Document of The World Bank FOR OFFICIAL USE ONLY Report No. 29060-UNI MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION AND THE INTERNATIONAL FINANCE CORPORATION TO THE EXECUTIVE DIRECTORS ON A WORLD BANK GROUP SECOND JOINT INTERIM STRATEGY PROGRESS REPORT FOR THE FEDERAL REPUBLIC OF NIGERIA May 20,2004 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document of The World Bank
FOR OFFICIAL USE ONLY
Report No. 29060-UNI
MEMORANDUM OF THE PRESIDENT
OF THE
INTERNATIONAL DEVELOPMENT ASSOCIATION
AND
THE INTERNATIONAL FINANCE CORPORATION
TO THE
EXECUTIVE DIRECTORS
ON A
WORLD BANK GROUP
SECOND JOINT INTERIM STRATEGY PROGRESS REPORT
FOR THE
FEDERAL REPUBLIC OF NIGERIA
May 20,2004
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
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ADB ADF ASYCUDA CAS CBO CDD CDF CENA CFAA CPAR DFID EITI FGN FTA IAS IASC IDG JIS LGA MSME MTEF NAPEP NEEDS NEPA NCP NITEL NNPC NPC NPV ODA OED PER PRSP S A P SEEDS SFAA SPAR TI UNPF
African Development Bank African Development Fund Automatic System for Customs Data Entry Country Assistance Strategy Community Based Organization Community-Driven Development Comprehensive Development Framework Capacity Enhancement Needs Assessment Country Financial Accountability Assessment Country Procurement Assessment Review Department for International Development (UK) Extractive Industries Transparency Initiative Federal Government of Nigeria Free Trade Association International Accounting Standards International Accounting Standards Committee International Development Goals Joint Interim Strategy Local Government Authority Micro, Small and Medium Enterprises Medium Term Expenditure Framework National Poverty Eradication Program National Economic Empowerment and Development Strategy Nigerian Electric Power Authority National Council on Privatization Nigerian Telephone Company Nigeria National Petroleum Company National Planning Commission Net Present Value Official Development Assistance Operations Evaluation Department Public Expenditure Review Poverty Reduction Strategy Paper Structural Adjustment Program State Economic Empowerment and Development Strategy State Financial Accountability Assessment State Procurement Assessment Review Transparency International United Nations Population Fund
Mr. Mark Tomlinson, AFC12 Galina Sotirova, Victoria Kwakwa, Brigitte
Mrs. Haydee Celaya, CAFDR Core Team
I Duces, Roseleen Mba-Kalu, Jeri Larson
TABLE OF CONTENTS
Page No . EXECUTIVE SUMMARY ............................................................................................................................ INTRODUCTION .......................................................................................................................................... I . POVERTY AND DEVELOPMENT: GOALS AND CHALLENGES ...................................................
1.1 BACKGROUND .............................................................................................................................. 1.2 POVERTY AND VULNERABILITY ............................................................................................. 1.3 EDUCATION ................................................................................................................................... 1.4 HEALTH .......................................................................................................................................... 1.5 WATER, SANITATION, INFRASTRUCTURE ............................................................................. 1.6 CORRUPTION, GOVERNANCE AND INSTITUTIONAL CAPACITY ..................................... 1.7 CIVIL SOCIETY AND GENDER ................................................................................................... 1.8 OVERALL MDG STATUS AND PROSPECTS ..............................................................................
I1 . RECENT POLITICAL. ECONOMIC AND POLICY DEVELOPMENT ........................................... 2.1 POLITICAL DEVELOPMENTS ..................................................................................................... 2.2 ECONOMIC AND POLICY DEVELOPMENTS ........................................................................... 2.3 MEDIUM-TERM ECONOMIC PROSPECTS ................................................................................
I11 . JIS IMPLEMENTATION AND LESSONS LEARNED ...................................................................... 3.1 IMPLEMENTATION EXPERIENCE AND PORTFOLIO PERFORMANCE .............................. 3.2 LESSONS LEARNED .................................................................................................................... :
IV . STRATEGY UPDATE AND PROGRAM ............................................................................................. 4.1 OVERALL OBJECTIVE AND STRATEGY .................................................................................. 4.2 SCALING U p AND SCALING BACK .......................................................................................... 4.3 SPECIFIC OBJECTIVES AND STRATEGIES .............................................................................. 4.4 MONITORING PERFORMANCE ................................................................................................. 4.5 PARTNERSHIPS AND DONOR COORDINATION ....................................................................
V . EMERGING RISKS AND MITIGATION .............................................................................................. VI . MOVING TO FULL CAS .......................................................................................................................
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TABLES:
1 Health Outcome Indicators 2 JIS Governance Activities 3 4 JIS Empowerment Activities 5
JIS Private Sector Development Activities
Main Risks Facing JIS Impact
TABLE OF CONTENTS (cont’d) BOXES:
1 Poverty in Nigeria 2 HIV/AIDS 3 Highlights of Recent Reforms 4 5 Economic Management in Lagos 6
Re-establishing ‘Due Process’ in Federal Government Capital Spending
The Economic and Financial Crimes Commission
ATTACHMENTS:
1 Nigeria and MDGs 2 Achievements in the JIS 3 4 WBI’s Program for Nigeria 5 Donor Matrix
World Bank Group Portfolio and Performance
ANNEXES:
A2 B2 B3 B3 B4 B6 B7 B8 BS
Nigeria at a Glance Selected Indicators of Bank Portfolio Performance and Management Nigeria - IDA Program Summary FY04-07 Nigeria - IFC and MIGA Program FY 2001-2004 Summary of Nonlending Services Key Economic Indicators Key Exposure Indicators IDA Credits in the Operations Portfolio Statement of IFC’s Committed and Outstanding Portfolio
I 1 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World B ank authorization.
NIGERIA
SECOND JOINT INTERIM STRATEGY PROGRESS REPORT 2004
EXECUTIVE SUMMARY
i. Nigeria has made impressive progress in consolidating the political transition from a military dictatorship to an open and democratic nation. The last year has witnessed an historic transition from one civilian government to another. The ruling Peoples Democratic Party, under the leadership of President Obasanjo, has been returned to a second term of office and with much stronger support in the National Assembly and in the states. This stronger mandate will underpin political stability and facilitate consensus building around key national policy issues.
.. 11. A committed and professional economic team has made an expeditious start on an ambitious program of reforms. In parallel, the team has led the preparation of the National Economic Empowerment and Development Strategy (NEEDS), Nigeria’s home- grown Poverty Reduction Strategy. The strategy is now being finalized through an extensive participatory process currently underway across the country. The NEEDS focuses on poverty reduction, wealth creation and human development through reforms and initiatives in three key areas: (i) overhauling the way government works; (ii) growing the non-oil private sector; and (iii) implementing a social charter to achieve improvement in human development.
... 111. Significant progress has already been achieved. After inheriting a legacy of expansionary policies from the previous administration, the new leadership team has steered Nigeria towards much improved macroeconomic stability. Inflation and exchange rate instability have both been reduced. Government has also adopted a much more prudent fiscal stance and has prepared a fiscal responsibility bill, to underpin fiscal stability through smoothing the troughs and peaks of oil receipts. And while structural reform was patchy during the first Obasanjo administration, progress has improved markedly over the last year. Notable is the recent deregulation of the downstream petroleum sector, bringing domestic petroleum prices to border price parity. Most importantly, impressive progress has been made in the fight against corruption and in improving government accountability. The Economic Crimes Commission has achieved dramatic successes in revealing corruption and arresting and sending to trial even high ranking and influential offenders. Also, Nigeria is amongst the very first countries to begin full implementation of the Extractive Industries Transparency Initiative, focusing on the oil and gas sector.
iv. A step change in accountability of federal government ministries and agencies has been achieved through publicizing budgets and linking these to explicit outcome targets as well as through much improved due process in public procurement. Financial management practices are being improved through revision of the 1958 Finance Management and Control Act, while planned reforms will build upon the due process to
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further strengthen public procurement. Civil service reforms are underway in key pilot ministries and key economic management agencies to improve service delivery through downsizing and skills re-tooling. Lessons from this will provide the basis for preparation of a broader program of civil service reform across the entire federal government. Complementing this, government has also made an important start in reorienting federal expenditures. In its 2004 budget, two-thirds of capital expenditures are directly related to achievement of MDG targets.
v. Despite this impressive progress on reforms significant challenges remain. Institutional capacity remains weak, across all three tiers of government but especially in state administrations and local governments. Capacity for policy formulation is thus limited, while capacity for service delivery in the lower tiers is clearly inadequate. Underdeveloped and run down infrastructure presents another major bottleneck, to private sector development generally, but especially to agriculture.
vi. While government is refocusing its program and resource use to improve development impact, the government remains concerned that external debt obligations continue to impose a heavy burden on the economy’s capacity to fund investments critical to remove bottlenecks and improve services.
vii. The Government’s NEEDS will form the basis for a full Nigeria CAS in 2005. In the interim, this document presents a second progress report of the Bank Group Joint Interim Strategy (JIS) discussed by the Board in June 2001. The JIS will continue to guide Bank Group engagement over the next twelve to eighteen months. Bank Group assistance will continue to be based on the three pillars of the JIS: (i) improving governance in the federal government and in selected state governments; (ii) de- bottlenecking private sector activity in the non-oil economy; and (iii) empowerment, for human development and to leverage community engagement in service delivery and local infrastructure.
viii. The main thrust of the Bank Group program will be support for further reform formulation and implementation. As part of this, additional emphasis will be given to analytical work, to help fill knowledge gaps important in policy making (for example, a poverty assessment and CEM.) Capacity building to support reform implementation at federal and state levels will likewise be strengthened. Use of community driven development approaches will be expanded, including in education and health. The Bank, IFC and MIGA will develop and implement joint World Bank Group strategies for main economic sectors. Close coordination of Bank programs with other development partners will continue to be a guiding principle. Implementation of the remainder of the JIS will be adjusted to build upon the design and implementation lessons of the last few years.
ix. This report proposes that the Bank provide additional support in three areas: (i) civil service reforms, to help government unlock domestic resources for development and improve service delivery; (ii) governance, to build upon advances in federal government
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and to initiate similar reforms in more advanced states; and (iii) infrastructure, to help government ease critical bottlenecks to private sector activity, especially in agriculture.
x. Bank engagement has been in a Low Case scenario since June 2002. The track record of the government over the last year, in macro-economic management, governance and anti-corruption, structural reforms as well as recorded improvements in portfolio performance in the Bank’s view demonstrate a return to a Base Case level of performance, superior to what has been experienced since 1999. The Bank therefore proposes lending approximately $350 million in 2004. In 2005 the Bank may consider an additional increase in support for reform implementation, with lending up to $500 million. This will be contingent upon experience with implementation of reforms now underway, and upon continued improvement of portfolio performance. A return to Base Case will enable the Bank Group to increase its assistance in critical areas, to help government capitalize on the unique political opportunity for reform offered by the next two years.
xi. In conclusion, Nigeria is at a critical juncture. The political window and the government’s impressive reform record in a very short period provide an unprecedented opportunity for the Bank Group to support the implementation of reforms which can accelerate the country’s transition and make a lasting improvement to Nigeria’s development track. The strategy proposed aims to step up support for government’s efforts to make full use of these opportunities. Further assessments of performance will continue to be carried out and will inform the CAS preparation.
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NIGERIA
SECOND JOINT INTERIM STRATEGY PROGRESS REPORT 2004
INTRODUCTION
1. The Joint Interim Strategy (JIS) for Nigeria which was considered by the Board in 2001 was designed to improve the capacity and effectiveness of the main development actors in Nigeria: government, the private sector, change agents within civil society and local communities. The strategy was developed around three main pillars:
Improving economic governance;
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Creating conditions for accelerated private growth in the non-oil economy; and Empowering individuals and communities to play an active role in their own development .
These pillars continue to provide an appropriate strategic engagement for the Bank Group, and are closely aligned with principal themes that have emerged from the NEEDS.
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Objectives of this second progress report are to:
Provide an update on recent economic developments and achievements; Review implementation performance of knowledge and lending activities; and Build upon implementation lessons and recent government reform performance to propose adjustments to the JIS and levels of Bank assistance for the remaining period prior to a CAS.
POVERTY AND DEVELOPMENT: GOALS AND CHALLENGES
Background
Nigeria is estimated to have a population of approximately 133 million, making it by far Africa's most populous country. (Every fifth person in sub-Saharan Africa-is Nigerian.)' Current estimates suggest population growth is just under 3 percent. However, rates of urban population growth are among the highest in the world. Main cities including Lagos are growing at between 10 and 15 percent annually2.
' A new national census planned to begin in 2005 will provide more up to date demographic data. If it continues growing at current rates, by 2020 Lagos would be the third largest city worldwide.
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1.2 Poverty and Vulnerability
4. Available data on poverty and development indicators generally is weak and out of date. Despite this, clear evidence suggests the country faces considerable poverty reduction and development challenges. The UNDP’S Human Development Report ranks Nigeria 152 out of 175 countries in its Human Development Index. Latest estimates of income poverty3, suggest that about two-
Box 1: Poverty in Nigeria Nigeria ranks 54& on the Human Poverty Index (HPI), and has shown an alarming increase in poverty incidence over the last twenty years. From a headcount of approximately 28% nationally in 1980, poverty incidence has risen to about 66%, equally among the urban and rural population. A relatively short increase in economic growth during the 1980’s did result in a temporary decrease in poverty during that time. But this was followed with a sharp increase and relative stagnation during the 1990’s. With 78% of the population living in rural areas, rural poor represents the largest overall segment of the poor (about 90% of all poor people.) While all three geographic zones of the south had much lower poverty incidence in the 1980’s, relative to the north, regional variations have now largely disappeared. Across the country, the poor are not a homogeneous group. While all poor are vulnerable to such risks as death of a spouse, price volatility, loss of employment, political corruption, ethnic conflicts and crime, specific shocks in the northern part of the country also include prolonged drought, with reduced harvest and death of livestock. In the south, excessive rainfall and floods, oil spillage, acid rain and ethnic violence in the Delta area are the main contributors to poverty and vulnerability. A particularly vulnerable group is the young. A deteriorated education system that ill prepares many youth for suitable employment and the lack of jobs in the market lures many young people into crime and conflict, exacerbating criminality and social tensions, and igniting outbreaks of conflict, especially in the Delta. HIV/AIDS is an additional source of vulnerability for this group. Rural populations (mainly farmers), women, youth and the elderly are particularly vulnerable and affected by the worsening poverty in Nigeria
thirds of Nigerians, more than 80 million people, survive on less than $1 per day (Nigerian poor account for 6% of the world’s total poor.)
5. A particularly worrisome feature of poverty in Nigeria is high and growing youth unemployment. For urban areas estimates range between 40 and 60 percent. This has already led to serious social instability and violence in several of Nigeria’s cities and in the Niger Delta. Even the majority of employed Nigerians feel social and economic vulnerability keenly. Weaknesses in law and order are regarded by the citizenry as the most serious difficulty confronting their daily lives. Macroeconomic instability is seen as the next most serious threat. This disproportionately impacts poor on the margins of the real economy, for whom employment opportunities are vulnerable to shocks in both private and public consumption.
