April/June, 2002 Volune 26 No. 2
BEHIND THE SCENE
EDITORIAL BOARD EDITORIAL STAFF
Mr. C. N. O. Mordi - Ag. Chairman SENIOR EDITOR Azu Amobi Dr. O. J. Nnanna - Member SENIOR MANAGER Dr. G. E. Ukpong - Member Adeola Adepegba
Mrs. A. Adepegba - Secretary ASSISTANT EDITORS Ibanga Ekefre Austin Belonwu EDITORIAL ADVISORY COMMITTEE SECRETARIAL Justus C. Nduwugwe Dr. O. J. Nnanna - Chairman Dr. G. E. Ukpong - Alternate EDITORIAL ASSISTANTS Chairman Sunday Sorungbe Muazu Waziri Mr. C. N. O. Mordi - Member Mr. J. Alegieuno - Member COMPOSITION Kunle Gbadamosi Mr. C. O. Odiaka - Member Mr. O. A. Balogun - Member DISTRIBUTION Mr. R. H. Abarshi - Member Ben Onokpegu Mr. A. O. Adenuga - Member Mrs. A. Adepegba - Secretary
BULLION is published every three months by Central Bank of Nigeria. Views expressed therein do not necessarily reflect the thinking of the Bank’s Management. Copies of the journal are available without charge through formal request to the Editor. Articles appearing in the journal may be reproduced only with the expressed permission of the Editor or the article’s author.
BULLION ISSN - 0033 - 7919
1 April/June, 2002 Volune 26 No. 2
CONTENTS PAGE
PAGE 3 WELCOME ADDRESS . Chief (Dr.) J. O. Sanusi, Governor, Central Bank of Nigeria
PAGE 6 KEYNOTE ADDRESS . Mallam Adamu Ciroma, Hon. Minister of Finance
PAGE 9 A SPECIAL ADDRESS, “BUDGET IMPLEMENTATION IN A DEMOCRATIC SETTING: PROBLEMS AND CHALLENGES” . Dr. M. L. Kpakol, Chief Economic adviser to the President
PAGE 12 REMARKS ON THE 2002 FEDERAL GOVERNMENT BUDGET. . Prof. S. Ibi Ajayi, President, The Nigerian Economic Society.
PAGE 14 REVIEW AND APPRAISAL OF THE 2002 FEDERAL GOVERNMENT BUDGET PERFORMANCE . Prof. Milton Iyoha, University of Benin.
PAGE 22 FISCAL POLICY THRUST OF THE YEAR 2002 BUDGET . Dr. H. U. Sanusi, Permanent Secretary, Budget Office, Federal Ministry of Finance
PAGE 27 MONETARY AND FINANCIAL SECTOR POLICY MEASURES IN THE YEAR 2002 BUD- GET . Dr. O. J. Nnanna, Director of Research, Central Bank of Nigeria
PAGE 36 EXTERNAL SECTOR POLICIES IN THE 2002 FEDERAL GOVERNMENT BUDGET: AN ANALYTICAL REVIEW AND ASSESSMENT . Prof. Ademola Oyeyide, Executive Director, Development Policy Centre, Ibadan.
PAGE 40 REAL SECTOR POLICIES IN THE 2002 BUDGET . Engr. C. C. Ugwuh, President, Manufacturers Association of Nigeria
OTHER PAPER(S)
PAGE 44 TOWARDS EFFECTIVE POVERTY ERADICATION STRATEGIES IN NIGERIA . Prof. Ukwu I. Ukwu, Executive Director, Centre for Development Research, Management and Training, Enugu
2 April/June, 2002 Volune 26 No. 2 WELCOME ADDRESS AT THE POLICY SEMINAR ON THE 2002 FEDERAL GOVERNMENT BUDGET
By
CHIEF (DR.) J. O. SANUSI*
CHIEF (DR.) J. O. SANUSI
1.0 It is my honour and privilege Gentlemen, let me review the the economy by the three tiers of to welcome you to this year’s performance of the Nigerian economy government, through the monetisation policy seminar on the Fiscal 2002 and the policy environment, with a of excess crude oil receipts, the Federal Government Budget. view to placing the discussion on sharing of proceeds from the Today’s seminar is the eighth, in fiscal 2002 in proper perspective. GSM licensing, the disbursement the annual series of the inter- The performance of the economy of the recovered loot, the excess agency collaborative endeavour in 2001, improved generally, crude savings in year 2000, and by the Central Bank of Nigeria buoyed by improvements in the financing of deficit spending (CBN), the National Centre for agricultural and industrial production. through the banking system. The growth rate of real Gross Economic Management and Consequently, broad money (M2) Administration (NCEMA) and the Domestic Product (GDP), was increased substantially by 27.0 Nigerian Economic Society (NES) estimated at 3.9 per cent, which per cent, as against the of providing a forum for an indepth represents a marginal increase programmed target of 12.2 per analysis of the current fiscal and over the 3.8 per cent recorded in cent. monetary policy goals and 2000 but, nonetheless, the highest 5.0 On interest rates, bank measures by the major growth rate in a decade. This rate lending rates were generally high stakeholders in the economy. was, however, lower than the 5.0 in 2001, but the average savings 2.0 The aim of the seminar, as per cent targeted in 2001. Similarly, deposit rate remained low and in the past, is to come up with inflationary pressure intensified, as negative, in real terms, as the appropriate recommendations the rate accelerated from 6.9 per inflation rate maintained an towards the realization of the cent at the end of 2000 to 18.9 per upward trend throughout the year. objectives of the Budget, especially cent in 2001. The persistent Furthermore, the spread between the achievement of the non- problem of excess liquidity in the the savings deposit and lending inflationary growth that will economy reflected the impact of rates remained wide, reflecting fiscal dominance, exacerbating the enhance the living standards of the oligopolistic structure of the demand pressure with adverse the citizenry. It is in this regard, banking system. As at December implications for domestic prices, that the second technical session 2001, the spread between the and the exchange and interest of this seminar will focus on banks’ weighted average deposit rates. “Effective Poverty Alleviation and maximum lending rates Strategies”, the discussion of 4.0 Against this background, the reached 14.7 percentage points, which should enrich the strategy thrust of monetary policy was while that between the average for the successful implementation restrictive, in order to correct savings deposit and maximum of the poverty alleviation programme, domestic imbalances and ensure lending rates was 26.2 percentage which is a major objective of the macroeconomic stability. However, points. Nevertheless, deposit economic policy thrust of the the effectiveness of monetary present administration. policy was impaired by the banks’ lending, largely to the private 3.0 At this juncture, Ladies and excessive injection of liquidity into sector and state
* Chief (Dr.) J. O. Sanusi is Governor, Central Bank of Nigeria. The Seminar was held at the Muson Centre , Onikan, Lagos on 7th May, 2002.
3 April/June, 2002 Volune 26 No. 2 governments,increased production, semi-manufacturing and complementarity between monetary significantly by 72.4 per cent, as manufacturing, solid minerals and and fiscal policies and the extent against the 22.8 per cent targeted. information technology. Moreover, to which the policies are well 6.0 The external sector performance the abolition of foreign guarantees coordinated. In this regard, I wish was generally satisfactory, boosted as collateral for Naira-denominated to reiterate that the full by favourable developments in the loans, which was introduced in implementation of the 2002 international crude oil market. 1989, has been lifted in order to budget as approved by the The overall balance of payments attract foreign investment inflows, National Assembly will dampen position recorded a surplus, not necessarily in terms of capital prospects for re-establishing although substantially lower than in funds, but largely in terms of macroeconomic stability for the previous year. Consequently, improved technology, management sustainable growth during the gross external reserves rose from and entrepreneural capacity, which year. This will make the task of US$9.9 billion at end-December, are presently lacking in Nigeria. monetary management more 2000 to US$10.4 billion in 2001. 8.0 The Small and Medium challenging occasioning the need The naira exchange rate vis-a-vis Industries Equity Investment to sterilize the resultant excess the US dollar was relatively stable Scheme (SMIEIS) was launched liquidity by raising interest rates, in the Inter-bank Foreign by Mr. President in August, 2001. which could be inimical to Exchange Market (IFEM) for As you are aware, the scheme investment growth. In order to most of the year, reflecting the requires all banks to set aside 10 avoid this risk, the Government impact of the comprehensive per cent of their profit before tax for should limit its expenditures to import destination inspection, the promotion of small and medium what the capacity of the economy and the tight monetary policy scale industries in the country can absorb and finance any deficit adopted during the period. The through equity investment. With the spending that may arise through rates in the parallel market, adoption of this private sector-led the capital market, rather than however, depreciated on the development strategy, it is resort to Ways and Means average, from N=111.10 a dollar to expected that the flow of funds to Advances from the CBN or N=132.60 a dollar. this vital sub-sector of the economy excessive borrowing from the 7.0 Against the backdrop of the will increase. The CBN has the banking system, which would unstable macroeconomic responsibility to closely monitor the crowd out the private sector. In environment and the lackluster scheme to ensure its success. this context, I wish to emphasise performance of the economy in 9.0 You may also have noticed the need for greater co-ordination 2001, the achievement of price in our 2002 Monetary Policy between the Treasury and the and exchange rate stability, as the Circular, that the CBN has adopted CBN in the current fiscal year. The basis for sustainable growth, a new medium-term monetary CBN will, on its part, endeavour remained the primary objective of policy framework with effect from to keep the growth of monetary monetary policy in 2002/2003. 2002, so as to enhance the aggregates within the specified Thus, the stance of monetary efficiency and effectiveness of targets, as well as sustain the policy in fiscal 2002 has been monetary policy. Unlike the earlier relative stability of the exchange largely non-accommodating, ones, the current monetary rate, while ensuring the while appropriate incentives have programme is designed for a two- maintenance of banking been introduced to stimulate year period, instead of one, soundness in the country. growth. In this regard and effectively from January, 2002 to 11.0 I should not end this consistent with the objective of December, 2003. The adoption of address without, once again, stimulating investment and output this strategy is in recognition of the reiterating the critical role of the growth, the CBN introduced, fact that monetary policy actions banking system as the primary effective from January, 2002 the affect the ultimate objectives with a conduit for transmitting monetary rediscounting and refinancing lag. Thus, the current shift will free policy signals and, indeed, fiscal facility (RRF), to encourage monetary policy implementation measures to the real economy. banks to lend medium to long- from the problem of time The effective implementation of term to the productive sectors of inconsistency and minimize over- monetary policy requires a the economy. The facility, which reaction due to temporary shocks. responsive banking system that will be at a concessionary interest 10. Let me warn that the can adjust its operations in rate, is designed to encourage effectiveness of monetary policy in response to policy initiatives long-term bank lending to the 2002, as articulated above, will without adversely affecting the following sectors: agricultural depend largely on the efficiency of intermediation or
4 April/June, 2002 Volune 26 No. 2 depositor confidence. The need, maintaining an uncompromising advice and policy therefore, to maintain banking supervisory role, will do its utmost recommendations that will soundness with the highest level to support the system and ensure emerge from your discussion. of ethical standards cannot be its stability. 13.0 Once more, I welcome you over-emphasised. Let me assure 12.0 Let me assure you that the all to this seminar and wish you the general public that the overall CBN is committed to supporting the very successful deliberations. health of the banking system, frank exchange of views that inspite of recent turbulence in the typically characterises the conduct process of sanitisation, remains of this seminar and, as usual, give satisfactory. The CBN, while due consideration to any good
5 April/June, 2002 Volune 26 No. 2
KEYNOTE ADDRESS BY MINISTER OF FINANCE, MALLAM ADAMU CIROMA, AT THE POLICY SEMINAR ON THE 2002 FEDERAL GOVERNMENT BUDGET
am delighted to be part of this reduce leakages in revenue occasion of the 8th Policy Seminar collections and drastically Ion the Federal Government’s Fiscal reduced duty exemptions. 2002 Budget. At the outset, I should Moreover, government thank the organizers: the Central expenditure was streamlined and Bank of Nigeria, the National restructured, such that capital Centre for Economic Management expenditure accounted for 43.1 and Administration and the per cent of the total expenditure, Nigerian Economic Society - for the highest in the last five years. inviting me as Special Guest of Consistent with the strong Honour to deliver this Keynote desire to strengthen output and Address. Let me note that, since employment growth, the Federal its assumption of office in 1999, Government prioritised its the present Administration has MALLAM ADAMU CIROMA projects funding during the year. adopted transparency and Accordingly, funding for Power accountability as an integral part and Steel, Works and Housing, A review of the fiscal operations of its budgetary process. This is Water Resources, Education, of the government shows that an effort that must be sustained Health, Agriculture and Security during fiscal 2001, revenues in the spirit of true democracy and received priority attention. It is amounting to N=797.0 billion I see today’s seminar as part of noteworthy that the change in accrued to the Federal Government. this endeavour, as it provides us expenditure pattern has started to However, government’s total the opportunity not only to impact positively on the economy. expenditure, amounted to N=1,018.0 appraise performance under the More specifically, real GDP billion, resulting in an overall fiscal year 2001 Budget but also to growth strengthened as the rate deficit of N=221.0 billion or 4.1 per assess the prospects for achieving rose to 3.8 per cent, the highest cent of the national GDP for the the goals of the year 2002 Budget. in a decade. year. The deficit was financed largely As usual, we shall welcome with the Federal Government’s share constructive criticisms from all the of excess crude oil revenue and PROSPECTS AND stakeholders and hope that you borrowing from the banking system. OBJECTIVES FOR 2002 will be short on criticisms and long It is encouraging to note that on proffering practicable solutions. there was a significant shift in the As you may recall, the fiscal * Against the background of structure of revenue, as non-oil measures for 2001 were designed revenue contributed a higher improved performance of the to meet the need for improved proportion to total revenue than in economy in fiscal 2001 and the efficiency of economic and social the previous five years. This need for further strengthening in infrastructure, enhanced output desirable development was order to realize the full potentials and employment growth and traceable to improvements in tax of the economy, the objectives of ultimately, a reduction in the level administration initiated by economic policies in fiscal 2002 of poverty in the economy. government. First, port reforms, Appropriate strategies were were to: especially the introduction of adopted towards the achievement * Achieve non-inflationary comprehensive destination import of these objectives, including tax growth rate of 5.0 per cent inspection, encouraged enhanced concessions and incentives towards job creation and customs revenue. Secondly, particularly to the industrial and poverty reduction. government also took measures to agricultural sectors. * Enhance private sector role
6 April/June, 2002 Volune 26 No. 2
in the economy. reflected on the federal government measures introduced in the * Enhance fiscal transparency fiscal profile and adjustments will be course of the preceding financial and accountability by adhering made, as appropriate. In order to year. The enthronement of due to due process in budget meet its revenue target, the process regime and pursuit of the implementation. government will improve on its policy of transparency have * Ensure budgetary responsibility revenue collection performance by already started to reduce the strengthening tax administration. In areas of waste. Increasingly, we and avoid fiscal surprises. this regard, adequate provision will are realizing more value for the Towards the achievement of the be made for collection agencies, in money we spend on projects. above objectives, the Federal terms of finance and logistics Efforts in that direction will be Government adopts the following support. Nigerians should also intensified. policy strategies: support government efforts in this The implementation of * Promote the growth of area by discharging their basic civic eligible projects will be given domestic savings, which responsibilities. The implementation adequate attention through timely would moderate interest of the Accelerated System of release of funds by the Government. rate, and ensure the early Customs Data (ASYCUDA) project To this end, I have set up a introduction of the National will be completed during the fiscal committee to examine the Savings Certificate. year. This will enhance the bottlenecks in the process and to * Give priority attention to the performance of the Nigerian make recommendations for their completion of on-going Customs Service (NCS). removal. It is my hope, therefore, projects, in the areas of Implementation of the that the institutional reforms, urban and rural water, privatisation programme will be resulting from the implementation roads, dams, electricity, etc. given further impetus during the of the recommendations will * Avoid extra-budgetary year. Accordingly, it is estimated ensure that budget release is expenditure and ways and that the sum of N=75.0 billion will be regular and adequate for approved means financing of deficit by realized from the sale of projects and operations. resorting to the capital government enterprises, and the As a further proof of the market, if the need arises. restructured enterprises will Federal Government’s * Strengthen and deepen contribute to revenue generation. commitment to making macroeconomic stability to On the expenditure side, the public resources work more ensure that the dividends of National Assembly approved the effectively for Nigerians, the democracy flow to the sum of N=1,064.8 billion as Federal Budget Office in the Federal grassroots; and Government expenditure in fiscal Ministry of Finance was created * Consolidate the “due 2002, comprising recurrent in 2001. This is a central element process principle”. expenditure of N=578.1 billion and of efforts to strengthen institutions In terms of content, the capital expenditure of N=486.7 responsible for the budget budget provides for a gross billion. Given the retained revenue process. revenue receipt of N=1,806.1 of N=627.6 billion, the fiscal operation Since the creation of the billion to the Federation Account, of the Federal Government is Budget Office, staff have taken with oil revenue alone accounting projected to result in a technical head-on the challenge of bringing for N=1,288.1 billion or 71.0 per deficit of N=437.1 billion or 7.4 per greater sanity into the Federal cent and non-oil revenue cent of GDP. There is no doubt that Government’s budget process. accounting for the balance of the size of the budget deficit is larger We have tried to introduce greater N=517.9 billion or 29.0 per cent. On than conventionally acceptable and budget discipline through setting the basis of the current revenue could be inflationary, thereby expenditure envelopes within allocation formula and expected negating the objective of poverty which spending agencies are to revenue from independent sources, eradication. It is well known that prepare their budget proposals. the revenue of the Federal inflation is the greatest enemy of We have worked closely with the Government in 2002 is estimated at the poor. The recent experience in Budget Monitoring and Price N=627.6 billion. Let me add that Argentina must remind us of the Intelligence Unit in the Presidency Government is still studying the need for fiscal prudence in our on improving the quality of Supreme Court judgement on macroeconomic management. expenditure proposals and have Resource Control while the full Let me assure you that the also worked with key members of implications of the Supreme government is determined to the Legislature during the Court’s ruling on the issue of fiscal continue its reform efforts by preparation of the 2002 Budget, in federalism in Nigeria will soon be sustaining the expenditure control an effort to ensure a more
7 April/June, 2002 Volune 26 No. 2
constructive partnership between the stakeholders - especially the goals of the 2002 Federal the Legislature and the Executive CBN, States and local governments. Government budget is the joint on budget matters. We all have a role to play and a duty responsibility of all stakeholders. In addition, Government to ensure that our fiscal federalism It is against this background that Financial Regulations have been succeeds. This has become quite I seek your cooperation for the re-issued: award of contracts in necessary in view of the recent successful implementation of the excess of N=50 million must be judgement of the Supreme Court 2002 budget. I urge you to submitted for Federal Executive on the issue of revenue sharing. In discuss the fiscal measures and Council approval, and fundamental addition to reducing distortions in strategies for the year dispassionately reforms to government procurement the economy, such cooperation will and make your recommendations processes: to promote greater pave the way for better coordination available to government. transparency and value for money of fiscal and monetary policies. It will On this note, I formally are being put in place. also reduce the incidence of “fiscal declare this seminar open and In order to facilitate the surprises” and facilitate the wish you successful deliberations. attainment of our budgetary goals achievement of the common goal and aspiration, we shall further of macroeconomic stability. strengthen the consultation and Let me conclude by reiterating cooperation process amongst all that the achievement of the major ANNEX I THE WORSENING TREND IN THE PERFORMANCE OF NIGERIA’S AGGREGATE ECONOMY HAS BOTTOMED OUT: THE GROWTH MOMENTUM HAS AT LAST BEGUN. HERE ARE THE EVIDENCES
1. Non-oil revenue did the highest also in 5 years. rate has been rising not con- contribute in 2001 a higher tacting. proportion to total revenue 3. Industrial capacity utilisation than in the previous five (5) averaged 46.5% in year 2001, 6. Queues for petroleum years. This significant shift in the highest in 15 years by the products have disappeared the structure of revenue computation and assessment while electricity supply has becomes better appreciated of MAN itself. improved fairly significantly. when it is situated in the The GSM communication context of the quantum jump 4. The economy grew by 3 revolutions is also expected in oil revenue itself in 2001. percent by our own account to contribute significantly to The import of this is that the (and 4% by world bank GDP growth in year 2002. inefficiency and corruption of assessment) in year 2001. our revenue collection This figure, though not as 7. University undergraduates agencies are happily on the strong and robust as desirable, that enrolled in 1999 will now decline. Therefore the war is the highest growth rate probably graduate in 2003 against corruption is being Nigeria recorded in the last 10 within their legitimate gradually won whilst the years courtesy of the Federal academic tenure. We know struggle for greater transparency Office of Statistics, the one and what happened in the 1990s. is also being gradually won. It is only source of Nigeria’s GDP also a reflection of the drastic growth computation. This rate 8. Higher minimum wage has reduction in customs duties is about one per cent higher helped to stimulate consumer concession hitherto granted to than the population growth demand and industrial numerous government agencies rate, yielding, as it were, a one domestic capacity expansion and NGOs. The ratio of non-oil per cent net increase in per even while it has hurt the to total revenue stood at 29:100 capita GDP. treasury of all three tiers of the in 2001. Nigerian Government. 5. As a logical concomitant of the 2. Capital expenditure as a steady, it not strongly impres- ratio of total expenditure rose sive, expansion of the aggre- to 43.1% in 2001, becoming gate economy employment
8 April/June, 2002 Volune 26 No. 2 BUDGET IMPLEMENTATION IN A DEMOCRATIC SETTING: PROBLEMS AND CHALLENGES
By
DR. M. L. KPAKOL*
1. Let me attempt to provide important that during the tortuous path of democratic budget a simple definition of a budget. implementation of a budget, formulation and implementation. Well, in my mind, a budget policies remain consistent and Recall that our 2002 budget was describes an anticipated flow of focused, and financial outlays are not approved until the end of March. funds and how such funds will be made with transparency and But this is still the best we can do. spent to achieve valued judiciousness. Every budget is As you know, under a objectives, which may be stated. constructed to achieve certain democratic arrangement, Individuals, households, business fundamental goals, which may be decisions are arrived at, through firms, governments and indeed all generalized or particularized. The dialogue and consensus, and this institutions have budgets. These aim of the implementation process can involve a long process. But budgets may be announced or is to achieve these stated objectives. as you also know, sometimes it is unannounced. For any For nations, an aim is often to assure best and safer to take the long democratic government, the or improve the general welfare of its way home. budget must be approved by the citizens, through a fast pace of people, with the details made economic growth, job creation, 4. The swearing in of an available for evey voter to see. As security and the provision of basic elected government on the 29th you all know, the budget is a social services. A budget can herald of May 1999 marked the critical platform upon which much this aim or betray it. beginning of a new democratic policy decisions are based. You dispensation in Nigeria. The new will recall our recent situation with 3. Certainly, it is easier to administration inherited an policy targets during the last IMF implement a budget in a command economy that was broken and a mission visit to Abuja. We could system than in democratic populace that was generally not arrive at targets, because our arrangement. I am not saying that demoralized and in need of 2002 budget was not yet therefore I prefer dictatorial competent leadership. The approved. regimes. I’m only suggesting that country faced serious challenges assuming a budget is put together domestically and externally. WHAT IS BUDGET by a dictatorship, which may or may Domestically, job creation had IMPLEMENTATION? not be benevolent, such budget will be stagnated and the incidence of rammed through in implementation poverty had reached alarming 2. The implementation of a whether you like it or not. Let me proportions. The domestic budget involves undertaking its also suggest that this would be the economy was unravelling from policy thrust, and delivering on its preferred, first-best way of many years where the rate of expenditure outlays on associated implementing a budget, if we had a population growth outstripped the programmes and projects over a benevolent dictator. But how can we speed of economic expansion. given period of time. The be sure that a dictator will be Externally, the image of the budgeting system is expected to benevolent or continue to be country was soiled from bad reflect whether or not there is benevolent. It seems we can never human rights reports from home efficiency in the allocation of be sure. Therefore, most societies and from isolation from the rest resources in output and in move away from this approach and of the world, as the barest expenditure. It is therefore instead, embrace the rough and minimum of foreign investment
* Dr. M. L. Kpakol is Chief Economic Adviser to the President and Vice-Chairman, National Planning Commission.
