“This economy needs to find another gear.”—Nick Hurd MP, Parliamentary Under-Secretary of State, DFID
45.Since it returned to civilian rule in 1999, Nigeria has experienced a sustained period of impressive economic growth, averaging an annual growth rate of 7.4% compared with 2.0% for the UK over the same period. With a recent rebasing of its Gross Domestic Product (GDP), Nigeria has become Africa’s largest economy with per capita income reaching over $3,200 in 2014. While Nigeria has typically been dependent on its oil and gas sector to stimulate the economy, growth in recent years has been largely driven by the non-oil sectors, with utilities, manufacturing, agriculture, trade and telecoms having contributed the most to overall growth. This diversification away from oil and towards other sectors is a key component of President Buhari’s third pillar of his election platform: fixing the economy.
46.Yet economic growth in Nigeria in recent years has not been inclusive: it has been geographically concentrated in the South; it has not created enough jobs; and it has not broken down existing patterns in social exclusion. The consequences of the narrowly distributed benefits of this growth are starkly outlined by the conflict in the North East. Professor Raufu Mustapha, Associate Professor of African Politics, University of Oxford, outlined some of the underlying causes of conflict with respect to the inequality within and between regions:
“The north-east of Nigeria, relative to other parts of Nigeria, is the poorest and most disadvantaged area, and within that society itself the communities there have one of the highest levels of inequality within them. It is the intensity of the poverty and the inequality, both regional and within the society itself that needs to be addressed.”
Fig 4: Poverty rates in Nigeria by state
Source: Oxford Poverty and Human Development Initiative (OPHI)
47.Nigeria’s progress on human development indicators reflects inequities in the distribution of economic growth. In efforts to reduce maternal mortality in line with the Millennium Development Goals (MDGs), Nigeria saw a significant increase in the proportion of births attended by a skilled health attendant nationally: from 36.3% in 2004 to 58.6% in 2014. Yet the two regions with the worst performance, well below the national average, are the North East and North West—also the regions that have least felt the benefits of the economic boom.
48.Much of the exclusionary pattern of growth is related to the way that windfalls from oil have been consumed rather than invested. Investment has been woefully low relative to other emerging economies, and investment in public infrastructure in particular is well below the level needed to secure sustainable and inclusive growth.
Fig 5: Nigeria is rich enough to be a middle income country, yet more than 1 in 10 children there die before the age of 5
Source: World Bank, “Who Should Get Foreign Aid?”, GatesNotes, 5 April 2016
* GNI converted to dollars using the World Bank’s Atlas Method,
49.One area in which the impacts of low investment have been strongly felt is in the power sector. Despite having the continent’s largest economy, Nigeria also has the highest number of Africans (96 million) living without access to electricity. Increasing access is a key component of the poverty reduction strategy in Nigeria. It can improve the productivity and output of enterprises, create jobs and free people from the burden of self-generation (which is usually more expensive). Greater access can create a positive feedback loop by increasing incomes and allowing the poorest to invest in education and other productive resources that are central to sustainable development.
50.In the most recent version of its Operational Plan 2011–2016, DFID Nigeria recognises that poor infrastructure is one of the main “constraints to growth”, acting as a barrier to economic and social development. The aim of its Nigeria Infrastructure Advisory Facility (NIAF), now in its second phase with a budget of £106m, is to support the improvements to infrastructure that are so vital for development, with a particular focus on necessary power sector reforms. As Adam Smith International—DFID’s chosen implementer for the NIAF programmes—pointed out in written evidence, over $70 billion dollars of investment in the power grid is required, and the only realistic source for this amount of capital is the private sector. As a result, the NIAF programmes have advised on the sale or concession of generating plants and distribution systems owned by the Government, with the aim of creating a commercially viable and privately owned power network. Adam Smith International also wrote that NIAF 2 has achieved: “a number of landmark results including saving over £1 billion per annum for Nigerian electricity consumers and bringing in huge private investment to the power sector”.