1.3 Education
6. Nigeria’s education system is unfortunately characterized by inadequate coverage, poor quality and limited curriculum relevance. Estimates suggest that about 30 percent of 6 to 11 year olds are not in school, but with wide variations across states. Of most
Based on the projections from the 199996 household survey conducted by the Federal Office of Statistics (FOS)
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concern is an overall stagnation in primary enrollment rates over the last ten years. (see Figure 1: Primary School Gross Enrollment Ratio.) Enrollment rates have stagnated because of a general loss of confidence in the education system, at all levels and among parents as well as students.
adversely impacted education quality. Costs,
FIGURE 1: Primarv School Gross Enrollment Ratio
both direct and indirect, often present a prohibitive barrier to enrollment and attendance. Consequently for many poor children, and for the majority of children among core-poor, education opportunities remain out of reach.
World Bank: Nigeria World Bank HNP Strategy Note NDHS data
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Table 1: Health Outcome Indicators.) Life expectancy has decreased by slightly more than
under five mortality rates remain two years (to 47) and infant and
high. Although the fertility rate has decreased, it is still 1.5 times higher than the average for low income countries, and higher than the average for SSA. As
10. The Federal Government has made education and health key priorities, significantly stepping up funding and launching initiatives in both sectors. The 2004 federal budget aims to increase funding for education and health to nearly 20 percent of total federal expenditures (excluding debt service.) This is an increase of 12 percent compared with allocations through the previous administration. Several states have also increased funding to both sectors. While these increases in funding are to be welcomed, considerable reform is needed in each sector and especially in financial management, to ensure that increased funding translates into better education and health outcomes. Eliminating the considerable duplication among overlapping institutions at federal and state levels will be a vital aspect of the reforms, and key to unlock more resources for frontline service delivery.
Table 1: Health Outcome Indicators Life Infant Mortality Fertility
expectancy Mortality rate rate, total Year Country at birth rate under-5 1990 Nigeria 49.1 114.0 190.0 6.0 1990 SSA 50.0 110.2 178.2 6.1 1990 owi income 56.8 91.0 140.5 4.5 2000 Nigeria 46.8 110.0 184.0 5.3 2000 SSA 46.5 106.2 171.2 5.2 2000 owi income 58.6 81.6 122.2 3.7 Source: World Development Indicators 2003.
11. HZV/AZDS. Nigeria faces a serious challenge in containing the spread of HIV/AIDS. UNAIDS’ survey in 1999 suggested that Nigeria had already reached a dangerous point in the pandemic. The national prevalence rate has steadily increased from 1.8 to 5.8 percent over the last decade, while the prevalence rate amongst young people is estimated as high as 10 percent
Box 2: HIV/AIDS In rural areas of Benue state for example, prevalence rates are estimated at as high as 21%. About a quarter of a million people have died from AIDS and about 1,400,000 children orphaned. Moreover, Nigeria’s sheer size makes the problem much greater than it appears looking only at prevalence rates. The education sector is increasingly losing teachers to HIVIAIDS, further compounding the situation. At the same time, stigma and a limited absorptive capacity in the communities make the treatment of HIV/AIDS affected persons more difficult. The spread of AIDS will make improvements in the education and health sectors more difficult and create such an increased demand for services in areas such as orphan care and support to people living with HIV/AIDS that government may have to provide services that it has until now left to the non-government sector.
in the South. Revised prevalence estimates compiled in 2004 suggest that the national rate may have abated to approximately 5 percent. However there are questions over
UNICEF, 2001. “Children and Women’s rights in Nigeria: A Wake up Call”
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some of the data and government is treating the estimate with caution. HIV/AIDS is already at extremely high levels (more than thirt percent) among female sex workers. With an estimated 4 to 6 million people infected , Nigeria is one of the three countries (with India and South Africa) having the highest number of people living with HIV/AIDS. In addition, there are large variations across groups and regions, with southern parts of the country being the most affected.
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12. The government’s response has been more open and forward looking than in many countries, and it has recently stepped-up the fight. However, Nigeria’s size, the country’s diversity, weaknesses in its health systems, pervasive gender imbalances and widespread poverty all make it difficult to implement effectively a strategy of prevention and control of the pandemic.
1.5 Water, Sanitation, Infrastructure
13. A major hindrance to sustained growth and poverty reduction is the poor state of basic infrastructure. While urban areas are somewhat better served, rural areas lack the enabling infrastructure to transform rural space and enhance productivity and welfare of the rural population. In urban areas access to piped water and sanitation is estimated to be 50 and 82 percent respectively. In rural areas access to piped water is estimated to be only 35 percent, and only 48 percent for sanitation. To increase coverage to 80 percent by 2020 would require investment of over $10 billion each for water supply, sanitation and wastewater disposal.
14. Transportation infrastructure are either lacking or poorly maintained where they exist. Access to all-weather rural roads is only about 10 percent’. Power supply continues to be a major problem - which private companies identify as the most serious constraint impeding business and investment. In urban areas electric power supply is poor quality and chronically unreliable. In rural areas electricity and other alternative sources of energy are either lacking completely or severely in short supply, Approximately 85 percent of rural dwellers depend on firewood for cooking (urban 30 percent) and only 15 percent use kerosene (urban 60 percent.) Modem communication facilities (telephones, postal agencies, telex, fax, electronic mail) are hardly available in rural areas though the penetration of mobile telephones in urban areas has risen dramatically in the last three years.
1.6 Corruption, Governance and Institutional Capacity
15. Nigeria is ranked by Transparency International (TI) as being perceived to be the second most corrupt country in the world. Economic and financial crime is still rife. Endemic corruption hinders private sector development and investors’ trust, increases project costs and diverts resources from development.
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’ 3.4 million according to National Statistics * Rural Development Indicators Handbook, 2001
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16. At the same time, governance and institutional capacity in Nigeria face challenges more systemic in nature. The democratic government has inherited a legacy of bloated federal and state civil services’, imposing considerable fiscal burden while widely viewed as very inefficient in service delivery. Staff payroll accounts for about 66 percent of total federal government expenditure, limiting government’s ability to fund new development priorities and resulting in a very large share of government in the economy. Government is still involved in many production and service delivery activities which are better left to the private sector.
17. Within government service capacity is generally limited. Critical institutions including the judiciary and courts, economic management agencies such as the Federal Ministry of Finance and the National Planning Commission are still weak in the face of the considerable development challenges they face. The legacy which the new administration confronts is that of a constellation of institutions and other public bodies with overlapping roles and responsibilities. States face similar issues, sometimes even more pronounced in their severity. Unfortunately, many government agencies and other public institutions and enterprises have suffered breakdowns of financial control mechanisms. This has led to poor budgeting, limited implementation follow-up and, with only limited mechanisms of accountability, in some cases outright diversion of funds. There are a very large number of unfinished projects, both at the federal and state levels
18. The federal character of Nigeria’s government and the relative autonomy of states in matters for which they are constitutionally responsible brings additional challenges. National policies to rein in the size of the public sector and improve service delivery require consensus across a critical mass of states, and a common view as to what policies and interventions are required. The new administration has extended considerably its dialogue with states in these areas, but forging consensus will continue to be a challenge while trust between the federal and state tiers remains limited.
1.7 Civil Society and Gender
19. After long years of disempowerment during the military regime it is taking time for civil society to reassert itself and become a full partner in development. Previously overlooked by government, the role of civil society in representing society’s interests in the development agenda and policy formulation remains patchy. The new leadership has sought to engage civil society, as, for example, in the process of developing the NEEDS. But participation has been constrained by the limited capacity of CBOs and NGOs and by lack of funds. A large number of local and international CBOs and NGOs are becoming active, even if in nascent stages of establishment. As capacity develops there are grounds for optimism that Nigerian civil society will make its voice heard with increasing strength.
Happily this situation is improving.
At the federal level, about one million people are employed in public service.
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20. Nigeria exhibits a great deal of social and cultural diversity. While hardships resulting from the economic downturn have necessitated more sharing of responsibilities, gender roles in social and economic activities in households and the community are still largely differentiated. Women have lower participation in control, access and use of resources while contributing more than 50 percent of labor in subsistence agriculture. They are also the primary care providers for children and the old, limiting their possibilities to In addition, when employed women are usually found at the lowest pay levels, while men usually dominate higher cadres. Women are also disproportionately affected by poverty and HIV/AIDS, human trafficking and gender related violence. Government is aware of these problems and has established a Ministry of Women and Youth Affairs. But addressing and resolving gender issues is likely to take a long time and face major cultural and ethnic barriers.
engage in self development and income earning employment.
1.8 Overall MDG Status and Prospects
21. It is doubtful whether Nigeria can meet the MDGs. Social development indicators have been worsening and the country is lagging behind low income countries, though making better progress than a few of its Sub Saharan neighbors. (Reference Nigeria and MDG table in Attachment 1). Funding alone will be a major bottleneck. Preliminary estimates suggest that achieving the ‘Education for All’ MDG goal by itself would require investing an additional $650 million on education annually-and for this funding to be utilized much more effectively than at present. This level of incremental funding is approximately equivalent to the total 2004 capital budget of the federal government. Similar ‘back of the envelope’ estimations for other MDG targets underscore the same conclusion: without an order of magnitude increase in resources to complement the accelerated reforms on which the administration is now embarked, Nigeria will miss most if not all MDG targets, some by a wide margin.
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I1 RECENT POLITICAL, ECONOMIC AND POLICY DEVELOPMENTS
2.1 Political Developments
22. Nigeria has made impressive progress in consolidating the political transition from a military dictatorship to an open and democratic nation. The last year has witnessed an historic transition from one civilian government to another. The ruling Peoples Democratic Party, under the leadership of President Obasanjo, has been returned to a second term of office and with a much stronger mandate". This stronger mandate is expected to underpin political stability and facilitate consensus building around key national policy issues. Encouragingly, since the elections ethnic and religious conflicts appear generally to have reduced.
23. Nigeria has also been quick to assume its international responsibilities, playing a leading role in peacekeeping efforts throughout West Africa (at considerable national cost.) The leadership was instrumental in resolving the political crisis in Liberia. In 2003 Nigeria also successfully hosted the All Africa Games and the bi-annual meeting of the Commonwealth Heads of States.
24. Despite this progress considerable political challenges remain. In particular, ethnic conflicts around oil resources in the Niger Delta are a continued source of concern. These localized conflicts are now much better financed through increasingly highly organized theft of oil from the region. The administration has mounted efforts, with some success, to track down the intended recipient governments and to dissuade them from accepting such supplies. It is possible that opponents of the administration's strongly reformist stance may seek to ferment political unrest as a means of slowing reforms. Recognizing this, President Obasanjo and the leadership team are making strong efforts to sensitize and educate the population on the nature of reforms and why they are needed.
2.2 Economic and Policy Developments
25. Growth Performance. Economic growth has strengthened in the last four years, rising from an annual average of about 2 percent between 1995 and 1999, to an estimated 4.1 percent between 2000 and 2003. This reflects improved performance in agriculture (due in part to good climatic conditions) and in service sectors such as telecommunications' ' .
lo President Obasanjo obtained 66 percent of the popular vote, similar to the outcome in 1999. However, the PDP won a much larger number of seats in both the Senate and the House of Representatives (286 out of a total of 469 seats). Of Nigeria's 36 states, 28 are now governed by the PDP l1 Following the deregulation of the sector in 2001.
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Manufacturing sector activity also appears to have picked up slightly. Some estimates suggest an increase in manufacturing capacity utilization from about 30 percent to 50 percent over the last three years12.
26. Preliminary data for 2003 suggests growth of over 10 percent, but driven by strong growth in the oil sector. The non-oil economy is estimated to have grown about 5 percent. Growth in the non- oil economy is not yet strong enough nor sufficiently broad based to achieve significant poverty reduction. In addition, the economy’s high dependence on oil and rain-fed agriculture (together about 70 percent of GDP) means that growth performance is still vulnerable, and can be subject to wide fluctuations.
27. Recent improvements in growth have not yet translated into significant job creation. Unemployment nationally is estimated at 10.8 percent, though with considerable variations regionally and between urban and rural area^'^. As noted, the high rate of unemployment amongst urban youth is of particular concern.
Box 3: Highlights of Recent Reforms
Macroeconomics instability has been reduced and an economic upturn is taking hold: Inflationary and exchange rate pressures have moderated considerably. Exchange market distortions have now been reduced to under 2 percent compared to over 20 percent about 18 months ago; non-oil sector is estimated to have grown a healthy 5 percent; Stock market capitalization has continued to grow and several big businesses are making new investments and expanding their operations.
A prudent andJinanceable budget for 2004 has been passed: For the first time, the budget was prepared on the basis of a fiscal strategy paper that facilitated the specification of priorities, the recognition of the need for tradeoffs and dialogue between the executive and legislature. It constitutes a sound basis for achieving further improvement in macroeconomic stability.
Measures to strengthen accountability for Budget Resources have been introduced: In the past, little attention was paid to outcomes from budget allocations. Now in all priority sectors, clear performance and outcome targets for budgets have been agreed with the Ministry of Finance and will form basis for holding spending agencies accountable for public resources managed by them.
Government is bringing transparency of its revenues: Nigeria has become the first country to begin implementation of the E m in its critical oil and gas sectors. This will see the independent auditing of revenue flows in the sector, with results of these audits disseminated widely. A first audit is expected before the end of 2004. The Minister of Finance now publishes in the national dailies on a monthly basis receipts into the federation account and the allocations to the federal government each of the 36 states and local governments.
The downstream petroleum sector has been deregulated: Government has now taken the bold step of liberalizing the downstream retail petroleum products sector and eliminating the subsidy on crude oil to the Nigerian National Petroleum Corporation (NNPC) and has stuck with it. This is saving considerable public resources that can be better targeted towards poverty reduction.
Increasing private sector participation is gradually improving access to key infrastructure services for Nigerians: In the power sector, oil companies have signed agreements with NEPA to build gas power plants - the first will soon be connected to the national power grid; two more are under construction. Access to telecommunications services has continued rapid expansion with entry of two additional GSM operators-M-tel and Globacom. In the water sector state authorities (e.g. Cross River, Lagos) are engaging private companies to operate and manage water supply including revenue collection. Beneficiaries are happy to pay a higher tariff (N200 about $1.50 per cubic meter) in return for guarantee of round the clock water supply.
Anti-Corruption Effort has strengthened in an unprecedented way: For the first time a sitting minister has been removed from office for alleged involvement in a big corruption scandal. Influential persons, including leading members of the ruling party, are on trial for various offences related to this. Kingpins in the notorious advance fee fraud scams, which have eamed Nigeria a bad reputation world wide-including a member of the legislature - have been arrested and are on trial. A major clean up of corrupt customs managements has been carried out.