9 April/June, 2002 Volune 26 No. 2 came in, exclusively to the oil hospitals, postal services and (e) Unusually high costs, which sector where there are very little public transportation. To be sure, also can lead to job delays alternatives, and most external adequate implementation must be and project cancellation; aid dried up. The national debt preceded by a good planning and (f) Opacity in the tendering settled at an unsustainable level, research process and an efficient process, with selective with absolutely no sign of relief budget. tendering used to save time anywhere to be found. From or reach personal goals 1992 to 1998, the economy 6. Achieving a democratic rather than social objectives; managed an average economic budget implementation requires a (g) Tender specifications, leading growth rate of just 2.5 percent, conscious and deliberate effort at to difficulty in design well below the population growth meeting the needs and aspirations comparisons; rate of almost 3.0 percent, a of the people. This implies that there (h) Lack of integration among classic case of growth with must be a strong political and public sector policy-making, misery. But since 1999, things administrative will to do right in serving planning, budgeting, have changed. In 2000 and 2001, the people with accountability, management systems and real GDP growth advanced at a responsibility and transparency. In processes; faster pace than at any time since recognition of this imperative, the (i) The absence of any definite 1991, growing at 3.83 per cent in government at its inception in 1999 and measurable objectives 2000 and 3.91 per cent in 2001. made the curbing of corruption a key or targets set out for budget objective of its development policy. implementation; Since it has become almost a Among other strategies for realizing (j) The lack of a rational basis religious act to set the real GDP this objective was the introduction for prioritizing choices in the growth target at 5.0 per cent each of a process of budgetary reform. face of dwindling resources. year for the budget, it meant that Essentially, the reform was to In this situation, funds are not we missed our mark throughout involve integrating a Due Process channeled to projects that the 1990s in each of our rolling Compliance Principle into the can be reasonably completed, plans. This also implies that all budget implementation process. given the available resources; other targets and objectives (k) Lack of an implementation anticipated from the realization of PROBLEMS OF BUDGET program. That is, an action the real GDP growth targets in the IMPLEMENTATION plan of steps and procedures rolling plans and budgets were that systematically guide the also missed. I have often called 7. What are some of the implementations of the this a “set-and-miss syndrome”, problems that have characterized budget. Thus, Government and we should never do it again. the budget implementation process commits resources to It should be forbidden as a matter in Nigeria? Some of the problems projects without proper of prudent policy making. Again, may be defined as follows: assessment of the results to this is why, this time around in our be achieved; and economic policy formulation, we (a) Lateness in finalization of the (i) Extra-budgetary approvals. will endeavor to set realistic budget. Often the budget is This occurs when unbudgeted targets based on accurate and not completed early enough, projects are given approvals. responsible analysis and and may be as much as three Sometimes such projects can simulations. to four months behind crowd out original projects. schedule; 5. In practical terms, therefore, (b) Uncertainty regarding the In almost every case, these for many years, budget timing and amount of actual anomalies in the budgetary or implementation in this country releases; implementation process push up has been characterized by (c) Budget-crowding, where the the budget deficit. In many abandoned public sector projects budget is congested with so countries, especially developing due to misallocation of resources many projects and in such a countries, these problems are like and imprudent determination of manner that individual a persistent rainfall that has the budget. This is why we have projects are often missed or continued to pour down on a the problem of poorly maintained misallocated for; parade. When will it end? basic infrastructure, including roads, (d) Uncertainty in revenue flow. power, telecommunications, and This often leads to abandoned THE CHALLENGES water supply and also dilapidated projects or delays in social services like schools, implementation; 8. In Nigeria, the new demo-
10 April/June, 2002 Volune 26 No. 2 cratic government is deter- short range strategic plans such as development. mined to challenge corrup- the National Rolling Plan. As is the tion and commit itself to case within the legal context from 12. Integrating the federating good governance charac- which the term was borrowed, Due units (that is, the states and local terized by fiscal discipline, Process is an assurance that there Governments) into the budget transparency, responsibil- has been full adherence to laid reform process is very important. ity and accountability. The down rules or regulations guiding Ensuring that all state governors commitment of govern- budgetary procurement and establish Due Process Compliance ment is to use the Budget payment activity or action by all mechanisms will serve the to generate sustainable parties related to the activity. country well. The National growth and development Economic Council will have to through investment in hu- 10. The new policy on Due arrive at a consensus on this very man capital and physical Process was effected in a Federal important issue if we are to infrastructure, with the aim Ministry of Finance Circular No. achieve results in monetary and to significantly reduce pov- F15775 dated 27th June 2001 on fiscal policies. erty, and above all build a “New Policy Guidelines for stable, united, democratic Procurement and Award of 13. I am sure that the Governor and secure polity. To Contracts in Government Ministries/ of the Central Bank and the key achieve effective budget Parastatals”. monetary policy makers will agree implementation the gov- that nation-wide fiscal discipline ernment has adopted a CONCLUSIONS is essential for a stable economic Due Process Compliance environment. We are in this boat (DPC) mechanism that is 11. I have gone into some details together, any waves that come at working successfully. on the problems and challenges that us can cause peril for all, but as I can face budget implementation in have often said, if the big toe plays 9. The instrument of Due a democratic setting. In order to the role of the big toe, the index Process is designed to enforce give effect to the aspirations of finger plays the role of the index compliance with efficiency and Government to reverse any finger, and if the feet walk and the transparency in budgeting and problem trends in budget eyes see and every part of the expenditure by all Federal spending implementation, there is need for body plays its role, then the body units. It helps to ensure that every citizen to participate in putting becomes the glory it was meant budgets and spending are not Nigeria first. When I talked of a to be. only based on authentic, smart economy, I have included in reasonable and fair costing, but that, a very educated citizenry that are also appropriately geared to understands the issues and the role the realization of set priorities and of government and individual targets that were generated from participation for economic
11 April/June, 2002 Volune 26 No. 2 THE 2002 FEDERAL GOVERNMENT BUDGET: SOME REMARKS
By
Professor S. Ibi Ajayi*
n assessing the budget for poorest countries of the world, its Vietnam. In Nigeria on the other the year, it is hoped that we rich oil wealth notwithstanding. The hand, per capita consumption fell will be able to take a critical infrastructures are inefficient, worst in the late 1990s and poverty share Ilook at where we have been, still rapid improvement is not in the increased by half from about 43 where we are and where we hope immediate horizon. Uncertainty is percent to about 66 percent of the to be and need to be in order to pervading the entire society brought population. Creating the improve the welfare of our people! about by various shocks mostly conditions for growth requires first This is necessary since the internal: uncertainties created by the existence of peaceful and budget is not just simply a ethnic and political strife. stable condition. statement of the revenue and It is necessary to continue expenditures of government but We have learnt a lot from the to remind policy makers and in also a pronouncement of the literature and practical experience particular their economic advisers macroeconomic policy stance of that development depends on at about the necessity of growth as government. It behooves on us least two pillars, which together will well as the fundamentals of therefore as economic analysts, support sustained growth and economic growth. In order to policymakers etc not only to poverty reduction. The first is that improve the economic positions critically analyze and objectively we must build a good investment of a lot of our citizenry, it is assess what we think we have climate - an environment in which important to realize that growth is been able to achieve within the the private sector will invest and not only desirable, it is good for domestic economy to improve the produce efficiently in a way that the poor in an era of poverty lots of our people but to assess productivity growth and jobs are alleviation programs. What steps also where we are in the generated. The investment climate are we taking to achieve our goals community of nations in general consists of all factors that mostly or are we still dwelling with the and the developing countries in influence private-sector decisions: rhetoric? particular. We cannot afford to be macroeconomic stability, governance There is abundant empirical just a local champion, living in and institutions and infrastructure. evidence based on regression caves that most civilized people Second, countries must empower analysis on the sources of growth. have long left! and invest in people. Many There is also abundant evidence countries have been able to build on the policies and strategies to In assessing the budget, these two pillars and have been promote broad-based sustained permit me to share with you very able to reap the rewards. Economic growth. briefly by way of introductory growth is important or more If the thrust of our growth remarks my thinking on the appropriately it is the sine qua non and development is partly based Nigerian economy and the for sustained progress on poverty on foreign direct investment we direction the budget should be reduction. Countries that have must then ask ourselves whether heading. As you must all know, reduced poverty are the ones that the prerequisites for direct foreign after many years of battering, the have grown fastest. Poverty on the investment into Nigeria are Nigerian economy has not fully other hand has grown fastest in presently available. We do know recovered from its economic countries that have stagnated that countries that have in the past malaise. The level of poverty has economically. In the late 1990s, the attracted foreign investments are not declined. Indeed, a large share of the population in poverty those where the associated risks number of our population is fell on average of 5 to 8 percent of foreign investment are at a wallowing in poverty. Nigeria by annually for fast growing countries minimum. The whole world is a latest statistics is among the like Uganda, India, China and global village in an era of increasing
* Professor S. Ibi Ajayi is President, The Nigerian Economic Society
12 April/June, 2002 Volune 26 No. 2 globalization and people will shift instability, inefficient institutions and development in this country are: their investments not only to weak legal systems. In our country, improve on the security situation areas and countries where the there is insecurity of lives and in the country, improve on the market is large but one in which properties, apart from the fact that infrastructures so that electricity, their assets are safe, secure and the state of infrastructures is at best water and communications can the costs of carrying out business prostate. In many parts of the be very reliable. This indeed is a are at minimum. At the end of the country today, pipe borne water is long haul and it definitely has to day, it is the law of economics that unavailable; electricity is at best be seen within its macroeconomic will prevail. The factors that have erratic if available at all. No serious perspectives. The security of the attracted foreign investment minded foreign investor will like to nation cannot really improve include favourable macro- invest in Nigeria because of all unless there is employment for economic policy environment: these disadvantages. The issue we millions or thousands of graduates increased liberalization of must then address relate to the from our universities, and this can markets, liberal trade regimes, different measures that are being only happen if the economy good and reliable infrastructural put in place to address these improves. facilities, security and business problems and ensure that positive Nigeria in an era of facilitation measures, among goals of the economy are attained. globalization cannot be an island others. One of the reasons why Of course, it need be stressed that in itself. It stands to lose if she fails the Nigerian economy has not all these cannot be meaningfully to join the train. To meaningfully grown is not unconnected with attained in a year’s budget. There benefit, Nigeria must put in place factors that either discourage is need for a proper articulation of policies that will make it possible investment or make it less need and a systematic phasing out to derive the advantages. Are productive. The risk associated of programmes and budgets. these being put in place? Are we with investment in Nigeria is very It is very clear from a policy sowing the appropriate seed? high especially those associated perspective what the choices for with macroeconomic and political bringing about growth and
13 April/June, 2002 Volune 26 No. 2 REVIEW AND APPRAISAL OF THE 2002 FEDERAL GOVERNMENT BUDGET PERFORMANCE
By
Professor Milton Iyoha*
I. INTRODUCTION rate was 18.4% and it is widely 2001 Federal Government he Nigerian economy has expected that the rate of inflation budget, with particular emphasis continued to report poor would exceed 20% at the end of on key sectors. On its part, Toverall economic performance, 2001. The rising inflation in year section IV takes a forward look at contrary to the hopes and expectations 2001 has been primarily attributed the 2002 budget while section V of Nigerians, donor partners, and the to reckless spending by all the three contains a summary of the paper entire international community. Before, tiers of government. and some concluding remarks. and even since the new dawn of democratic revival, economic growth Oil revenue performance was II. Review of The 2001 has continued to be lacklustre satisfactory in year 2001; so also Budget and unprepossessing. Growth in overall external sector performance. real output has continued to be As at September 2001, the gross It is usual to make a weak, averaging less than 3% per external reserves stood at US$10.5 distinction between an ex ante annum. (See Table 1). Given a billion, up from US$9.4 billion as at review and an ex post review of a population growth rate of 2.8% - December 2000. budget. Ex ante reviews include 3% per annum, this has meant a full-year preview and a mid-year declining per capita income and, The main objective of this review of the budget. The focus ipso facto, a rising incidence of paper is to provide a comprehensive of an ex ante review is poverty. It is widely believed that review of the performance of the identification of challenges and a minimum growth rate of real economy in the year 2001, assess suggestions about how to Gross Domestic Product (GDP) how far set targets were achieved, overcome them for effective equalling 7.0% per annum is and hence highlight the impact of performance and achievement of required to reverse the poverty the 2001 Federal Government set targets. On the other hand, trend1. Using this standard, the budget on the economy. The paper according to Taiwo (2001, p. 20), obvious conclusion is that Nigeria will also outline the challenges for “Ex post reviews tend to pass a still has a long way to go before the 2002 Federal Government judgement on the success of a poverty reduction begins. budget and indicate how the budget budget and to draw essential can be designed and implemented lessons of experience for The rate of inflation had to meet the anticipated challenges. subsequent budgets”. Faithful to been brought under control at the this definition, this section and the end of the last millennium, with In addition to this introductory next undertake an ex post review the inflation rate equalling 7.6% section, this paper contains four of the 2001 budget by appraising in 1999 and 5.4% in 2000. Alas, other sections. Section II provides its success in the key areas of the era of single digit inflation has a review of the 2001 budget with macroeconomic performance, been brutally cut short with the emphasis on its aims, major viz, real output, inflation, and the spectre of inflation re-emerging features, and key policy measures. external sector. again in 2001. At the end of Section III undertakes a comprehensive September 2001, the inflation appraisal of the performance of the According to the Budget
* Professor Milton Iyoha is a Professor of Economics at the University of Benin, Benin City. 1 See footnote on page 24.
