Document of The World Bank FOR OFFICIAL USE ONLY Report No. 82501-NG INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL FINANCE CORPORATION AND MULTILATERAL INVESTMENT GUARANTEE AGENCY COUNTRY PARTNERSHIP STRATEGY FOR THE FEDERAL REPUBLIC OF NIGERIA FOR THE PERIOD FY2014-FY2017 March 13, 2014 Nigeria Country Management Unit Africa Region The International Finance Corporation The Multilateral Investment Guarantee Agency 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. The date of the last Country Partnership Strategy Progress Report was September 20, 2011. CURRENCY EQUIVALENTS Exchange Rate Effective as of 2014 SDR 1 = US$ US$ = Naira GOVERNMENT FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities AfDB African Development Bank AMCON Asset Management Corporation of Nigeria ARC African Risk Capacity ATA Agriculture Transformation Actin Plan CADP Commercial Agriculture Development Project CAF Country Assistance Framework CBN Central Bank of Nigeria CCT Conditional Cash Transfer CPS Country Partnership Strategy CPSPR Country Partnership Strategy Progress Report CDD Community Driven Development CSO Civil Society Organizations DFID Department for International Development DISCO Distribution Company DPO Development Policy Operations DMO Debt Management Office DRM-CC Disaster Risk Management and Climate Change Operation DSA Debt Sustainability Analysis EBP Energy Business Plan ECA Excess Crude Account ECOWAS Economic Community for West African States EFCC Economic and Financial Crimes Commission EITI Extractive Industries Transparency Initiative FCT Federal Capital Territory FDI Foreign Direct Investment FGN Federal Government of Nigeria FIRS Federal Inland Revenue Service FMOE Federal Ministry of Education FMOH Federal Ministry of Health GEF Global Environment Fund GEM Growth and Employment in Markets GENCO Generation Company GER Gross Enrollment Rate GFDRR Global Facility for Disaster Reduction and Recovery GHG Greenhouse Gas GIFMIS Governments Integrated Financial Management and Information System i GIZ Gesellschaft fuer Internationale Zusammenarbeit GMS Gas Master Plan GPE Global Partnership for Education GPF Governance Partnership Facility HDI Human Development Indicators HNLSS Harmonized Nigeria Living Standard Survey IBRD International Bank for Reconstruction and Development ICA Investment Climate Assessment ICT Information and Communication Technology IDA International Development Association IEG Independent Evaluation Group IFC International Finance Corporation IGR Internally Generated Revenue IHP+ International Health Partnership IMF International Monetary Fund IPP Independent Power Producers IPSAS International Public Sector Accounting Standards ITAS Integrated Time and Attendance System ITN Insecticide Treated Net LGA Local Government Authority LSMS-ISA Living Standards Measurement Study – Integrated Surveys on Agriculture MDAs Ministries, Departments and Agencies MDGs Millennium Development Goals MIC Middle Income Country MIGA Multilateral Investment Guarantee Agency MW Mega Watts NBET Nigeria Bulk Electricity Trader NBS Nigeria Bureau of Statistics NCS Nigeria Customs Service NDHS Nigeria Demographic and Health Surveys NEGIP Nigeria Electricity and Gas Improvement Project NEGSR Nigeria Employment and Growth Study Report NEITTI Nigeria Extractive Industries Transparency Initiative NER Net Enrollment Rate NEWMAP Nigeria Erosion Management and Watershed Management Project NHIS Nigeria Health Insurance Scheme NIIMP National Integrated Infrastructure Master Plan NIRP Nigeria Industrial Revolution Plan NMRC Nigeria Mortgage Refinancing Company NNPC Nigeria National Petroleum Company NPOPC National Population Commission NPV Net Present Value NSWF National Sovereign Wealth Fund PAD Project Appraisal Document PDP People Democratic Party PEFA Public Expenditure and Financial Accountability Assessment PEMFAR Public Expenditure Management and Financial Accountability Review PER Public Expenditure Review ii PFM Public Financial Management P4R Program For Results Financing PHCN Power Holding Company Nigeria PPP Public Private Partnership PRG Partial Risk Guarantee RAMP Rural Access and Mobility Projects SBMC School Board Management Committees SCPZs Staple Crop Processing Zones SDPO State Development Policy Operation SEEFOR State Employment and Expenditure for Results SEPIC Nigeria State Education Program Investment Credit SHPIC Nigeria States Health Program Investment Credit SME Small and Medium Enterprises SPARC State Partnership for Accountability, Responsiveness and Capacity SOML Saving One Million Lives SSA Sub-Saharan Africa SURE-P Subsidy Reinvestment and Empowerment Program TA Transformation Agenda UNDP United Nations Development Programme UNICEF United Nations Children’s Fund UNHDI United Nations Human Development Index USAID United States Agency for International Development WB World Bank WBG World Bank Group WDI World Development Index WDR World Development Report YESSO Youth Employment and Social Support Operation World Bank IFC MIGA Vice President: Makhtar Diop Jean Philippe Prosper Michel Wormser Country Director: Marie Francoise Marie-Nelly Saran Kebet-Koulibaly Ravi Vish Task Team Leader: Indira Konjhodzic Solomon Quaynor Stephan Dreyhaupt iii Acknowledgements: The Nigeria CPS was prepared with the collaboration of a core team who worked closely with the Task Team Leaders and the Country Director: Amos Abu, Andrew Dabalen, Ayodeyi Oluwole Odutolu, Bayo Awosemusi, Benjamin Loevinson, Caroline Sage, Erik Magnus Fernstrom, Francisca Ayodeji Akala, Frederick Yankey, Foluso Okunmadewa, Frank Armand D. Douamba, Gravette Deanne Brown, Irajen Appasamy, John Litwack, Jens Kromann Kristensen, Katherine Bain, Michael Wong, Mohammed Dalil Essakali, Raffaello Cervigni, Sateh Chafic El- Arnaout, Seenithamby Manoharan, Sheu Salau, Stephen Mink, Adetunji Oredipe, Ogo-Oluwatoyin Jagha (Task Team Leader for the CPS FY10-13 Completion Report), Olatunji Ahmed, Vasco Molini, Abiodun Elufioye, and Minh Thi Hoang Trinh. The Team also wants to thank the Economic Management Implementation Team (EMIT), chaired by the Coordinating Minister of Economy and the Honorable Minister of Finance, Dr. Ngozi Okonjo Iweala, and the Director of the Department for International Economic Relations, Mr. Mohammed Haruna, and other Senior Officials of the Federal Ministry of Finance for the close collaboration on the program and during the consultations. The consultations with many non-Governmental organizations, private sector organizations, the media, and other Development Partners provided very valuable feedback, which is incorporated in the document. iv FY2014-2017 COUNTRY PARTNERSHIP STRATEGY FOR THE FEDERAL REPUBLIC OF NIGERIA TABLE OF CONTENTS Executive Summary .................................................................................................................................... vii  I.  Introduction ............................................................................................................................................ 1  II.  Country Context .................................................................................................................................... 1  II.A.  Social And Political Context ............................................................................................................ 1  II.B.  Recent Macroeconomic Performance And Medium-Term Outlook ................................................ 2  II.C.  The Poverty Challenges ................................................................................................................... 5  II.D.  Key Constraints To Increasing Shared Prosperity And Accelerating Poverty Reduction .............. 9  II.E.  Opportunities For Growth, Increasing Shared Prosperity And Accelerating Poverty Reduction .. 