Fake and illegal drugs are being better controlled: NAFDAC is waging war against the fake and illegal drugs through an aggressive program of arrests, seizures and prosecutions. Standardized quality requirements and certification are gradually being introduced into food and drug manufacturing with NAFDAC acting in a role similar to that of the FDA in the US. High profile seizures and prosecutions have increased the risk for traffickers who formerly made Nigeria an active trans-shipment port.
l2 These estimates are yet to be confirmed. l 3 March 2003, based on a Nigerian definition of unemployment. The traditional LO definition gives an estimate of 2.3% -which is wildly inaccurate.
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Government estimates that 2-3 million new jobs need to be created annually to absorb entrants into the labor market. It recognizes that a more diversified economic base is needed to support the stronger and more stable growth that can generate new employment at such rates.
28. Nigeria’s external debt is about US$32.8 billion, equivalent to about 60 percent of the country’s GDP. This includes arrears on Paris Club Debt since December 2000 of about US$3.8 billion. Debt service due in 2004 is about 33% of projected exports of goods and non factor services. And while government is refocusing its program and resource use to improve development impact, it remains concerned that external debt obligations continue to impose a heavy burden on its ability to fund needed investments in service delivery and infrastructure and services to foster growth in the non-oil sectors.
29. Macroeconomic Stabilitv. After spates of macroeconomic instability in 2001 and part of 2002, the economy has moved towards greater stability over the last 18 months. Annual inflation was reduced from a high of nearly 25 percent in mid-2001 to 14 percent in December, 2003. Exchange rate instability has likewise been reduced, following introduction of a Dutch auction system in August 2002. The premium between the official and parallel markets has fallen to less than 5 percent, from over 20 percent in 2001. However, the most fundamental source of macroeconomic instability-fiscal expansion-is yet to be adequately addressed.
30. Through 2001 and 2002 an expansionary fiscal stance was the main source of strong inflationary pressures and strong downwards pressure on the nominal value of the naira. Consolidated government spending is estimated to have increased about 155 percent between 1999 and 2003 and amounted to about 40 percent of GDP in 2002. Fiscal expansion has been most striking at state and local government levels. In some states public spending increased 300 percent between 1999 and 2003. These trends have repeated the historically pro-cyclical nature of fiscal policy in Nigeria, with large surges in public expenditure and growing fiscal imbalances on the upswing of the oil price cycle.
31. Monetary policy has not been sufficiently pro-active and has tended to follow and accommodate fiscal policy. In 2003, spending of oil windfalls and rapid money growth exacerbated inflationary impacts from deregulation of the downstream petroleum sector14. In addition, interventions to limit nominal depreciation of the naira negated the possibility for Nigeria to build a comfortable cushion of foreign exchange reserves. Nigeria’s reserves approximately halved between December 2001 and December 2003. At end 2003, exchange reserves provided just over 3 months of import cover.
32. The new economic team recognizes the importance of addressing the expansionary fiscal stance. It is putting in place measures to tighten management of the oil revenue cycle, including through budgeting on the basis of an anticipated long-term
l4 Triggered increases in the prices of fuel products by over 20 percent.
10
price of oil”. The Federal Government’s 2004 budget proposal targets a reduction in the overall fiscal deficit to under 3 percent of GDP. However, fiscal pressures from near term costs of implementing proposed reforms (pensions, civil service reforms and monetization of public sector benefits) coupled with government’s desire to start to address Nigeria’s huge infrastructure deficit continue to pose a significant challenge of economic management.
33. Structural Reform and Governance. Progress on structural reform was patchy through the first term of the administration but has picked up strongly over the last year. The recent deregulation of the downstream petroleum sector is a major step forward. Privatization efforts recorded early successes, though were hampered subsequently by investors’ negative perceptions of Nigeria and a considerable slump in world telecommunications and power markets16. As regards trade, the Government has recently announced its intention to implement this year the ECOWAS Common External Tariff (CET.) However, there is persistent pressure from various stakeholders to sustain protectionist policies, to compensate for costs imposed by infrastructure deficiencies.
34. The new administration has taken import ant actions aimed at improving the perform an ce and accountability of the federal government. Procurement reforms are underway to introduce competition and openness into government procurement and improve value for money. A new procurement bill is planned for legislative approval by the end of 2004. In the
Box 4: Re-establishing ‘Due Process’ in Federal Government Capital Swnding
In 2001 concerns about extremely weak quality and efficiency of government capital spending, led to creation of a new Budget Monitoring and Price Intelligence Unit (BMPIU) in the Presidency to begin to enforce “due process” in preparation of capital project proposals and the award of contracts. A three step “due process” review and certification for capital projects was designed to ensure:
New projects admitted into the capital budget are in line with government’s development priorities and adequately prepared technically and financially; Contracts for these projects are signed only if government procurement procedures had been followed and proposed costs are within international norms; and Additional funds for contracts are released only if earlier releases have been used for intended purposes and sufficient progress had been made on implementation.
While the capital budget still needs substantial improvement to sharpen focus and improve effectiveness, this initiative has been highly successful in reducing in the short run the cost of many federal government capital projects. Savings of 80 billion Naira have been realized for the federal treasury. After “due process review” some contracts have been signed at about half the originally proposed price. The process has signaled strongly to government agencies that ‘business as usual’ is finished and that accountability, transparency and effective use of government resources are now key objectives.
meantime, a Budget Monitoring and Price Intelligence Unit has been created in the Presidency to enforce “due process” in evaluation of capital project proposals and award of contracts. Also, the federal government’s fiscal accounts have been brought up to date, clearing a backlog of five years, and the federal government audit function has been strengthened. The 1958 Finance Management and Control Act is also being revised to strengthen and update financial management practices. A key step is that civil service in
l5 The 2004 budget is prepared on the basis of an oil price of $25 per barrel. l6 Privatization of the telecommunications and power parastatals are key in the Government privatization program.
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kind benefits are being monetized to bring greater transparency into public service pay and reduce the financial burden of the civil service on the public purse. The Government has prepared a civil service reform strategy and is determined to move quickly with the implementation of pilots in key federal ministries and public agencies.
35. The Federal Government has initiated work on budget reforms and aims towards early adoption of an MTEF. The 2004 budget has already incorporated important elements of this reform. For the first time it makes a clear delineation among government’s priorities to guide budget allocations. Importantly, the budget is based upon a fiscal strategy paper discussed and agreed by cabinet ahead of the budget call circular. A fiscal responsibility bill has also been prepared, incorporating an oil price based fiscal rule. The bill aims to promote fiscal discipline and reduce uncertainty in fiscal management stemming from oil price changes.
36. The government has prepared strategies for the confined development of the oil sector and for exploitation of natural gas and natural gas liquids. These strategies have helped establish a new consensus among stakeholders on development policy in this critical area. A review of oil and gas taxation is underway, as is a needs assessments to strengthen regulatory capacity in downstream petroleum markets. In February 2004, the federal government formally launched the Extractive Industries Transparency Initiative (EITI.) Nigeria has been the first country to commence implementation of the EITI. The authorities have committed to full implementation and have already taken significant steps. The EITI’s main objectives are to provide transparency in payments made by extractive companies to host governments, and equally in revenues accruing to government in the form of taxes, royalties and, signature bonuses etc. from these companies.
37. The federal government has instated greater transparency in the nation’s budget and fiscal affairs by publishing details of monthly allocations from the federation accounts to each of the 36 states and 776 local governments. This has highlighted leakages within states and spurred a vigorous debate among state politicians, administrators and the public on the processes used to allocate and account for these allocations.
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38. Beyond the federal
effort, less energetic, is the government
now gathering pace. 1 infrastructure deficjeniies from decades of neglect in a iocation naturall;
Box 5: Economic Management in Lagos
Lagos is one of the fastest growing cities in the world and will be home to about 25 million DeoDle by 2015. The city economy is throttled by
- - Significant efforts are being made among more reformist
disadvantaged by poorly drained soil, a weakened civil service, weak governance and inadequate resources.
39. The new administration has moved expeditiously to confront the issue of
” states. Lagos State, for
budget and is working towards adoption Of
a state M m F . Lagos State is also introducing far reaching improvements to state procurement and
example, has prepared
financial management
corruption. The recent establishment of the Economic and Financial Crimes Commission (EFCC) marks a sea change in intolerance of official and private crimes and the considerable damage reeked upon Nigeria’s reputation internationally. If its early dramatic successes continue EFCC will be instrumental in lifting Nigeria from its unenviable position in the Transparency International (TI) ratings. Revisions of the Anti-Corruption Law, to facilitate speedier prosecution of cases brought before the Independent corrupt Practices Commission (ICPC), are also under preparation
A Strategy for Economic Development and Poverty Reduction is being prepared and key reforms have already been introduced. The budget has become revenue driven, rather than expenditure driven-signifying a realistic shift from “needs” to “availability”. (Internally generated revenues have been increased 323% comparing 2002 with 1999.) Similarly, ministries and their development agencies have more flexibility to allocate between overheads and capital. A consultative process with the private sector and civil society instituted by the Ministry of Economic Planning and Budget has become institutionalized and started to influence the budget process.
Box 6: The Economic and Financial Crimes Commission (EFCC)
The Economic and Financial Crimes Commission was established by an Act of the National Assembly in late 2002 and charged with responsibility for combating financial and economic crimes. The Act empowers the Commission to prevent, investigate, prosecute and penalize economic and financial crimes. The Act also charges the Commission with the responsibility for enforcing the provisions of laws and regulations relating to economic and financial crimes, including:
Money Laundering Act, 1995
Miscellaneous Offences Act
Advance Fee Fraud and other Related Fraud Offences Act, 1995 Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act, 1994 Banks and other Financial Institutions Act, 1991, and
Any other law or regulation relating to economic and financial crimes in Nigeria
To date, the Commission has arrested more than 100 suspected offenders, most of them, very prominent members of the public, including a sitting member of the House of Assembly. They are currently detained in prison, awaiting trial. The Commission has seized many exotic vehicles suspected to have been bought with proceeds of fraud. It has also frozen several bank accounts. As of December, 2003, the Commission has seized properties worth over an estimated $100m.
Although the Commission’s activities are intended to focus more on private sector frauds (while the ICPC focuses on public sector crimes), the interrelated nature of crimes has forced the EFCC also to become active in the public sector. Currently, the Commission is investigating companies for illegal bunkering and crude oil theft and banking frauds. It is also investigating the Federal Inland Revenue Service for tax frauds. Prominent international firms are also under investigation.
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40. Policy making is also showing considerable improvement, as is coordination at the federal level and with states. The first term of the administration did not benefit from a clear strategic framework to guide government actions and was marked by an ad hoc approach to reforms and limited policy coordination. The second administration has moved quickly to address these shortcomings. The NEEDS aims to develop a nationally coordinated set of priorities as a framework for coordinated policy malung, with close collaboration between the federal and state governments. Specific NEEDS’ goals are derived from the country’s long-term vision for poverty reduction, wealth creation, employment generation and value reorientation. The NEEDS focuses on three key areas: (i) reforming the way government and its institutions work; (ii) growing the private sector; and (iii) implementing a social charter.
(i) Reforming government and its institutions. Improved governance, fighting corruption and eliminating rent seeking are the thrust of the NEEDS in this area. Priorities will be to restructure and re-professionalize government agencies and institutions to deliver public services effectively and transparently. So too will be ensuring a sustainable macro-economic framework, especially through instating a more prudent and sustainable fiscal policy.
(ii) Growing the private sector. Government seeks to limit its role to that of an effective regulator and enabler, to strengthen and expand private sector activity as the engine of growth. Key elements of the strategy include stepping-up privatization, de-regulation and infrastructure development, with electricity and transport as priorities. In addition, sector strategies for agriculture, industry, SMEs, oil and gas and solid minerals are being developed. These will guide structural reforms and seek to mobilize private sector know-how and resources. The strategies will also promote industrial clusters to achieve economies of scale and, thereby, improve access to global markets.
(iii) Implementing a social charter. Improving the welfare of Nigeria’s people is the overarching goal of NEEDS. Empowerment through education and access to an effective health system are key elements of the proposed social charter. Special attention will be given in the charter to inclusiveness and empowerment, including through programs to give voice to the weak and vulnerable.
41. The NEEDS is being finalized through detailed consultations and consensus building across the country. A revised and final NEEDS document, reflecting the outcome of the participatory processes, is expected to be completed before the end of 2004. The federal and state governments have agreed that all 36 states will prepare individual SEEDS. Some of these are already under development. The NEEDS will provide the overall strategic framework for development, as well as specific interventions in matters for which, the federal government is responsible. The SEEDS will focus specifically on states constitutional responsibilities, and on basic service delivery in particular. Through the NEEDS and SEEDS processes a concerted effort is being made to ensure much better coordination of policy formulation and implementation, both across federal ministries and between the federal and state levels of government.
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2.3 Medium-Term Economic Prospects
42. Nigeria’s economic prospects over the medium term will improve through implementation of sound policies, improved fiscal discipline and prudent management of risks. Sustained political stability will be critical, as will macroeconomic stabilization, more efficient public spending on basic services and infrastructure, and early implementation of policies to unlock private sector growth. If Government’s vigorous start on reforms is sustained, annual GDP growth in the non-oil economy could rise to over 5 percent in the medium-term. Manufacturing sector output, especially in industries able easily to substitute domestic inputs for imports (textiles, food, sugar-based industries and leather products) could rebound significantly and reverse a decade of declining capacity utilization. Export crops could also contribute strongly to the recovery, though with strong dependence on the pace of agricultural and infrastructure reforms.
43. To a large extent performance will depend on a rise in public and private investment, particularly in non-oil sectors. A recovery in public investment requires reform and downsizing of government, an overhaul of its institutions and improved coordination between federal and state governments. An increase in private non-oil investment will require an improvement in general economic conditions, strengthened confidence in government, a liberalized trade and exchange regime and some easing of infrastructure constraints. As conditions improve, overall private sector investment could rise to around 16 percent of GDP (from under 13 percent in 2002). This would be financed through higher domestic savings as incomes improve.
44. Under a sustained reform scenario the current account of the budget could show a surplus of more than 12 percent of GDP during 2005 through 2007, compared with a surplus of under 3 percent of GDP in 2002. The external current account deficit would narrow to about 4.7 percent of GDP by 2007, down sharply from a deficit of nearly 11 percent of GDP in 2002. Gross international reserves would rise gradually to $13.2 billion by end-2007, equivalent to about 6.3 months of import cover. Inflationary pressures would remain moderate, averaging under 9 percent over the three-year period.
11. JIS IMPLEMENTATION AND LESSONS LEARNED
3.1 Implementation Experience and Portfolio Performance
45. While implementation of the JIS in 2001 and 2002 was overall disappointing in contrast, 2003 has been marked by a considerable strengthening of policy dialogue, reaching common understandings with government on a range of important development issues and progress in portfolio performance. A detailed discussion of achievements is presented in Attachment 2, but the following highlights the significant progress made under the three main pillars of the JIS:
(i) With regard to improving governance, a joint Country Procurement Assessment Review (CPAR) facilitated the preparation of new procurement regulation for public procurement. The completed State
15
(ii)
(iii)
Procurement Assessment Review (SPAR) and State Financial Accountability Assessment (SFAA) for Lagos state, as well as work on the Lagos State Economic Development Strategy helped reforms at state level in procurement, financial management and the adoption of a state MTEF.