14 April/June, 2002 Volune 26 No. 2 2001 speech by President significant improvement. However, manufacturing sector included: Olusegun Obasanjo, the main performance of the external sector (i) the increase of Export policy thrust of the budget has been moderately satisfactory. Expansion Grant from 10% includes: In particular, there has been some to 20%; and * Restructuring the Nigerian moderate improvement in revenue (ii) relaxation of the requirements economy to make it generation and relative stability in for manufacture-in-bond market-oriented, private the naira exchange rate. The level scheme. sector-led and technology of gross external reserves has The incentives put in place to driven; remained satisfactory. However, promote expansion of domestic * Stimulating of agricultural the stubborn problems of high agricultural production included: and industrial production; external debt stock and crushing (i) a ban on bulk importation of * Reducing unemployment debt-service payments have vegetable oil; and and increasing productivity; persisted and continued to militate (ii) the measure providing for * Maintaining price and against investment recovery and VAT exemption on basic exchange rate stability and buoyant economic growth. foods. a healthy balance of payments; Given the overall aim and The trade policy measures * Reducing lending rates policy thrust of the 2001 budget, designed to enhance diversification and improving savings; fiscal measures were proposed that of exports and dampen importation and would improve the efficiency of included: * Improving the perfor- economic and social infrastructure, (i) increase of import duties on mance of major infrastruc- increase output and employment rice, vegetable oils and fats, ture such as power supply, growth, and promote poverty fruits, juices and corn communications and alleviation. Consequently, the 2001 flakes; transportation. (Budget budget contained specific measures, (ii) reduction of duties for 2001, Tribune, p.26). policies, and strategies for achieving animal feeds, day-old these objectives. According to the chicks, fish meal, seasoning From the above, it is clear CBN (CBN 2001, p.4) and durum wheat; and that budget 2001 aimed to revitalize (iii) zero import duties on books the economy and promote growth “The adopted strategies and teaching aids, and in the real sector (agriculture and included inter alia: tax concessions essential machinery and industry), promote employment, and incentives to domestic parts. stabilize the inflation rate, eliminate industries and agriculture, and the the depreciation of the naira, promotion of non-oil exports”. III. Appraisal of 2001 improve electricity supply, and Budget Performance continue the privatisation exercise. With this in mind, the 2001 The expected gain from this budget was designed to be mildly The overal macroeconomic policy thrust was accelerated expansionary with an anticipated performance of the Nigerian growth in real GDP, low rate of budget deficit of N201.5 million or economy during the budget year inflation, stable exchange rate, 6.2% of GDP. Capital expenditure 2001 was rather unimpressive. In increasing employment, a rising constituted 55.5% of the budget the real sector, the performance standard of living and reduced outlays while recurrent expenditure of the manufacturing sector was poverty. was 45.5% of the total. The tax particularly weak. In the monetary concessions designed to encourage and financial sector, the growth
However, as the detailed expansion of the manufacturing of money supply (M2) exceeded appraisal of performance in sector included: the target and the spectre of section III will reveal, the (i) duty reduction on raw inflation re-appeared. From a achievement of budget targets materials imports; level of 5.4% in December 2000, has fallen short of expectations (ii) retention of zero duty on the rate of inflation had surged to in many vital areas. Growth of real machinery and parts; and 18.4% as at September 30, 2001. output has remained sluggish (iii) removal of gypsum from the It was expected to exceed a while the inflation rate has import prohibition list. distressing 20% by December skyrocketed. Unemployment has 2001. Only in the external sector continued to soar and elecricity Export concessions designed could one find some reason for supply has not recorded any to encourage growth of the optimism. The balance of
15 April/June, 2002 Volune 26 No. 2 payments was satisfactory and price-support programme must be It is also believed that the gross external reserves remained established, and ways must be new requirement for 100% relatively buoyant, equalling found to upgrade technologies in inspection of imports, resulting in US$10.5 billion in September agriculture. port congestion, has slowed down 2001. However, massive external the supply of raw mateials to debt service payments continued 3.12 Appraisal of Performance manufacturing industries -- thus to haemorrhage the Nigerian In The Industrial Sector further hampering manufacturing economy. output expansion. It seems worth The performance of the emphasizing that urgent steps 3.1 Appraisal of industrial sector in year 2001 was must be taken to significantly Performance in quite disappointing. Available data boost manufacturing and industrial the Real Sector as at June 30, 2001 show that output if overall growth is to surge growth in industrial value added to the high levels needed for In assessing overall was negative while capacity supporting improved welfare and macroeconomic performance, it utilization improved marginally. The poverty alleviation. is natural to begin with the real index of capacity utilization, which sector. In this context, emphasis was 32.4% in 1998, fell to 32.0% 3.2 Appraisal of focuses on performance of the in 1999, and slipped further to 30% Performance in the agricultural sector and that of the in 2000. However, capacity Monetary and Financial industrial/manufacturing sector. utilization rose to 35.5% as at June Sector Growth of the agricultural sector 2001. While this is an improvement was pegged at 3.9% as at over the 2000 level, it is During the budget year September 30, 2001. This nevertheless still atrocious. The 2001, the monetary authorities compares with growth rates of index of industrial production (1985 battled valiantly, but not very agricultural output of 3.5% in = 100) stood at 143.2 in June 2001. successfully, to control the 1998, 3.7% in 1999, and 3.3% in This represented a 2.7% decline inflation let loose by overly 2000. Though comparable with below the level of industrial expansionary fiscal spending and the growth rates of the last few production in the second half of very rapid growth of money and years, the growth rate of year 2000. This decline in industrial credit. Governments (in the three agricultural output of 3.9% still production arose from declines in tiers) spent exuberantly during the leaves a lot to be desired. As a the three key sub-sectors, namely, year 2001, partly as a result of country with a majority of workers electricity consumption (-3.6%), rising revenues. During the first in the agricultural sector and an mining (-3.5%) and manufacturing half of the year, the federal expansive and rich arable land, (-1.0%). It is seen, then, that government’s expenditure was there is no reason why growth in manufacturing production declined. 77.6% higher than it was in the the agricultural sector cannot be The weak performance of preceding period of 2000. CBN between 7% and 10%. This is manufacturing is particularly data show that broad money or
more so as growth of real output, disturbing as expansion of the M2 increased by 28%, which was which is basically a weighted manufacturing sector is expected more than twice the targeted rate average of growth in the to be an “engine of growth” and has of 12.2% for fiscal year 2001. On agricultural and industrial sectors been a top priority of government its part, the aggregate banking is expected to exceed 7% per policies and measures. There is a system’s credit to the economy annum in order to promote consensus that significant expansion galloped by 32.4%. poverty alleviation. Given the of manufacturing production has investment and resources been hampered by a host of factors Faced with the increase in devoted to agriculture and the including: liquidity and the clear threat of expectations of government, (i) low effective demand for inflation, the monetary authorities more is expected of this sector local manufactured goods; took some strong measures to in the years ahead. However, it and control the situation. Among is certain that, if agricultural (ii) high cost of domestic production these, we may mention the production and agricultural attributable to: upward review of some key productivity are to be significantly (a) high interest rates; liquidity ratios. These included: improved, steps must be taken (b) increase in tariffs on basic (i) an increase of the cash to provide cheap and affordable utilities; and reserve ratio (CRR) to fertilizers to farmers, a credible (c) poor infrastructure. 12.5% in April 2001;
16 April/June, 2002 Volune 26 No. 2 (ii) an increase of the (iii) supply bottlenecks arising There was also moderate minimum liquidity ratio from ports congestion. success in stabilizing the naira/ (MLR) from 35% to 40% in dollar exchange rate. The Inter- April 2001; While the monetary authorities Bank Exchange Rate averaged (iii) an increase of the have shown awareness and N=111.713 to the US dollar during minimum rediscount rate concern, and taken some steps to the third quarter of 2001 (MRR) to 18.5% in June curb the rising inflation, it is compared to an average of 2001. necessary for the government to N=112.7472 to the U.S. dollar also assist in controlling the during the second quarter of the In addition, in order to inflation, which, if allowed to go out of fiscal year 2001. further mop up excess liquidity, control, would lead to macroeconomic the CBN introduced two new instability and further reduce the There has been little Certificates of 180 days and 360 already unacceptably low rate of progress in obtaining external days with yield rates of 19.0% economic growth. debt relief and the problem of and 20.0%, respectively. All these debt overhang continued to be a steps were in addition to CBN’s 3.3 Appraisal of burden on the economy. There continued efforts to sensitise the Performance of has been some progress in Federal Government about the the External Sector reconciling Nigeria’s external deleterious effects of excessive debt with the Paris Club creditor fiscal expenditure on the The performance of the countries. As at August 31, 2001, economy. external sector was moderately Nigeria’s reconciled external debt satisfactory in budget year 2001. stock (excluding penalty interest) 3.21 Inflation The overall balance of payments stood at US$28.418 billion. was in surplus to the tune of N=51.1 Heavy debt service payments After staying at the single billion (equivalent to US$459 have continued to be a burden on digit in 1999 and 2000, inflation million) as at June 2001. As at that the economy, exacerbating the surged to double digits in 2001. date, the gross external reserves problem of development finance. From a level of 7.6% in 1999 and totalled US$10.498 billion, Debt service payments during the 5.4% in 2000, the rate of inflation sufficient to cover 10.5 months second and third quarters of the jumped to 18.4% as at September worth of imports. The current budget year 2001 amounted to 30, 2001. It was widely expected account surplus was equal to US$1,224.6 million. It is expected that the inflation rate would N=150.9 billion while the trade that total debt service payments exceed 20% by December 2001. balance was in surplus to the tune for 2001 could exceed US$2.5 The current inflation has been of N=550.2 billion as at June 30, billion. driven by both demand-pull and 2001. Total exports equalled cost-push factors. The demand- N=1,218.5 billion, an increase of 3.4 Lessons of pull factors fuelling the 42% over the 2000 figure but non- Experience inflationary spiral include: oil exports decreased by 37.5% to (i) expansionary fiscal policy N=9,268.5 million. The buoyant Overall, macroeconomic (by all tiers of government); balance of payments situation was performance was weak in 2001 (ii) rapid monetary growth largely attributable to favourable arising from feeble performance which has been partly external (exogenous) factors, in the industrial sector and a less- caused to the excessive chiefly the high world prices for than-strong performance in fiscal spending; and petroleum during the first half of agriculture. The growth of (iii) hefty wage and salary 2001. While Nigeria gained from agricultural output of about 4% increases. the favourable development in the falls short of the budget target of global petroleum market, she lost 6% growth rate. Even the budget The cost-push factors from the fact that world agricultural target is quite modest given that driving the inflation include: commodity prices were still overall GDP needs to grow at (i) fuel price increases and/or depressed. Nigera’s terms of trade over 7% per annum in order to fuel scarcity leading to high for agricultural products declined, position the economy for effective transportation costs; pushed by unfavourable price poverty alleviation. Performance (ii) inadequate and poor developments in the world market in the real sectors -- agriculture infrastructural services; for cocoa and rubber. and industry -- needs to be and significantly improved in the years
17 April/June, 2002 Volune 26 No. 2 ahead. supplemented in the medium term growth rate through better by policies designed to improve mobilization and prudent Much still needs to be done labour market organization and use of economic resources; to raise productivity and reduce information, the development and * To build a strong economy total unemployment. Lack of hard upgrading of labour skills, and the by encouraging private official statistics constrains a promotion of better manpower and sector participation while detailed analysis of these two educational planning. On this last providing continuity to economic critical issues. Since all issue, concrete policy measures to reform programmes; and indications are that productivity re-orientate the educational and * To ensure good governance has not risen while unemployment training system towards producing by transforming development has increased, it may be adequate and qualified manpower administration into a service concluded that the government needed by the labour market should and result-oriented system. and organized private sector be adopted and implemented as a (Business Times. 2001, p. 19) chieftains have their work cut out matter of urgency. Note that for them. In particular, it is workers whose skills are obsolete Continuing further, the imperative to increase the become unemployable and form President’s budget address listed quantum of public sector the hard-core unemployed. Thus, the specific policy objectives investment and its employment routine and continuous development derived from the four main pillars content. According to Iyoha and upgrading of skills seems to be as including: (2000, p 29), a desideratum. According to Umo (i) Striving towards a GDP (1985, p. 33), employers should growth rate of at least 5 The employment content of be encouraged to undertake percent; public sector investment can be intensive on-the-job training of their (ii) Minimizing budget deficit raised by many policies including: workers by means of tax rebates. and eliminating extra- (i) directing public investment In his view, such a policy would budgetary expenditure; resources to labour- “achieve the dual effect of reducing (iii) Targeting a moderate intensive small and demand pressures on formal inflation rate; medium size projects, and education while at the same time (iv) Reducing the level of cottage industries instead yielding a more fundamental unemployment through of large-scale and over- education needed for sustained job increased capacity utilization ambitious projects; retention and high productivity”. and encouragement of self- (ii) laying emphasis on Finally, it is imperative for employment initiatives; the development of government to offer incentives for (v) Increasing food production agro-allied industries the adoption of more labour- and provision of post- using local raw intensive techniques by harvest storage facilities materials; manufacturing firms. Iyoha (1978, including maintenance of a (iii) directing attention to p. 82) has suggested that this could system of buyer-of-last- labour-intensive be achieved by lowering the cost resort and guaranteed projects in agriculture of labour to manufacturers either by minimum price; and industry; direct subsidies or the overt use of (vi) Encouraging foreign direct (iv) devoting resources to tax incentives. investment through increased projects which liberalization; and minimize the use of IV. The 2002 Budget: (vii) Continuation of privatisation imported raw materials Challenges and of government investments and intermediate Prospects and public tilities. (Business inputs; and Times. 2001, pp.19-20) (v) allocating substantial According to the budget resources to maintenance address by President Olusegun An examination of the of rural and feeder roads, Obasanjo, the four major pillars budget address shows that a key which tend to be highly upon which FG2000 budget is built objective in the real sector is the labour-intensive are: achievement of a growth rate of initiatives. * To alleviate poverty by GDP of at least 5%. In addition, fostering the opportunities for priority is to be given to the He adds that, for success, job creation; achievement of a single digit the above measure should be * To achieve high economic inflation and stability in the foreign
18 April/June, 2002 Volune 26 No. 2 exchange market. Though quite attractive. In addition, there is need The main sections of the paper modest, the objective of a 5% to reduce perceived risk and provided (i) a review of the major growth rate in GDP is uncertainty by implementing sound features and key policy measures commendable, given the weak macroeconomic policies which of the 2001 budget; and (ii) an macroeconomic performance in would promote macroeconomic assessment/appraisal of performance, recent years. However, to stability. It is believed that sound with major emphasis on: achieve this modest goal, all macroeconomic policies designed (a) overall macroeconomic hands must be on deck and to bring about low inflation, viable performance; particular attention should be balance of payments position and (b) real sector performance; given to increasing investment. stable exchange rates in an (c) performance of the monetary Both private and government environment of political stability will and financial sector; investment need to be significantly go a long way to encouraging a (d) performance with respect boosted. This should also be resurgence of foreign private to inflation; and supplemented with increased investment in Nigeria. (e) performance appraisal of foreign direct investment. The the external sector. In need to quickly bring down the While the objectives of short- general, an attempt was rate of inflation is obvious. To run macroeconomic stability made to assess how achieve this, the monetary remain important, it is necessary to closely actual performance authorities should continue to stress nevertheless that the approximated the targets follow a tight monetary policy. greatest challenge facing the set. Expansion of agricultural and Nigerian economy is how to design The exercise was somewhat industrial production, by and implement policies for rapid constrained by the lack of official increasing available supplies, will economic growth in the medium (published) macroeconomic data also assist in moderating the rate and long term. The reason is that for the full year. However, we did of inflation. The CBN should unless the growth rate of real output our best by using third quarter continue to closely monitor the exceeds 7% (or per capita income (September 30, 2001) statistics. activities of banks in the foreign growth exceeds 3% to 5% per Overall, it was found that growth exchange market to eliminate annum), achieving the objective of performance was disappointing, “round-tripping”, as a way to poverty reduction will remain only with GDP growth approximating 3%. moderate the rate of naira a pipe dream. Thus, priorty must Output growth was undoubtedly depreciation. Attempts should be be given to measures and policies pulled down by weak performance made to quickly implement the that would accelerate the rate of in the industrial sector and new policy that proposes an economic growth. However, in manufacturing sub-sector. Price increase of the maximum amount order for GDP to grow at annual stability was elusive as inflation of bank deposits insured by the rates approximating 9% to 10% reached the level of 18.4% as at NDIC -as a way of boosting investment rates must increase to September 30, 2001. External sector confidence in the banking system about 35% of GDP as has been performance was moderately and promoting a more robust observed in East Asia. satisfactory with a surplus in the financial industry. Correspondingly, savings rates trade balance, current account must rise to between 30% and 35% balance, and overall balance of It is also desirable to adopt of income. The current savings rate payments. Gross external policies that would accelerate the in Nigeria is less than half of this reserves were moderaely inflows of foreign capital, promote requirement. Thus, to make any buoyant at a level of US$10.5 foreign direct investment, and significant progress in accelerating billion as at September 30, 2001. reduce the debt stock. All these economic growth and reducing The exchange rate was would ameliorate the effect of the poverty, Nigeria must make a moderately stable. However, the debt overhang and consequently resolute effort to dramatically external debt stock remained stimulate investment recovery. increase her savings and high, exceeding US$28 billion This, in turn, would promote investiment rates. and heavy debt-service payments sustained growth and full continued to drain the economy employment. In order to bring V. Summary and Conclusion of the much needed resources. about a rapid expansion of foreign private investment, the In this paper, an attempt has The paper also took a look authorities should make the been made to present a at the 2002 budget, stressing its incentive structure credible and comprehensive review and main features and policy thrust. also make the incentives more appraisal of the FG 2001 budget. Some of the key policies
19 April/June, 2002 Volune 26 No. 2 proposed for achieving set be an improvement on the focusing on the overriding targets were also examined. The performance of the last few years. challenge that the Nigerian 2002 budget aims at a GDP Measures that must be economy must meet, viz., the growth rate of 5%. This is implemented in order to obtain a design and implementation of considered too modest. But successful outcome were policies to accelerate the rate of achievement of the target would highlighted. The paper ends by economic growth in the years ahead.
REFERENCES
Business Times. November 12-18, (2001). “Budget of consolidation and restructuring” (Address by President Olusegun Obasanjo on budget 2002 at the joint Session of the National Assembly on November 7, 2001), p. 19.
Central Bank of Nigeria. (2001). Economic Reports for the First Half of 2001. Abuja.
Ezeuduji, F.U. (2001). “Monetary and financial sector policy in budget 2001”. NCEMA Policy Analysis Series, vol. 7, no. 1.
Federal Ministry of Finance. (2001). Quarterly Performance Report of the Economy: July - September, 2001. Abuja.
Iyoha, M.A. (2000). “Public policy and public sector investment in Nigeia.” Processed.
Iyoha. M.A. (1996). “Macroeconomic policy management of Nigeria’s external sector in the post-SAP period.” Nigerian Journal of Economic and Social Studies, Vol. 38, no. 1
Iyoha. M.A. (1978). “The relation between employment and growth in developing countries: An econometric analysis”. Social and Economic Studies, March.
Lal, D. (1999). Financial Times, October.
Nigerian Tribune. Nov. 9, (2000). “Budget 2001: Budget 2001 speech of President Obasanjo sent to the National Assembly”, p.26
Obadan, M.I. (2001). “External sector polices in the 2001 federal budget.” NCEMA Policy Analysis Series, vol. 7, no. 1.
Taiwo, I.O. (2001). “Performance Appraisal of the Year 2000 Federal Budget.” NCEMA Policy Analysis Series, vol. 7, no.1.