51.Concerns were raised in evidence about the impact that the NIAF programmes have had on the poor. Global Justice Now wrote that NIAF 2: “appears to treat privatisation as an end in itself rather than increasing energy access for the poor and reducing poverty.” As outlined in our recent Report ‘UK aid: allocation of resources: interim report’, poverty reduction is a statutory requirement for the spending of development assistance by DFID and it is essential that all DFID programming consider first and foremost its impacts on the poorest—both in the short term and the long term. Yet the evidence from Global Justice Now revealed that the vast majority of Nigerian electricity users have seen electricity price increases since the launch of NIAF. Adam Smith International drew attention to the fact that: “The poorest consumers continue to be protected via the Lifeline R1 tariff bracket offering cross-subsidised electricity for low income users.” However, this only covers a very small proportion of the population which has raised concerns. As Dr Kate Meagher stated:
“The privatization strategy supported by DfID may have been well intended, but it was poorly designed and thought through […] offering concessional tariffs that cover 0.5% of the Nigerian population cannot be said to address concerns about poverty in a society in which over 60% of the population is below the poverty line.”
52.The need for power sector privatisation strategies to be carefully thought through is reflected in a 2005 World Bank report on power sector reform in Africa. The Bank wrote:
“[…] cost-reflective tariffs often mean substantial increases for poor households, which results in reduced consumption and welfare […] Special pricing systems for low-income households can mitigate some of the negative impacts of price reforms and, as the case studies show, are in almost all cases necessary.”
While 350 low-income households and 150 micro-enterprises were surveyed to help the electricity regulator understand the experience and requirements of low-income electricity consumers, this seems to us to be insufficient. The survey was conducted in Ibadan which has a poverty rate well below the national average and is in the South, despite the fact that the stated geographical focus of NIAF 2 is the more impoverished North of Nigeria. Understanding the experiences and needs of low-income electricity consumers demands detailed research, and evidence to this inquiry suggests that the NIAF programmes have failed to deliver in this respect.
53.Regarding the Northern focus of the programme, a recent NIAF Annual Review (December 2015) reveals that half of the indicators in the “Northern Growth” output were discontinued, which DFID stated was an attempt to ensure that targets are “aligned with the opportunities presented by a new administration”. Yet the recent logical framework (January 2016) fails to set out new targets for increasing access to electricity for the poorest Nigerians in the North.
54.Further concerns have been raised about the way in which private companies raised funds to purchase power sector assets. In written evidence, Dr Kate Meagher wrote: “The process of privatization was deeply financialized, requiring purchasers to take out such huge loans that they are now unable to invest in improving the power infrastructure, and focus largely on raising tariffs to meet the cost of their debt obligations.” It was also mentioned in oral evidence by Dr Meagher that loans were raised “from all over the world”. This adds an additional layer of concern given the recent devaluation of the Naira, Nigeria’s currency. A less valuable Naira, which fell almost 30 percent to a record 281.75 per US dollar, is likely to add to the debt burden of those companies required to service their debts in foreign currencies. This may have implications for the viability of the power sector based on current tariff structures.
55.The economic and social potential of millions of Nigerians is severely constrained by lack of access to electricity. Therefore we welcome DFID’s efforts to increase energy access in the country and recognise the importance of private sector investment in doing so. While there are likely to be benefits to all households of increased energy access in the long term, we share the concerns held by several witnesses to this inquiry that poverty reduction has not been given sufficient consideration and that the research base for the NIAF programme was inadequate. Tariff increases are hurting poor Nigerians in the short term, even if there is a net overall benefit to privatisation of the power sector in the long term. Despite the NIAF programme’s supposed focus on the North, the dropping of targets for the region suggest that DFID is not delivering in this respect.
56.We suggest that DFID encourage the Nigerian Government to take measures to mitigate negative impacts of electricity price increases on the poorest households and consider both the short and long term impacts of its power sector programmes in terms of poverty reduction. While we recognise that the ‘Lifeline’ tariff aims to do this, its coverage is far too narrow. DFID should support the expansion of the ‘Lifeline’ tariff and should monitor the impact of price increases on poor households not covered by this tariff. In preparing for any future infrastructure programmes in Nigeria or elsewhere, DFID should carry out more in-depth impact assessments to thoroughly consider the impacts of privatisation on the poor.