With regard to private sector development, Nigeria has been the first country to receive support under the joint Bank group MSME initiative. IFC has worked with commercial Banks to offer financing to SMEs. A FADAMA I1 project is supporting agriculture development.
Empowerment of communities is currently supported in a number of Bank financed project (FADAMAII, Community Based Urban Development, Local Environment and Empowerment and Community Based Poverty Reduction projects), some of which are showing early but encouraging results in terms of local participation and strengthening the voice of communities. Education, health, the fight against HIV/AIDS and the eradication of polio are also central to the Bank and Government empowerment and human development agenda.
46. While early portfolio performance was below expectations, recent portfolio improvements have been very encouraging (see detailed discussion in Attachment 3). The number of projects at risk is reducing and disbursements have picked up strongly, more than doubling in the past year. -The disbursement ratio has almost reached 11 percent and is expected to break through 20 percent in 2005. Performance improvements are a result of a concerted effort by the Bank and the Government to identify lessons from implementation experience and make changes both to project preparation and in the way implementation is planned and managed. Very encouraging is that once early delays have been overcome, project implementation proceeds closely in line with original expectation, with stronger disbursements and real impact on the ground (e.g. the Community Poverty Reduction project - see Box 3 in Attachment 2)
3.2 Lessons Learned
47. Since 2000, the Operations Evaluation Department (OED) has evaluated eight projects with total commitments of $710.8 million, The projects reviewed were all developed and launched before the Bank suspended its program in 1995. Nevertheless, the evaluations bring out important lessons. The overall conclusion from the OED evaluations is that Nigeria is an environment in which the Bank has found it difficult to achieve impact and sustainability through lending. Main difficulties have been related to the complexity of the country and low implementation capacity. But poor Bank performance (for example high staff turn-over, especially following program suspension) was also a factor. These lessons have been incorporated in re-developing the portfolio since 1999.
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48. As the portfolio since re-engagement in 1999 is very young (average age 2.3 years) no projects from this ‘new’ portfolio as yet have been evaluated by OED. However, several lessons of a general and cross-cutting nature have emerged from implementation experience with the JIS since 2000. These lessons, summarized below, have an important bearing on how future activities should be designed and implemented.
49. Low capacity for policy formulation and implementation. Implementation of the majority of activities under the JIS, whether knowledge or lending, has continued to pose significant operational challenges. Capacity among Nigerian partners and beneficiaries has continued to develop, but comparatively slowly. This places additional demands upon Bank staff, both in activity design and implementation. While challenges at the federal level have been pronounced they are sharper still within state governments. For Nigeria these weaknesses pose critical development constraints: under the country’s constitution the states are responsible for delivering many basic services. A good deal of effort has gone into developing quickly the capacities states need for project implementation. But the issue is broader and more serious than that of Bank assisted programs and projects. Thus, a first general conclusion is that a stronger effort needs to be made in capacity building, both for formulation and implementation of Bank supported activities and more importantly to help establish critical mass in key institutions of economic management, both at the federal and state levels. This is likely to lead to fewer activities that are less ambitious in their design and which involve fewer beneficiaries.
50. Weak demand for improved governance and better services. A second conclusion from implementation experience, particularly in governance and empowerment activities, is that there appear to be good prospects for enhancing impact by working in a more balanced manner between the ‘supply’ and ‘demand’ sides of development. Accountability demanded of government is still limited. Progress is not yet spurred by loud voices from civil society demanding more transparency, better efficiency and more accountability. There is little external pressure on government (particularly state governments) to step up the tempo of reform and few calls for accountability other than from reformers within government. Additional efforts to fuel the demand for reform from civil society hold the potential to extend considerably the leverage of reformers within government. Strengthening the demand for reforms, and for improved governance in particular, can be achieved through giving more emphasis to joint programs with government on strategic communication. An important side benefit is that such communications can provide the knowledge to empower the poor and vulnerable, and the means by which they can make their voices heard.
51. Scale and instruments of assistance. A third general conclusion concerns the nature of financial engagement of the Bank Group To some extent this concerns the remaining lifespan of the JIS but will bear more strongly on development of a CAS. There are three aspects to this: (i) the scale of Bank activities relative to Nigeria’s development, (ii) the relative autonomy of state governments: and (iii) the burden upon the Bank of extending a traditional engagement based upon discreet knowledge and project activities.
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52. Knowledge and investment activities supported by the Bank will remain small compared with government supported development programs. Demonstration and leverage effects through conventional project engagements therefore may be limited, particularly in operations at the state level. Broadening impact may require the Bank to move towards ‘wholesale’ modes of operation and away from discreet project interventions, for example towards sector wide approaches and budgetary support for state level reforms. Such a development would also assist in avoiding an ‘explosion’ of state-based project work, and help contain portfolio supervision to manageable and affordable levels. The timing of these developments will depend upon the development of needed standards of financial management.
53. Joint Bank group involvement. A final general conclusion which emerges is that the Bank Group is especially effective when IDA, WBI, IFC and MIGA work together. There is clear evidence that in matters of policy advice (for example relating to investment climate, private sector development and the financial sector) that the whole is greater than the sum of the parts. The same is evident in physical operations dealing with infrastructure, where a fully public or purely private approach has most often been neither desirable nor feasible. Going forward, the JIS will aim to build strongly on the positive lessons and experiences of joint working across the Group.
IV. STRATEGY UPDATE AND PROGRAM
54. The remaining purpose of the Joint Interim Strategy is to provide a framework for Bank Group operations for the next twelve to eighteen months during which a full CAS will be prepared. Implementation of the remainder of the JIS will be adjusted to build upon the design and implementation lessons of the past three years. Adjustments to the strategy will seek to ensure that through the unprecedented political opportunity for reform the Bank Group is positioned and has the technical and financial resources to provide full measure of support to the government during this critical juncture in Nigeria’s transition.
55. Most significant among proposed changes is an increase in scale of Bank engagement through a return to the ‘Base Case’. Over the last year the new economic team has demonstrated through resolute actions its commitment to exploit fully the unique opportunity afforded by the political window in advance of preparations for 2007 national elections. It has launched aggressively into implementing a series of difficult reforms. The reform team has already achieved more, in strengthening economic management, improving financial systems in government, in fighting corruption, in liberalizing the economy, and in preparing for reform of government, than was achieved through the whole first four-year term of the administration. It has been a highly commendable performance. Significantly, the new administration has moved swiftly to prepare the NEEDS, and to plan for mapping public expenditures with NEEDS objectives through an MTEF. Maintaining the current pace of reform through the next two years political window would enable the government to tackle some of the fundamental obstacles holding Nigeria back. Success during this brief period could provide a dramatic and lasting improvement to the country’s development prospects.
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56. The reform agenda planned for the next two years and the step change in quality and coherence of economic management is a superior level of performance by government compared with the previous four years. The Bank’s assessment of performance on macroeconomic management, improving of governance and anti corruption efforts, structural reforms and the visible improvements in portfolio performance, is that Nigeria is already demonstrating a return to a ‘Base Case’ level of performance. It is appropriate, therefore, for the Bank to re-calibrate its engagement. The Bank is expecting to lend an average of about $350 million in 2004 and 2005 with the flexibility of increasing lending in 2005 to up to $500 million. Such an increase would be subject to a continuation of strong reform performance and additional progress in improving portfolio performance. The latter will be monitored through the indicators defined in Section 4.4. A return to a ‘Base Case’ will enable the Bank to extend additional assistance in critical areas to help the reform team capitalize on the unique opportunity of the next two years. Additional support will be provided in three areas that are cornerstones of the transition: (i) civil service reform, to help government unlock domestic resources for development and to improve government’s effectiveness in service delivery; (ii) further assistance to improve governance, to consolidate and extend gains at the federal level and to support implementation of reforms in more advanced states; and (iii) infrastructure, to help government step up refurbishment and the pace of infrastructure development to ease critical bottlenecks to private sector activity, especially in agriculture. A return to the ‘Base Case’ is also consistent with considerably expanded engagements by IFC and MIGA.
Reform implementation over the past year.
4.1 Overall Objective and Strategy
57. The overall objective of the JIS remains to assist Nigeria to move towards a sustainable development track, on which more effective and efficient use of the country’s own resources accelerates sustainable broad-based growth. The next two years, as has been noted, offer an unprecedented opportunity for the Bank Group and development partners to support the efforts of the reform team in making a lasting and potentially dramatic improvement in the course of Nigeria’s transition.
58. closely foreshadow priorities emerging in the NEEDS. government has set out for remaining implementation of the JIS are:
Discussions with government have confirmed that the main thrusts of the JIS Specific priorities which
0 Additional analytical work, to help the reform team fill knowledge gaps critical in formulation of policy reforms;
Additional efforts in capacity building, at both federal and state levels with an expanded role for WBI;
Additional efforts in areas which can help government deliver ‘quick wins’ - areas where ordinary Nigerians will feel tangible benefit from implementation of
19
reforms, and that will extend the constituency of understanding and support for reforms;
0 Additional support for infrastructure, particularly for power and for infrastructure in rural areas; and
Additional support for education and health, including for tertiary education.
59. Adjustments proposed to the JIS, in the context of a return to the ‘Base Case’, have been devised with the government’s requirements clearly in mind. An important challenge for the Bank Group will be to be selective, to focus resources on areas where implementation experience has shown comparative advantage, adequate institutional capacity and where resources can be applied in sufficient concentration to facilitate government’s full implementation of particular reform steps. The most difficult aspect of increasing selectivity in the face of Nigeria’s enormous requirements will be identifying what to do less of. Trade-offs will be decided in full consultation with government.
60. Work on governance will continue to be especially important. In addition to activities specifically focused on governance improvements, all other activities will also include capacity building and technical assistance to improve governance in the particular area concerned. Support to strengthen federal and state budgets, statistical systems for economic management and systems for financial management will be complemented with additional support to step up the fight on corruption. Strategic communication will also be an important aspect of the governance agenda, offering the possibility to mobilize considerable grass roots pressure for transparency and accountability within civil society to further spur the reform effort.
61. Close coordination of use of Bank Group resources in both knowledge activities and investment projects with other development partners will continue to be a guiding principle, so that maximum support is leveraged for federal and state reformers.
62. A significant development in taking the JIS forward is that the Bank, IFC and MIGA have agreed to develop and implement joint World Bank Group strategies for main economic sectors, focusing initially on private sector and infrastructure development, SMEs and the financial sector. Teams working in these areas will be combined Bank Group teams, staffed from across the institution as the situation requires. The Bank, IFC and MIGA believe this integrated approach offers enhanced prospects to support key reforms and to mobilize needed private financing to support the tran~ition’~
4.2 Scaling Up and Scaling Back
63. Activities will be scaled up in four key areas:
l7 Nigeria is one of a small number of countries in Africa in which the Bank, IFC and MIGA have agreed to implement this integrated pilot program.
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(i) More emphasis will be given to capacity building to enhance effectiveness and sustainability, at both the federal level and in selected states. The focus will be to develop management teams in critical public institutions and extend the professional depth of the institutions themselves.
(ii) More emphasis will be placed on working with a limited number of performing states, recognizing the front line role of states in basic service delivery and the need in each case for the Bank to allocate sufficient expertise and resources to achieve impact. Too broad an engagement risks diluting engagement and jeopardizing impact.
(iii) More emphasis will be given to partnerships in governance activities, particularly with House and Senate committees, and the use of strategic communications as a development tool to engage civil society and leverage knowledge products.
(iv) Further emphasis will be given to community driven mechanisms of development, to scale-up service delivery improvements above what is able to be achieved by federal and state governments directly.
64. The following types of activities will be scaled back:
(i) Working with pre-identified states and beneficiaries; states and beneficiaries will ‘self-select’ their eligibility to participate in a Bank assisted project on the basis of performance against reform, financial management and other benchmarks pre-agreed with the federal government.
(ii) with fewer states, to scale up impact among better performers.
Working with states in each geo-political region; the Bank will seek to engage
4.3 Specific Objectives and Strategies
65. Governance The JIS includes further knowledge and lending to extend improvements in governance already achieved in federal government, and to support performing states wishing to initiate comparable reforms. Building on implementation experience with the Economic Management and Capacity Building Project (EMCAP) this further assistance will help improve the quality and transparency of budget plans, improve monitoring of budget execution and outcomes and strengthen systems for financial management and accountability.
66. To help ‘unlock’ domestic resources for development and improve public sector service delivery, the JIS will provide support for pilot reform of selected federal ministries and agencies. Support will also be provided to selected states. Support for these pilots will provide efficiency benefits in their own right. Implementation experience will also assist federal and state governments in planning the more extensive restructuring programs needed.
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67. Support will also Support will focus on development of needed human and institutional capacities to step up the fight on corruption and to overhaul the judiciary, working collaboratively with other development partners. The JIS will continue to extend support for Nigeria’s
Governance and Economic Sector Reform (STATCAP, Civil Service and State Governance Work)
be provided to assist government’s anti-corruption initiatives.
Fiscal Year 2005
Country Economic Memorandum I 2005 ESW - Lagos Strategy for Eco Dev & Poverty Reduction I 2005
implementation of the Extractive Industries Transparency Initiative (EITI), which the government has wholeheartedly endorsed. Knowledge and lending activities envisaged under the governance pillar are summarized in Table 2.
68. Private Sector DeveloBment Broad-based sustainable growth needs to be accelerated in non-oil sectors if Nigeria is to make progress in reducing poverty. Priorities in this area are recommended by results from the Private Sector Assessment, undertaken by the Bank and IFC in 2001, the Financial Sector Assessment conducted by the IMF and Bank in 2002 and various sector reviews undertaken over the last three years. Support will be given to manufacturing and other areas of the private sector, this will be through direct support by IFC and MIGA of economically beneficial projects in all sectors, as well as a continued Bank Group emphasis on removing infrastructure bottlenecks. IFC and MIGA will continue to focus on direct support to manufacturing and other priority private sector developments central to near term growth and economic diversification. Power supply will be a top priority. Support will assist government in implementing a turnaround program to break the financial crisis crippling the public power utility while seeking public/private solutions to requirements for additional generation, power distribution and retailing. Work towards full privatization of the power sector (a continuing government commitment) will continue. In transport support will focus on peri-urban and rural bottlenecks to market access. Infrastructure sectors, to encourage private sector participation and job creation. A third area of emphasis will be to continue to improve private sector businesses’ access to finance through work to develop the capital markets and to support capital market operations and non-investment capacity building activities.