13  III.  Government Program And Medium-Term Strategy ............................................................................. 14  IV.  World Bank Group Partnership Strategy .............................................................................................. 20  IV.A. Lessons From CPS Completion Report, IEG Evaluation And Stakeholder Consultations ........... 20  IV.B. Overview Of World Bank Group Country Partnership Strategy ................................................... 21  IV.C. Engagement Areas Supported By Lending And Non-Lending Activities ..................................... 24  First Strategic Cluster: Federally Led Structural Reforms For Growth And Jobs ............................. 24  Second Strategic Cluster: Social Service Delivery At State Level For Greater Social Inclusion ... 32  Foundational/Cross-cutting Cluster: Governance And Public Sector Management........................ 37  IV.D. Implementing The FY2014-2017 Country Partnership Strategy ................................................... 41  Financing Sources ........................................................................................................................... 41  Portfolio Management ..................................................................................................................... 43  Financial Management And Procurement Systems ......................................................................... 44  Monitoring And Evaluation And Advancing The Science Of Delivery .......................................... 45  Partnerships ..................................................................................................................................... 45  V.  Managing Risks .................................................................................................................................... 46  Annex 1: Results Matrix ............................................................................................................................. 49  Annex 2: Nigeria - Selected Indicators Of Bank Portfolio Performance And Management ..................... 60  Annex 3: Nigeria - Operations Portfolio (IBRD/IDA-GRANTS) ............................................................. 61  Annex 4: Statement Of IFC’s Committed And Disbursed Outstanding Investment Portfolio .................. 62  Annex 5: Strengthening Statistics In Nigeria - A Suggested Path Forward................................................ 63  Annex 6: Governance Approach ................................................................................................................. 67  Annex 7: FY10-13 Joint Country Partnership Strategy Completion Report of Nigeria ............................ 70  Annex 8: Country Assistance Framework for Nigeria .............................................................................. 113 v List of Boxes, Figures and Tables Box 1: Poverty and inequality trends in Nigeria: 2010-2013 ....................................................................... 6  Box 2: The CPS approach to the Northern Nigeria..................................................................................... 23  Box 3: The Joint Bank Group Energy Business Plan for Nigeria (EBP) .................................................... 26  Figure 1: Simulations on Growth and Poverty Reduction ............................................................................ 7  Table 1: Selected Economic Indicators ......................................................................................................... 5  Table 2: Regional Poverty Estimates in 2003-2004 and 2009-2010: .......................................................... 7  Table 3: HNP Outcomes and Service Delivery in Nigeria 2003-2013 ......................................................... 9  Table 4: Proposed Lending Program ......................................................................................................... 42  Table 5: CPS Indicative Knowledge Services Program, FY2014-2015 ..................................................... 43  vi EXECUTIVE SUMMARY 1. The Nigeria Country Partnership Strategy (CPS) covers the period FY2014-2017 and is fully aligned with the goals of Nigeria’s development agenda, Vision 20:2020, and its medium-term strategy for realizing that vision, the Transformation Agenda 2011-2015. The CPS represents the World Bank Group’s (WBG) program under the Country Assistance Framework (CAF) developed by Nigeria’s partners to coordinate interventions based on each partner’s comparative advantage in order to deliver rapid results. With this strategy, Nigeria is officially entering blend status, having been declared creditworthy for IBRD financing in FY13 and having exceeded the IDA operational cut-off. Nigeria is One of Africa’s Potential Economic Powerhouses 2. With its strong fundamentals, including consistent and strong growth since 1999, Nigeria qualifies as one of the continent’s potential economic powerhouses. Nigeria is the most populous country of the continent (171 million people in 2012) and the second largest economy after South Africa. Ranking 13rd in the world, Nigeria is Africa’s largest oil producer and also holds the second highest proven reserves in the continent after Libya. After decades of military rule, the country has successfully engaged on the path of democracy since 1999, and since then has enjoyed consistent and strong growth. All of these factors make Nigeria one of the continent’s potential economic powerhouses. 3. Responsible macroeconomic policies have supported a high degree of economic stability. The introduction of the fiscal reserve Excess Crude Account (ECA) in 2004 has facilitated the implementation of countercyclical fiscal policy, including the financing of an effective stimulus package during the world financial crisis of 2008-2009. Since 2011, the Government has actively pursued fiscal consolidation, and monetary policy has been tightened along with the recovery of the banking sector from the crisis of 2009. Inflation is also slowing down. To Unlock its Full Potential, Nigeria Needs to Tackle Some Critical Development Challenges 4. So far, with rapid population growth, Nigeria has made slow progress in reducing poverty. With a median age of 14 and population growth at close to 3 percent, Nigeria faces the challenge of providing jobs for its teeming youth population. Despite the robust growth over the last decade, rapid population growth combined with increasing inequality hampered faster poverty reduction. The poverty (consumption per capita) declined from 48 percent in 2004 to 46 percent in 2010 using the adult equivalent methodology. The percentage of Nigerians living in extreme poverty (US$1.25 per capita per day, purchasing power parity adjusted) declined from 64 to 63 percent. Given population growth, this implies that the number of extreme poor increased from 86 million in 2004 to 100 million in 2010. 