57.In our recent Report on the UK Implementation of the Sustainable Development Goals (SDGs), we welcomed DFID’s engagement with the private sector and stressed the important role that it has to play in complementing poverty reduction efforts. This is particularly true in a country such as Nigeria. While Nigeria is DFID’s third largest bilateral programme in 2016–17, receiving over £264m in Official Development Assistance (ODA), Justin Moore pointed out in written evidence that other types of financial flows between the UK and Nigeria are far more substantial. Remittances were worth almost ten times as much as ODA in 2014 and foreign direct investment (FDI) about nine times as much in 2012. Dr Kate Meagher told us in oral evidence about the importance of leveraging foreign investment for: “connecting up value chains, integrating informal and small-scale industries into the local private sector, and connecting up local units that can create not only low-value jobs but high-value jobs.” Josephine Osikena, Director, the Foreign Policy Centre, went on to say that: “DFID could be more co-ordinated in working with British Nigerian diaspora organisations” to fill these gaps.
58.There is no mention of the Nigerian diaspora in DFID’s latest Nigeria Operational Plan 2011–2016. We urge DFID Nigeria to conduct a review into its engagement with British Nigerian diaspora groups, particularly professional associations and those focussed on development, with the objective of ensuring that the substantial financial flows in the form of remittances and foreign direct investment (FDI) complement Official Development Assistance (ODA) to the benefit of the poorest Nigerians.
59.CDC Group, the UK Government’s development finance institution, may also be key to unlocking the potential of the private sector for inclusive economic growth. CDC invests in countries where the private sector is weak, with a focus on generating jobs: examples in Nigeria include a recent investment in a 450MW gas power plant near Benin City. CDC takes a sectoral based approach to private sector development, seeking out investment opportunities in sectors where there is strong potential for job growth. DFID take a mixed approach, focusing both on specific sectors (such as in its Generating Employment in States (GEMS) programmes) as well as economy-wide systemic issues (such as increasing access to finance through its Financial Sector Development Programme). We heard in oral evidence that this mixed approach towards both sectoral and systemic issues is the right one, though it is unclear how effectively DFID and CDC Group are collaborating on the sectoral focus of DFID’s economic development programme.
Box 2: GEMS 4—Improving the performance and inclusiveness of wholesale and retail markets to support women and the poor
One of the keys to unlocking inclusive growth in Nigeria lies in increasing the value of the goods and services that the poor rely on to earn a living. In Lagos we visited Mile 12, one of the largest wholesale fresh produce markets in Nigeria. Forty trucks of tomatoes are transported daily from Northern Nigeria to Mile 12. However, the quality of much of the produce is affected by delayed harvest, poor handling, inappropriate packing and poor storage during transportation. This causes wastage of around 41% per basket as well as poor product quality, short shelf life and low prices.
GEMS 4 is working with trader associations, transporters and market workers to introduce better handling practices in an effort to reduce waste and increase the retail value of tomatoes and boost incomes. As of March 2015, 2,150 people had seen positive rises in income, of which 1,473 were poor, and 439 were women, with the expectation that this will rise rapidly over the 12 months following the most recent annual review.
On our visit we learned that the damage caused to tomatoes in transit relates, in part, to the traditional baskets used to transport them. Though as DFID acknowledged, the manufacture of these baskets is also a source of income for the poor. Due to the interconnectivity of markets, delivering pro-poor market outcomes requires careful planning and an in-depth understanding of the context.
60.An additional element of the UK Government’s private sector development approach is the use of the Cross Government Prosperity Fund. As DFID stated in written evidence:
“Nigeria is one of 5 pilot countries set to receive funding from the new UK Prosperity Fund. DFID is working closely with the FCO and UKTI to develop interventions that will reduce barriers to trade and tackle corruption within the business environment.
A Report from our predecessor Committee, ‘The Future of UK Development Cooperation: Phase 2: Beyond Aid’, emphasised the importance of policy coherence for development (PCD)—the integration of different aspects of international development within policy-making. The Report singled out weaknesses in PCD in private sector development in particular. Our recent Report on UK implementation of the Sustainable Development Goals also mentioned concerns about “the lack of a strategic and comprehensive approach to implementation” across Government. It is unclear to what extent poverty reduction will be prioritised in the use of the Prosperity Fund.
61.The private sector must play an essential role in successful economic development in Nigeria, and investments in commercially viable, job-creating industries will be key to unlocking growth potential. Various parts of the UK Government and associated bodies will play a role in this, including DFID, the Foreign and Commonwealth Office (FCO), UK Trade and Investment (UKTI) and CDC Group. We, and our predecessor committee, have expressed concerns about a lack of a coherent, joined up strategy on how these various pieces will fit together. In particular, it is not clear to what extent poverty reduction and inclusive growth will be prioritised by the Prosperity Fund, and whether DFID will therefore take the lead in its delivery.