22
69. To complement support for infrastructure the Bank Group will extend engagement in the financial sector and its support for SMEs and micro enterprises. Objectives will be to facilitate provision of term financing, especially to SMEs and micro enterprises, and to provide capacity building to organizations providing business advisory services. Work on business environment will focus
Table 3: JIS Private Sector Dev. Activities Fiscal Year
I Urban Water Sector Reform I2004 I Youth and Urban Development Lagos Water Sector Restructuring
I 2005 I 2006(RFY05)
I Financial Sector Assessment UDdate I 2005 I Telecommunications TA
on licensing and regulation and support for tax simplification and reform. activities that will support implementation of the private sector pillar of the JIS.
Table 3 summarizes knowledge and investment
70. Empowerment Primary health, primary education and water supply and sanitation will remain priority areas, as will the fight on HIV/AIDS. The new administration is increasing public funding significantly in each of these areas to achieve tangible improvements. The Bank has an important role in helping to overhaul strategic planning, management and systems of financial accountability, so that improved public funding leads to improved outcomes. Several knowledge and investment projects are ongoing while others are planned to build upon progress achieved so far. Bank support in each area will be coordinated with assistance to states on overhauling budget systems and systems for financial management.
71. At the micro level, the Bank plans further strong support for community driven development. Even with improved government effectiveness in service delivery, the scale of Nigeria’s needs extend far beyond the delivery capacity of federal and state governments. Empowering communities with knowledge and financial resources can dramatically leverage governments’ direct efforts to accelerate service provision in critical areas. For example, Bank support for private sector/community partnerships to manage water utilities in several cities aims to demonstrate breakthrough strategies to reverse declining service quality and slow expansion of coverage. Evidence emerging from ongoing operations also shows how community development is able to strengthen the fabric of heterogeneous societies - an important side benefit in conflict prone areas.
72. Two additional areas of emphasis will be strategic communication and youth. In a country as large and diverse as Nigeria strategic communication can be an effective tool for knowledge empowerment, greatly enhancing conventional means of dissemination. Economic, social and democracy building objectives can be simultaneously pursued, and practical knowledge provided to large segments of Nigerian society, which otherwise would have little contact with the development community. Knowledgeable Nigerians will demand better progress on and better service delivery, stimulating bottom up pressure to accelerate reforms. This demand can leverage considerably the direct efforts of reformers within government.
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73. In the near term, the Bank plans also to assist government with the pressing problem of youth unemployment and disillusionment. High youth unemployment continues to fuel social tensions in several localities. Opportunities for self advancement have become limited
Youth and Urban Development project Poverty assessment ESW Health Country Status Report Communications and Outreach program WBI Youth organization capacity building
t Table 4: JIS Empowerment Activities I Fiscal
Year 2005 2005 2005 2005
with the near collapse of systems of higher education. And modest economic growth has produced only limited growth in the job market, swelling the numbers of youth with little engagement in society and few prospects. Government initiatives to promote youth employment over the last few years have yielded only disappointing results. Table 4 summarizes proposed knowledge and investment activities under the empowerment pillar of the JIS.
4.4 Monitoring Performance
74. The original JIS included performance triggers to calibrate the Bank’s engagement between ‘High’, ‘Base’ and ‘Low’ scenarios in response to observed reform performance. In May, 2002 the Bank program moved to the ‘Low Case’ following review of government’s reform track record at that time. Performance on economic management had not met earlier expectations and the pace of governance reforms was considered slow. Engagement in the ‘Low Case’ has focused on knowledge activities, especially capacity building for economic management, filling important knowledge gaps and on piloting innovative means of basic service delivery. Investment lending has been limited to approximately $200 million per annum.
75. In retrospect the JIS performance triggers were too simplistic. And performance thresholds were set against heady expectations of what the new administration could achieve in a short period following the return to democracy. Clearly there were performance shortcomings in important areas. But it is also true that the political and economic situation was much more challenging than was recognized at the time.
76. Detailed definition of new indicators of performance, together with specific triggers for calibration between ‘High’, ‘Base’ and ‘Low’ scenarios will be prepared during the CAS process. For the remaining period covered by the JIS, performance will be assessed through progress in the areas of macroeconomic management, governance and the fight on corruption, structural reform and service delivery. Progress in further improving portfolio performance will also be monitored closely. These assessments will be used to calibrate levels of financial assistance. Principal indicators of performance will be:
Macroeconomic Management: Ongoing efforts to strengthen budget processes and improve the quality of public expenditures should be continued strongly. Specific performance indicators will include: (i) adoption and effective implementation of policies to improve management of the oil revenue cycle; (ii)
24
limiting the overall fiscal deficit to no more than 3 percent of GDP and a disciplined implementation of the 2004 budget; and (iii) strengthened links between budget allocations and government priorities, as articulated in the NEEDS, with good progress towards an MTEF.
0 Governance and Anti-Corruption. Efforts to improve governance and root out corruption to be further strengthened, through: (i) adoption and implementation of new procurement laws, ensuring efficiency, transparency and competitiveness in government contracting; and (ii) regular independent audits of oil and gas sector financial flows and widespread dissemination of audit reports.
Structural Reforms. Reform efforts to be followed through, by: (i) completion of outstanding audits of proceeds from the privatization program, and instituting regular audits as the program progresses; (ii) resolution of private access to supply infrastructure in the downstream petroleum sector; and (iii) further strengthening the finances of the power sector and establishment and entering into operation of the National Electricity Regulatory Commission.
Service delivery. Reforms to government service delivery take time before improvements in services and outcomes are visible and measurable. Recognizing this, the definition of specific targets for service delivery improvements by key federal government agencies will be used as indicators, together with progress achieved towards targets.
0 Portfolio performance. Sustaining the current trend of improving portfolio performance will be essential. The following indicators will be used: (i) following up recommendations from the CPPR and implementation of project specific action plans; and (ii) continued improvement of disbursements, to exceed 20 percent in 2005.
77. In the ‘Base Case’ the Bank expects to lend an average of US$350 million in 2004 with the flexibility to increase lending to up to US$500 million in 2005, provided strong reform performance is maintained. In a ‘Low Case’ annual lending would be approximately $200 million, as has been the case in the last two years. In a ‘Low Case’ lending would focus on capacity building, other technical assistance and support for CDD. Within the larger envelope of the ‘Base Case’, investment support for reform implementation will be the priority.
4.5 Partnerships and donor coordination
78. IMF program. The authorities have stressed that they will not seek a formal Fund arrangement at this stage, but aim to produce tangible results and a track record on implementation of Nigeria’s reform program, the NEEDS. However, Fund staff maintains an active dialogue and technical assistance program with Nigeria. The 2004 Article IV consultation discussions were held during February-May 2004, and Board consideration is tentatively scheduled for end-June/early July. During the discussions,
25
the authorities developed a monitoring framework of their macroeconomic and structural reform agenda, and requested that the Fund monitor on a quarterly basis the implementation of their program. The IMF in coordination with the Bank is also providing technical assistance in several areas including budget and public expenditure management, domestic debt management, and treasury management.
79. Donor coordination. There has been a major strengthening of donor coordination and partnership (see matrix of donor assistance in Attachment 5) . The main donor partners (UNDP, EC, DFID,USAID and WBG) have agreed to develop and propose to Nigeria a single combined program of assistance to support the federal government’s elaboration and implementation of the NEEDS and the states’ their corresponding SEEDS. In an effort to strengthen incentives for performance, donors are discussing how to graduate levels of support to individual states according to commonly agreed performance criteria. Donors also plan to limit engagement to a reasonable number of states, in an effort to guard against stretching available resources more thinly than needed to achieve impact18. In addition, donors are looking to the Bank to take a lead in harmonization of programs and procedures, in designing and introducing streamlined instruments of assistance and sector wide approaches. It is anticipated that development of the CAS will be the framework within which coordinated strategies of assistance will be agreed.
V. Emerging Risks and Mitigation
80. The Bank Group’s work in Nigeria under the JIS is high risk. However, potential returns in terms of development impact are also high. Seven main categories of risk facing JIS implementation are outlined in Table 5. Assessments have been made of the likelihood of the difference risks (High, Medium, Low) and their potential impact on JIS outcomes (Critical, Limited, Negligible).
81. The shock of a marked oil price decline would risk pushing Nigeria into financial crisis and economic recession, slowing progress towards MDG goals. This is a critical medium term risk. In the near term a sharp decline in oil prices is considered unlikely. Limited mitigation of this risk is possible through continuing, and accelerating if possible, reform of economic management. A more prudent fiscal strategy and downsizing government will help underpin presently fragile public finances. The NEEDS will produce a better alignment of policies with growth and poverty reduction objectives. Early adoption of an MTEF should be a specific objective. The JIS supports this mitigation strategy. By stepping up work on governance and economic management, and extending this to performing states, the JIS seeks to facilitate reform as quickly as political considerations permit.
*’ Presently donors are between them engaged in many more states than this. It is agreed that donors’ existing commitments to states will be honored, even where a state is assessed for a ‘Low’ scenario engagement. But extensions of engagement by the donor concerned will require the state to have achieved the ‘Base’ or ‘High’ performance benchmarks. Further, any extension of assistance by the donor would then be in the context of the agreed platform of donor assistance for the scenario concerned.
26
82. The possibility of large scale labor unrest is a critical near term risk. Rejection of reforms by labor would deny government the consensus it requires to implement further reform steps. This risk is being mitigated effectively by government. The administration continues to manage relations with labor unions deftly. It has already successfully avoided several national strikes called to protest implementation of particular reforms, notably deregulation of the downstream petroleum sector. Through the NEEDS process government will be inviting participation by labor leaders, so that policies which emerge balance competing interests in a manner all parties can accept is reasonable. The JIS contributes to this mitigation by supporting various aspects of the participatory processes.
83. The likelihood of deteriorating economic management is slight, given the strong track record the administration has established. Nevertheless this is a critical near term risk given the impact such a deterioration would have. The governance pillar of the JIS provides support in key areas to mitigate this risk. Working alongside the IMF, the JIS will assist government to develop workable fiscal responsibility legislation to assure improved fiscal prudence. The JIS is also supporting timely elaboration of NEEDS, which will sharpen policy focus on growth and poverty reduction objectives. And the JIS gives additional emphasis to capacity building in key institutions for economic management, to develop the needed capacity for reform implementation.
84. Persistence of infrastructure bottlenecks are a critical medium term risk. Private business identifies infrastructure as its most important constraint; Without improved access to
Table 5: Main Risks Facing JIS Impact
Issue
1. Exogenous Shocks a) Oil price decline. b) Conflict in Western Africa - loss of markets, political distraction. 2. Social Instability a) Rising instability in Delta ‘shuts in’ more oil production. b) Increased labor discontent from hardship of economic situation. c) Government de-stabilized by reaction to civil service reform. d) Eruptions of ethnicheligious disputes. 3. Political Commitment to Reform a) Alliance behind 2007 presidential candidate; administration lame. b) Federal reform progresses, but little traction among states. 4. Economic Management a) Fiscal stability pact elusive. b) Slow implementation of critical reforms. c) Slow development of NEEDS. d) Slow development of institutional capacity in critical areas. 5. Service Delivery Does Not Improve a) Infrastructure throttles supply response in manufacturing, agric. 6. Project/Activity Design a) JIS and OED projectfactivity lessons on design not incorporated. b) CT continues to over-estimate client implementation capacity. 7. Bank Group Country Team Capacity a) Skills gaps persist with limited field presence of international staff.
.I
d d
27
infrastructure services, manufacturing and agriculture will find it difficult to accelerate growth while private investment understandably will remain hesitant. Given the lead times and financing required to re-develop infrastructure, design of the JIS has taken account of the unfortunate likelihood of only slow progress on infrastructure in the next two years. But the JIS helps to mitigate the medium term risk by piloting innovative public/private partnerships for infrastructure development. The objective is to demonstrate practical options to mobilize the private skills and financing to accelerate the pace of infrastructure re-development.
85. Failing to learn the operational lessons from past projects, OED evaluations and JIS implementation would present a critical near term risk. However, the ongoing CPPR process ensures continuous performance feedback to task teams and facilitates learning from implementation experiences across different sectors. This provides an effective mitigation strategy.
86. Risks to JIS implementation through shortages of key staff is a critical near term risk. This matter is being managed by AFR and management to ensure that staff essential for the JIS are available.
VI MOVING TO A FULL CAS
87. Government is planning to complete preparation of the NEEDS by end-2004. It is also assisting states to develop their corresponding SEEDS and planning to prepare a series of sector reform strategies. This suite of strategies will comprise Nigeria’s first PRSP. It will provide the basis for preparation of a results oriented CAS, to guide Bank Group support for the following three to four years. The CAS will be developed jointly with IFC and MIGA, with extensive involvement also of other development partners and stakeholders. Work on the CAS will be developed in a participatory manner and is expected to be completed in 2005. The JIS includes AAA and ESW activities that aim to fill important knowledge gaps, important both to the NEEDS and SEEDS and to development of a CAS. The Bank and other development partners are engaging with the federal government to map out areas where external support can help plug knowledge gaps and facilitate successful participatory processes.
Ropartion of pMple with muaioablc a- to safe drinking . watm
. Ropation of pcoplc with to impmvcd sanitatioo
Average tariffs and pntu on agciculrural pmducts, textiles and clnhing
0 tkbt smicr; as percentage of expons of goads
Umqloymeot rate of 15 to 24 years old
15 62 (SA), 54 (Zimbabwe)
1.4
214
10
1.2 (Wiopia)
267
24 (Efhiopia) 62 (Senegal) I 57
~onhasbccndeeliningfrom5l%inl9901043%inM00. U h anas arebatmoITwi& ulsceess -of 81% in 2MM vs.
0.7 (19%) 39% i n t h c d anas. 0.8 (19%)
36 (19%)
4.6 (2ooo)
6.6(2000)-
Rapid inncssC is cVi&nt from 4.6 pp 1 .OM) tdcphonc lios in 2MM to 19.6 per I.MM in ZOOL, with thc advent of mobile tdcphoncs
14
7.5
Likely in llrban anas; mt likely for ma1 p p l e
1.1 (1996)
likely
23
3.2
Tclcphonc (land) lines per loo0 pmple
Access to eamputer/intanet seMce per IMM pwple.
30
Attachment 2: Achievements In The JIS
The JIS is framed around three main pillars of engagement: improving economic governance, private sector development and empowerment. Achievements to date in each of these three areas are summarized in the sections which follow.
Improving economic governance. Bank support has focused on four areas: (i) the fight against corruption; (ii) improving the performance and accountability of federal government; (iii) supporting state and local government initiatives to improve their economic management and service delivery capacities; and (iv) strengthening management of oil and gas revenues, to improve transparency and development impact.
With regard to the fight against corruption several important steps have been undertaken. In 2000, the Bank and Government jointly prepared a CPAR. This facilitated preparation of new federal regulations for public procurement, now being adopted, and prepared the ground for a new procurement bill which government has subsequently developed. The bill is planned for legislative approval by the end of 2004. The Bank is also helping with establishment of Project Financial Management Units (PMUs) in the office of each state Accountant General. Each office will bring Bank procurement and financial management practices to externally funded development projects in the state concerned. Importantly, each PMU also provides a platform for states’ own procurement and financial management reforms and for capacity building in these critical areas.