5. The key challenge facing Nigeria is therefore how to leverage its oil resources to promote sustained inclusive growth, reduce poverty, inequality and unemployment. Nigeria is highly dependent on oil, which makes the country vulnerable to commodity price volatility. Nigeria needs to diversify its economy to achieve sustainable inclusive growth and accelerate the creation of jobs. Nigeria has been growing at 6 to 8 percent annually over the past decade but will need to achieve even higher growth rates to make a dent in poverty. This will require effective macroeconomic management, socio-political stability, the provision of key infrastructure, structural reforms to reduce impediments to diversified growth, and more effective efforts to achieve social inclusion. Given the large regional, social, and economic vii disparities and conflict and insecurity in some parts of the country, achieving these objectives requires a resolute and differentiated approach. The Government has Formulated a Clear Vision, and is Implementing its Transformation Agenda to Address the above Challenges 6. The Vision 20:2020 and its medium-term implementation strategy focus on promoting sustainable growth and welfare improvements. Specifically, the Vision 20:2020 aims to: (a) optimize the country’s human and natural resource potential to achieve rapid economic growth and (b) translate that growth into equitable social development for all citizens. The medium-term strategy for achieving these goals, the Transformation Agenda, aims at: (a) creating a sufficient number of jobs to address the protracted problems of unemployment and long-term poverty; (b) laying the foundation for a robust and inclusive growth of the Nigerian economy; and (c) improving and sustaining the well-being of all Nigerians regardless of their personal circumstances and location. The Government is implementing critical programs to: (i) address the structural problems of access to power and to finance; (ii) unlock agricultural potential; (iii) create opportunities for job creation; and (iv) implement some safety net programs. Preliminary achievements are showing results illustrated by the dynamism of some sectors such as ICT and e-commerce, the innovation of young entrepreneurs, and an increased interest in Nigeria by international investors and the Nigerian diaspora. 7. The authorities are continuing with efforts to strengthen governance. Great strides are being made in introducing a treasury single account, an integrated financial management system, increasing transparency of revenue allocations, and improving access to information about the budget. Reforms have also been announced and initiated in customs, tax administration and pension administration. International Public Sector Accounting Standards (IPSAS) have been introduced at all levels of government under the federal government leadership. While this is work in progress, the reform marks an important milestone, given the strong federal impetus on state-level governance reforms in this area. At state level, the picture varies from state to state, with some states making headway in public financial management and citizen consultation. The World Bank Group Program 8. In support of these objectives, the CPS program is structured around three strategic clusters: (a) promoting diversified growth and job creation by reforming the power sector, enhancing agricultural productivity, and increasing access to finance; (b) improving the quality and efficiency of social service delivery at the state level to promote social inclusion; and (c) strengthening governance and public sector management, with gender equity and conflict sensitivity as essential elements of governance. WBG support to structural reform agendas for diversified growth and jobs focuses specifically on: (a) increasing installed power generation and transmission capacity and improving the efficiency and governance of electricity delivery; (b) boosting agricultural productivity, improving farmers’ linkages with agro-processors, and scaling up resilience to current and future climate variability; and (c) increasing the supply of long-term financing for the housing sector, expanding financing opportunities for SMEs, and strengthening the ability of Development Finance Institutions to mobilize private finance for key sectors of the economy. Principles of Engagement 9. The WBG program is based on a country diagnosis, strong demand by federal and state authorities, and WBG comparative advantage. The program seeks to strike the right balance between actions to strengthen the enabling environment and direct interventions, recognizing that viii all activities need to be assessed from a governance perspective. This should lead to: more selectivity; a more candid recognition of risks; better identification of reform potential; and performance-based approaches rather than funding inputs to leverage changes in systems and incentives. It will also seek to enhance the role that citizens can and should play in shaping the reform agenda. Both the Government and WBG recognize the importance of focusing on results. Therefore, improving information systems, feedback loops, adaptation and learning will become key features of the new strategy, in both the existing portfolio and new operations. 10. The strategy recognizes that the WBG’s impact derives not only from its financial resources, which are small compared to the country’s own resources, but also from its knowledge work, its deep engagement with federal and state authorities, its understanding of the nuances of local contexts, and its ability to mobilize other partners. The CPS will support demonstrational and catalytic interventions in areas where: (a) the WBG has a real comparative advantage vis-à-vis other partners; and (b) there is high likelihood of durable impact on poverty reduction and of replication without additional donor funding. 11. The strategy foresees close cooperation among development partners to enhance the effectiveness and transformational impact of national efforts. The WBG will collaborate with CAF partners to leverage external resources and enhance the role of knowledge partnerships in building capacity at the state level, furthering the federal Government’s reform agenda, and developing platforms for engagement in new areas such as job creation, socio-economic development in the North, and urbanization. Risks and Mitigating Factors 12. The strategy faces several risks and has built-in flexibility to allow for appropriate responses. Risks to the CPS implementation include economic volatility related to the pace of global recovery; a reversal of capital inflows; lower oil prices and oil production; less reform or more spending in the lead up to the 2015 elections; in-country violence and insecurity; the opposition of vested interests to reform; and instability in the sub-region. The strategy therefore has built-in flexibility to allow for appropriate responses to changing country circumstances and evolving development opportunities. In particular, the WBG program has been set flexibly to allow for mid-term adjustment to take into account additional FY2014-FY2015 diagnostic work and engagement with the new Government in 2015. ix FY2014-2017 COUNTRY PARTNERSHIP STRATEGY FOR THE FEDERAL REPUBLIC OF NIGERIA I. INTRODUCTION 1. The Country Partnership Strategy (CPS) FY2010-2013 for the Federal Republic Nigeria was updated in the CPS Progress Report in September 2011. The CPS was aligned with the country’s Seven Point Agenda and the Vision 20:2020 and the priorities identified by the earlier administration, and endorsed by the current administration. The CPS, prepared in partnership with the Department for International Development (DFID), the United States Agency for International Development (USAID) and the African Development Bank (AfDB), focused on four broad themes: (a) mitigating the impact of the global economic crisis; (b) improving governance, (c) maintaining non-oil growth; and (d) promoting human development. 2. The new Nigeria CPS covers the period FY2014-FY2017 and introduces a change in the country’s borrowing status. Nigeria was declared creditworthy for IBRD financing in FY2013 and is officially entering blend status in FY2014. 3. The new CPS reflects the World Bank Group’s commitment to exploit synergies to generate maximum development impact through innovative solutions, and to leverage WBG knowledge and technical expertise through other partners’ resources. The CPS has been developed and will be implemented in close coordination with development partners, as articulated in the Country Assistance Framework (CAF – Annex 8). The CAF is the common strategic approach of Nigeria’s development partners in support of the Government’s development plans. 