Umo, J.U. (1985). “Education-employment connection: The Nigerian experience.”
20 April/June, 2002 Volune 26 No. 2
Nigerian Journal of Economic and Social Studies, vol. 27, no. 1, March
TABLE 1: SELECTED INDICATORS OF MACROECONOMIC PERFORMANCE, 1998-2001 (IN % UNLESS INDICATED OTHERWISE)
Indicator 1998 1999 2000 2001* Real GDP 2.4 2.7 2.8 n.a. Growth rate of per capita income -0.5 -0.1 0.1 n.a. Growth rate of agricultural value added 3.5 3.7 3.3 3.9 Growth rate of industrial value added -4.7 -1.4 -0.8 -2.8 Capacity utilization 32.4 32.0 30.0 35.5 Inflation rate 10.2 7.6 5.4 18.4**
Growth rate of broad money (M2) 21.2 32.4 38.3 28.0 External reserves (US$ billion) 7.1 5.4 8.78 10.5** Balance of payments (% of GDP) -7.8 -3.1 n.a. n.a. External debt stock (US$ billion) 28.74 28.04 28.60 28.4 Overall fiscal deficit (% of GDP) -4.8 -8.8 -1.8 n.a.
Notes: Negative values are in parentheses n.a. denotes not available * information reported is as at June 30, 2001 ** information reported is as at September 30, 2001 Sources: 1. CBN. “Economic Report for the First Half of 2001”, 2001; Annual Report and Statement of Accounts, 1998; and Monetary, Credits, Foreign Trades and Exchange Policy Guidelines, 1998-2000 2. FGN, The Federal Budget, 1999-2000, and 3 Federal Ministry of Finance, Quarterly Performance Report of the Economy: July-September, 2001.
* Professor Milton Iyoha is a Professor of Economics at the University of Benin, Benin City, Nigeria. His email address is [email protected] or [email protected]. Visir his website at http://www.iyoha.com
1 This is supported by results of cross-country studies carried out under the aegis of the World Bank which have established the important role of rapid per capita economic growth in bringing about poverty reduction. According to Professor Lal, a co-director of the numerous studies: “One of its clearest findings was that per capita growth of over 3 per cent of a year indisputably reduces the headcount index of poverty” (1999:1)
21 April/June, 2002 Volune 26 No. 2
FISCAL POLICY THRUST OF THE YEAR 2002 BUDGET
By
Dr. H.U. Sanusi*
the UBE scheme INTRODUCTION: * To intensify the pursuit of rural poverty alleviation and food * I would like to start by thanking security through fiscal incentives the organizers of this seminar to lenders and borrowers for for granting the Ministry the agricultural production; and : opportunity to present this * To improve the health of the paper. Since the objective of population through rapid the workshop is to sensitize upgrading of our curative and enlighten the public on healthcare delivery system. government’s fiscal policies, it is no surprise that the Budget ECONOMIC PROSPECTS office of the Federation, being FOR YEAR 2002 the body saddled with the DR. H. U. SANUSI responsibility of formulating, The economic outlook for 2002 is evaluating and monitoring serious foundation for a private based on the macroeconomic these policies, is called upon sector led, market driven and framework of the 2001 - 2003 rolling to present a paper. growth enhancing economy, in plan. The framework consists of: which unemployment and poverty * This paper shall discuss the will be reduced. * Maintenance of disciplined role played by the last two fiscal and monetary policy fiscal policy measures in * The primary target was to lower * Continued liberalization of the formulating the year 2002 the inflation rate. economy to attract support from Policy thrust. Budget 2002 the international community and therefore will be to consolidate The government aimed as multilateral agencies. and sustain the gains of the follows: * Improved security of lives and last two years. property * To provide the legal, fiscal and * Sustained transparency, * It is believed that discussion monetary environment for the accountability and value for on government’s fiscal policy private sector to become the money thrust will be incomplete with- effective engine of growth. out mentioning its revenue and * To upgrade the performance of THE OUTLOOK OF BUDGET expenditure profiles. This pa- major infrastructural facilities 2002 per will therefore, delve briefly * To improve the operational ca- on these two topics. Budget pabilities of the law enforce- * Fiscal policy in year 2002 2002 will be to consolidate and ment agencies at crime pre- faces very serious challenges sustain the gains of the last years. vention and reduction for various reasons. * To continue with the policy of Performance of The probity, transparency and In the first place much of the Economy In Year 2001 accountability in order to macroeconomic imbalances in reduce the cost of doing the fiscal and monetary sectors * The policy thrust in fiscal 2001 business in Nigeria. would continue into the early was to consolidate the path of * Take bold steps to fight illiteracy parts of 2002. However, it is the previous year in laying a through the implementation of expected that with the avowed
* Dr. H.U. Sanusi is the Permanent Secretary, Federal Ministry of Finance
22 April/June, 2002 Volune 26 No. 2
commitment to fiscal restraint, efficiency and effectiveness * Pensions and Gratuities: together with the latest Due In addition to the total non Process compliance instruments, REVENUE ESTIMATES personnel cost, a provision of some level of stability will become 4.7 billion naira has been noticeable in the later part of the * The estimate of Federally made to start offsetting the year. In this regard, the CBN collectible revenue in the year arrears of pensions and will continue to foster the 2002 is about 1.832.9 billion naira. gratuities. existence of competitive financial sector environment that Oil Revenue: For fiscal year CAPITAL EXPENDITURE will enhance the opportunities for 2002, a price scenario of 18 US investment. dollars per barrel and export * The proposed capital expenditure volume of around one million, for year 2002 was 297 billion POLICY OBJECTIVE: FOR eight hundred thousand barrels naira, but was reviewed YEAR 2002 per day. The total receipt from upwards by the National the source is estimated at 975 Assembly to 485.7 billion The four broad objective pillars billion naira. naira. This amounts to 64 per upon which fiscal year 2002 is cent increase from the original built are * Petroleum Profit Tax (PPT) is proposal by government. projected to yield 207. 6 billion * to eradicate poverty by fostering naira, while royalties is projected CAPITAL BUDGET the opportunities for job creation at 135 billion naira ALLOCATION * to achieve high economic growth rate through better * Non-oil Revenue: Total receipts * In allocating funds to ministries mobilization and prudent use from the non-oil sectors are and agencies, priority has of economic resources projected at 543.3 billion naira. been given to education, * to build strong economy by Total receipt from non-oil is health, agriculture, power, encouraging private sector made up of customs and excise water supply and works and participation thus providing at 180 billion naira. Import duty housing sectors. Priority is also continuity in economic reform at 162.4 billion naira, excise duty given to solid minerals sector programmes; and at 8.6 billion naira, fees at 8.9 with the aim of diversifying the * to ensure good governance by billion naira and companies economy. Rehabilitation of transforming development income tax at 90 billion naira. In major infrastructures in the administration with a serious addition to these receipts, power, roads, and housing and result oriented system. Government expects to earn a sectors particularly received total sum of 75 billion from priority allocation which To achieve these objectives and privatization proceeds which is amounted to 68. 45 per cent operate a budget of growth and largely from the sales of NITEL of the total capital budget. The development in year 2002, and Nigerdock. following ministries and Government will adopt the agencies therefore received following instruments. EXPENDITURE ESTIMATES priority allocations in 2002 fiscal year:- * strive to operate a new balanced * Recurrent Expenditure: The budget estimated recurrent expenditure * Agriculture * pay attention to completion of for 2002 is 543 billion naira. Of * Education ongoing projects this estimate, the sum of 314 * Defence * consolidate on the reasonable billion naira is set aside as * Health degree of policy consistency personnel costs, while the sum * Industry and sense of direction gained 229 billion naira is for overhead * Federal Capital Territory in the last two budgets. costs including the amount * Water Resources * strengthen and deepen proposed for servicing of * Works and Housing macroeconomic flows to the domestic debts at 134 billion * Nigerian Police grass roots naira. The total sum of 10 billion * Power and Steel. * institutionalize the “Due Process naira is being proposed for Principle” by linking expenditure settlement of debts on capital FISCAL POLICY: to resources based on projects. identified priorities, economy, In all economies, fiscal policies
23 April/June, 2002 Volune 26 No. 2 serve as varitable tools for duties reduction and other re- was to encourage non-oil generating the revenue required lated charges. export and the inflow of foreign for expenditure budget. It is in this * Reduction of customs duty rates exchange. light that the Year 2002 Fiscal of the basic raw materials for * The trend now is for a common Policy Measures will be periscoped some essential manufacturing External Tariff for regional and addressed. sectors with a view that it will integration, and therefore in the enhance the capacity utilization, spirit of Economic Community of The following are the fiscal competitiveness, control the West African States, (ECOWAS) policy thrusts for Year 2002: influx of imported goods which article 37 provided for the could be locally produced. gradual establishment of a * enhance capacity utilization in * Other reductions are on common tariff in respect of agriculture, manufacturing and machinery and equipment for goods imported into ECOWAS mining industries agricultural production and countries by third countries. * provision of appropriate animal husbandry, petroleum Nigeria in the year 2002, had protection for domestic industries products, soap and detergent, put in place the modalities of against unfair competition from tyres and tubes, papers and achieving these objectives. import and dumping printing material, iron and steel, * encourage diversification of textiles, plastics, paints and Other Fiscal Measures foreign exchange earnings chemicals used in most through increased export industries in the production of Restriction On Importation of activities essential products. Used Vehicles * reduction of operation cost * Increase in the customs duty * Vehicles over five years old and inflationary pressures and rates of some imported finished from the year of manufacture creation of new jobs. and luzury products with a view shall not be allowed into the * provision of appropriate to protecting the local producer country. Also importation of incentives for investments in of such goods, and encourage vehicles irrespective of age manufacturing, agriculture and Nigerians to develop the taste through land borders shall not mining with a view to making for made in Nigeria goods. be allowed. the economy, private sectors * Very low duty on the importation led. of some educational materials, Excise Duty * reduction of the upper hand of key manufacturing machinery our tariff regime to accord with and spare parts for the * Excise duty on beer stout, beer the trade movement productive sectors of the fermented beverages has worldwide, particularly within economy (e.g agriculture, been reduced from 30% to the West African sub-region. mining, oil, gas, and cement) 20%. with a view that it would assist Measures for the the sector revitalization of the Destination Inspection Implementation of the economy, employment generation Fiscal Policies. and growth in the Gross Domestic * It is Government’s intention to Product. stop pre-shipment Inspection In year 2002, the following * Legislation of the protocol on of imported goods by June 2002 measures have been taken to ECOWAS Trade Liberalization and commence Destination implement the fiscal policies: Scheme (ETLS) for enhanced Inspection by July 1, 2002. foreign exchange earning * Customs duty rates on major potentials and increase in the Restriction On Importation of Used raw material inputs for manu- Nigerian non-oil products. Refrigirators, Air Conditioners and facturing had been reduced to * Through the years and continued Compressors: revitalize the industry, increase in the year 2002, Government has sectoral capacity utilization, introduced various schemes * Importation of used refrigerators, enhance their competitiveness which had encouraged production air conditioners and compressors and increase employment for export of non-oil goods shall not be allowed; 5% import generation potentials. In order manufactured in Nigeria. They duty rate shall be imposed on the to achieve these goals, the include the duty drawback CKD components for air Federal Government con- Refund, Export Expansion Grant conditioners, and compressors ceded to the ailing industries and the Duty Suspension imported by bona fide billions of naira from custom Scheme. The central objective assemblers/manufactures
24 April/June, 2002 Volune 26 No. 2 for air conditioners. Arabic, ginger etc. shall enjoy 2100 at 10% for only bonafide 5% export expansion grant safe Glass (windscreen) Containerised Goods: (EEG) in the year 2002. manufacturers
* Containers from third countries Industrial Machinery: Special Duty Increases will not be allowed to enter through neighbouring countries. * All industrial machinery shall * Iron Rod - 65% enjoy maximum of 2.5% duty * Wire of other alloys of steel 65% Vegetable Oil: rate in year 2002 under chapter * Commercial day-old chick 84. 50% * Importation of bulk vegetable oil remains prohibited in year Vat Exemption For Industrial Special Duty Reduction 2002. It is to be imported in Machinery branded cans of 4 litres only at * Special duty reduction was 65% duty rate. Manufacture-In- * Industrial machinery shall be granted to manufacturers of Bond Scheme (MIBS) exempted from value added tax sanitary pads and Baby operators not exempted. (VAT) in the year 2002. Diapers manufactures to enable them import their raw Imported Matches: Restriction On Importation Of materials on the basis of Textile Materials their status as bonafide FOB price of imported manufacturers, at 5% duty matches should be between * Importation of textile materials rate. This was aimed at $10 and $15 per carton which containing hazardous chemicals attracting investments to these is the internationally recognized such as chloride, shall not be sub sectors, and in order to price of the item. allowed for health reasons. grant protection to genuine manufacturers. Imported Ceramic Wares/Tiles Local Sourcing of Uniform and * Also various special duty Accoutrements concessions were granted * The CIF value of imported British American Tobacco ceramic wares/tiles should be * Uniform of all public officers company to enable them set up on the internationally accepted shall be locally sourced so as to their tobacco plant at Ibadan, prices for the items as follows:- encourage local production and Nigeria. An investment that save foreign exchange. would be worth about 150 Imported Tiles million Dollars with high Duty Concessions employment potentials for the * Water Closet/Tank - US$30 country. per set. Wash hand basins - * Raw Materials for Bonafide US$14 per set. Wall Tiles - Pharmaceutical manufacturers ECOWAS Fund US$ 7 per metre square. Floor at 5% duty rate Tiles - US$8 per metre square * Fertilizers under chapter 31 at * 0.5% of CIF value of imports 5% duty rate. from third countries to be paid Textiles * Communications equipment into ECOWAS Account. for bonafide elecommunication * The CIF value for imported textile operators at 5% duty rate Bulk Importation of Cement should be on internationally * Motorcycle and Bicycle CKDS accepted prices for the items for bona fide manufactures/ * Cement Importation to be in and should be imported in 20 assemblers at 5% duty rate. bulk, only. It must not be less ft containers and must not be * Wire of iron non-alloy steel and than 10,000 metric tonnes and less than 130,000 metres. Finished nails at 40% if imported must be imported through through KoKo and Warri Ports. cement import terminal Export Incentives For If imported from any other port, established on the coast. Agricultural Crops 65% duty attaches. * Parents/Grand parents stock, Duty Free Importation * All agricultural cash crops e.g. HS code 0105.9200- 1100 at 5% cocoa, groundnut, rubber, duty rate. Goods that were hitherto duty cotton, palm produce, gum * Float Glass HS code 7005. 1000- free shall attract at least 2.5%
25 April/June, 2002 Volune 26 No. 2
duty charge. * Sulphur of all kinds, sulphuric revenue, expenditure profile and acid, aluminum sulphate and the fiscal policy thrust of the year IFEM Funds alums shall continue to be 2002 budget. Government is * The following imports shall not eligible for IFEM Funds determined to pursue this thrust be eligible for IFEM funds: water, to its logical conclusion in beer, other manufactured CONCLUSION collaboration with the tobacco and substitutes, organized private sector, cigarette lighters and other It is my hope that this short opinion leaders and the lighters. presentation has given you international communities the insight of government’s whom we believe are now prepared more than before to invest into our economy.
26 April/June, 2002 Volune 26 No. 2 MONETARY AND FINANCIAL SECTOR POLICY MEASURES IN THE YEAR 2002 BUDGET
By
O. Joseph Nnanna Ph.D*
O. JOSEPH NNANNA Ph.D
INTRODUCTION achieving the macroeconomic macroeconomic stability, objectives of the government. The improvement in economic he performance of the rest of the paper is structured into infrastructure and capacity economy was generally four parts. Following this short building, as well as increased T mixed in 2001 fiscal year. introduction, Part I undertakes an output growth, job creation and The environment for the conduct evaluation of the financial sector poverty alleviation. Consistent of monetary policy was largely and general economic conditions with these objectives, monetary unconducive, following the during fiscal 2001. policy focused on the mopping up expansionary fiscal operations of The highlights of the 2002 of excess liquidity in the system the three tiers of government. monetary programme and other in order to ensure price stability Specifically, the rapid monetization financial sector policies are which is critical for sustainable of revenue from oil sales and the provided in part II. Part III x-rays the output growth. proceeds from the GSM licensing, factors which are likely to The specific measures that as well as the monetary financing undermine the achievement of the were adopted included the raising of fiscal deficits, resulted in stated monetary policy objectives of the Minimum Rediscount Rate substantial injections of liquidity in year 2002 as well as CBN’s (MRR), cash reserve ratio and the into the economy. Consequently, strategies to enhance policy liquidity ratio. In addition, the CBN the growth in monetary aggregates implementation, while Part IV introduced the CBN certificate to accelerated in 2001, overshooting concludes. assist in the open market the prescribed targets by wide operation, in order to contain the margins. The economy was also I. Evaluation of Financial intractable liquidity problem. An characterised by sluggish growth, Sector and General assessment of the effectiveness rising rate of unemployment and Economic Conditions of the measures adopted to inflation. Generally, the domestic During 2001 achieve these goals are foreign exchange market was undertaken below: under pressure, while the capital I.1 The focus of Policy in the market witnessed increased Year 2001 1.2 Financial Sector trading. It was against this background Performance in 2001 of relative macroeconomic instability The thrust of monetary and that the monetary and financial sector fiscal policies in 2001 was to Generally, the key 1 policies of the CBN, were formulated. sustain price and exchange rate performance criteria and The objective of this paper, stability and to foster an enabling benchmarks were not met in 2001 therefore, is to review the current environment for enhanced private largely because of the severe monetary and financial sector sector participation in economic fiscal shock from the three tiers policy measures with a view to development. This was to be of the government, which identifying how they can assist in achieved through the promotion of rendered the environment for the
* O. Joseph Nnanna Ph.D, is the Director, Research Department, CBN 1 Although the CBN’s Monetary Policy Circular No. 36 for fiscal 2002/2003 was released much earlier than the fixcal package, nevertheless, there is a fundamental consistency in the underlying assumptions in key macroeconomic variables such as: growth in real GDP, inflation, accretion to reserves and deficit financing arrangements.