Progress on improving the performance and accountability of the federal government was rather slow through the first administration. But the tempo has picked up markedly under the new administration. As a result, strong working relationships have been established between the Bank and federal government’s new economic team. The Bank, IMF and USAID have assisted the Budget Office with budget reforms, aiming towards early adoption of an MTEF. Also, with the needs to streamline government and improve service delivery identified as government priorities, the Bank is assisting with plans to move expeditiously with implementation of pilots in key ministries and agencies.
Regarding state and local government economic management, Lagos State with support from the Bank has completed a state procurement assessment report (SPAR) and an SFAA. Improvements in state procurement and financial management processes are being introduced as a result of this work. Progress has also been made on a Lagos State Economic Development Strategy which, among others matters, introduces important budget reforms and prepares the ground for adoption of a state MTEF. The Bank will support the state’s development of a medium-term fiscal framework over the coming year and work with selected sector ministries to develop three year rolling expenditure plans for both capital and recurrent expenditures. Similar engagements are planned with other reformist states.
With regard to the management of oil and gas revenues the Bank has assisted government in developing strategies for further exploitation of the oil sector and for the exploitation and use of natural gas and natural gas liquids. The Bank has provided advice on oil and gas taxation, on strengthening regulatory capacity and price liberalization of downstream petroleum products and on implementation of the Extractive Industries Transparency Initiative (EITI).
Private Sector Development. The thrust of Bank Group efforts have centered around: (i) assisting with reform of incentives, institutions, policies and business regulation to restore competitiveness and create an attractive investment climate; (ii) supporting the federal government’s privatization program, expanding private participation in infrastructure and improving the public sector’s effectiveness in providing other infrastructure services; (iii) supporting financial sector development, notably for term finance, and mechanisms to support small and medium enterprises (SMEs); (iv) supporting agricultural intensification and diversification; (v) helping to reduce policy and market
31
constraints on SME growth; and (vi) supporting the rehabilitation of Lagos as a major center of commerce.
With regard to reform of incentives, policies and business regulation, the Bank Group conducted landmark analytical work to assess the competitiveness of each main sector of the Nigerian economy and to map investment climate constraints throttling private sector performance. Amongst other matters, government follow-up is leading towards a White Paper on Taxation, on which the Bank is providing advice. This is expected to be considered by Cabinet before the end of 2004. Following the national competitiveness assessment, Lagos State has initiated its own in depth study of firms to develop a more accurate assessment of its business environment. Using this assessment the state government will seek to target policy interventions and selected investments (in infrastructure, for example) to improve the business climate in the state. In another important area for private business, the federal government has been successful in correcting policy distortions in the petroleum sector through liberalizing retail business in petroleum products. The paradox of an oil rich country with long consumer lines at petrol pumps is thus being resolved.
With regard to improving public sector effectiveness in providing infrastructure services, the Bank Group has focused considerable attention on the power sector. Businesses identify this by far the most serious constraint impeding business activity, investment and growth. Dialogue on reform of the sector has focused on improving service delivery from the existing system, moving sector financial performance towards a sustainable track, and lessening the sector’s burden on the federal budget in the near term - all preconditions for attracting private investment in the longer term. Planned unbundling and privatization of the national power utility has been slow but efforts are now showing encouraging signs of progress. An initiative labeled CREST (Commercial Reorientation of Electricity Sector Toolkit) was launched in November, 2003. This has facilitated establishment of eleven new autonomous business units to manage power distribution and retailing. Initial work under CREST is demonstrating business viability in four of the eleven business units - focusing on enhancing revenues and reducing losses, with good results.
32
Regarding financial sector development, a Financial Sector Assessment Report completed n 2002 highlighted the Sector’s chief vulnerabilities and made recommendations to address the most pressing weaknesses. The Central Bank has already begun implementation of several of these, taking steps to strengthen aspects of banking regulation. Nigeria also has been the first country to receive support under the joint Bank Group pilot MSME initiative (Box 1). In addition, IFC has worked with six commercial banks, committing term facilities totaling over $160 million. With no term funding presently available in Nigeria, banks have used the IFC credits to offer medium-term financing to a range of clients, including SMEs. IFC is expanding its relationships with leading banks to support more small business financing options, and also to help build the nascent corporate bond market.
strategy through efforts to promote decentralized approaches, including shifting expenditure and implementation
government to the states, and to local government and communities. Policy dialogue has f@3.“,2d on tackling main constraints to accessing key inputs for agriculture and related processing, including infrastructure and market access. T~ support this effort, an ambitious new ‘peration’ Fadama 11, was approved
from
The
December, 2003 (see Box 2:
Box 1: NiQeria’s Pilot MSME Proiect The Nigeria MSME project is the first to be approved under the IDA/IFC Pilot MSME Program for Africa, which the Board discussed last June 2003. The design of this project has combined the transactional and private sector expertise of the IFC together with the broader policy and institutional knowledge base of IDA. The project will: (i) develop and strengthen the capacity of local intermediaries to deliver financial and non-financial services to MSMEs; (ii) reduce selected investment climate barriers that constrain MSME performance; and (iii) mobilize, via (i) and (ii), increased private investments in MSMEs and intermediaries. Measures of project success will be strengthened on commercial and financial sustainability of services at the intermediary level and sustained outreach at the level of the enterprise. The project focuses on:
Access to Finance: develop new financial products and institutions within the Nigerian market to increase services to the micro and small business sector. Business Development Services (BDS): improve and expand the provision of business development services through product development, BDS provider capacity building. Investment Climate: reduce selected investment climate barriers impacting MSME performance . Public-Private Partnership Development: enhance public sector capacity to support development of MSME sector through targeted capacity building of selected Federal and State-level agencies.
Another special feature of this project is the “first mover” concept. First mover initiatives have been designed to provide in the market an early statement of intent from the project and to “set the bar” in terms of the types of business support activities the project is seeking to foster.
Box 2: Helping Revitalize Agriculture - Fadama I1 The Fadama I1 Project promotes production of high value crops and other staple foods as the primary source of income for many poor rural households, and assist diversification into livestock, cash crops, and non-farm activities. The Project establishes an integrated platform for rural development that builds on-farm and off-farm opportunities at the state level while promoting agricultural productivity. In addition, Fadama I1 promotes at the community level the principles of social inclusion, participation, empowerment and rural governance; it addresses directly the issues of conservation of natural resources and the conflicts associated with the exploitation of these resources as well as the shortcomings of earlier top-down, non-inclusive approaches.
The key outcomes expected are: Enhanced agricultural competitiveness through intensification and diversification, improvements in agricultural productivity and development of markets; Strengthened community/producer organizations to ensure greater transparency and accountability in provision of public services; Improved public infrastructure to support the supply response from the nual sector; Improved management of natural resources; and Boosted shares of high-value products through strengthening farmers’ market access and investments in downstream activities.
Bank support for rehabilitation of Lagos as the center of commerce has been multi-faceted. Rehabilitation and development of infrastructure services, including water supply, power and road
33
transport are being supported through the Privatization Support Project, the Transmission Development Project and the Lagos Urban Development Project. In parallel, a broad reform agenda is being developed by the state government through preparation of the Lagos State Economic Development Strategy, which the Bank is supporting.
Empowerment Global experience, highlighted in the WDR 2004: Making Sewices Work for Poor People, underscores that accelerating progress requires putting poor people at the center of service delivery, empowering them to demand accountability from service providers and giving people voice in policy making and service planning. The Bank is currently supporting community empowerment in Nigeria through implementation of several dedicated lending operations - the Community Based Poverty Reduction Project (see Box 3), the Community Based Urban Development project, and the Local Environment and Empowerment Project. Other projects include components supporting community action and community involvement in the delivery of basic services, including the Fadama 11 project. Several of these projects, in particular the Community Based Poverty Reduction Project are making impressive progress, and making a significant difference in the lives of beneficiary communities.
Government recognizes know1
Box 3: Communitv-Based Povertv Reduction Project
The CPlW has established independent social fund agencies in six states to strengthen community capacity to address local social needs and finance microprojects. The Project became effective in September, 2001. After a slower than expected start the Project is now financing microprojects at a more rapid rate than anticipated. To date a total of 486 projects have been supported (including 146 schools, 128 water supply points, 60 rural roads, and health facilities, electricity supply, local markets and others.) There appears to be three main reasons for success:
Flexible design at the State level each state has adapted its procedures to the social, institutional and geographic realities of the specific state. Outreach programs, application procedures, links with local governments and capacity-building activities vary from state to state. Autonomy, decentralized decision-making and civil society involvement. Each state agency is autonomous, with a Board of Directors to oversee the activities of the agency. These Boards are made up of government and civil society representatives, providing the agencies with links to many institutions in the state. Demand-driven and community-managed process: Communities set their own priorities, manage all aspects of microproject implementation, including finances, procurement and supervision of construction.
- “EKCPRA (Ekiti State Community Poverty Reduction) project has come at the right time, with the little money we have, we are able to utilize it on a project of our choice”--A female member of Awo CPIC in Irepodutduelodun Local Government of Ekiti State. Millennium Laboratory - “the number of Science Students” Enrollment and also seeking admission to the School has increased tremendously due to the new infrastructure”-A male member of lkole CPIC in lkole Local Government Area “A brief history of the struggle for water in Olufofo Community should inform us that, today, no doubt is a day Olufofo community can never forget. The desire for a source of reliable portable water for this community dates back to as far as two decades ago. Attempts made .... then ..... were not able to meet our heart’s desire. We thank God that you have come’’- Address by Chairman, Olufofo Water Development Association during presentation of 1’‘ Tranche Draft. May, 8 2003.
Some comments from participating communities:
Zge and education as critical for individual and community empowerment. Early in its first administration, the government introduced a Universal Basic Education program (UBE.) Unfortunately implementation was hampered by difficulties in reaching agreement between the federal and state governments on sources of funding and respective responsibilities of the two tiers. These issues have now been resolved and a UBE Bill has recently been passed. Work is ongoing to prepare states’ plans for UBE. Bank and DFID support is being channeled through the ongoing Primary Education I1 project and a first dedicated UBE project. Considerable progress has also been made in building knowledge of the education sector, including of education financing, sector management and institutional capacity. A Country Education Sector Status Report combining the results of various analytical pieces was prepared in 2003. This has been instrumental in developing a strong dialogue with government.
In health, rather less analytical work has been done so far and the dialogue on systemic issues consequently is not yet as well developed. However, a Second Health Systems Development Project, jointly funded with the African Development Bank, was approved in 2002 and an HIV/AIDS project under the Africa MAP program is also being implemented. HIV/AIDs, though implementation continues
34
to pose challenges. A Polio Eradication Project, eventually to be financed by the Bill and Melinda Gates Foundation, is also under implementation. This will help eliminate wild polio from seven states in northern Nigeria.
35
Attachment 3: WORLD BANK GROUP PORTFOLIO AND PERFORMANCE
International Bank for Reconstruction and Developmentnnternational Development Association (IBFWIDA)
The current portfolio comprises 15 active projects with a commitment value of just over US$1.1 billion. Of this amount US$127.4 million had been disbursed as of May 5,2004. Although Nigeria is a blend country all projects in the current portfolio are IDA only. All commitments have been approved since 2000.
Early portfolio performance was below expectations. It is now apparent that some projects were launched too quickly and important implementation challenges were underestimated. The new federal administration was at that time essentially a new borrower with very limited understanding of Bank procedures and requirements. Similarly, the projects involved a large number of new ’: Performance implementing entities (federal ministries, state governments and public agencies) with Projects at Risk ( percent) 88.9 75.0 53.3 essentially no experience of working with the Problem Projects ( percent) 11.1 41.7 33.3
beneficiaries also suffered weak financial management and procurement procedures and Disbursement Ratio percent) .5 lacked institutional capacity in other key Active Portfolio Age (Ave.) 1.2 1.8 2.3 areas. Making good capacity limitations has taken more time than anticipated, and resulted in lengthy effectiveness delays. As all projects in Nigeria enter the portfolio with two standard risk flags (country environment and country record) each delay in disbursement or effectiveness immediately triggered a third risk flag, thus resulting in a high proportion of ‘at risk’ and ‘problem’ projects. (see Table 1).
Bank or other development partners. Most Potential Problem ( percent) 77.8 33.3 20.0 Net Commitment Amt ($mil) 681.6 911.3 1,113.3 Commitments at Risk (percent) 81.4 79.3 73.0
3.5 10.7
Sou,.ce: sw, us ofMay 5, 2004
While there is still a need for improvement, recent progress with portfolio performance has been strongly encouraging. Disbursements have more than doubled in the past year. With continued efforts by government and the Bank, the disbursement ratio (expected to reach 11 per cent by the end of 2004) will break through 20 per cent in 2005. Very encouraging is that once early delays have been overcome, project implementation is starting to proceed more closely in line with original expectations, including with much stronger disbursements and tangible impact on the ground (e.g. the Community Poverty Reduction Project).
The performance improvements are the result of a concerted joint effort by the Bank and government. This joint effort has identified the lessons from early implementation experiences and made important changes both to project preparation and in the way implementation is planned and managed, Preparation of projects is now guided by five core principles. First adequate time is programmed for project preparation, so effectiveness conditions can be reduced. Important conditions are brought forward to appraisal and negotiations. Second, political and economic factors bearing upon project implementation are analyzed carefully during project preparation. Necessary mitigation actions are incorporated into project design. Third, project complexity (both the numbers of components and of participating states or agencies) is reduced. Fourth project implementation activities are concentrated at lower levels of government, closer to beneficiaries, to ensure strong involvement of communities in project implementation. Finally, and very important, needed institutional capacity for implementation is developed ‘up-front’, In addition, specific plans for the management of implementation are prepared during project preparation. These are matched with
36
f
careful assessments of institutional capacity, so that skill and capacity gaps are identified sufficiently early to be addressed through intensive training ahead of project launch.
The core of the joint initiative with government to improve portfolio performance has been an ongoing Country Portfolio Performance Review (CPPR) process. The first annual CPPR was undertaken in November, 2002; the second at the end of 2003. These annual exercises are conducted in full detail for each project and are supplemented with regular interim reviews. The CPPRs identify both project specific and portfolio systemic issues and devise specific, time bound, action plans to resolve problems. Action plans have been developed for each project and their implementation is monitored closely by the joint Banklgovernment CPPR team. Early results from implementation of the action plans have been encouraging and permit cautious optimism that the Nigeria portfolio is now on a track of significant performance improvement.
In parallel with joint work to improve portfolio performance, the Bank and government have been developing and implementing a strategy to strengthen fiduciary capacity across the portfolio. New financial management arrangements for projects at the state level are being implemented. The arrangement involves establishing a common financial management platform for all Bank-assisted projects in each state. These platforms provide more robust financial accountability frameworks for project implementation and additionally establish a platform for financial management capacity building in the state concerned.