4. The overarching objective of the CPS is to support the Government’s goals of laying the foundation for socially and regionally inclusive growth with a specific focus on reducing poverty and increasing shared prosperity. The CPS builds upon two key Government documents – the Vision 20:2020 and the Transformation Agenda. The Vision 20:2020 sets out Nigeria’s long term development objectives. The Transformation Agenda represents a medium- term strategy (2011-2015) for operationalizing Vision 20:2020 and its 2013 mid-term review provides information on the performance of all sectors. II. COUNTRY CONTEXT II.A. Social and Political Context 5. Nigeria is a diverse country with major opportunities and complex challenges. Consisting of thirty-six states and the Federal Capital Territory, the Federation is divided into six geo-political zones. With more than 400 ethnolinguistic groups, it also features significant contrasts in terms of economic and social outcomes: robust economic growth and yet modest poverty reduction; dynamic urban growth centers and isolated rural areas; and widening social and income disparities in the context of abundant natural and human resources. 6. Oil has been the dominant source of government revenue since the 1970s, and has been at the heart of the political debate as well as a major driver of the creation of new states in 1 the Federation. Nigeria shares governance challenges with other developing countries with a large amount of natural resource revenue. 7. Nigeria’s democracy is deepening but, like other young democracies, it is also facing challenges. The combination of abundant oil wealth and nation building has produced a durable yet contested federal system, a multi-party democracy, and important forms of institution building (increasing separation of powers, more autonomy of the judiciary, gradual improvement in electoral processes and a proliferation of civil society organizations). The last general election in 2011 received high praise for being well-managed, despite some post-election violence in northern Nigeria. 8. States in Nigeria operate with a high degree of autonomy. States and local governments in Nigeria control more than half of the nation’s revenue and are responsible for the provision of services that directly influence growth and poverty, such as primary and secondary education, health care, water and sanitation, rural infrastructure, and community services. The high degree of autonomy provides states, particularly those with dynamic and progressive leadership, an opportunity to move ahead on their own. This autonomy, however, also poses a challenge to building national consensus across different levels of government, including in the areas of macroeconomic stability, prioritizing public resource allocation, and meeting minimal national standards in service delivery. 9. While most Nigerians live in peaceful coexistence, contentious relations among different groups have arisen in several parts of the country. Since independence in 1960, Nigeria’s political history has been turbulent, punctuated by periods of urban riots and political confrontations. Currently, some of the most significant challenges include: (a) the insurgency of a violent group popularly known as Boko Haram in the North East, where service delivery is the weakest and poverty rates are the highest (since June 2013, the three northeastern states, Adamawa, Yobe and Borno, have been under a state of emergency to curb the violence and insurgency acts of Boko Haram); (b) inter-communal violence over access to economic and natural resources and political power throughout the country, but especially in Plateau State; (c) kidnappings, armed robbery, oil theft and communal conflicts over oil spills. especially in the South-South; and (d) ongoing efforts to reintegrate militants under an Amnesty Law in the Niger Delta. 10. The 2015 national elections might limit the space for policy reform in the next 12 to 18 months. With the next round of elections scheduled for early 2015, the positioning of political parties – including within parties - is in full swing. In order to build national consensus around common goals, the Government called a national conference from mid- March to end-May 2014 to bring together Nigerians representing the various states, ethnic groups, professional groups and trade unions, civil society organizations, religious and traditional groups and political parties. II.B. Recent Macroeconomic Performance and Medium-Term Outlook 11. Nigeria’s recent good macroeconomic management has provided a stable base for growth. Nigeria’s high dependence on oil makes prudent macroeconomic management and strong countercyclical fiscal policy essential to maintaining macroeconomic stability. To this end, Nigeria took the critical step in 2004 of establishing a fiscal reserve fund, the Excess Crude Account (ECA). An accumulated fiscal reserve of US$22 billion proved essential for 2 financing a stimulus package that maintained growth and stability during the global financial crisis of 2008-2009. 12. Following the 2008-2009 global financial crises, the banking sector was effectively recapitalized and regulation enhanced, mitigating risks. The 2013 Financial Sector Stability Assessment1 concludes that the banking sector has been successfully stabilized and that banking supervision has been strengthened markedly in the process. The Assessment also highlights remaining weaknesses and risks that still need to be addressed, including the transparency of ownership structures, the strengthening of cross-border supervisory arrangements, the phasing- out of the activities of the bank’s restructuring agency (AMCOM) and the reform of development finance. 13. The fiscal authorities pursued countercyclical policy in 2011-2013, after some slippage in 2010, achieving significant budgetary consolidation. The estimated general government deficit was reduced from 5.7 percent of GDP in 2010 to 1.9 percent in 2012. The expected federal budget deficit in 2013 is 1.85 percent of GDP. The current Medium Term Fiscal Framework prescribes continued consolidation, with the Federal Budget Deficit falling steadily to 1.5 percent of GDP in 2016. 14. Monetary policy has also been responsive and effective. Following significant capital inflows in recent years, the Central Bank of Nigeria has managed liquidity through changes in the Cash Reserve Ratio and the issuance of securities. The tight monetary stance helped reduce the pace of consumer price inflation to 8 percent in 2013 from double digits in previous years. The CBN has also smoothed exchange rate volatility to a large extent, and has maintained a high degree of exchange rate stability. 15. The Nigerian economy has continued to grow at a rapid pace in recent years. GDP growth has been in the range of 6-8 percent, concentrated primarily in trade, agriculture, and telecommunications. These three sectors alone accounted for roughly 80 percent of GDP growth during 2009-2012 (GDP statistics are currently being re-based according to a new methodology that should afford a reassessment of the size and growth of the Nigerian economy). The estimated pace of annual GDP growth has slowed somewhat since 2011, falling from over 7 percent to 6.6 percent in 2012. Growth has slowed in oil and gas, agriculture and trade. The slowdown in agriculture and trade is believed to be related to disruptions from unusually severe flooding in 2012 and security problems in some parts of the country. Growth in agriculture rebounded somewhat in 2013 in the context of better weather conditions and policy initiatives in that sector. In at least some parts of Nigeria, such as Lagos State, rapid economic growth has been transformational and can be associated with significant poverty reduction and an emerging middle class. Inflows of foreign direct investment to Nigeria have been in the range of US$6-8 billion in recent years, making it one of the top destinations for investment in Africa. 