27 April/June, 2002 Volune 26 No. 2
conduct of monetary policy sector rose by 43.3 per cent, 650 basis points from 14.0 per unconducive during the year. In compared with the target of 22.8 cent in January to 20.5 per cent particular, the monetisation of the per cent. in September. Similarly, the Cash excess crude oil receipts and the In the money market, Reserve Requirement (CRR) of proceeds from GSM license by reported bank lending rates were deposit money banks and their the three tiers of government, as generally high during the period, Liquidity ratio (LR) were revised well as the monetary financing of driven largely by banks’ cost of upward from 10.0 and 35.0 per fiscal deficits by the Federal fund, risk premia, governments’ cent to 12.5 and 40.0 per cent, Government resulted in large borrowing and the persistent respectively. Given the injections of liquidity into the increase in the Minimum inadequacy of the traditional economy. Consequently, the Rediscount Rate, a policy which the instruments for liquidity control,
TABLE 1
Performance measures Targets Actual (Provisional) Remarks
Broad Money(M2) 12.2 27.0 Substantially missed
Narrow Money (M1 4.8 28.7 “ Aggregate Domestic Credit 15.7 87.84 “ Credit to Govt. 2.3 153.2 “ Credit to private sector 22.8 40.7 “ Inflection (12month moving Avg.) 9.0 (Single digit) 18.90 “ Real GDP growth Rate 5.0 4.7 Narrowly missed External Reserves S10.0 billion S10.4 billion Narrowly achieved
growth in monetary aggregates CBN was forced to adopt in order the CBN introduced its own accelerated rapidly in 2001, and to contain excess aggregate intervention instrument for the was substantially out of line with demand. Typically, reported lending first time in the history of the prescribed targets. rates were positive in real terms, Bank. The introduction and Provisional data indicate while deposit rates were generally issuance of CBN certificate at
that broad money supply (M2), negative in real terms. By end- competitive market rates rose by 27.0 per cent at end- December 2001, the spread to complement government December, as against the 12.2 between the weighted average Treasury Bills, revealed the per cent target stipulated for the deposit and maximum lending rate seriousness of the excess year. Similarly, aggregate was 14.7 percentage points, while liquidity problem, which the CBN domestic credit which fell by 23.1 the spread between the average had to contend with during the per cent in 2000, overshot the savings deposit and the maximum year2 programmed target by 72 lending rate was 26.2 percentage percentage points, following rapid points. 1.3 Other Sectoral increases in credit to the Developments in 2001 government and the private Liquidity surge, driven largely sector, with the latter accounting by fiscal shocks, and the need to The performance and for 60.4 per cent of the total restrain inflationary pressures, problems of other sectors of the increase. Net credit to the Federal were the major reasons why the economy featured prominently in Government rose by 153.2 per CBN had to adopt tight monetary the choice of monetary policy cent as against the target of 2.6 policy in year 2001. Thus, the CBN stance in 2002. A review of the per cent, while credit to the private progressively raised the MRR by performance of these sectors
2 The CBN Certificate was issued in two branches. The first tranche was for a tenor of 180 days and a yield of 19%. The second tranche was for a tenor of 360 days and a yield of 20%.
28 April/June, 2002 Volune 26 No. 2 showed mixed developments, prudential provision for such loans. fiscal and monetary policy were and the need for greater monetary Typically, the constitutional not achieved. Empirical evidence and fiscal consolidation in fiscal framework under which Nigeria’s also underscored the fact that 2002. fiscal federalism operates, has poor fiscal policy was largely serious implications for the efficacy responsible for the underlying (a) Fiscal Sector: of monetary policy, especially, as it macroeconomic problems such relates to the instantaneous as the subsisting double-digit Spurred by the urge to monetization and spending of inflation and the inordinate jump-start the economy and thus budgeted and excess crude oil pressure on the balance of create employment and alleviate revenue accruing to the Federation payments. poverty, the fiscal operations of account. While the lower tiers of the Federal Government was government share equally in the (c) External Sector wittingly rendered expansionary benefits of macroeconomic during year 2001. Available data stability, they are notoriously, The external sector was indicated that the fiscal out-turn unwilling to bear the burden under pressure in 2001, even yielded a significant overall deficit, associated with the sustenance of though foreign exchange flows despite the substantial increase macroeconomic stability. There is resulted in a net inflow of US$3.7 in government revenue. a need for a policy re-think. billion, which, however, was lower Specifically, the retained revenue It is therefore, essential to than the US$5.2 billion recorded of the Federal Government remark that policy-makers in all the a year earlier. The overall balance amounted to N=796.98 billion in tiers of government have of payments position showed an 2001, representing an increase of responsibility to ensure the estimated surplus of 0.5 per cent 11.0 per cent over the budgeted achievement of a non-inflationary of GDP against 8.0 per cent of target, while total expenditure growth in order to sustain public GDP recorded in 2000. However, amounted to N=1,022.39 billion welfare. Lessons of experience Nigeria’s stock of gross external and was 11.2 per cent higher than have shown that any attempt to reserves increased from US$9.4 the budget estimate for the year. promote growth in the short-term billion in December, 2000 to Overall, the fiscal out-turn through fiscal “quick-fix” only US$10.4 billion in December resulted in a deficit of N=225.4 succeeds in sowing the seed for 2001. billion or 4.1 per cent of GDP, as future economic difficulties. The exchange rate, which against the targeted deficit of is a key macro-economic and N=201.5 billion. The deficit was (b) Real Sector price indicator in Nigeria, also financed from the Federal witnessed considerable volatility, Government’s share of the The estimated output growth particularly in the parallel market excess crude oil proceeds for (in real GDP), was 4.7 per cent, and bureaux de change, while it 2000 and 2001 and borrowing compared with the target of 5.0 per remained relatively stable in the from the CBN. cent and the 3.8 per cent recorded official Inter-bank Foreign The expansionary fiscal in year 2000. The index of Exchange Market during the stance of the Federal Government agricultural production was greater part of year 2001. was equally duplicated at the estimated to have increased by 3.7 Specifically, the average parallel State and Local Government per cent compared with 3.1 per cent market and bureaux de levels, as evidenced by their in 2000, while the index of industrial change rates depreciated from increased borrowing from the production increased by 3.7 per approximately N123.38 and N= money and capital markets during cent compared with 7.6 per cent in 122.34 = US$1.00 in January to the year. In fact, neither the use the preceding year. Inflation rate, about N=137.26 and N= 137.48 = of direct instruments of monetary which was 6.9 per cent in 2000 US$1.00, in May, before management, nor the resort to accelerated to 18.9 per cent in appreciating continuously to moral suasion by the CBN was December, 2001 as a result of N=133.70 and N=134.05 = US$1.00 sufficiently effective in persuading demand-pull and cost-push factors. in December, respectively. The the three tiers of government to Thus, the rate of inflation exceeded appreciation of the naira vis-a-vis adhere to fiscal prudence. In the the programmed single-digit target the US dollar during the period in circumstance, the CBN had to in fiscal 2001. the parallel market and Bureau issue the circular requiring banks The sluggish performance in de-change was attributed that lent to the three tiers of the real sector during the year was to the introduction of the government to make exceptional indicative that the objectives of comprehensive destination
29 April/June, 2002 Volune 26 No. 2
import inspection policy by the background of relative and strengthening financial authorities, and the tight monetary macroeconomic instability, sector stability. policy stance, which the CBN unfavourable global economic adopted to contain the unexpected prospects (as evidenced by the II.2 The 2002 Monetary liquidity shock. decline and volatility in the world Policy Measures However, after the initial price of oil during the fourth quarter depreciation of the naira in the of 2001), diminished prospect for The CBN’s monetary policy first quarter in the IFEM, from a buoyant Government revenue, framework in year 2002 represents N=110.05 to N113.59 = US$1.00, continued demand pressure at a significant departure from the the average IFEM rate appreciated the IFEM and exchange rate past, in one major respect- It is cast in steadily from N=113.07 = weakness, including sluggish a medium term perspective, as US$1.00, in May to N=111.60= output growth, and above all, rising opposed to the erstwhile one- US$1.00 in September. While, unemployment and poverty. year time frame. In particular, the the naira depreciated marginally framework covers a two-year to N=111.99 = US$1.00 in II.1 Objective: period, beginning January 2002 November and further to to December, 2003. This shift is N=113.01= US$1.00 in Against this background, the in recognition of the empirical December. Overall, the naira primary objective of monetary evidence that monetary policy exchange rate experienced policy in fiscal 2002 is focused on measures, such as changes in relative stability in the IFEM in the achievement of price and the MRR (the nominal anchor 2001. exchange rate stability. Indeed, the interest rate), affect the ultimate achievement of price stability is targets of monetary policy (such as 1.4 Overall Economic globally recognized as the sine qua aggregate savings, investment Performance and the non for the attainment of and production), with considerable Outstanding Problems sustainable long-term growth, lag. The shift in the framework is employment generation and also intended to free monetary Overall, the performance of poverty eradication. Thus, the policy implementation from the the economy in 2001 remained central focus is to achieve an problem of time inconsistency, as below its potential, as structural effective reduction in the growth in well as help minimise the
bottlenecks persisted. In spite of M2, expected from the liquidity consequence of policy over- the policy measures adopted in injections that will arise from reaction due to temporary 2001, the effectiveness of envisaged government spending shocks. Overall, the adoption of monetary policy was constrained during the pre-election and election this strategy, will also assist by fiscal dominance; the years of 2002/2003. This is market operators to manage their oligopolistic structure of the essential in order to minimise the treasury portfolios in a more banking system and the negative effects of excess liquidity orderly fashion. concomitant wide interest rate on domestic price and exchange The CBN relies on the spread; as well as the lingering rate. In order to achieve the goal of Monetary targeting model, for the excess liquidity in the banking macroeconomic stability, monetary conduct of its monetary policy. system. It is against this policy stance is envisaged to be non- Monetary targeting entails setting background that monetary and accommodating. Specifically, and continuously, monitoring the financial sector policies, as well monetary and financial policy changes in one or more as other sectoral economic measures in 2002/2003 are definitions of money supply. policies for fiscal 2002 were designed to focus on: Under this framework, the formulated. * Achieving price stability; ultimate objective of monetary * Balance of payments viability; policy is to control inflation. II. Monetary and Financial * Reducing the gap between Typically, the operational target is Sector Policies in 2002: banks’ lending and deposit base money, while the Objectives, Strategies rates; intermediate target is broad
and Targets * Ensuring exchange rate money (M2). Monetary targeting stability and reducing the wide is predicated on the empirical The discussion thus far has arbitrage premium; evidence which has established revealed that monetary and fiscal * Enhancing competition in the that inflation, is invariably, a policy measures in year 2002 banking system monetary phenomenon. Hence, were formulated against the * Deepening the money market the need for monetary authorities
30 April/June, 2002 Volune 26 No. 2
to restrain excessive growth in targeting policy framework outlined discount houses will money supply. above, the performance targets continue to act as principal which were adopted for years 2002 dealers in the market. In the Lessons of experience and 2003 are as follows: event that the traditional have shown that macroeconomic * An average growth in broad policy instruments are
stability (low inflation rate, money supply (M2) of 15.2 insufficient to cope with the exchange rate stability and low per cent during the two-year expected liquidity surfeit as interest rate), has always been period, which translates to in the preceding year, the achieved whenever, excessive 15.3 per cent in 2002 and CBN certificate will be used 15.0 per cent in 2003. This to stem liquidity shocks. growth in M2, is contained. The model used by the CBN in level of liquidity is consistent deriving its optimal quantum of with the output growth target (ii) Reserve Requirements money supply is quite elaborate of not less than 5 per cent in and as such, will not be discussed 2002, 6 per cent in 2003, and Given the opportunity cost in this paper. However, this basic inflation rate of 13.0 per cent implications of the current money demand equation, will in 2002 and 9.0 per cent in level of the cash ratio to suffice for an illustration: 2003, respectively. banks, the desirability of its * Growth in banking system’s gradual reduction over time credit to the domestic cannot be over- Mt = pt + kyt - nit + vt...... (1) Where: economy of 57.9 and 25.7 emphasized. However, per cent in 2002 and 2003 the current monetary Mt = Money demand respectively, translating to an conditions, characterised pt = Price level average of 42.0 per cent in by persistent excess yt = Output level the two-year period. liquidity, make it it = Interest rate * Growth in credit to the private inexpedient to reduce the vt = error term. sector of 34.9 and 32.3 per ratio. Consequently, the It can be readily seen that given cent, bringing the average in existing ratio of 12.5 per cent the two-year period to about will remain in force until projections for (yt), (it) and (pt), the 34 per cent. monetary conditions conditional behaviour of (Mt) can be forecasted using equation (1) improve. The minimum above. In fact, a further II.3 Major Monetary Policy liquidity ratio will also manipulation will result in the Instruments remain at 40.0 per cent for derivation of the probability all deposit money banks, The conduct of monetary but would be reviewed intervals for (Mt) which may depend on the stochastic process policy in year 2002 is expected to downward as the problem rely on market-based instruments of excess liquidity which drives (vt). Thereafter, we can compare the forecasted in tandem with discretionary moderates. values with the actual computed management of the balance sheet money supply. Accordingly, any of the CBN to keep the operating (iii) Discount Window deviation between the two would variables within the programme Operations translate to either overshooting/ targets. The primary policy tool will be the open market operations, Discount window operations undershooting of the M2 target, which would naturally signal for supported by the use of reserve of the CBN will continue to corrective policy action. requirements and discount support the regular window operations, including instruments of short-term In our earlier review, we repurchase agreements to liquidity management. have shown how fiscal dominance enhance effectiveness. Transactions at the CBN had consistently led to the window will be conducted in overshooting of CBN’s monetary (i) Open Market Operations the form of short- targets in fiscal 2001. We also (OMO) term, overnight loans, noted that the consequences for collateralised by the overshooting included high OMO will be conducted borrowing institutions’ inflation rate, as well as exchange weekly in short-dated holding of government debt and interest rate instability. government securities at the instruments and other Consistent with the monetary secondary market, while the eligible instruments
31 April/June, 2002 Volune 26 No. 2 approved by the CBN. economy. Under the facility, moderation on their lending banks can issue Promissory policies. (iv) Interest Rate Policy Notes, discountable at the CBN at concessionary (3) Abolition of Foreign Interest rate regime will interest rate, based on their Guarantees/Currency continue to be market- loans/advances with Deposits as Collateral for driven. However, the CBN maturities of not less than 5 Naira Loans will influence the level and years for agricultural direction of interest rate production, semi- This restriction which had through periodic changes manufacturing/manufacturing, been in effect since 1989, in its Minimum Rediscount solid minerals and information is lifted in fiscal 2002 to Rate. The current wide technology. The RRF is further encourage foreign spread between banks’ designed to provide liquidity direct investment. deposit and maximum support to banks so as to However, banks are lending rates reflects the encourage them to lend long. required to seek prior uncompetitiveness and This facility is not directed at approval from the CBN inefficiency of the interest business enterprises and is before granting such rate structure, which has not a substitute for the capital credit to potential serious implications for market. Rather, it will enable beneficiaries. savings, investment and the CBN to play its role as the output growth. To address lender of last resort more (4) Financing the this problem, there is need professionally. Development of SMEs for a faster evolution of a more competitive financial (2) Framework for To further enhance the environment, through the Computing Banks’ effectivenes of the Small enlightenment of the investing Cost of Funds and Medium Industries public on alternative investment Equity Investment Scheme opportunities in the financial Starting from 2002, banks (SMIEIS), which was market. In particular, the shall be required to adopt the launched in August 2001, current efforts by the CBN weighted average framework banks are required to to encourage investment in for the computation of their render to the CBN on treasury securities and cost of funds, in accordance quarterly basis, their other savings instruments with the best investment report under the by the non-bank public will international banking scheme. With the be sustained in 2002. In practice. Furthermore, the introduction of the scheme, addition, other financial recognised cost items under it is expected that improved institutions, including the new framework shall funding will facilitate the community banks and include: rapid achievement of finance companies will be (a) interest cost incurred higher economic growth. strengthened to enhance by banks for deposit CBN’s close monitoring, their efficiency and mobilization (including inter- would, hopefully, persuade public confidence for the bank funds); banks to fulfil their obligation promotion of financial (b) payments for deposit insurance under the scheme. savings. premium of the NDIC; and (c) cost associated with the (5) Increase in Minimum (v) New Policy Measures CRR. It is noteworthy that Paid-up Capital For 2002. banks’ overhead cost has Requirement been excluded. All things (1) CBN Rediscounting and being equal, it is expected The role which capital plays Refinancing Facility (RRF) that knowledge of banks’ cost in the life of business of fund would assist the CBN enterprise cannot be over- This new facility is intended to apply commensurate emphasised. Accordingly, to encourage banks to lend moral suasion in persuading existing banks will be long, particularly, to the banks to exercise required to raise their productive sectors of the capital base to N1.0 billion
32 April/June, 2002 Volune 26 No. 2 by end December, 2002 in widening arbitrage premium the country are also order to further strengthen between the IFEM, parallel inimical to the their operations, and market and bureaux de effectiveness of monetary minimise the risk of change rates. In the and financial policies in distress, while new banks continued effort to stabilise Nigeria. shall require N2.0 billion as the exchange rate, as well as The structure of the their minimum paid-up ensure a single exchange financial system plays a critical capital. rate for the Naira, the IFEM role in the effectiveness of has been further deregulated monetary policy. The speed of the (6) Remittance of VAT and in fiscal 2002. This will allow transmission mechanism of Duty Collections bureaux de change operators monetary policy instruments is to source their foreign generally influenced by the It has been observed that exchange requirements (in structure of the financial system. some banks do not remit Travellers Cheques) from the All things being equal, the more VAT and custom duties IFEM. It is hoped that this will competitive the financial system, collected on behalf of the help to “de-mystify” foreign the faster the speed of the Federal Government to the exchange transactions in the transmission mechanism and the CBN within the stipulated economy. Accordingly, greater the effectiveness of seven days time frame. licensed bureaux de change monetary policy instruments. In These sources of cheap operators who satisfy all the Nigeria, the banking system is funds have influenced required conditionality will be very oligopolistic. With 89 banks banks to discourage small allowed to source their BTA/ operating in the system, empirical savers by insisting on PTA requirements from the evidence has revealed that ten unrealistic minimum IFEM. By enhancing market (10) banks control slightly over 50 deposit base while at the access, the tendency to per cent of the total deposit same time, constituting a hoard/speculate will decline liability of the banking system. leakage in the monetary and the economic rent The need to encourage greater policy transmission process. derivable therefrom, shall competition (free entry and exit), Consequently, banks that similarly diminish. The recent in the industry cannot therefore, keep these deposits for entry of Travellex (Thomas be over-emphasised. more than the stipulated Cook), a bureau de-change The vulnerability of the period will be required to operator in the domestic Nigerian economy to external pay interest on such market is consistent with the shocks - especially, to a sudden deposits as directed by the policy of deregulation. fall in the price of oil, has long CBN, while such deposits been recognised, as a major are to form part of banks’ III Limitations and Strategies constraint to the successful deposit base for the for Policy Implementation implementation of economic purpose of computing their III. 1 Limitations to Monetary policy over the years. Nigeria CRR. and Financial Policies in derives approximately 95 per cent 2002 of its foreign exchange and 78 per (7) De-regulation of the IFEM cent of government revenue from Monetary policy measures oil receipts. Against this backdrop, Since its inception, the are intended to lend support to the the achievement of monetary operations at the IFEM achievement of the overall policy objectives in 2002 can be have been conducted objectives of macroeconomic undermined if the price of oil transparently, by the policy. However, the effectiveness should decline below the baseline CBN. Accordingly, every of monetary policy depend on the of $18.0 per barrel. legitimate demand for operational environment. Lessons foreign exchange has of experience have revealed that III.2 Strategies to Boost the been met on timely basis. the efficacy of monetary policy has Implementation of 2002 Nevertheless, evidence of always been constrained by Monetary Policy Measures speculative behaviour by the fiscal operations of the some rent seeking government. Furthermore, The factors highlighted above authorised dealers abound the perennial political, ethnic constitute serious constraints to - as evidenced by the and religious upheavals in the achievement of the policy
33 April/June, 2002 Volune 26 No. 2 targets in 2002. However, the implementation. a clean break from the CBN has adopted a mixed * Zero tolerance and severe unorthodox practice of monetary strategy to enhance monetary sanctioning of banks who financing of its budget deficit was policy implementation during the breach monetary policy also emphasised. In this regard, year. guidelines. government should embrace Accordingly, the following strategies the best international practice of will be vigorously pursued. IV. Concluding Remarks. sourcing funds from the capital * Close monitoring of policy market if and when deficit implementation through This paper has reviewed the financing becomes inevitable. enhanced surveillance of monetary and financial policies for Such practice will impose the the financial system. 2002 as well as the factors that required market discipline on * Increased consultation with could undermine the achievement government’s fiscal operations. the Government to ensure of the policy objectives. We also The new monetary policy effective coordination of highlighted those strategies that framework, which is cast in the monetary and fiscal policy would be pursued by the CBN to medium-term framework, represents implementation. enhance policy effectiveness. It a good strategy - in that it recognises * Continuous dialogue with the was also emphasized that the problems of time inconsistency banks through the Bankers monetary policy is highly vulnerable and the lag inherent in the Committee, Seminars and to fiscal shocks including social and transmission mechanism. Given the bilateral discussions to political instability. Similarly, the flexibility which the framework enhance effective policy need for the government to make
affords, the likelihood of achieving the stated monetary policy objectives in 2002 is very high - barring serious fiscal surprises.