62.We recommend that in addition to its new Operational Plan, DFID publishes a strategic plan of how the UK Government’s various approaches will be mobilised to make progress towards inclusive growth and poverty reduction. This should include how it coordinates with CDC Group with respect to its sectoral approach to economic development in Nigeria.
63.Employment is the key to inclusive growth. Yet in evidence to our inquiry, concerns were raised about the ability of private sector-led, market-based strategies to deliver. In terms of regional divides, there is evidence to suggest that private sector-led strategies can actually exacerbate inequalities. Imbalances in education and skills between the North and South of Nigeria also result in imbalances in access to jobs created by the formal private sector. As Dr Kate Meagher wrote in written evidence:
“In the context of historically low levels of Western education, the encouragement of private sector-led strategies of employment generation have exacerbated regional inequalities between northern and southern Nigeria. […] Private sector processes of economic inclusion are selective, and that means that northern youth are being left ever farther behind.”
It is therefore essential that job opportunities are well-matched to skills, particularly in the North.
64.DFID Nigeria is well aware of the challenges associated with employment. Ben Mellor, Head of Office and Country Representative, DFID Nigeria highlighted DFID’s Increasing Economic Opportunities for Marginalised Youth in Northern Nigeria programme:
“It is targeted specifically at youth in the north—the Almajiri, who are the marginalised youth of northern Nigeria. It is targeted […] at identifying opportunities within the private sector and, therefore, making sure that the skills that it provides are matching where we believe the private sector could go”.
In order to deliver on skills-matching, DFID needs to ensure that it maintains a thorough understanding of the realities regarding skills and employment as it exists for its marginalised target groups. As Professor Abiodun Alao, Professor of African Studies, King’s College London told us:
“We must know what took place on the ground, what the gaps are that need to be filled, and until a proper analysis of these are done we will be starting off on the wrong footing.”
65.Understanding skills requirements must extend beyond the ‘formal’ to the ‘informal’ economy. Formal wage employment accounts for only 13% of the workforce in Nigeria and over half of this is in the public sector. In this context, targeting the informal economy is therefore essential. As CDC Group wrote in evidence:
“Informal employment can often mean poor employment conditions, and is associated with increasing poverty. Women and other vulnerable groups who are excluded from opportunities often have little choice but to take informal low-quality jobs.”
Despite being such an important component of inclusive growth in Nigeria, we heard in evidence that DFID has little understanding of the dynamics of the informal economy. Dr Kate Meagher identified this as: “one of the big weaknesses in a lot of DFID’s programming.”
66.In its Business Case for the Increasing Economic Opportunities for Marginalised Youth in Northern Nigeria programme, DFID sets out the key assumptions driving its theory of change that it hopes will see the project deliver a lasting impact on employment. However, of the 16 theoretical links that connect the beneficiaries to the outcomes (‘increased incomes’ and ‘increased social cohesion and stability’), the evidence for 11 of them is determined to be ‘Weak’ or ‘Weak/Medium’.
67.Employment is central to Nigeria’s future development, and the successful creation of quality jobs has significant implications for both inclusive growth and social cohesion and stability. A growing private sector is essential to delivering the two million jobs needed for young people entering the labour market each year. Yet the evidence suggests that the selective nature of private sector processes can actually limit the inclusivity of growth if interventions are not carefully planned based on a strong body of evidence. Large-scale programmes should not be based on a body of evidence that is deemed to be ‘weak’. Furthermore, an understanding of the dynamics of the informal sector, where the majority of Nigerians work, is key to delivering effective programming.
68.We urge DFID to invest in research to develop a better understanding of the processes underlying quality job creation in Nigeria. Future programmes designed to generate jobs should be built on a stronger evidence base, with a particular focus on capturing the dynamics of the informal sector to ensure decent, secure livelihoods for the millions of vulnerable people who rely on informal employment.
69.The underlying barriers faced by women are key to their economic empowerment. Evidence to our inquiry suggested the need for a gender-sensitive approach to understanding how markets work for the poor and addressing these barriers. As Georgia Taylor, Director, WISE Development, told us:
“There has been a big struggle in trying to include women in these [DFID] programmes, partly because the underlying analysis and research at household level is not happening well enough […] We define women’s economic empowerment as not just about earning money but about being in control of that money and being able to make decisions around assets and income”.