16. Lower oil production presents an increasing macroeconomic challenge. Nigeria’s oil output has contracted in the last three years, with negative growth in 2012 and 2013. Regulatory constraints, other uncertainties, and security risks have limited investment in oil and natural gas. Investors have been hesitant to make new investments in the light of uncertainty regarding legal, regulatory, and fiscal terms in the pending Petroleum Industry Bill currently being examined by the National Assembly. Increasing instances of disruptions to pipeline 1 Nigeria: Financial Sector Stability Assessment (2013) http://www.imf.org/external/pubs/ft/scr/2013/cr13140.pdf. IFM/WB, 2013. 3 operations and oil theft have also played a major role in the recent decline in oil output. Projected slow growth in international oil trade, which is partly related to the US shale boom, may place downward pressures on oil prices over the medium term, with implications for Nigerian oil revenues. Due primarily to shortfalls in expected oil revenues, the balance of the Excess Crude Account declined to US$2.5 billion in February 2014, down from US$11.5 billion at the end of 2012. Reconciliation efforts for the flow of funds from the National Oil Company (NNPC) to the Nigeria Federation Account have also been the subject of public controversies. A forensic audit has been requested by the authorities. 17. Countercyclical macroeconomic management is essential for stability, growth, and diversification. Nigeria needs to counteract the volatility in oil prices and production with strongly countercyclical macroeconomic policy. This can provide the macroeconomic stability needed for sustaining rapid diversified growth. The accumulation of a fiscal reserve offers protection from a negative oil price or production shock, and also enhances investor confidence. By preventing excessive overheating and real currency appreciation in boom times, countercyclical fiscal policy also prevents an associated erosion of competitiveness of Nigerian firms. The effective management of a fiscal reserve is essential for the achievement of countercyclical fiscal policy. Nigeria has passed legislation to reform fiscal reserve management in the country, involving a shift from the current Excess Crude Account to a Sovereign Wealth Fund based on clearer rules and regulations. 18. The overall macroeconomic outlook for Nigeria over the period of the CPS appears strong, assuming that oil output stabilizes and oil prices remain strong. Under these conditions, the foreign inflows that generated the balance of payments surplus and reserve accumulation will likely continue, and will help stimulate domestic demand that has been driving growth. The Government has pursued responsible macroeconomic policy, and assumed a prudent fiscal stance in 2013 in light of lower oil revenues, compressing expenditures rather than depleting the ECA further. Stronger oil production would alleviate the current tight financial constraints on Government programs. There is strong potential for accelerated growth and job creation if key infrastructure and institutional constraints can be successfully addressed, along with a clarification of regulatory conditions for oil and gas. There are substantial risks to the macroeconomic outlook, however. If growth in oil output and exports does not resume in the near future, balance of payments and budgetary pressures could become progressively greater, and investor sentiment toward Nigeria could deteriorate. The lack of investment in recent years in upstream oil exploration and development will limit production in the medium term. Given the current low level of fiscal reserves, Nigeria is also vulnerable to an oil price shock, although its current strong debt position will offer some room for borrowing in that event. Uncertainty related to the pace of global recovery as well as the security situation in Northern Nigeria and the upcoming elections also feed into the macroeconomic picture. Nigeria stands at a time of great opportunity, but also risk and uncertainty. Table 1 gives projections for an optimistic scenario under the assumption that oil prices remain strong, oil output stabilizes, responsible macroeconomic policy is sustained, and reforms continue. 19. Nigeria’s long term growth outlook is also affected by climate change risks. Nigeria’s economy is dependent on climate-sensitive and climate-impactful industries, such as agriculture, forestry, and extraction. Recent World Bank analysis 2 indicates that, if not 2 Enhancing the Climate Resilience of Growth. World Bank, 2013. 4 addressed in time, climate change is expected to exacerbate Nigeria’s vulnerability to weather swings and limit its ability to sustain the objective of the Vision 20-20 through reduced crop yields, declining productivity of livestock, and variability in water availability. Climate- related challenges will be compounded by increasing population pressure on land and water resources and rapid urbanization. However, Nigeria can adopt a range of technological solutions and management options that can help better handle climate variability and build resilience against a harsher climate. Table 1: Selected Economic Indicators 2013 2014 2015 2008 2009 2010 2011 2012 (Proj) (Proj) (Proj) GDP Growth (%) 5.98 6.96 7.98 7.43 6.58 6.5 7.1 8.0 Oil GDP -6.08 0.5 4.56 0.14 -0.9 -1.8 1.0 1.5 Non-Oil GDP 8.95 8.33 8.49 8.8 7.89 8.0 8.2 8.5 Inflation Rate (CPI avg. %) 11.6 12.5 13.7 10.8 12.2 8.5 7.8 7.5 Inflation Rate (CPI Dec/Dec %) 15.1 13.9 11.8 10.3 12 8 7.3 7.0 General Govt. Fiscal Balance* (% of GDP) 4.7 -6.6 -5.7 -2.2 -1.9 -2.0 --2.0 -1.9 Federal Govt. Fiscal Balance (% of GDP) 0.3 -1.3 -3.5 -2.6 -1.4 -1.3 -1.9 -1.7 Fiscal Reserves (ECA/NSWF) (US$b) 19.7 7.1 2.7 4.6 8.6 3 6.3 11.3 Gross Monetary Reserves (US$b) 53 42.4 32.3 32.6 46 44 44.5 44.3 in months of import cover 12.7 6.7 4.7 4.5 5.6 Nominal Exchange Rate (N/US$), eop 132.6 149.7 150.5 158.2 157.3 Sovereign Debt (% of GDP) 11.6 15.4 15.3 17.1 18.4 19 20 21 External 2.2 2.4 2 2.3 2.5 3 3 3 Domestic 9.4 13 13.3 14.8 15.9 16 17 18 Oil production (millions of barrels per day) 2.09 2.16 2.46 2.44 2.42 2.15 2.39 2.46 Nigeria oil price (average, US$ per barrel) 97 61.8 79 109.4 110 109 104 98.5 Budget oil price (US$/barrel) 45.0 60.0 75.0 72.0 79.0 77.5 Source: National Bureau of Statistics, Central Bank of Nigeria, Ministry of Finance, Bank calculations. * General government balance = the balance of federal, state, local, extra budgetary funds plus net accumulations to the fiscal reserve (Excess Crude Account) II.C. The Poverty Challenges 20. This CPS has been prepared in the context of the World Bank Group’s renewed commitment to the twin goals of reducing the number of people living below US$1.25 per capita per day to 3 percent by 2030 and promoting shared prosperity. The 3 percent target is a global target, while shared prosperity is a country-specific target measured by income growth of the bottom 40 percent of the population. Nigeria’s progress in reducing extreme poverty is important for achieving the 3 percent global target because it is the most populous country in Africa and the seventh most populous in the world. 