SELECTED MACRO-ECONOMIC INDICATORS
1999 2000 2001 2002 2/ Real GDP Growth (%) 2.8 3.8 4.6 1/ 5.0 Inflation Rate (%) 6.6 6.9 18.9 13.0 Fiscal Deficit as percentage of GDP 8.4 2.9 4.1 1/ 3.5 Growth in Broad Money (%) 31.0 48.1 27.0 1/ 15.3 Growth in Net Claims on Government (%) 32.0 -162.3 87.8 Growth in Credit to the Private Sector (%) 29.2 30.9 43.3 34.9 External Reserves (US$ Billion) 5.5 9.9 10.4 -2.0 Average IFEM Exchange Rate (N/$)* 97.60 106.19 113.01 - Average Parallel Market*Exchange Rate (N=/$) 101.81 121.43 134.41 - Savings Deposit Rate (%)* 5.3 4.9 5.0 - 3-Month Deposit Rate (%)* 12.7 10.5 17.9 - Maximum Lending Rate (%)* 28.6 25.8 31.2 -
34 April/June, 2002 Volune 26 No. 2
1/ Provisional *Average for December, 1999-2001 2/ Targets
REFERENCES
1. Cornford, A. (2002): “Commentary on the Financial Stability” Forum’s Report of the Working Group on Capital Flows, G-24 Discussion Paper Series, Centre for International Development, Harvard University.
2. Central Bank of Nigeria (2002) “Monetary, Credit, Foreign, Trade and Exchange Policy Guidelines For Fiscal 2002/2003”. (Monetary Policy Circular No. 36)
3. Hemmin, R. and Kochhar, K.: “The Role of Fiscal and Monetary Policy in the Growth Process” (1990), in the Experience of South East Asia Ungku, A. Azizi (Editor).
4. Kamin, S. et al. (1977): “The Monetary Transmission Mechanism of Monetary Policy in Emerging Market Economies: An Overview” (Mineo).
5. Lindgren, C. L. et al (1996): “Bank Soundness and Macroeconomic Policy” IMF staff Papers, Washington, D.C.
6. Nnanna, O. J. (2002), “Central Banks and Supporting Roles”, CBN Working Papers.
7. Rollard, P. S. (1993): “Central Bank Independence and Economic Performance” Review, Vol. 75, No.4, The Federal Reserve Bank of St. Louis.
8. Clarida, R. et.al (1999) “The science of Monetary policy: A New keynerian Perspective” Journal of Economic Literature 37, 1661 - 1707.
35 April/June, 2002 Volune 26 No. 2
EXTERNAL SECTOR POLICIES IN THE 2002 FEDERAL GOVERNMENT BUDGET: AN ANALYTICAL REVIEW AND ASSESSMENT
By
T. ADEMOLA OYEJIDE*
INTRODUCTION
n accordance with tradition, monetary financing of fiscal deficits. external sector policies identified the Federal government Large injections of liqidity into the in the budget and discuss Ibudget for fiscal year 2002 economy from these two primary whether and, if so, how and the was articulated against the sources had the predicable extent to which they might background of a review of effects: rapid growth in monetary facilitate the achievement of the the previous year’s budget aggregates which, in turn, place goals. But the presentation is proposals and the response of great pressure on inflationary limited in several ways. First, its the economy. The budget for year trends. focus is primarily analytical. 2001 was aimed at consolidating Broad policy objectives have Second, its scope is restricted to “the path of the previous year in been articulated for the 2002 an analysis of just two of the laying a solid foundation for a budget, against the background of external sector policies private sector led market-driven the failures associated with the mentioned or hinted at in the and growth-enhancing economy implementation of budget 2001. budget. These include trade in which unemployment and The primary goals are to achieve a policy and exchange rate policy poverty will be reduced”. The high economic growth (with a which are, arguably, the most budget offered what was specific GDP growth rate target of important external sector policy described as a “comprehensive at least 5%) and to alleviate poverty components of the standard package” of economic policy in the context of continuing efforts macroeconomic policy package. reforms aimed at generating to liberalize the economy. To efficiency and effectiveness in achieve these objectives, budget II. TRADE POLICY the use of resources. In deficit will be minimized, inflation The significance of trade for particular, it had a “primary rate will be maintained within a the economy of Nigeria is so target” focus on lowering the single digit rate, the foreign obvious that it may not need an inflation rate. exchange market will be further elaborate discussion. In spite of Many of the targets set for liberalized, non-oil export earnings this, the evolution of Nigeria’s the 2001 budget were not met. will be increased, trade will be further trade policy and trade regime Government activities resulted in liberalized although provision will be over the last 3 - 4 decades has expansions that impacted made for adequate protection to been characterized by several negatively on macroeconomic domestic industries. twists and turns. But the observed stability. The Central Bank of It is obvious that comple- periodic changes continue to Nigeria found the environment for mentarities and trade-offs exist broadly reflect a number of pivotal conducting monetary policy not to among the various policy principles. First, trade is viewed be conducive because of the instruments that will be (and are as an engine of growth. Second, massively expansionary fiscal already being) deployed to achieve it is assumed that trade policy operations of government the primary goals of budget 2002. can be used to influence the trade generated through monetisation However, the purpose of this regime in ways that promote of excess oil export receipts and presentation is to examine the economic growth. The third
* T. Ademola Oyejide is the Executive Director, Development Policy Centre, Ibadan.
36 April/June, 2002 Volune 26 No. 2 principle borrows from the trade the range of tariffs was reduced EU trade negotiations will affect and development literature’s from 0-200% (in 1990) to 0-100% Nigeria’s trade regime and tariff policy lesson associated with the (by 2001). In 2001, average tariff structure. Similarly, in the observed and, apparently, robust rate was 38.1% for consumer multilateral context, the on-going relationship between increasing goods, 25.2% for intermediate trade negotiations at the WTO manufactured exports and rapid goods, and 16.1% for capital may have important implications economic growth. It leads to the goods. for Nigerian trade policy. idea that trade policy should be A country that wishes to, can The ECOWAS case is used to enhance manufactured liberalize its trade regime through particularly relevant here. exports as a means of promoting any (or all) of the following three Although it was launched in 1990, overall economic growth. The mechanisms; the ECOWAS trade liberalization focus on promoting manufactured (a) unilateral or autonomous scheme (TLS) remained virtually exports is further justified by reform, unimplemented for about a several considerations. It would (b) opening of markets in the decade. But in December 1999, help to enhance linkages in the context of reciprocal regional Nigeria (together with Ghana) domestic economy, increase and trade agreements, and articulated the “fast-track” stabilize export revenue; and thus (c) multilateral trade liberalization initiative on implementing various reduce the country’s reliance on through negotiations under aspects of ECOWAS integration. the oil sector. the auspices of the World In relation to the TLS, this has two Up to the mid-1980s, the Trade Organization. Nigeria’s aspects. central objectives of Nigeria’s trade liberalization efforts First is the decision to fully trade policy were to protect have been carried out implement the TLS with effect domestic industries and to reduce predominantly within the from April 15, 2000. Second is the the country’s perceived unilateral or autonomous adoption of UEMOA’s common dependence on imports. To mechanism. Trade policy external tariff of four rates (i.e. achieve these goals, trade policy proposals in Budget 2002 0,10,15,20%) by the entire provided for low tariffs on raw appear to follow this tradition. membership of ECOWAS with materials, intermediate and The proposals are essentially effect from 2001. The capital goods while high tariffs a replica of those made for the two implementation of these decisions, and even import bans were previous budgets. First is the particularly the second one, will applied to finished products. More proposal to continue the general radically alter the structure of recently, import tariffs has been liberalization of the economy. Nigeria’s import tariff. The full designed, increasingly, to raise Second is the proposal to protect implementtion of this “convergence” efficiency of domestic industries domestic industries. The direction decision and its generalization are through greater exposure to in which further liberalization would not undesirable; as the result would import competition; at the same go is suggested by two statements, be a more transparent trade time, several export promotion i.e, reduction in the upper bound of regime with a limited number of measures (including duty the existing tariff regime, and tariff rates (the existing tariff drawback and manufactured-in- further reductions of duties on regime has over 5000 tariff lines!) bond schemes) have been machineries, spare parts and raw which should reduce corruption adopted. materials. Taken together, these by minimizing the discretion of The import tariff structure for statements suggest that customs officials and drastically the 1988-2001 period increased (i) the range of tariffs will be cutting down administrative “red import duties on raw materials, further compressed and tape” and associated bottlenecks. intermediate and capital goods; (ii) average tariff rate for capital The negotiation of a while slightly reducing tariffs on goods will be reduced below successor trade agreement to the consumer goods. In this process, the existing 16.1% level. Lome Convention series between the incidence of import There are opportunities for the EU and ACP is scheduled to prohibitions and extremely high Nigeria to take advantage of the begin in September 2002. tariffs which had hitherto distorted regional and multilateral Although it attracted no mention the allocation of resources and mechanisms for achieving its trade in Budget 2002, this negotiation encouraged smuggling has been liberalization objectives. In the could also present an important reduced to some extent. Between regional context, both the opportunity for Nigeria to re-allign 1990 and 2001, average import ECOWAS trade liberalization its trade regime and take duties fell from 35.7% to 27.5%; scheme and the impending ACP- advantage of enhanced market
37 April/June, 2002 Volune 26 No. 2 access in the EU as a means of review of existing WTO Monetary Policy Circular No. 36, promoting manufactured exports. agreements in many of these provides elaboration regarding Nigeria’s trade relationship with areas. For instance, Budget 2002 how the exchange rate policy is the EU in the context of Lome has, as one of its objectives, the articulated or how the policy during the 25 years ending in “provision of adequate protection to objectives assigned to it will be 2000 was not particularly domestic industries against unfair achieved. Hence, the strategy of beneficial to the country. In competition from imports and the presentation in this section is principle, Nigeria, like other ACP dumping of manufactured goods”. to summarize what economic states, enjoyed non-reciprocal There is an existing WTO theory has to say about the and virtually duty-free access to agreement on the subject of anti- choice of exchange rate regimes the EU for its export of a wide dumping and how to deal with it. in relation to these objectives and range of agricultural and indusrial Nigeria needs to create the to synthesize the implications of products. But, in reality, over 95% appropriate mechanisms for this analysis for the formulation of Nigeria’s total exports to the correctly applying this agreement of exchange rate policy. EU attracted no Lome preference as a means of achieving its Economic theory suggests margin; and for the export objective without attracting threats that the exchange rate performs a products that qualified, Nigeria’s of complaints and sanctions from dual role in the economy, both of Lome preference margin was other WTO members that may be which are important for maintaining quite minimal, only 0.2%. In negatively affected. macroeconomic stability. First, the addition, only 2.7% of Nigeria’s It would appear that Nigeria’s movement of the exchange rate exports consisted products trade policy focus has concentrated can help achieve and maintain enjoying significant preference too heavily on traditional trade policy international competitiveness and margins (i.e. over 3%). These instruments (e.g. tariffs) and not thus ensure a viable balance of results reflect Nigeria’s failure to enough on complementary payments position. Second, the develop significant production and regulatory and institutional reforms exchange rate can serve as an export capacity in the sectors that are needed to ensure that anti- anchor for domestic prices and thus where Lome preference margins trade biases are removed and a contribute to the establishment and have been significant, such as strong supply response emerges. maintenance of internal balance or chemicals (5.0%), footwear (5.5%), Therefore, there are important price stability. While it is not textiles (7.0%), prepared foodstuffs, challenges in the area of trade unusual to design and implement beverages and tobacco (8.3%). policy that must be addressed. an exchange rate policy aimed at The Lome successor trade These centre on measures aimed achieving both of these desirable agreement will be significantly at reducing transactions, costs and policy objectives, the question of different in one important respect; improving the performance of what relative weight to be compared to the non-reciprocal infrastructure services providers assigned to each of the objectives Lome, the new arrangement will (transport, port services, must be explicitly addressed. be reciprocal, although some telecommunications, etc) which are Corresponding to these asymmetry may be expected to as, if not more, important than the approaches to exchange rate be built in. Nigeria’s active reform of traditional instruments of policy formulation: One is the real participation in the negotiation trade restrictions. targets approach in which the may well determine the extent to nominal exchange rate is used as which Nigeria could benefit from III EXCHANGE RATE an instrument for achieving real the new agreement. POLICY objectives, such as a non- At the multilateral level, Budget 2002 re-affirms the inflationary level of demand for new negotiations have begun on commitment of government to home-produced goods and the Doha Development Agenda continue to liberalize the services. The other is the nominal under the WTO. Nigeria’s active economy and to include the anchor approach under which participation will clearly influence foreign exchange market in this domestic inflation rate is tied to what market access gains it may sustained liberalization process. the inflation rate of trading partner expect in such sectors as But it also indicates that priority will countries. In this approach, the agriculture, industrial products be given to the maintenance of exchange rate is automatically and services. In addition, WTO stability in the foreign exchange adjusted on the basis of some multilateral trade negotiations market as well as in the exchange predetermined scale linked to the also cover a wide range of trade rate itself. But neither Budget 2002 inflation differential with trading rule,including some substantive nor the Central Bank of Nigeria’s partner countries. Its effect is to
38 April/June, 2002 Volune 26 No. 2 restrain government’s inflationary on the economic objectives above that when overly expansionary tendencies. specified, the source of shocks fiscal behaviour defies the Under the real targets facing the economy and its discipline of restrictive monetary approach, changes in the real structural characteristics; policy, nominal exchange rate exchange rate have significant * neither of the extremes of depreciation may become the “switching” effects in terms of permanently fixed or completely inevitable price for maintaining increasing exports (provided flexible exchange rate system is the economy’s external there is appropriate supply optimal in seeking competitiveness. response), reducing imports (if macroeconomic stability; imports are sufficiently responsive * in response to random IV. CONCLUDING to relative price changes), and shocks, some degree of COMMENTS raising the demand for domestic flexibility in the exchange rate Key external sector policies output. system is more likely to particularly trade and exchange Under both of these succeed in stabilizing the rate policies, play an important approaches, there are significant economy. role in establishing and policy complementarities (and Given Nigeria’s economic structure maintaining macroeconomic also trade-offs). For instance, the and level of development, its stability in an economy. Budget real targets approach, trade exchange rate policy should be 2002 claims this as an important liberalization requires devaluation designed to maintain external objective; its success will to maintain both internal balance competitiveness at a level consistent therefore depend crucially on the and the initial current account with a sustainable balance of extent to which the appropriate balance. Similarly, when the payments position. But it would also trade and exchange rate policies nominal anchor approach is be desirable to retain a subsidiary are articulated and implemented. adopted, government first makes role for the exchange rate as a Nigeria lacks a good track record a nominal exchange rate nominal anchor; this requires that in terms of the discipline (especially commitment and must then some of the burden of adjustment of fiscal behaviour) required in adjust its monetary policy (and in the real exchange rate be borne this regard. Hence, Budget 2002 sometimes fiscal policy also) to by changes in the domestic price faces an uphill task from the fit in with this commitment. level. Thus, an active monetary beginning. Furthermore, devaluation is policy will complement periodic There are strong by itself not sufficient to achieve adjustment in the nominal complementarities and trade- o ff a real exchange rate objective; exchange rate. among the key policies needed the effect can only be sustained Therefore in seeking to to maintain macroeconomic if supporting measures (such as improve external competitiveness, stability. Balancing the mix of reduction of fiscal deficit and it will be necessary to strike an external sector policies, fiscal and control of the growth of monetary appropriate balance between monetary policies are extremely aggregates) are simultaneously monetary policy changes and nominal important. Whereas in Nigeria, adopted. In additon, these magnitude exchange rate adjustments. This responsibilities for these policies of the nominal devaluation required “balancing act” should be informed by are distributed across different to achieve particular real comparing the short term costs agencies, the need for effective exchange rate and balance of associated with restrictive monetary policy coordination cannot be payments target will depend on policy with those generated by the over stressed. This is, again, an whether the fiscal deficit is devaluation. Given that in Nigeria area in which Nigeria’s track reduced by increasing taxes, or by governments appear unable to record is poor; it is therefore an reducing government expenditure refrain completely from resorting t o area requiring urgent attention if on traded and non-traded goods. inflationary finance, a the expectations of Budget 2002 The discussion above considerable degree of flexibility in are to be realized. generates a number of principles for the nominal exchange rate may be the management of a country’s needed if a deterioration in exchange rate. external competitiveness is to be * the optimal management of prevented. the exchange rate depends It should be clear from the
39 April/June, 2002 Volune 26 No. 2 REAL SECTOR POLICIES IN THE 2002 BUDGET
By
ENGR. C.C. UGWUH* INTRODUCTION * Traditionally the Budget serves Government on currently * The Annual Budget of as a public notice of produced goods and the Government is an invaluable Government fiscal policy goals necessity for an efficient tax tool of Economic policy for for the year. For this reason, the system that encourages the purpose of influencing the Government has set the production and investment in direction of macroeconomic convention to consult with all the Real Sector; then the real variables which serves as the stakeholders so that the policy impact of the fiscal policy signpost of the economic goals reflected as much as measures contained in the health of the domestic possible the economic annual Budgets can be seen economy. priorities of the time. in the effects on employment, production and investment in * For this reason, the Budget * The Budget therefore requires the Real Sector. requires careful formulation strong partnership between the and realistic identification of private sector and the public * We need therefore to critically the critical weak points for the sector. examine the plausible purpose of designing reasons for the failure of the appropriate fiscal policy PLAUSIBLE REASONS FOR past Budgets to address the strategies to achieve the THE FAILURE OF PAST problems of the Real Sector. desired policy targets. BUDGETS * Experience has shown that * The persistent poor economic A review of past Budget the major causes of budget performance of the Nigerian performance shows convincingly failures in Nigeria are: economy since the early that the failure of the component # Weak Federal Government 1980s has again raised economic policies to make Budget process geniune concerns about the appreciable impact is due to # Budget distortions efficacy and timeliness of the quite a number of factors that # Laxity in budget annual Budget of the Federal have become increasingly discipline Government as well as the associated with our inefficient # Absence of transparency appropriateness of the planning process and our # Undue politicisation of macroeconomic framework collective failure to realize the the Budget approval forming the background of critical importance of policy process the policy constituents. consistency as a precondition # Protracted delay in the for good planning culture. release of Votes to the * We must however recognise Ministries and other the challenges of economic * Generally, past Budget failures Government Agencies policy formulation in an in Nigeria reflect a general # Poor implementation unstable macroeconomic malaise which has constrained framework environment characterised the rapid development of the # Poor coordination of by a structurally weak Real Real Sector of the economy. If Federal, State and Local Sector with vast under- we all realize that the prosperity Government spending utilized production potentials. of the Real Sector depends on programmes. the optimal spending policies of # Monetary and Fiscal
* Engr. C.C. Ugwuh is the President, Manufacturers’ Association of Nigeria, Lagos.
