President of the African Development Bank (AfDB) Akinwumi Adesina has stressed the need for Nigeria to put in place the right incentives to boost private investment and revive growth. He also reassured authorities of the Bank’s unwavering support during these difficult times.
“What is needed is not only to spend your way out of the recession, but to also incentivize your way out of the recession,” Adesina told a news conference following his meetings with President Muhammadu Buhari and his Economic Management Team.
Adesina is on his first official visit to Nigeria, since he took office in September 2015.
Nigeria, Africa’s biggest economy, is in recession. Following the decline in the price of oil, foreign earnings have collapsed, and the current account and fiscal deficits have worsened, leading to a sharp depreciation of the Naira. Inflation exceeds 17%.
Dividends of Devaluation
Oil exports represent 98% of the Government foreign exchange earnings, but account for only 10% of the GDP. “Diversification is not the problem,” Adesina said the problem is that the rest of the economy is not able to generate enough revenues for the Government and foreign exchange earnings.
In order to reap what Adesina called the “dividends of the Naira devaluation”, Nigeria needs to incentivize the rest of the economy: incentives for foreign direct investment (FDI) to go into the critical sectors, especially agriculture and agro-industrial sectors, solid minerals; and to small and medium enterprises (SMEs), an important job creator. He also called for incentivizing the manufacturing and industrial sectors to do import substitution.
“With the right incentives, the country will come out of the recession, structurally better balanced,” he said. The revenue base will be more diversified. The Government will get more resources from better performing manufacturing and industrial sectors and SMEs. And, most importantly, unemployment will decline substantially.
Nigeria not in debt crisis
Dr Akinwumi Adesina, has said that Nigeria is not in debt crisis but only facing “a liquidity problem”.
Adesina said that although the country is facing tough times, it is not falling apart as is being feared in some quarters.
“We are here to provide very strong support for the Nigerian government. And let me just say that Nigeria has tough times, but Nigeria is not falling apart. And when people talk about debt crisis, Nigeria is not in a debt crisis.
“If you look at the fiscal deficit of this country with regard to the GDP it is just about 3 per cent or 3.5 per cent; it is still below the 5 per cent for the Fiscal Responsibility Act.”
“If you look in terms of the debt to GDP ratio for Nigeria, it’s 15 per cent. So there is no debt crisis in Nigeria, what you have is a liquidity problem and we are trying our best to be able to help the country to solve that to be able to drive down inflation.
To be able to also make sure that working with the government, they provide the necessary incentives to the private sector because coming out of recession needs more than government.” “It needs the private sector; so incentives are going to be very important.
The Minister of Finance talks of all rafts of incentives they are going to give and I think that is the right direction. Am I happy to be here?
I just want to say that Nigeria is not falling apart; I think we are here to support Nigeria. Nigeria will come out of this as a better more diversified and more resilient economy than it went through recession. I believe that.’’
The AfDB president said the organisation was not a fair weather friend of the country, but was there to provide very strong support for the Federal Government.
Adesina also commended the authorities for taking bold action. The removal of the fuel subsidies and the devaluation of the Naira were “bold decisions,” he said. He also confirmed the Bank’s support to Nigeria.
The Bank is finalizing a US $1-billion budget support operation.
The Board is expected to consider this operation next month.
The Bank will also provide US $300 million for youth employment in agribusiness, through the ENABLE Youth programme.
The goal is to create 1,000 youth entrepreneurs in agribusiness in each of the 36 states, with an expected additional 185,000 jobs created.
To support the rehabilitation of the North Eastern parts of the country in support of President Buhari’s efforts for economic recovery in the zone, the Bank will also provide US $250 million for the North East Integrated Infrastructure Development Program.
In the agricultural sector, the Bank will provide US $200 million to the Agricultural Transformation Agenda Support Program, which builds on the US $150-million first phase, with the goal of supporting infrastructure and production and agro-industrial zones for processing and value addition to agricultural produce, for domestic and export markets. In addition, the Bank will provide US $300 million for the Abuja Infrastructure Project for integrated infrastructure (water, sanitation, roads, and electricity) for four satellite towns in capital region.
The Bank’s portfolio in Nigeria is projected to increase from the current US $4.6 billion to US $10 billion by 2019. Of this, the private sector is expected to receive US $6.9 billion, while the public sector will get US $2.1 billion, excluding a budget support of US $ 1 billion planned for 2016.