5 21. So far, with rapid population growth, Nigeria has made slow progress in reducing poverty. Nigeria’s official poverty line is constructed on the basis of daily adult consumption of 3,000 calories plus estimated necessary other expenditures. Using the internationally-accepted adult equivalent methodology that accounts for less calories needed by children than adults, the poverty headcount in Nigeria declined slightly from 48 percent to 46 percent of the population between 2004 and 2010. The percentage of Nigerians living in extreme poverty (US$1.25 per Box 1: Poverty and inequality trends in Nigeria: 2010-2013 The Nigeria National Bureau of Statistics (NBS) uses the Harmonized National Living Standard Survey (HNLSS) to monitor progress in poverty reduction in the country. The survey is representative at the state level. The most recent such survey was conducted in 2009-2010. NBS also conducts other surveys, most notably the LSMS-ISA, a panel survey of 5000 households which is representative at national and zonal (geopolitical) levels. Two rounds of the LSMS-ISA, conducted in 2010-2011 and in 2012-2013 have been completed, and a third round is planned. Therefore, the most recent household survey data available from Nigeria are these panel surveys. The poverty numbers calculated from the panel are very preliminary and are not comparable to those obtained from the HNLSS. And as indicated above, they are not as yet adopted by the NBS as basis for monitoring official poverty. That said, at national level, the panel shows lower levels of poverty and a declining trend between 2010 and 2013. At zonal level, the results confirm some of the trends emerging from HNLSS analysis although absolute numbers are also lower. The gap between North and South is widening. Poverty was already lower in the South and further decreased in particular in the South South and South West zones. In the North, the conflict-stricken North East experienced a substantial increase in poverty while in North Central it remains stagnant. Finally, in the North West poverty appears to have declined but still remains at very high levels. Meanwhile, inequality shows an increase countrywide. capita per day purchasing power parity adjusted) declined from 64 to 63 percent. While not fully comparable with the 2004-2010 HNLSS surveys, the emerging trend resulting from the 2010- 2011 and 2012-2013 panel surveys is encouraging (Box 1). 22. As observed in many African countries, the low growth elasticity of poverty reduction in Nigeria reflects growing inequality. The most widely used inequality indicator, the Gini index, increased from 39 to 41 percent – equivalent to about 8 percent increase in inequality in 6 years. Simulations indicate that, holding inequality constant at 2004 value, growth would have contributed to a poverty reduction of 5 percentage points, which would have implied a national poverty rate of about 43 percent (adult equivalent).3 23. The quality of growth matters for poverty reduction. Simulations of GDP growth under varying assumptions about the elasticity of growth to poverty reduction in Nigeria yield interesting insights (Figure 1). At current growth rates and current elasticity (i.e. maintaining the status quo), the number of poor in Nigeria is projected to increase (continuous line). By sharing the growth dividend by building an infrastructure and financing platform for diversified growth and job creation, and improving the efficiency of social services delivery to mitigate income and opportunity inequities, Nigeria can alter the sensitivity of poverty to growth and significantly reduce the number of poor (dashed and dot plus dashed lines) and therefore avoid maintaining their number constant in the face of increasing population (dotted line). 3 Source: Where Has All the Growth Gone? A Poverty Update for Nigeria, WB, 2013. 6 Figure 1: Simulations on Growth and Poverty Reduction (WB 2013) Simulations on Growth and Number of poor Nigeria : 2004 - 2050 6000 150 4000 Number of poor Growth Index 100 2000 50 0 0 2004 2013 2020 2030 2040 2050 Year Growth index Present elasticity Elast=10% Elast=20% Elast=50% 24. The above is consistent with previous poverty analysis in Nigeria. The 2007 World Bank poverty assessment report using the 2004/2005 NLSS data concluded that “the poor in Nigeria, have less access – physical, financial and social – to government services, and formal financial institutions. The poor have lower school enrollment rates, lower utilization of health services, and less frequent contact with extension services for increased productivity”. Table 2: Regional Poverty Estimates in 2003-2004 and 2009-2010: National Poverty Line Per Adult Equivalent Consumption Poverty Headcount Variation Poverty Gap Poverty Severity 2003-04 2009-10 2003-04 2009-10 2003-04 2009-10 National 48 46 2 18 17 9 8 North Central 57 48 8 25 18 14 9 North East 59 59 0 22 23 11 12 North West 56 58 -2 21 22 10 11 South East 29 39 -9 9 13 4 6 South South 43 37 6 15 13 7 6 South West 41 30 11 16 9 8 4 of which Lagos 57 23 34 30 5 18 2 Source: Where Has All the Growth Gone? A Poverty Update for Nigeria. WB, 2013. 25. Limited inclusiveness also implies wide divergences in performance between geopolitical regions and states. Three trends emerge concerning the geographic distribution of the poor). In North East and West poverty rates remain very high: on average above 50 percent and in some cases above 70 percent with a tendency to stagnation. Second, the North Central is doing well in particular around Abuja. Finally, the picture in the South is more heterogeneous. 7 On average, this area is performing better, poverty rates are well below those in the North and practically all standard poverty correlates indicate the generally higher level of well-being. Furthermore, most of the important economic activities are located in the South and the level of urbanization is higher. However, mainly the South Western part, where Lagos is located, enjoys relatively inclusive growth which is credited with giving that region the fastest poverty reduction rate in the country. 26. The divide between southern states and Abuja and the rest of the country appears to reflect disparities in terms of educational outcomes, health care provision and economic opportunities in general. As experience shows, any physical investment cannot be efficiently utilized and maintained without a critical mass of technical and managerial skills which can only accrue over a long period. Mapping the average share of past school attendance in labor force age provides a good snapshot of the structural divide. In southern states and Abuja more than 60 percent of women have at least some education. The picture worsens moving towards the North. In all states around and above Abuja, the percentage of women with some education falls below 50 percent. At the extreme, in the North West fewer than 20 percent of local women have any sort of education.4 For men, the situation is similar but less dramatic. In some North Central states surrounding Abuja the percentages are similar to the South. In the North West or North East, however, fewer than 50 percent of men have any sort of education. These results are confirmed by health outcomes and various indexes in these areas. 