40 April/June, 2002 Volune 26 No. 2 Policy conflict Nigerian Economic Policy national infrastructure. (1999-2003) which is quite * In addition the following unique in the sense that THE PROSPECTS OF structural deficiencies have these are the two most THE REAL SECTOR also been associated with important Economic UNDER THE 2002 past budgets. Programmes under the BUDGET - inappropriate present Administration. macroeconomic planning * The economy is still beset framework * Moreover, the 2002 Budget by serious macroeconomic - institutionalised policy as an integral component of imbalances as a result of inconsistency, policy the Nigerian Economic Policy conflict between fiscal and somersault and policy (1999 - 2003) is deliberately monetary policy objectives. conflicts titled towards the following It is therefore highly desirable - faulty implementation long-term goals: that the 2002 Budget will strategies, especially contain appropriate policy duplications and mis- * Sustained growth strategies to streamline fiscal management * Full Employment and monetary policy - distortions in public sector * High Standard of living instrument so as to spending priorities * Competitive Economy encourage production and - destructive and absurd * Commanding presence investment in the Real regime of multiple taxes in the West African Sector in the current fiscal - comparatively poor fiscal economy year. incentives to the Real * Therefore the Government Sector compared with the * These long-term policy goals, should adopt strategies to financial sector will require the creation of an ensure optimum result from - undue politicisation of the enabling environment for its commanding spending budgetary process (the intensive production and powers in the economy so 2002 Budget is a classical investment in the real sector. as to create the necessary example). The 2002 Budget therefore basis for further expansion - the impact of the 2002 poses a serious challenge for of production and invest- Budget on the Real Sector the Real Sector. ment in the leading sub- will depend inexorably on sectors of the Real Sector, the extent to which its * If the Real Sector has especially the manufactur- specific provisions meet the underperformed in the past, ing sector. expectations of the Real the reasons have not been Sector operators. too difficult to identify and it 1. PUBLIC SECTOR is to be expected that the SPENDING: PRIORITY THE GENERAL 2002 Budget has adequately SECTORS: FEATURES OF THE addressed these problems. 2002 BUDGET And Government intention is * The spending power of that these problems can be Government is enormous * The most attractive feature solved by a combination of and requires deliberate of the 2002 Budget is that the following policies: prioritization to achieve the the Policy thrust and - Reduce the level of unem- twin objectives of efficiency programmes are in ployment through expansion and effectiveness in the use consonance with the in capacity utilization of scarce public resources. prevailing national economic - Intensified food production to philosophy of private-sector achieve national food * Against the backdrop of initiated economic security estimated revenue of development. - Boost agricultural production N=1,156 billion in 2002, the through a policy of Buyer-of- Federal Government * Besides, the 2002 Budget the-last-resort and Guaran- spending proposal amounts contains specific provisions teed Minimum Price to N=1,017.7 billion. By all in the National Rolling Plan - Rehabilitation of and standard, this is a mammoth (2001 - 2003) and the intensified investment in spending power that
41 April/June, 2002 Volune 26 No. 2 should be judiciously and Local Government priority areas in the Real applied to achieve the without any regard to the Sector are identified and overall objectives as stated impact on the Real Sector. prioritized for optimal in the budget. outcome. * The deficiencies in the existing * In a way, this huge public Tax regime arose principally * The sectoral allocation of sector spending can be from the fact that it is public sector revenue provides used as a stabilizing inequitable to the Real Sector the point of reference but in influence in the economy if relative to other sectors of the deciding the priority spending priority is given to the economy. areas consideration should be purchases of currently- given to: produced and locally * In addition, the failure by the available goods in the Federal Government to lower - employment impact economy. the Tax threshold in the 2002 - production impact Budget to stimulate domestic - investment impact * The benefits of such public demand through increased - multiplier impact sector spending on locally take-home pay for workers made goods include: cannot be justified. * In order to achieve all these - boost to domestic demand four impacts simultaneously, - intensification of production * At the same time, the present any proposed spending plan - increased investment rate of Corporate Profit tax is should be targeted on the - increased employment too high and serve as great dis- public sector activities that - higher tax revenue for incentive to production and in- utilize the vast range of Government from personal, vestment in the Real Sector. product in the Real Sector. corporate and sales taxes. The 2002 Budget has unfortu- - increase in per capita nately remained mute on this * Accordingly in implementing income important issue. its spending proposals under - open up new consumption the 2002 Budget, Government possibilities for individuals * Nevertheless, the proposal to should give priority to the - potential reduction in crime follow a buyer-of-the-last resort following areas where rate (as a result of a reduction policy in the agricultural sector opportunities to patronize in the unemployment rate) is welcomed. The policy of locally made goods are Guaranteed Minimum price for bountiful. * The challenge before agricultural product is equally Government therefore is applauded. Nevertheless, Capital Projects: how to optimally allocate its there is still much scope for (Allocation N=297 billion) proposed expenditure of assistance to the agricultural N=1,017.7 billion to achieve sector as a vital link source for * The allocation for Capital the desired effect on the food and raw materials. Projects (N=297 billion) should Real Sector. We shall be tied to available local return to this matter in the PRIORITIZATION OF materials to achieve subsequent sections. PUBLIC SECTOR maximum spillover effect. SPENDING IN FAVOUR 2. PROPOSED TAX OF THE REAL SECTOR: Health - (Allocation N=14.9 REGIME: THE IMPACT RECOMMENDATIONS billion). AND PROSPECT FOR THE REAL SECTOR * It was suggested in the preceding * In consonance with the policy sections that the effectiveness of thrust for health, the * There is no doubt that public sector spending proposals spending proposal should some existing taxes are not under the 2002 Budget would be focus primarily on preventive backed by any known determined by the impact on the drugs which are available existing laws except that Real Sector, in particular and locally and the maintenance these taxes are imposed the economy, in general. of good environmental for unacceptable reasons hygiene where the potential to raise revenue for states * The desired impact on the Real impact on the Real Sector is Sector can only be achieved if great.
42 April/June, 2002 Volune 26 No. 2 spare parts and raw material. into the annual Budget. The Works and Housing: Real Sector has special (Allocation N32.9 billion) * The unfortunate consequences needs because it is beset by of Trade Globalization which unique problems which are at * The proposed spending on has led to rampant incidence the same time economic and capital construction on road of dumping needs to be quickly social in character. rehabilitation and maintenance addressed if the proposed have both social welfare im- policies for the revival of the * The long-term purpose of the pact and Real Sector effect Real Sector under the 2002 Budget is of paramount and therefore should be Budget are to be realized. importance from the perspective treated as priority spending of the Real Sector. If there is for the purpose of implement- * It is evident that the problems consistency in policy with the ing the 2002 Budget. of the Real Sector are both support of an efficient structural and entrenched and implementation machinery, Social Overhead Spending that the country’s development there is no doubt that the cannot proceed in earnest Real Sector can compete * The social overhead spending where the Real Sector is still effectively against other which includes expenditure on relatively weak. major sectors of the water Resources and Sports economy. and Social developments. * The Budget has become a The twin projects, National veritable economic policy * And, finally, it is to be Stadium, Abuja and the All- instrument for the pursuit of reiterated that fiscal and African Games Village, offer short term goals that accord monetary policy conflict is rare opportunities for the use with national economic priority. anathema to an efficient of public spending to gradually Therefore, the 2002 Budget economic system. reflate the domestic economy provide a platform for the after the prolonged period of revival of the Real Sector as a * Government should therefore recession. short-term strategy to stimulate streamline the goals of fiscal production, investment and monetary policies to achieve CONCLUSION employment in the Sector. an integrated approach to * The Government should also economic policy formulation remain committed to its * We must also realize the grave so that the policy objectives proposal for further reduction dangers of poorly conceived outlined in the 2002 Budget of duties on machineries, economic policy superimposed do not become a mirage.
43 April/June, 2002 Volune 26 No. 2 TOWARDS EFFECTIVE POVERTY ERADICATION STRATEGIES IN NIGERIA
By
Professor Ukwu I. Ukwu*
INTRODUCTION PROFESSOR UKWU I. UKWU* he eradication of poverty two sectors of the economy in degrees) is universally accepted as which most of our working 3) deficiency, dearth, scarcity; Ta primary development population are engaged, agriculture smallness of amount; objective. Today Nigeria is one of and small-scale non-agriculture 4) deficiency in the proper or the poorest of the poor among the enterprises, are particularly desired quality; nations of the world, and we are handicapped. 5) poor condition of body; confronted not just with pockets of The prevalent situation of leanness or feebleness poverty - disadvantaged or mass poverty reflects the poor resulting from insufficient marginalized areas, groups and management and performance of nourishment, etc. individuals - but with a situation of the Nigerian economy. The level of In relation to people, the mass poverty, a situation in which economic performance of any basic concept of poverty refers to most of the population exists at country depends primarily on two a serious inadequacy of standards of living below those factors: the level of resources economic condition, a situation of required for full development and relative to population, and the level individual, group or regional lack enjoyment of individual and of productivity. Nigeria belongs to or deprivation of what are societal well-being. the group of poor countries with considered the necessities for If we are to deal with poverty high level of resources but low level acceptable living standards, a properly it is not enough to of productivity. The task of poverty situation of not having access to consider the aggregate level. We eradication must therefore begin a conducive environment and the must understand its structure, with identifying and mobilizing our facilities and opportunities for dimensions, distribution and resources and improving our decent living. dynamics. Who are the poor? productivity1. The demands of this Poverty manifests itself most Where are they? How poor are task cut across every sector of the intimately in the condition of the they? Why are they poor? What development plan and involve individual and - since this is the are their circumstances? Are they every tier of government and every primary context of human social getting poorer or less poor, and region, locality and community, as organization, interaction and why? In Nigeria the differences well as every firm and household. interdependence - the household. between urban and rural areas, The idea of poverty is very But it may be observed at other as well as the differences wide and elastic. It means different significant levels of human between different regions are well things to different people in different organization, in socio-economic recognised. So also are the contexts and circumstances. The groups, communities, regions, differences between specific most basic meanings are reflected nations and groups of nations. socio-economic groups. Thus in dictionary definitions, thus Two basic concepts of more than half the population of 1) the quality or condition of poverty are usually recognized: Nigerians belong to one deprived being poor; absolute poverty and relative group - women - while the youth 2) the condition of having little poverty. The concept of absolute constitute over three quarters of or no wealth or material poverty refers to a condition the unemployed. The sick and the possessions; indigence, under which there is a serious aged have special problems. The destitution, want (in various deficiency in or lack of access to
* Professor Ukwu I. Ukwu is the Executive Director, Centre for Development Research, Management and Training, Enugu.
44 April/June, 2002 Volune 26 No. 2 what are considered the basic self actualisation or fulfilment. The the people in question. But in the necessities of normal life. average Nigerian household spends final analysis it is perceptions of Relative poverty relates the over 75 per cent of its consumption the people themselves condition of the individual, expenditure on food, a preoccupation which determine what they household, group or community which reflects i ts closeness to “know” and feel about their under consideration to some t h e economic level of bare condition and what they would like reference standard or parameter, subsistence. to do or to be done about it. So if such as the average for the group The World Bank has called we are to deal properly with or region, a target standard or special attention to the causes of poverty, we should start by objective, of its ranking on given mass poverty in Sub-Saharan understanding their situation, criteria. In the final analysis, Africa. Thus lack of access to skills, perceptions and feelings. however, all concepts of poverty facilities and opportunities is seen In this contribution I are relative. Thus. even when we as the most basic cause of poverty. would like to present for your speak of absolute poverty we The reasons for such lack of consideration some notes from refer to existence below a access relate to the patterns of the voices of the poor speaking reference standard of living. The social and economic organisation, for themselves. The notes are progressive raising of this especially to the patterns of social based on a summary of the re- reference standard is part of the and economic inequality. In a ports from focus group discus- universal human development situation of mass poverty, such as sions and questionnaire surveys process. we have in Nigeria, where poverty of poverty in Enugu State in 1997/ For a working definition of is the lot of the generality of the 98 involving 4300 households drawn absolute poverty we may refer to people rather than the misfortune from communities in all the local gov- Rowntree’s concept of “primary” of a few, the primary reason for poverty which applied to “families poverty must be sought not in the CAUSES OF POVERTY IN whose income was insufficient to cirumstances of individuals but in SUB-SAHARAN AFRICA obtain the minimum necessities the state of the nation and its * Inadequate access to employment opportunities. for the maintenance of merely management. As has been lucidly * Inadequate physical assets, such as land physical efficiency”, based on a argued by Kenneth Galbraith, the and capital, and minimal access by the poor to credit even on a small scale. diet containing the necessary most developed countries in the * Inadequate access to the means of nutrients at the lowest cost world today include some countries supporting rural development in poor regions. compatible with a certain amount very poor in physical resources * Inadequate access to markets where the of variety, providing basic calories while the poorest countries include poor can sell goods and services. * Low endowment of human capital. and proteins. But man does not some of the most richly endowed * Destruction of natural resources, leading to live by bread alone. A certain with physical resources, like environmental degradation and reduced productivity. modicum of other facilities and Nigeria. * Inadequate access to assistance for those amenities are required for living at the margin and those victimized by transitory poverty. social efficiency. Hence * Lack of participation, failure to draw THE NEED FOR needs are ordered, such programs. SELF ACTUALIZATION that one strives to meet the 5 OR FULFILMENT needs at the most pressing ... 4 THE NEED FOR level up to a point before ... ESTEEM ernment areas of the state. seeking to meet those at 3 SOCIAL In this analysis we highlight the next level. The kinds of ... NEEDS the people’s perceptions and SAFETY problems one considers 2 ... responses on the following most pressing therefore are NEEDS basic issues: 1 ... PHYSIOLOGICAL indicative of one’s poverty NEEDS * What is poverty? What are its status. MASLOW’S HIERARCHY OF NEEDS characteristics and indicators? A most insightful * How do the people exegesis of this issue is assess their own condition provided by Maslow’s classic and that of their formulation of a Hierarchy of POVERTY IN NIGERIA, AS community? Needs, with the physiological needs SEEN BY THE POOR * What are the causes and - water, food, sexual gratification, and The nature of main deprivations effects of poverty? shelter - as the most basic, followed by which define the level and * What are their suggestions safety needs, then by the need for structure of poverty varies with the on the eradication of esteem and finally by the need for social and economic conditions of poverty?
