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Nigeria Development Update December 2020 Summary

Core Content

The Nigeria Development Update (NDU) December 2020 provides an in-depth analysis of the economic and social impact of the COVID-19 pandemic on Nigeria, along with policy recommendations for a resilient and sustainable recovery. The report highlights the unprecedented challenges posed by the crisis, including economic recession, rising inflation, reduced government revenues, and increased poverty and inequality. It also examines the effects on employment, social protection, public health, and education, and emphasizes the importance of gender equality and international labor migration in Nigeria's development strategy.

Main Points

Economic Impact and Outlook

• Recession: Nigeria's economy is projected to experience its deepest recession since the 1980s, with a 4% GDP contraction in 2020 and a modest 1.1% growth in 2021.
• Oil Sector: Over 80% of exports and 30% of banking-sector credit are tied to the oil industry. The sector's performance directly affects economic activity, jobs, government revenues, investment, and credit growth.
• Government Revenues: Consolidated government revenues are expected to drop by US$10 billion or more in 2020, impacting the ability to finance the COVID-19 response and fiscal stimulus.
• Remittances: A decline in remittances has slowed consumption and weakened aggregate demand.
• Exchange Rate: The Central Bank of Nigeria (CBN) has maintained tight controls to preserve FX reserves, with the IEFX rate significantly higher than the BDC rate.
• GDP per Capita: By 2023, GDP per capita is expected to be similar to 2010 levels, implying a loss of 14 years of income growth.

Policy Responses

• The government has accelerated reforms to enhance economic resilience, including:
  • Harmonizing exchange rates.
  • Introducing a market-based pricing mechanism for gasoline.
  • Eliminating subsidies.
  • Adjusting electricity tariffs to more cost-reflective levels.
  • Increasing transparency in debt and oil sector management.
• Fiscal Adjustments: The 2021 budget aims to recover oil and non-oil revenues and free up fiscal space.
• Reforms Needed: To avoid a prolonged recession, reforms must be sustained and deepened, even if oil prices recover.

Pillars of Recovery

The report outlines five pillars for a robust recovery:

1. Managing the domestic spread of COVID-19 until a vaccine is available.
2. Enhancing macroeconomic management to boost investor confidence.
3. Safeguarding and mobilizing revenues.
4. Reprioritizing public spending to protect critical development expenditures.
5. Supporting economic activity and access to services and providing relief for poor and vulnerable communities.

Key Policy Options

The report identifies eight critical short-term policy options:

• Allowing the exchange rate to reflect market fundamentals.
• Reopening land borders and easing foreign exchange restrictions.
• Mobilizing tax revenues without harming investment and growth.
• Strengthening monetary policy with transparent targets and liquidity management.
• Continuing power sector reforms to improve financial sustainability and access to electricity.
• Consolidating gasoline subsidy reform with clear guidelines.
• Extending social safety nets through targeted cash transfers and livelihoods grants.
• Reducing food insecurity for poor rural households through agricultural support.

Social and Economic Challenges

Employment

• Job losses and increased job turnover occurred in early 2020, but stabilized by August.
• Unemployment rates among youth and educated Nigerians have risen sharply.
• Women are more likely to be displaced to low-productivity sectors and experience income loss.
• Agricultural sector has become a last-resort employer for many unemployed workers.

Social Protection

• Nigeria spends less than 0.3% of GDP on social safety net programs, below most regional and structural peers.
• Coverage of social protection programs is low, and most beneficiaries are from the bottom 60% of the consumption distribution.
• Technological innovations can help improve the reach and effectiveness of these programs, but fiscal sustainability is essential.

Public Health

• Nigeria has managed the pandemic reasonably well, despite a decline in essential health services.
• Public health measures have slowed the spread of the virus, but mobility restrictions have impacted employment and household income.
• Healthcare access has decreased, and essential care services have been disrupted, affecting health outcomes.

Education

• School closures led to distance learning for 60% of children, a strong performance in the region.
• Learning continuity is a priority, and states must ensure safe conditions for students to return.
• Targeted policies are needed to identify and support children who did not return to school or are at risk of dropping out.

Spotlights on Development Agenda

Spotlight 1: Closing Gender Gaps

• Gender disparities in economic opportunities and earnings limit inclusive development.
• Women earn less for the same work, with lower productivity in agriculture and lower profits as entrepreneurs.
• Wage gaps persist in the labor market, with women earning 22% less than men.
• Policy constraints are significant, and gender-responsive policies are needed to address these.

Spotlight 2: Managing Labor Migration

• Youth unemployment and rising migration aspirations highlight the need for better management of international labor migration.
• Migration trends show a significant increase in Nigerian migrants to Europe and North America.
• Migration is more common among younger, better-educated, and urban populations.
• European countries are open to skilled migration, which could help address labor shortages.
• Institutional collaboration is needed across the migration lifecycle to support safe and legal migration.

Conclusion

Nigeria is at a critical historical juncture, with the potential to either recover or face prolonged recession. The report emphasizes that unprecedented policy measures are required to deepen reforms, enhance resilience, and achieve long-term development goals. The success of the recovery depends on the sustained implementation of macroeconomic and structural reforms, as well as targeted support for poor and vulnerable communities. The NDU serves as a guide for policymakers, business leaders, and analysts to navigate the challenges and opportunities presented by the post-pandemic landscape.