27. While some progress has been registered towards the MDGs, slow poverty reduction is reflected in Nigeria’s challenges to meet some MDGs by 2015, particularly MDGs 4 and 5. Over the last decade the trend in health, nutrition, and population (HNP) outcomes in Nigeria has been mixed. Data from the last three Nigeria Demographic and Health Surveys (NDHSs)5 demonstrates a 36% decline during this period in the under-5 mortality rate (U5MR) and a 31% decline in the infant mortality rate (Table 3). However the country is still not on track to achieve MDG4. There has been almost no progress on reducing fertility. Childhood malnutrition has actually worsened by some measures (low weight for age has increased by 21% and wasting has increased 64%) and improved only modestly (12%) in terms of stunting (low height for age). This mixed picture is consistent with the limited progress in delivering key health interventions. There have been some improvements, such as in vaccination coverage and use of insecticide treated nets (ITNs), but even these rates remain low. More worrying is the stagnation at low levels seen in services such as family planning and the decline in other services such as skilled birth attendance and antenatal care, which mitigate against achieving MDG5. Further, the national level data hides a very mixed picture within the federation. For example, in the 2013 NDHS the level of stunting is 3.4 times higher in the Northwest compared to the Southeast (54.6% vs. 16.0% respectively). 4 Where Has All the Growth Gone? A Poverty Update for Nigeria. WB, 2013. 5 The use of NDHS data, collected by the National Population Commission, allows for a consistent methodology over time and facilitates cross-country comparisons. The data are also very recent. 8 Table 3: HNP Outcomes and Service Delivery in Nigeria 2003-2013 Indicator 2003 2008 2013 Under 5 Mortality Rate per 1000 births 201 157 128 Infant mortality rate per 1000 births 100 75 69 Total Fertility Rate (Children per Woman) 5.7 5.7 5.5 Stunting, Height for Age (<-2SD) % 42 41 37 Low Weight for Age (<-2SD) % 24 23 29 Wasting, Weight for Height (<-2SD) 11 14 18 Skilled birth attendance (%) 42 39 38 Antenatal Care (%) 60 58 51 DPT3 vaccination coverage (%) 20 35 38 Contraceptive Prevalence Rate (modern methods %) 8 10 10 Children under 5 sleeping under an ITN (%) 1.2 5.5 16.6 Source: Nigeria Demographic and Health Surveys/National Population Commission (2013 data is preliminary). 28. Significant efforts have been made to reduce gender disparities but have not yet been reflected in the Gender Development Index (GDI) ranking (123rd out of 140 countries). The proportion of women in the legislature increased from 4.7 in 2005 to 7 percent in 2010, and many women occupy key government positions both at federal and state levels. Efforts are also being made to reduce gender disparities in terms of income. At the same time, pronounced gender disparities between regions represent a major challenge. In North East and West, women tend to become mothers in their teens, at 17 to 19 years of age, compared to 19- 21 years in the Central part of the country, and above 20 years in the Coastal South. Programs are underway to address the large disparities in pre and post natal assistance to pregnant women between the Southern and the Northern states (see details below in section on Government Program). 29. Regional disparities are illustrative of service delivery challenges at the sub-national levels. States and local governments in Nigeria control more than half of the nation’s revenue and are responsible for the provision of services that directly influence growth and poverty and human capital development. Their autonomy, however, is largely circumscribed by weak technical and institutional capacities, including weak Public Financial Management (PFM) systems, as discussed below. II.D. Key Constraints to Increasing Shared Prosperity and Accelerating Poverty Reduction in Nigeria 30. The WBG analysis6 and the joint analysis with the CAF partners (Annex 8) reveals Nigeria as a country whose evolution of growth and poverty has been significantly influenced by its high dependence on oil, governance and institutional capacity, quality of infrastructure networks, 6 Nigeria Growth and Employment Study (2009), Gender in Fadama Research Project (2012); Nigeria Economic Report (2013); Nigeria Poverty Update (2013); Financial Sector Assessment Program Update: Nigeria, 2012, IMF/WB; Nigeria Social Protection Report (2013); Nigeria States PEMFAR Synthesis Report (2011); Nigeria Country Report Infrastructure, Africa Infrastructure Series, (2011); Nigeria Doing Business Report (2009, 2011, 2012); Education Policy Note (2013); Towards Climate Resilient Growth in Nigeria (2013). 9 human capital (education and health), market size and wealth, the climate sensitivity of its economy, and the labor market’s ability to provide jobs for the rapidly growing population. 31. Nigeria needs to diversify its production structure to reduce the vulnerability of its public finance and balance of payments to a fall in oil prices and/or decline in oil output. In recent years, oil and gas account for over 95 percent of exports, about 75 percent of consolidated Government revenues, and over 30 percent of GDP (at current prices). Economic diversification holds the potential to shift Nigeria away from its sole dependency on oil trade, a dependency that threatens sustainable growth and breeds debilitating corruption. Furthermore, the increasing exploitation and utilisation of shale gas and other alternative sources of energy by the United States and other advanced nations is making it more urgent for Nigeria to accelerate the diversification of its economy. 32. Nigeria needs to grow much faster to create jobs and economic opportunities to absorb the expanding labor force. That part of GDP growth driven by the oil industry creates few jobs and has limited linkages to local small businesses, so other sectors must play an enhanced role in providing employment opportunities. The unemployment rate reached almost 24 percent in 2011 (up from 12 percent in 2006) and youth unemployment (15-24 year cohort) is even more worrying at over 37 percent. Nigeria has a large cohort of youths (over 42 percent of citizens are below 15 years of age) and, in common with many of its African neighbors, the country’s population is growing and is projected to reach 230 million by 2030.7 Without gainful employment for new entrants to the labor market, there will be more pressure on government finances (higher social service spending and lower tax revenue). In contrast, if Nigeria succeeds in the challenge of job creation, this will help reduce poverty and promote social cohesion by allowing more citizens to provide for their own families and join the middle class. 33. Increasing infrastructure capacity is crucial as the country strives to promote private sector involvement and exports. Poor infrastructure networks considerably raise business costs and compromise competitiveness in key domestic industries. With approximately 3,500 MW of total available capacity in early 2013 against an estimated demand of approximately 10,000 MW, Nigeria has considerable unmet demand for power, with important implications for achieving inclusive growth. Poor road conditions, lack and prohibitive costs for reliable internet connection, along with multiple administrative barriers (local taxes, fees, and inspections) impose huge costs and discourage investors who may consider servicing the country’s urban markets. 8 Strong growth and job creation in a number of Nigerian cities should increase migration from rural to urban areas, thereby naturally increasing the productivity of those who remain in agriculture. Increasing productivity in agriculture can have major implications for poverty reduction. Yet, without good connectivity to larger markets, farmers rely primarily on small family farms and local services, with limited opportunities for growth through downstream linkages to agribusiness. Poor people continue to be trapped in a downward spiral of low agricultural productivity, environmental degradation and limited access to basic services necessary for health and well-being. 34. The financial sector is yet to play a stronger role in supporting inclusive growth. Lack of access to finance, particularly longer-term finance, impedes private sector growth and job 7 World Population Prospects: the 2012 Revision, http://esa.un.org/unpd/wpp/unpp/p2k0data.asp. 8 Nigeria Country Report Infrastructure, Africa Infrastructure Series, World Bank, 2011. 