45 April/June, 2002 Volune 26 No. 2 The findings are based Text Box 3.01). Specific groups YOUTH PERSPECTIVES ON primarily on the focus group stress particular attributes of well- POVERTY discussions and on the relevant being. Thus urban youth stress A poor person questionnaire responses. The satisfaction of basic needs as well * suffers in want; * cannot be sure of the next meal; focus group discussions were as being in a state of “contentment”; * is hungry; directed towards understanding the urban elderly mention having * is ill-clothed; the participants’ perceptions of children, ability to solve family * lacks proper shelter; * cannot afford education. the meaning, context and impact problems and being in full-time Rural Youth, Male of poverty as well as their employment; while the rural elderly reactions to it and their emphasize having “family”. A poor person * cannot provide for financial needs; suggestions on its alleviation and The peoples’ concept of * as parent cannot buy drugs for reduction. Relevant questions in the poverty is broad and wide-ranging. children; or sample household questionnaire Some of the definitions obtained in afford to take them, to hospital; also address the individual focus group discussions are * lacks people. Rural Youth, Female household assessments of reproduced in the Text Boxes Other A poor person household and community well- often-mentioned manifestations of * has no money to attend to needs. being, their perceptions of poverty include haggardness and Urban Youth, Female serious problems, as well as their poor clothing, no family (stressed evaluation of the state of designations are evocative of the infrastructure and services in DEFINITIONS OF POVERTY sociological context of the their communities. A poor person is: communities’ assessment of and * someone who cannot make a farm, and reactions to various categories of cannot also afford to buy labour. Concepts of Wealth and Poverty * a person with very limited kinsmen can the poor. Thus, while the destitute be said to be poor. * one who can neither cloth nor feed himself but resort to begging is poor WHAT IS WEALTH? ELDERLY PERSPECTIVES * When we talk of wealth (AKU NA UBA) * When one is weak and has no one to an people who have property and riches. In the help him, he is poor. ON POVERTY lays this meant land, crop trees, especially the oil * There are categories of poverty, but the A poor person is a person who * ree, livestock- goats, sheep and chickens- and worst of all is one who has nothing and cannot provide for himself and his old goods. at the same time does not relate to family; * anybody who has. is jobless; Artisans, Female, Rural * looks haggard; * does not feed well * Although money in an important indicator lth, Arable farmers, Female, Rural it is not everything. Some people may have but An example of a poor person is a person who * lack peace or even children who the money will sed * A poor persons is someone who cannot is blind or crippled with no help - that is for. There are some other people who do not ts eat what his body wants at the needed the worst kind of poverty. * of money, but are having a peaceful life and walk time. He cannot also buy for himself cannot provide for herself, even by reely and fearlessly. Such people are enjoying what medicine when he is sick. cracking kernels; cannot buy and so may be considered wealth in their * Artisan, Female, Urban is childless; ht. * is improvident; healthy but shiftless. Youth, Female, Urban
* If you have a lot of children, then you are... t, you will live long.. “MADU KA EJI AKA” by the elderly), and inability to pay Elderly Male, Rural rent (mentioned by urban artisans). are to be pitied, there is an The urban male elderly stress element of ridicule about the inability to feed one’s self and “soot-mouthed” poor, and the lazy The focus group discussions family, joblessness, not having a poor is reprobated. On the other reveal a broad consensus on the “big brother” or important hand, the kinless poor and the ill- concepts of wealth and poverty, “connections” and inability to meet fated poor deserve sympathy cutting across social and community perceptions of while the hopeful poor and the economic categories of interest obligations such as levies. Rural struggling poor demand groups. female traditional crafts producers encouragement and support. Most of the groups see the talk about a condition of In order to obtain insight into first sign of well-being as the “hopelessness” while urban street the people’s perceptions of their ability to feed one’s self and beggars highlight the state of “lack levels of well-being, the sample family. Other often-mentioned of respect.” households were asked, among indicators include good health, Recognising that the poor are other things, to indicate how well access to money and property not an undifferentiated mass, the they could afford a number of key (stressed by the youth), and focus group discussants distinguish needs, to identify from a list of access to investment funds. (see several categories of poverty. The possible problems those they
46 April/June, 2002 Volune 26 No. 2 considered serious, and to school fees and only a small of inputs and about the high level compare their overall condition minority can afford transportation of customer indebtedness. now with what it was five years and tertiary school fees. In the questionnaire survey before. an attempt was made to identify On affordability the items Problems and rank the major problems as listed were ranked in descending : The problems perceived by the perceived. A summary of the order of affordability (by people tend to vary from one percentage of households) as interest group to another. Some of PROBLEMS OF TRADERS follows: the problems and concerns of . High price of commodities in the 1. food 52.8 members of selected occupational market, makes it difficult for us to sell and make gain. Effort should be made 2. primary school fees 52.7 groups are reproduced in the Text to bring down prices. 3. accommodation 51.5 Boxes . High prices lead to keeping goods for 4. hospitality 46.7 Food processors and crafts too long a time. Such goods get spoilt and you may be forced to sell cheaper 5. clothing 43.8 people complain about low than you bought. 6. hospital bills 37.7 turnover, farmers about the high Hawkers, Female, Urban. 7. medicine 35.4 cost of fertilizers and the low level 8. secondary school fees 35.1 of government support. Traders 9. mobility 28.8 worry about price fluctuations, responses is presented below. 10. tertiary school fees 12.8 REFLECTIONS ON FEMALE 1. Unemployment (89.5%) Thus in Enugu State a little over CASUAL LABOUR 2. Bad roads (83.6%) half of the sample households * We are just doing this type of work 3. Cost of Living (80.4%) because we cannot do otherwise. It is not consider they can afford food, a suitable job for a wonan but we do not 4. Health Services (64.1%) primary school fees and have alternative. Most times after the day’s 5. Water Problems (56.2%) accommodation, but less than 40 job, your whole body in overhauled. 6. Secondary Education(46.2%) * Sometimes we do not find job to do, because cement is scarce these days and 7. Crime (30.9%) CATEGORIES OF POVERTY has slowed down construction work. On 8. Primary Education (30.1%) * There are some who cannot find such days, you go back and starve with 9. Security (27.2%) anything to eat, train their children, your children. clothe themselves etc. Some of them can Casual Labourers, Female, Urban solve some of their financial problems, The list shows the relative but cannot boast of a car or bicycle to drive or ride. But the worst amongst all importance of t he problems. Any is that class who cannot provide anything farmers and street beggars about programme aimed at improving for themselves, let alone their families. the high cost of transport. The litany the sorry lot of the people must They are known as ‘OGBENYE of street beggars’ complaints address these felt problems. OGBEGELE’ in our Community. They are the poorest of the poor. includes desertion by friends and Artisans, Male, Urban relations, lack of personal respect, Causes of Poverty loss of dignity and the stress of The focus group discussions revealed a strong consensus on percent are comfortable with the causes of poverty, a reflection, health care bills and secondary PROBLEMS OF SMALL SCALE presumably, of the common INDUSTRY * If raw materials they use in processing cultural background. Causes their products become cheaper, it will most frequently cited by groups SOME TYPES OF POVERTY BY NAME help them to sell their products to as include “destiny”, lack of capital, * “OGBENYE MGBEGELE” many people as possible because the cost (The Poorest of the Poor) will not be much and so many people laziness, death of a spouse, and * “OGBENYE ONUNTU” can afford them. Also bad roads add to family background. Other (The Soot-Mouthed Poor) the cost of items in the market including prominent causes include having * “OGBENYE UMENGWU” their raw materials. There is never a time (The Lazy Poor) government can share money to too many children, not being paid * “OGBENYE MMADU” everybody. If these problems are tackled salaries as and when due, ill (The Kinless/Personless Poor) people will be encouraged to struggle on health, machinations of enemies, * “UKPA” their own. (Destitution) Food Processors (F) Urban undue litigation, and not having * “OGBENYE CHI OJO” any “big persons”. Other causes (The Ill-Fated Poor) mentioned include “isolation”, too * “OGBENYE NWERE OLILE ANYA” (The Hopeful Poor) “exposure”. Artisans worry about many dependents, natural * “OGBENYE NWE MGBALI” low patronage for their business, disaster, “ environmental factors (The Struggling Poor) food processors about the high cost and planlessness.
47 April/June, 2002 Volune 26 No. 2 We may now turn to the the religious, educational, judicial youth about lack of freedom and people’s perceptions on some of and political functions have been lack of capital. The elderly are the structural dimensions of taken over by new institutions, subject to depression, leading to role loss and diminished fear untimely death and CAUSES OF POVERTY self-esteem for the elderly. complain of the stress of still . Poverty is destiny (AKARA AKA) Economically the old occupy a having to eke out a living at their . A bad child in the family can cause poverty to that family bringing disaster to the family. unique position in the community. stage of life, a s well as the . They must have committed an offence to be poor In recognition of their limited difficulty of ensuring proper . It runs in families, it is hereditary. Street Beggars, Female, Urban. physical capacity and in celebration training for their children. . Unemployment or lack of capital for trading. There of their wide network of Another significant aspect of are people that believe so much in government work. If such a person is laid off and is not given any relationships with other members the focus group discussion is the gratuity, he or she cannot start a new thing. This of the community, the aged are light it throws on the gender leads to real hardship. Hawker, Male, Urban entitled to be “looked after”. by the dimension of poverty, as . Laziness can also cause poverty because if one is working members of the reflected in the contributions of not hard-working one cannot be rich. Food Processor, Female, Rural community through obligatory gifts female groups. of food items, including prescribed On health care, the reaction portions of meat, special right in of a female food processor to a poverty. In the discussions four land and economic trees, and question about her participation of these came up for frequent tribute in kind at harvest. An elder in the immunization programme mention: the age factor, the who has no relations within the is worth quoting in full: gender factor, the health factor, extended family willing and able to “Somebody told me to go for and the occupational factor. render these dues is poor indeed. immunization and I said ‘no’, These will be discussed in turn. The break up of the closely knit because the nurse will ask me if I In Nigeria age is recognized extended family system, with large have eaten and of course I have as a major organizing principle of numbers of the active age-group not. Some people fall after such society. By the institution of the members now likely to be at work injection because they become age-grade system an individual away from home, has replaced the dizzy.” is linked from birth to the regular support system for the Women also clearly perceive members of their age cohort elderly with a more voluntary, more that more women are poor (usually three or four years deep). flexible and more discriminating because the work of looking after As the cohort passes through the system of remittance support. At life cycle it goes through the same time the urban aged face successive social grades with the spectre of sudden GENDER PERSPECTIVES . Yes, poverty can lead young girls into attendant status and role unemployment, the humiliation of prostitution as far parents cannot provide expectations. One definition of retirement “with immediate effect” for their needs especially their financial individual poverty is thus failure by insensitive government needs. Artisan, Male, Urban to keep up with one’s age grade, agencies and “rationalizing” . Early death of one’s husband can cause or inability to meet the corporate establishments. The poverty to the entire family expectations and perform the complete absence of a national Food Processor, Female, Rural ascribed functions of the age social security system leaves the group. Age is a recognized and aged economically the most the children rests on them. They revered position. Occupants of vulnerable group in Nigerian are obliged to take on most that position are vested with societies. The only privileges now domestic responsibilities and be certain rights and privileges, guaranteed the aged are financially dependent on their including the right to be prolonged and expensive husbands. Thus female poverty respected, the right to be funeral rites. is built into the system of gender consulted in important family or In the focus group discussions inequality. village affairs, and the right to be the different perceptions of As reflected in the focus obeyed in appropriate contexts problems by the youths and the group discussions, the people and circumstances. Traditionally, elderly come out very clearly. Thus recognize the very strong the social obligations are multi- the youth, urban and rural, male relationship between health dimensional, encompassing and female, stress the high cost of status and such indicators as religious, educational, political, education and the spectre of nutrition, housing, income and judicial and economic domains. unemployment; urban youth are basic infrastructures. Frequently In the evolving Nigerian society worried about school strikes, rural the groups defined the state of
48 April/June, 2002 Volune 26 No. 2 “well-being” as a state in which deprivations associated with it, and prostitution as coping “a person feeds well, feeds strategies. himself and his family.” Basic needs are invariably listed as Suggestions for poverty food, shelter, clothing. When EFFECTS OF POVERTY alleviation also cut across interest . A poor person has no respect in the urged to rank the needs, one society. groups. The most frequently group after heated debate arrived . Unhappiness canvassed are self help, better roads, Street Beggar, Male, Urban fertilizers, free education, subsidised at two different rank orders, thus: . A beggar has no self esteem, no 1. food, shelter and good health... “mouth to talk” education, expansion of credit a person who is well fed has Street Beggar, Female, Urban facilities, creation of employment good health and will be able to . Deprivation can lead to bad habits like opportunities, and price control. work harder; armed robbery, causing of confusion 2. good health is most important. in the community and apathy towards Other recommendations include A person who is healthy can community development. provide for himself and others. Artisan, Male, Urban COMMUNITY INITIATIVES Some participants among .It is by community efforts for example the female youth group in Enugu building of Primary Schools and North were eloquent on the equipping them with seats. These seats relationship between poverty and poverty is dehumanising and we are sitting on, were built by the socially disruptive. Focus group community. The community built and health: established the community bank, the discussants stress the social Post Office and started the electricity “The two are very highly alienation and powerlessness and project. related. If one does not feed “mouthlessness” of the poor, Elderly Male, Rural well he or she will not be healthy. The effect is more on Poverty is described as a disgrace, children. A sick poor person even a “sin”. cannot buy drugs whose regular payment of workers, family prices are in “tau-tau” (thousands of naira). If he at Suggested Solutions planning, government discipline and all buys, he may not afford the However diverse the perceived massive farming. One urged complete dosage and the problems, the coping strategies appointment of more indigenes to sickness lingers. If such people cluster around some common government positions and the are advised on the type of diet to go on, they do not normally themes. The most common is to opening of borders to trade. comply because they cannot supplement one’s income through Communities also take pride in afford food like meat, farming, casual labour or hawking. their self help efforts. The vegetables etc. and the sickness worsens.” “The two Mutual support through rotatory discussions also throw light on the go hand in hand. Poverty leads credit schemes and communal public perceptions of government to too much thinking - what to work groups, for example, is also development programmes and eat, how to maintain the children in schools and so on. favoured. In dire circumstances their impact on poverty. In general, When this happens it leads to rural groups resort to sale of land government programmes receive sickness and disturb even the or assets, where available. Urban very cursory mention. Where they little struggle such a person is doing.” are mentioned, they are generally regarded as not effective. Further insight into the MUTUAL SUPPORT AMONG Government facilities are seen as perception of the people on their WOMEN not well maintained and their . We contribute money in meetings or services and supplies irregular. health status is given by the fact associations and given out the loans that some 64 percent of the in rotation and preferably to those in sample households identify the need. ANTI-POVERTY STRATEGIES state of public health services . Women form groups which they use Fighting or Alleviating Poverty? to curb the cost of buying labour and Poverty alleviation features among their most serious to help the weak ones among them. We problems, with 65 percent work for one another in the farm by very prominently in international complaining that they cannot rotating among the members of the and national policies and group. programmes. Indeed this session afford to buy medicine and 62 Arable Farmers, Female, Rural percent that they cannot readily is about “Poverty Alleviation pay hospital bills. Strategies” However, my position is that the critical thing to do about Effects of Poverty groups recognize the significance poverty is to eradicate or minimize Apart from the material of child labour, begging, stealing it, not merely to alleviate it.
49 April/June, 2002 Volune 26 No. 2
Poverty alleviation is like the built as follows: The 2002 Budget is of course labours of Sisyphus, taxing and One. to eradicate poverty by only the latest of budgets making futile. As long as the causes of fostering the opportunities for provisions for poverty alleviation, poverty are not addressed, as job creation; reduction or eradication. It has long as more poverty keeps being two to achieve high economic been launched against the back- created, the burden of poverty will growth rate through better ground of many existing initiatives continue to grow however mobilization and prudent and progerammes, sound and zealously we alleviate it. And use of economic unsound. These include the NDE, there is sometimes a rather resources; DFRRI, the Better Life and Fam- unsavoury dimension to the three, to build a strong economy ily Support Programmes, the Ru- practice of alleviation, an aspect of by encouraging private ral Banking Scheme, the Nigerian what I may call the House-rat sector participation while Agricultural and Cooperative Complex. In our poor neighbourhoods providing continuity to Bank (NACB) and the Peoples the dwellings are rat-infested, and the economic reform Bank (both now merged with the rats enjoy nothing more than gnawing programmes; and NIDB, the National Economic Re- the toes of the sleeper. One four, to ensure good gover- construction Fund (NERFUND), would expect the sleeper to feel nance by transforming the ADPs, NALDA, the Family the pain of the sharp teeth, wake development adminis- Economic Advancement up and deal with the rat. But the tration into a service and Programme, (FEAP), the Poverty rat is too clever to let this happen. result oriented system Alleviation Programme (PAP) What it does is to blow cool air now replaced by the Poverty on the spot as it gnaws, thereby Not only does the list give Eradication Scheme (PES) alleviating the pain and enabling priority to poverty eradication, the It is clear that there has been the sleeper to keep on sleeping other three objectives can also be no lack of information and ideas while it goes on gnawing. seen as contributory to and on what to do about poverty. Similarly in Nigeria’s rat-infested supportive of it. Furthermore, the The problem is that the plans economy there are too many specific policy objectives also and programmes have been policies and too many included objectives directly related distinguished more by their organizations and individuals to poverty eradication; most number and variety than by actively creating and deepening notably:reducing unemployment, their relevance and quality, the poverty which we seek or expanding and enhancing the while too little attention has claim to seek to alleviate. We performance of Infrastructural gone into finding ways of en- need to start our campaign facilities, better funding for suring that appropriate ac- against poverty by changing education, improved health care tions are taken and followed those things which create or delivery, promoting increased food through effectively. We shall con- deepen poverty. Poverty is the production and improved food sider each of the areas in turn. enemy. The proper objective is to marketing, as well as promoting confront, destroy its roots and agro-industries and tourism. Poverty Alleviation: In a eradicate it. In resource allocation, priority situation of mass poverty, has been given to education, general programmes for poverty The 2002 Federal Government health, power, water supply and the alleviation run the risk of pouring Budget and Poverty Eradication works and housing sectors, all of limited public resources into a which are expected to advance bottomless pit of welfare need, or In this contribution, therefore, poverty reduction. More specifically of being so thinly spread or I would rather discuss the 2002 it is stated that in promotion of selectively implemented as to be FEDERAL government Budget poverty reduction, ineffective or perverse in its from the perspective of strategies the rural and urban poor shall, through impact. There is need to identify for poverty eradication. Indeed I multiplicity of public and private sector and target the most vulnerable am particularly heartened to note partnership initiatives, be empowered to groups and the hardest cases for that the President’s budget speech become more economically special attention. While a restates the Government’s commitment productive with a view to improving their quality of life. The projects and measures comprehensive approach to the to poverty eradication, and goes on to to be implemented are people oriented. problems of these groups must spell out some measures towards it. As stakeholders, the people will be fully await the establishment - long The budget address spells involved in determining the projects, and will take ownership overdue of a national social out “the four rad objectives” upon security system, all tiers of which the FY2002 Budget was
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government - federal, state and communities would gladly needs, local, can significantly increase contribute to the success of such a * have access to economic their budgetary allocations to programme. Statistics indicate that opportunities to apply their social welfare programmes and most communities still need to be knowledge and skills to redirect more of such allocations provided with access to such basic productive activity, and from structures to persons. There facilities as post offices, telephone * have the necessary is also room for fruitful cooperation systems, police posts, banks, and operational environment and between governments, communities, secondary health care facilities. support to take full advantage non-governmental organizations The equitable spread of basic of the opportunities. and external donor agencies in infrastructural facilities in local the design, implementation and government areas and communities Ultimatey, the outcome of the support of appropriate schemes. should receive the systematic war depends on how the attention of governments at state economy as a whole is managed. Infrastructure: The poor state and local government levels. This in turn depends on the of public infrastructures is widely Capacity Building: The most actions, interplay and interactions and rightly acknowledged as a fundamental task in the war on of the three principal players - major factor of poverty in Nigeria. poverty is to transform the capacity government, firms and households While the importance of roads is of the people themselves, the - as well as the impact of external recognized at all levels, neither households, economic units or agencies and factors. The governments nor communities have groups, to produce; thereby raising responsibility for managing the paid sufficient attention to the their productivity to new orders of system as a whole rests with the debilitating impact of poor access to magnitude. The people Federal Government. It must be safe water and sanitation on the themselves must be empowered ready to point the direction and health and productivity of households to take charge of their own provide the leadership and and communities. development autonomously and support to move the nation Most rural communities also sustainably. They must be able to: towards the goal. How the lack electricity, a major deterrent * understand and articulate Federal Budget can contribute to to both the spread of industries their needs, meeting this responsibility is one and other modern enterprises * identify, develop and control of the major challenges of this and the retention of the youthful their resources, workshop. population. There is need for a * acquire the appropriate systematic programme of rural knowledge and skills to SELECT BIBLIOGRAPHY electrification; and the evidence enable them utilize their is that many deprived rural resources to meet their
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Federal Republic of Nigeria (2002) Government of the Federal Republic of Nigeria: Draft Year 2002 Budget, Abuja, Budget Office, Federal Ministry of Finance Maslow, A (1954) Motivation and Personality New York, Harper NES (Nigerian Economic Society) (1975) Poverty in Nigeria: Proceedings of the 1975 Annual Conference of the Nigerian Economic Society Rowntree, B.S. (1901) Poverty: A Study of Town Life London, Longman Ukwu, U.I. with Anyanwu, .E.A., Imaga, E.U.L., Ofong, I., Nwakoby, F; Akwuba, L., Omeje K., Onyeukwu, O.E. Umoh, B.D., and Ugwuonah, G (1998) Enugu State Poverty Report 1998 (Report of Enugu State Poverty Study sponsored by the United Nations Development Programme (UNDP) Enugu, Institute for Development Studies. Ukwu, U.I. “Facing the Challenge of Poverty in Nigeria” Rotary International District 9140 Rotary Club of Ekulu PAUL HARRIS ANNUAL LECTURE 1996/97 Enugu, Hotel Presidential, 24 February, 1997 UNDP (1997) Human Development Report, Nigeria 1996, Lagos, UNDP United Nations System in Nigeria (2001) Nigeria Common Country Assessment, Abuja, UNSN
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BOARD OF GOVERNORS
Chief (Dr.) Joseph Oladele Sanusi - Governor (Chairman)
Mr. Oluwole S. Oduyemi - Deputy Governor (Corporate Services)
Dr. Shamsuddeen Usman - Deputy Governor (Financial Sector Surveillance)
Mr. Ernest C. Ebi - Deputy Governor (Policy)
Alhaji Mahey R. Rasheed - Deputy Governor (Operations)
53 CENTRAL BANK OF NIGERIA
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