World Bank Institute (WBI)
Nigeria was selected as a focus country for WBI. The number of Nigerian participants in WBI programs has increased significantly in the last two years (from 280 in 2001 and 519 in 2002 to 1,430 in 2003). This was made possible by increased use of Distance Learning as a delivery mode and the larger number of events held locally. Speeding up completion of Nigeria’s GDLN center, unfortunately more than two years behind schedule, will provide a valuable platform for reaching still larger numbers of Nigerians. Groups that have taken fullest advantage of WBI programs to date have been public expenditure managers, managers of social protectiodsocial risk management programs, parliamentarians and journalists. Moving forward with the JIS, the WBI program will be focused more sharply on developing capacity in civil society and forging a national consensus around needed reform. Attachment 4 illustrates WBI’s Program for Nigeria.
International Finance Corporation (IFC)
Since its first investment in Nigeria in 1964, IFC has committed financing amounting to $626 million. Investments include $5 13 million for IFC’s own account and $113 million for the account of banks participating in loan syndications. Since the return to democracy in 1999, IFC has stepped up its level of engagement. As of April 2004, IFC’s committed portfolio in Nigeria stood at approximately $264 million.
IFC CdttedPortfo l io in Nigeria (April 2004)
Total $264 million Private Equity
3% Communica
3% 9%
IFC’s activities in Nigeria are an integral part of the overall Bank Group strategy to foster private sector led, poverty reducing growth. The Corporation’s engagement is also fully in line with the IFC strategy for sub-Saharan Africa, reviewed by the Board in August 2003. This strategy calls for more
37
pro-active project development, a focus on SMEs and increased efforts to assist in improving the business enabling environment. Since the original JIS, IFC’s activities have focused on:
Small and Medium Enterprises (SMEs) IFC provides a broad range of support to small businesses in Nigeria. The Africa Project Development Facility (APDF) is active in providing business development and enterprise support services to several companies, including to micro enterprises in the informal sector (through the Support Training Entrepreneurship Program:) APDF also supports other NGOs and technical capacity development programs (for example, the FATE Foundation and the Onitsha/Nnewi/Aba Cluster program, supported jointly with -0.) Other initiatives include a financing and capacity-building facility for small-scale oil service companies in the Niger Delta region. In conjunction with the Bank; IFC also developed the pilot MSME Credit which is now commencing implementation. IFC is considering a substantial ramp up in APDF presence, to enable more widespread support for SMEs and as a precursor to implementation of an SME Service Center, as currently being piloted in Kenya, Madagascar and Ghana.
ZFC Znvestments In addition to its investments committed to commercial banks, in 2002 IFC approved an investment of $100 million for MTN Nigeria, a large mobile telecommunication company. The investment, which is currently being disbursed, supports significant expansion of MTN’s nationwide GSM (Global System for Mobile Communications) cellular telecommunications network. IFC is currently undertaking due diligence on a further $100 million of potential investments in various sectors. While not all of these are likely to come to fruition, the cumulative scale of the proposals is indicative of the more aggressive and pro- active approach that IFC is taking to identifying potential investment opportunities. IFC will focus its efforts in non-oil sectors, to assist both with diversification of the economy and needed employment generation.
Non-Znvestment Activities As part of IFC’s overall strategy for sub-Saharan Africa, IFC is becoming more actively involved in working towards improving the Nigerian business environment. Opportunities are being sought to assist the privatization process, through an advisory role, and for additional collaborations with the Bank on innovative joint projects such as the MSME facility. Priorities will be in areas that can help ease infrastructure bottlenecks and support development of competitive markets, especially in the financial sector.
Multilateral Investment Guarantee Agency (MIGA)
MIGA is currently one of few political risk insurance providers offering long-term coverage in Nigeria. As a result, MIGA’s exposure in Nigeria has grown rapidly in the last two years. This puts pressure on the agency’s capacity and requires that selectivity be applied in issuing guarantees.
Guarantees: 0 Pipeline: MIGA has three projects in its active pipeline for Nigeria amounting to
potential coverage of $46.3 million. Proposals are in the manufacturing and infrastructure sectors.
Recent Projects: In December 2003, MIGA issued an $1 1.4 million guarantee to IP Direct of South Africa for its investment in IP Satellite Services of Nigeria. This support for an SME, south-south investment will allow the project to establish an internet service provider facility in Nigeria, via a satellite platform. Target markets are individuals, home offices, and SMEs, all of which currently suffer from a lack of high-speed connectivity.
38
The project is important for Pan-African economic integration and is consistent with the NEPAD initiative.
Exposure: MIGA’s outstanding exposure in Nigeria consists of eight contracts of guarantee, with a gross exposure of $1 15.9 million and a net exposure of $94.2 million.
FDI Facilitated: The total estimated amount of foreign direct investment facilitated to date is estimated at $1.7 billion.
0
Investment Marketing Services: MIGA maintains on-line investment promotion services {www.fdixchang;e.com and www.ipanet.net) featuring 228 documents on investment opportunities and the related legal and regulatory environment in Nigeria.
39
Attachment 4: WBI’s Program for NIGERIA - FY04-06
Senior teams at Federal and State levels responsible for setting the economic policy agenda and management of the economy are established and functioning. The senior teams own and follow the PRSP approach. Clear social and economic policies have been developed.
A National Action Plan for Addressing Violent Conflict is in place and progress has been made towards its implementation
Finance -Critical bottlenecks in financial infrastructure are eased. Increase in availability of commercial medium term project and corporate financing. Priority ranking from PSA and FSAP. Productivity - Policies have been put in place to increase productivity and profitability of the non-oil sector ands small-scale agriculture. Domestic price controls have been reduced, business licensing and regulation significantly relaxed, legal and judicial systems are functioning better. Lower rates of trade protection are in place.
Capacity Enhancement Objectives of Planned Activities
‘l’itle and Objective of proposed WH1 activity
PRSP Support PGP-Nigeria PRSP design and implementation PGP-NigerialRegional macroeconomic management for poverty reduction PGP-Regional - Anglophone M&E of poverty reduction strategies PGP-Regional- Advanced impact evaluation
Social Protection and Risk Assessment - Provide in-depth understanding of types and magnitude of risks, adequacy of existing formal and informal preventive and coping strategies
Program for the Media Activities focused on ethnic tolerance in the press and investigative
journalism techniques to encourage dialogue among stakeholders and peaceful resolution of conflict.
Freedom of information Media law and regulation Workshou for editors and media owners
Consensus building for natural resource management
Using the FSAP as a platform, this Financial Sector Capacity Enhancement Program seeks to strengthen the capacity of key players in the financial sector to make informed decisions and solve financial sector problems (e.g., identify and rank priorities, design policies to stimulate financial sector development, monitor the sector regularly).
National WTO Workshop.
Civil Society Groups, NESG
National Planning Commission and the SP agencies that currently constitute the National SP Committee.
Local facilitators in pastorallagricultural areas Regulators, policy makers, private financial organizations, local training organizations, civil society
Human development has improved - Growth of HIVlAIDS has stopped; Basic education enrollment and completion rates have been increased. Availability of primary health care has been extended; The most vulnerable poor benefit from better social protection.
€IIV/AIDS - At national and state levels, capacity for an effective and consistent response to the growing epidemic has been weak; after 18 months of credit effectiveness, only 5.75% of the MAP credit has been disbursed. WBI will developldeliver a capacity enhancement strategylprogram focused on the following: leadership and management, project management, financial and procurement, technical, IT, M & E , and CSO support and coordination.
Using Media and Technology To Combat HIVlAIDS. Program designed to promote awareness of and a dynamic response to HIVlAIDS eddcation, prevention, treatment and care through use of media and technology. Activities delivered via distance learning and face-to-face
Improve livelihood opportunities and address growth of HIVlAIDS among youth.
Respect for Diversity through Education. Pilot activities will focus on improving the quality of teacher education, with an emphasis on strengthening respect for cultural and religious diversity and gender sensitivity. The Reading Association of Nigeria will train teacher trainers in development of critical thinking skills, emphasizing mutual understanding, and respect for different perspectives. The teacher trainers will offer pre-service courses in their institutes and in-service training of existing teachers in their respective regions. This will be piloted in 3 states, and complemented with a monitoring component to facilitate learning from the pilot phase. The pilot activity will be located under the umbrella of the ongoing Universal Basic Education Project (FY02), with a view to being scaled up nationwide.
EFA/Basic Education Reform Strategies and the issue of "Teaching Quality" as well as secondary education. Improve government capacity at federal and decentralized levels to enhance teaching quality, develop appropriate sector strategy for EFARTBE, and to undertake reforms in secondary education. Building Capacity for Health Sector Reform for achieving the health MDGs by strengthening the capacity of 8-10 Nigerian training organizations to develop and deliver targeted training events for key policymakers and agents of change in the health sector. The Nigeria network will be supported to bring the lessons of reform and system strengthening in other federal systems and through intense customization of global and African content.
Managers and other individuals in charge of implementing the MAP
Youth organizations, heath care practitioners and providers, monitoring and evaluation specialists, and local media.
Key government decision makers and implementers; Influential actors and organizations from outside government; Professional health organizations; International development agencies and bilateral donors.
41
III. Social Protection Mainstreaming the concept of risk and vulnerability and the results of the RVA into an SP strategy, restructuring of social safety nets, reforming the pension system and options for youth and employment.
Develop an effective social protection strategy and mainstream in the NEEDS Options for Children and Youth and building capacity of youth organizations
Options for vulnerable children and youth employment Building Capacity in Nigerian Youth Organizations - Series of activities designed to strengthen the development knowledge base and information networks of already existing youth organizations. They would gain an understanding of what Nigeria's macro-level development goals are and would develop an action plan to address the needs of their communities (infrastructure, access to knowledge and know-how to improvehpgrade economic activities, natural resources...). CCES help develop a poverty reduction strategy that focuses on community empowerment and builds upon active local level participation. CCES feeds into the
CDD Program - Follow-~p to CENA, MSD, and CCES.
Livelihood opportunities of the poor have improved through Improved availability of CAS. community-level infrastructure (priorities: water and sanitation, feeder roads, markets, power); Improved access to knowledge and know-how to improvehpgrade economic activities; Time for women to engage in economic activities has been released; Natural resources are managed on a more sustainable basis; Improved access to microfinance (FSA, RD strategy).
National Planning Commission and the SP agencies that currently constitute the National SP Committee.
Federal and state policy- makers, NGOs and civil society advocates Clients: Youth organizations. Change agents: youth
m: Local Government Affairs, Office of the Vice President. ChanEe Agents: Local Government leaders; women and youth groups; local trade, business, producers, health workers, and other professionals associations and networks.
ICPC has developed a strategic approach to curbing corruption and
Series of Activities designed to improving the impact of internal and external auditing on the use of public financial resources (done jointly with A m and the
Clients: Offices of Auditor and Accountant General
h& begun implementing it. Government of Nigeria) Judicial Reform for Improving governance - Client: Ministry of Justice
Change agents: Judiciary authorities, Attorney General's office, Parliament, Bar Association.
42
Federal and State government policy making ands pending is more closely aligned to priorities in Nigeria's development diamond.
Program for Parliamentarians
Budget Research Office. Strengthening the oversight committees and establishing a Legislative
Parliamentary staff strengthening Establishing PAC association
43
Parliament
DONOR
AFDB
CIDA
DFID
Attachm ECONOMIC GOVERNANCE
Institutional Support/ PRSP Process Project (grant for ABEWational AssemblyPRSP process to end in December, 2004).
State-level Procurement support to NEEDS team Support to selected states for SEEDS Enhancing policy analysis in the agriculture sector Management of natural resource-based internally generated revenue (IGR) in selected states
Economic reform, debt management, poverty monitoring* Human RightsDemocracy State Capacity Building Local police services and justice
nt 5: Nigeria - Donor Mati PRIVATE SECTOR
COTECNA Project: support for improved custom inspection. To be appraised in 2004. Lines of Credit to some selected commercial banks (UBA and FSB) on going; one other to be appraised in 2004. Support to the NLNG Project (on- going).
NEPA revenue stream
Agriculture management
State-level land and water management
State level water supply Insecticide Treated Bednets Social marketing of condoms Agricultural Commodity and Service Markets Financial Sector
X
CDD/SOCIAL SERVICES
Health Systems Development Project (on-going in 12 states of the federation). Community Based Poverty Reduction Project (on-going in four states of the federation).* Community-based Agriculture and Rural Development Project (signed in December, 2003, implementation begins 2004 in five states). Fadama Development Project (signed in December, 2003 implementation begins 2004 in six states).
Project (signed in December, 2003 implementation begins 2004 in six states). Niger Delta Environmental Study (the TOR to be prepared 2004. Study slated for 2005). Multi-state Water Supply Project (on-going). Rural Roads Project (preparation programmed for 2004). NEPA-CEB Interconnectivity project (on-going). Ogun State Farm Settlemenuforest rehabilitation Project (Identificatioflreparation scheduled for 2004). Basic Education Project (preparation for 2004). Rural Water Supply and Sanitation Initiative (scheduled for appraisal in 2004).
NERICA Rice Dissemination
Primary health care Roll Back Malaria HIV/AIDS* Investigative journalism Health Systems Reform Gender Mainstreaming Human Rights and Democratic
Polio Eradication Reform
Health sector reform HIV/AIDS* Universal Basic Education* Water and sanitation
44
EC
FA0
FRENCH
IFAD
THE GOVERN- MENT OF JAPANI JICA
Economic Governance 0 Democracy support
HumanRights 0 (possible) Population
0 Anti-corruption Census
Police Training
Infrastructure, especially water (public and/or private sector)
National Special Program for Food Security Review of the Public Irrigation Sub-sector
0 Community Based Rural Development
Root and tuber expansion program
Rural electrification State Level Water Supply and Sanitation Projects Promotion of NERICA
Micro projects Immunization (routine and polio) Capacity building for civil society organizations
Strengthening of the National Plant Quarantine Services
0 Strengthening the Horticultural Tree and Cash Crops Sector Higher Income Generation Sustainable Legumes and Cereals Production through Integrated Production and Pest Management Better Management of Post Harvest Technologies for Commercialization and Household Food Security in the framework of the SPFS SPFS: Support to the Formulation of the Extended Phase
0 Assistance in the Preparation of a Medium Term Investment Program and Formulation of the Bankable Projects in Support to CAADP Implementation Advisory Support to the NEPAD Secretariat Establishment of a Mechanism for Triparite Consultation in the Management of the Iullemeden Aquifer System
0 Strengthening and Coordination of Information System on Food Insecurity, Vulnerability and Food Trade in the ECOWAS Countries
Implementation of the RPFS at Sub-regional and National Levels Strengthening the Production and Quality Control of Gum and Resins in Africa Assistance for the Formulation of a Common Agricultural Policy for ECOWAS Member States Secondary and tertiary education
0 Epizootic disease prevention Microprojects Support to art and audiovisual creation
Support to ECOWAS for
0 Community Based Agriculture and Rural Development Program (Northern Regions)
0 Community Based Natural Resource Management Program (Niger Delta) Roll Back Malaria Polio Immunization and Routine Immunization HIVIAIDS Education Sector Analysis
45
UNDP
UNICEF
USAID
WHO
WORLD BANK GROUP
Transparency, accountability and anti-corruption Gender empowerment Decentralization and local governance Aid coordination, policy dialogue and economic management National, state and community capacity building Development of National and State Programs of Action Development of NEEDMEEDS
Advocacy for Economic
Domestic Debt Management Budget Support Process Anti-Corruption Judicial Assistance
Reform
EMCAP EMCAPII Support for PRSP Local Government Finances
LagosSFAA LagosSPAR WBI Activities
Study
1 Public-private partnership for development
1 SME development 1 Rural financial services
1 Water and sanitation policies 1 Food fortification with Vit A 1 Production of impregnated
bednets
b Microfinance Agro. Input Marketing
D Commodity Enterprise Development
0 Privatization Support Electric Transmission Micro Small Medium Enterprise Project FadamaII
Watedurban governance with emphasis on municipal waste management
Restoration of environmental resources Sustainable dev. in Niger Delta HIV/AIDS Primary/Girls’ education Non-formal education Early child care & nutrition Community-based development Child immunization HIV/AIDS prevention Malariacontrol Child protection Safe water and environmental sanitation Guinea worm and river blindness eradication HIV/AIDS* Family Planning ChildSurvival
0 Primary Education Roll Back Malaria Health Sector
Health Sector Reform Health Systems Strengthening HIVIAIDS Roll Back malaria Making Pregnancy Safer Integrated Management of Childhood Illnesses Stop TB (DOTS expansion) Essential Drug Programme Polio Eradication Initiative School and Adolescent Health Surveillance, Prevention and
Sustainable energy services
Management of Non Communicable diseases
Eradication and Control
and Response to Epidemics.