DFID’s economic development programmes have delivered some commendable results for women, raising the incomes of at least 247,000 and giving 9.8 million additional women access to finance. Much of this success relates to the use of a ‘Making Markets Work For the Poor’ (M4P) approach, designed to tackle the fundamental weakness in market systems to the benefit of those who are often excluded from these systems.
70.Written evidence from Plan International UK indicated that, in supporting the vulnerable, DFID may also need to consider targeting non-market barriers. Georgia Taylor, developed this point when she told us that:
“[…] women face barriers of unpaid care work and sexual and reproductive health—not having access to family planning or safe abortion is a massive issue for women trying to run businesses or go out to work. Some of those links are not being made for women within these markets programmes because they are just about the market”.
Through its Voices for Change (V4C) programme, DFID has been investigating these non-market barriers. However, evidence to this inquiry suggested that they are still an issue of high priority.
71.We commend DFID for its commitment to ‘Making Markets Work for the Poor’, and in particular the impressive achievements its approach has delivered for many women. DFID’s economic development programmes in Nigeria have rightly taken a substantial gender focus. We heard that it is not just market barriers but equally non-market barriers that can limit the economic empowerment of women.
72.DFID should build upon its current programmes aimed at generating jobs and increasing incomes by addressing the non-market barriers—such as unpaid childcare and family planning—that many women in Nigeria face. In researching these issues and building them into programme design, DFID could strengthen its gender inclusive approach to economic development.
87 World Bank, ‘
88 World Bank, ‘
89 Nigerian National Bureau Of Statistics, (February 2015)
90 “”, The Guardian Nigeria, 16 April 2016
93 Nigerian National Bureau Of Statistics, The Millennium Development Goals Performance Tracking Survey 2015 Report (March 2015), p 23
94 World Bank, Nigeria - Country partnership strategy for the period FY2014-FY2017 (April 2014)
96 Practical Action Consulting, Utilising Electricity Access for Poverty Reduction (January 2015), p 12–13
98 Adam Smith International Annex A () para 1.3
99 DFID, Nigeria Infrastructure Advisory Facility 2: Business Case and Intervention Summary (January 2014), p 2
100 Adam Smith International () para 3.2
101 Global Justice Now () p 1
103 Global Justice Now () para 3.2
104 Adam Smith International Annex A () para 3.1
105 Dr Kate Meagher () para 4
106 World Bank, Power Sector Reform in Africa: Assessing Impact on Poor People (August 2005), para 10.6
107 Dr Kate Meagher (); Global Justice Now ()
108 DFID, Nigeria Infrastructure Advisory Facility Phase 2: Annual Review (December 2015), p 5 (ODT 85KB)
109 DFID, Nigeria Infrastructure Advisory Facility Phase 2: Logical Framework (January 2016), p 5
110 Dr Kate Meagher () para 4
112 “”, Bloomberg, 29 June 2016
113 International Development Committee, First Report of Session 2016–17, UK Implementation of the Sustainable Development Goals, HC 103, para 62
114 Justin Moore ()
117 CDC Group () para 9
119 DFID, Growth and Employment in States Programme (GEMS): Annual Review (November 2015), p 46
120 International Development Committee, Tenth Report of Session 2014–15, The Future of UK Development Cooperation: Phase 2: Beyond Aid, HC 663, para 33
121 International Development Committee, First Report of Session 2016–17, UK Implementation of the Sustainable Development Goals, HC 103, para 83
123 Dr Kate Meagher () para 1
126 According to the International Labour Organization (ILO), some of the characteristic features of informal employment are lack of protection in the event of non-payment of wages, compulsory overtime or extra shifts, lay-offs without notice or compensation, unsafe working conditions and the absence of social benefits such as pensions, sick pay and health insurance. Women, migrants and other vulnerable groups of workers who are excluded from other opportunities have little choice but to take informal low-quality jobs.
127 World Bank, Where has all the Growth Gone? A Poverty Update for Nigeria (August 2013), para 88 and 90
128 CDC Group () para 3
130 DFID, Increasing Economic Opportunities for Marginalised Youth in Northern Nigeria: Business Case and Summary (October 2015), p 22 (ODT 492KB)
132 DFID () p 3
133 Plan International UK () para 9
135 Voices for Change Nigeria, ‘
25 July 2016