduring African value system

13. CONCLUDING REMARKS • Sustainable economic growth and employment creation represents the twin antidote for poverty reduction • The Nigerian economy needs to grow at a minimum of 7.0 per cent level if poverty is to be reduced by half by 20.15 • Judging from the past performance of the economy in 2003 and 2004 when real output growth of 10.3 and 6.1 per cent were recorded, it is likely that Nigeria may achieve the MDG. • However, the servicing of unsustainable external debt appears to be the major constraining factor in achieving the MDG.

14. Thank You