Development
Reduction
Communicable disease Prevention,
Emergency Preparedness
Community Based Urban
Community Based Poverty
Health Systems Support HIV/AIDS Project Polio Project Local Empowerment Project Universal Basic Education
Most recent estimate (latest year available, 1996-02)
Poverty (56 of population below national poverty line) Urban population (% of total population) Life expectancy at birth (years) Infant morlality (per 1,OOO live births) Child malnutrition (% of children under5) Access to an improved water source (% of population) Illiteracy (% of population age 754 Gross primary enrollment (% of School-aQe population)
Male Female
KEY ECONOMIC RATIOS and LONG-TERM TRENDS
GDP (US$bil/ions) Gross domestic inveslmenVGDP Exports of goods and servicedGDP Gross domestic savingdGDP Gross national savings/GDP
Current account balanceIGDP Interest paymentdGDP Total debVGDP Total debt service/exports Present value of debVGDP Present value of debvexports
(avenge annual growth) GDP GDP per capita Exports of goods and services
1983
34.9
13.6 10.8 8.4
-14.3 2.8
50.3 23.6
1983-93 1993-03
4.9 2.9 1.9 0.3 4.4 2.1
Nigeria
132.8 290 38.7
2.5 2.6
46 45
109 31 62 33 82 89 74
1993
21.4 23.3 47.1 20.2 13.2
-10.1 4.0
143.8 14.8
2002
1.5 -0.7
-11.1
sub- Saharan
Africa
688 450 306
2.4 2.5
33 46
105
58 37 86 92 80
2002
46.5 22.9 40.8 23.3 12.4
-10.6
65.5 15.4
2003
10.6 8.3
32.4
Low- income
2,495 430
1,072
1.9 2.3
30 59 81
76 37 95
103 87
2003
56.6 22.7 51.6 31.9 20.1
-2.8
58.0 10.4
2003-07
4.3 1 .o 2.1
Development diamond'
Life expectancy
T
GNI Gross per primary caplb nrollment
I
Access to improved water source
Nigeria Low-income group
-
Economic ratios.
Trade
Indebtedness
Nigeria Low-income arouo
_1_1p__
STRUCTURE of the ECONOMY 1983 1993 2002 2003
(% of GDP) Agriculture 33.2 24.2 31.2 25.7 Industry 29.7 58.7 43.8 51.2
Note: 2003 data are preliminary estimates. Group data are for 2002.
The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete.
48
Nigeria
PRICES and GOVERNMENT FINANCE
DomesNc prkes (% change) Consumer prices Implicit GDP deflator
Government flnsnce (% of GDP, includes current grants) Current revenue Current budget balance Overall surplus/deficit
TRADE
(US$ mi//ions) Total exports (fob)
Fuel Liquified Natural Gas Manufactures
Total imports (cif) Food Fuel and energy Capital goods
Export price index (1995=100) Import price index (1995=100) Terms of trade (1995=100)
BALANCE of PAYMENTS
(US$ mi//ions) Exports of goods and services Imports of goods and services Resource balance
Net income Net current transfers
Current account balance
Financing items (net) Changes in net reserves
Memo: Reserves including gold (US$ mi//ions) Conversion rate (DEC, /oca/NS$)
EXTERNAL DEBT and RESOURCE FLOWS
(US$ mi//ions) Total debt outstanding and disbursed
IBRD IDA
Total debt service IBRD IDA
Official grants Official creditors Priiate creditors Foreign direct investment Portfolio equity
World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers
Composttion of net resource flows
1983
23 2 16.1
1.7
1983
10,370 9,954
12,668 1,908
188
166 62
266
1983
10,738 13,827 -3,089
-1,527
-5,011
3,966 1,045
1,015 1.6
1983
17,561 824 36
2,562 96
1
690 1,015
0
517 188 39
150 58 91
1993
60 4 52 6
25 5 8 0
1993
9,924 9,697
40 9,180
771 46
89 89
100
1993
10,062 10,720
-658
-2,346 847
-2,158
1,433 725
1,410 45 3
1993
30,698 3,188
116
1,491 569
2
54 -89 581 0
156 302 310
-8 261
-269
~
2002
12.9 3.9
36.2 2.1
-5.3
2002
17,671 15,878
1,056 91
14,560 1,892 2,302
165 81
204
2002
18,691 18,533
158
-6,469 1,399
-4,912
2,170 2,742
7,681 121.0
2002
30,476 1,275
676
2,930 248
16
-426 -61 0
2,481
438 20
189 -169
75 -244
2003
14.0 17.1
37.7 4.4 -1.4
2003
27,414 24,883
1,925 99
18,776 2,439 2,279
191 91
210
2003
28,460 23,315 5,145
-8,361 1,657
-1,559
1,346 213
7,468 129.0
2003
32,818 1,201
787
2,987 265 22
3,246
231 63
220 -157
68 -224
30
x )
10
0
-10
1 -GDPdeflalor +CPI I
Export and Import levels (US$ mlll.)
30.m T
I
BExp~tts mlmpOrtS O2 O3 I 97 98 99 w 01
I Current account balance to GDP (%)
10
6
0
5
-10
-16
:omporMon of 2002 debt ( U S mill.)
E 22,621
t - IBRD i ~ IDA D - Other multilateral F - Private : - IMF 0. Short-ten
E - Bilateral
Development Economics 411 5/04
49
Annex B2 Page 1 of 1
Nigeria - Selected Indicators* of Bank Portfolio Performance and Management As of Date: 05/05/2004
Indicator 2001 2002 2003 2004 Portfolio Assessment Number of Projects Under Implementation a 5 9 12 15 Average Implementation Period (years) Percent of Problem Projects by Number'"
0.8 1.2 1.8 2.3 0.0 11.1 41.7 33.3
Percent of Problem Projects by Amount " 0.0 8.1 45.1 45.1
Percent of Projects at Risk by Amount 0.0 81.4 79.3 73.0 Disbursement Ratio ( percent) 25.3 5.5 3.5 10.7 Portfolio Management CPPR during the year (yedno) No No Yes Yes Supervision Resources (total US$) 473,000 845,000 1,359,000 1,826,000 Average Supervision (US$/project) 68,000 94,000 123,000 130,000
Percent of Projects at Risk by Number a, 0.0 88.9 75.0 53.3
Memorandum Item Since FY 80 Last Five FYs Proj Eval by OED by Number 82 8 Proj Eval by OED by Amt (US$ millions) 5,637.7 710.8 percent of OED Projects Rated U or HU by Number 54.9 62.5 percent of OED Projects Rated U or HU by Amt 53.0 75.1
a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year. Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio,
which includes all active projects as well as projects which exited during the fiscal year.
50
Annex B3 Page 1 of 2
Nigeria - IDA Program Summary FYM-07
As of Date: 05/05/2004
Proposed IBRDnDA Base-Case Lendlng Program '
Fiscal year Prcj ID Strategic Rewards b lmplementetion b US$(M) (HAM) Risks (HAM)
2004 Urban Water Sector Reform Proiect 1 120.0 H M
2006
2007
Result
Governance and Economic Sector Reform
Result Lagos Water Sector Restructuring (Reserve FYO5) Niger Delta Infrastructure Sector Project Energy project Result Sustainable Management of Mineral Resources
Second Community Based Poverty Reduction
FADAMA Ill Result
2005 Youth and Urban Development
(STATCAP, Civil Service and State Governance Work)
(Reserve FY06)
(Reserve FY06)
Overall Result
120.0 300.0
200.0 500.0 100.0 200.0 200.0 500.0
50.0
200.0 250.0 500.0
1,820.0
H
H
M H H
M
H H
H
H
M H M
M
M H
a. This table presents the proposed program for the next three fiscal years. b. For each project, indicate whether the strategic rewards and implementation risks are expected to be high (H), moderate (M), or low (L).
51
Annex B3
Nigeria - IFC and MIGA Program, FY 2001-2004 (As of Date: May 5,2004)
200 1 2002 2003 2004
IFC approvals (US$ mil)
Sector ( percent) Accommodation & Tourism Finance & Insurance Information Oil, Gas and Mining Total
Investment instrument( percent) - Loans Equity Quasi-Equity Other Total
MIGA guarantees (US$ mil)
89.00
4 96
100
65
2 34
10 1
0.00
130.00 25.00
23 77
100 100 100
58 100 19
23 100 100
100.00 199.54
11.00
100
100
100
100
115.94
52
Annex B4 Page 1 of 1
NIGERIA - Summary of Nonlending Services As of May 5,2004 Completi Cost
Product on FY (US$OOO) Audiencesa Objectiveb
Recent completions Capital Budget Review Rural Sector Strategy Public Expenditure Review Social Risk Assessment States Public Finances Study Private Sector Assessment Environmenfloverty Strategic Conflict Assessment Service Delivery Survey Macro & Growth Education CSR Lagos SPAR Lagos CFAR Pensions Reform Dialogue Risk and Vulnerability Anticorruption Country Portfolio Performance Review (CPPR) Underway Country Gender Assessment Basic Agricultural Services Sub-national Debt Mgt. Power Sector Policy EFA Preparation Support Strategy Fin. Mgt. Of Petroleum Revenues Planned Health CSR Lagos Strategy for Economic Development and Poverty Reduction PFMU support Poverty Assessment Country Portfolio Performance Review Country Economic Memorandum (CEM) Debt Management Telecom TA
Public finance (as percent of GDP at market prices)e Current revenues Current expenditures Current account surplus (+) or deficit (-) Capital expenditure Foreign financing
Monetary indicators M2/GDP Growth of M2 ( percent)
Price indices( YRS7 =loo) Merchandise export price index Merchandise import price index Merchandise terms of trade index Real exchange rate (US$/LCU)f
Real interest rates Consumer price index ( percent change) GDP deflator ( percent change)
a. GDP at factor cost b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. Consolidated central government. f. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation.
Frm Project ID Project Name IDA Cancel. Undisb. Orig. Rev,d
PO70290 2nd Health Systems Dev. U U 2002 0.0 127.0 0.0 138.94 47.32 PO66571 2nd Primary Education PO69086 Corn.-Based Pov. Reduction PO69901 Community Based Urban Dev. PO65301 Economic Mgt Capacity Building PO70291 HIV/AIDS Program Dev. PO83082 Micro, Small & Med. Enterprise PO74963 Lagos Urban Transport Project
Local Empowerment & Envir. PO69892 Mgmt. PO70293 Privatization Support PO63622 Fadama I1 PO7201 8 Transmission Development PO80295 Polio Eradication PO64008 Small Towns Water PO71494 Universal Basic Ed. Overall Result
IBRDiIDA * US$ mil Total Disbursed (Active) 127.38
a/ Intended disbursements to date minus actual disbursements to date as projected at appraisal * Disbursement data is updated at the end of the first week of the month.
57
Annex B8 Page 2 of 2
International Finance Corporation NIGERIA - Statement of IFC's Committed and Outstanding Portfolio
Amounts in US Dollar Millions
As of April 30,2004 Approval Fiscal Year Institution Short Name LOM Equity QL+QE All Cmtd- Loan Out- Equity QL+QE All Out-
Cmtd-IFC Cmtd-IFC Cmtd-IFC Part IFC Out-IFC Out-IFC Part
1998
1997
1999
1999
1999
1996
1997
2000
1997
2000
1991
1995
1994
2003
1964/1966/1970/1989
2000
2000
2001
2000
2000
1992/1993
2000
2000
1981/1985/1988
2002
AEF Ansbby
AEF Ekesons
AEF Global Fabn
AEF Hercules
AEF Hygeis
AEF Mid-East
AEF Moorhouse
AEF Oha Motors
AEF Radmed
AEF SafetyCenter
AEF Telipoint
AEF Vinfesen
Abuja Int'l
Adamac
Arewa Textiles
CAPE FUND
Citibank (Nig)
Delta Contractor
Diamond Bank
FSB
FSDH
GTB
IBTC
Ikeja Hotel
MTNN
0.10
0
0.32
1.30
0
0
0.62
0.84
0.25
0.50
0.08
1 .oo 1.75
25.00
0
0
7.36
15.00
12.00
9.45
0
16.00
20.00
0
85.00
0
0
0
0
0.19
0
0
0
0
0.06
0
0
0.7 1
0
0.00
7.50
0
0
0
0
0.86
0
0
1.46
15.00
0
0
0
0
0
0.12
0
0
0
0
0
0
0
0
0
0
0
0
0
11.25
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
15.00
0
0
0
0
0
0
0
0
0
0
0
0.10
0.00
0.32
1.30
0
0
0.62
0.84
0.25
0.50
0.08
1 .oo 1.75
11.56
0
0
7.36
0.20
12.00
9.45
0
16.00
20.00
0
19.09
0 0 0
0 0 0
0 0 0
0 0 0
0.19 0 0
0 0 0.12
0 0 0
0 0 0
0 0 0
0.06 0 0
0 0 0
0 0 0
0.7 1 0 0
0 0 6.94
0 0 0
5.4 0 0
0 0 0
0 0 0
0 0 0
0 6.75 0
0.86 0 0
0 0 0
0 0 0
1.46 0 0
14.56 0 0
2001/2004 UBA 0 0 10.00 0 0 0 0 0
T W pOFtfoli0: I X I '.' 1%57 ~ 25.17 21.37 15.00 102.42 23.24 6.81 + 6.94