10 creation potential.9 After power, access to finance is the biggest constraint faced by firms. There is limited intermediation to small and medium-sized enterprises (SMEs) by the formal financial sector. Development Finance Institutions (DFIs) are not meeting their development objectives and need to be reformed in order to address specific market failures. Lending by financial institutions is heavily concentrated on larger corporations and their supplier value-chains.10 35. Infrastructure and financing constraints contribute to low productivity. Low productivity activities do not pay enough to lift people out of poverty. While the majority of poor households are engaged in some income-generating activity, that income is not enough to lift the household from poverty. The majority of jobs held by Nigerians entail working on family farms or in very small household enterprises. Only about 10 percent of working-age Nigerians earns a wage or salary. With 50 percent of the population depending on agriculture for income, raising the productivity of small-holder farms is, therefore, a key aspect to reducing poverty11. At the same time, enabling small and medium-size firms to grow and hire more labor will make growth more inclusive. 36. Low education and health outcomes weaken the platform for growth and poverty reduction. While good outcomes in nutrition, health, and education are development goals in themselves, they are also essential for developing the skills and abilities needed to increase growth and reduce poverty in the medium to longer run. Nigeria needs to increase access to and improve quality of human development services (skills, education, health, water, nutrition). The country ranked 154 out of 187 countries in the 2012 United Nations Human Development Index. Forty percent of children are undernourished – either because of disease or a lack for adequate caring practices and foods. The large number of illiterate adults (close to 22 million) and the large share of school-aged children out of school (26 percent of boys and 31 percent of girls)12 is evidence of the need to make the country’s low-skilled and unskilled labor force more employable.13 Basic “nutrition-specific” investments (such as vitamin and mineral supplements for young children and pregnant women) and practices such as exclusive breast-feeding (through health extension services, changes in labor laws, women’s workload reduction, etc.) can address the nutrition-specific issues and enhance human capability (productivity) and ultimately, employability. 37. Poor governance has limited the poverty reduction and potential of safety net schemes to mitigate shocks. Social protection programs in Nigeria are small, fragmented and focused on a narrow set of risks and target groups. Institutions implementing social protection programs have overlapping and unclear mandates, unclear flow of funds, and make use of undefined targeting mechanisms. 14 Overall, the present state of social protection programs cannot ensure that all members of society reap the benefits of growth, and—with few exceptions—doesn’t seem to buffer the economic and climatic shocks faced by the poor. Recognizing the challenges, in recent years, the government has sought to develop social protection instruments as a mechanism to tackle such high rates of poverty and vulnerability in 9 Financial Sector Assessment Program Update: Nigeria, 2012, IMF/WB. 10 Idem. 11 The National Job Creation Survey, NBS. 2013. 12 Nigeria Education Data Survey. 13 Nigeria is among only ten countries worldwide with more than 10 million adult illiterates (15 years and above). 14 Nigeria Social Protection Status Report, WB, 2013. 11 the country and to support progress in both the economic and the social spheres. As such, social protection has now become a major policy priority for the Government. 38. Nigeria needs more effective institutions and good governance at federal and state levels of government to achieve sustainable and inclusive growth and mitigate violence that persists in some of its regions. Good governance is critical for improving the effectiveness and efficiency of public expenditures, and also helps to build social cohesion and confidence in institutions. It is also essential for enabling private sector to play its role as the main engine of growth and job creation.15 The experience of Nigeria shows commendable actions taken by the Government but significant challenges remain – both at the federal and state levels. The Federal Government has taken a number of steps to improve land ownership registration, fight intellectual property (IP) piracy and counterfeiting of goods, and improve the effective promotion of IP rights. The tightening of financial system regulation and supervision by the Central Bank of Nigeria in 2009 helped to improve the soundness of the financial system. The 2011 Freedom of Information Act liberalized access to government documents, significantly enhancing the transparency. In the oil sector, the reduction of subsidies and the adoption of procedures to verify subsidy payments is a major achievement. On the outstanding challenges, dispersed policy reforms and poor implementation at federal and state levels impede the transparency of the regulatory framework for investment.16 Vested interests, complex patronage networks and traditional loyalties and affiliations have resulted in a diversion of funds away from intended targets and undermined the trust between citizens and the state. The poor quality of data and statistics and weak monitoring and evaluation systems undermine the quality of policy design and dialogue across all sectors and different levels of Government (Annex 5). 39. Many governance and service delivery challenges are at the sub-national levels. Nigeria’s federal system provides states a significant degree of legal and de facto autonomy in public sector management, and with large responsibilities in delivering services.17 However, state autonomy is largely circumscribed by weak technical and institutional capacities and modest commitment to implementing reforms. For example, there has been limited progress on improving public financial management in order to translate revenue into efficient and equitable service delivery.18 It bears noting that states perform differently in delivering services: similar per capita expenditures in health and education lead to different outcomes, and public sector management efficiency is likely to play an important role. 19 A new generation of state governors is emerging, some of whom are engaging in public sector reform as a way to improve the quality of services provided. The early results from such efforts are creating new competition for reform-minded leadership in Nigeria. 15 World Development Report on Jobs, World Bank, 2013; Africa at work: Job creation and inclusive growth”, McKinsey, 2012. 16 OECD Investment Policy Review of Nigeria: Strengthening the Policy Framework for Investment of the Federal Republic and Lagos State, Draft, December 2013. 17 Most of the powers assigned to state governments are concurrently shared with the federal and local government. However, states have residual powers (any subject not assigned to federal and local government level by the Constitution), and have large responsibilities in delivering services in agriculture, health, education, social protection, transport, and water and sanitation. 18 Nigeria State Level Public Expenditure Management and Financial Accountability Review: A Synthesis Report, WB, 2011; Nigeria State Level Public Expenditure Management; A Summary Report World Bank 2013. 19 Nigeria Socio Economic Assessment, World Bank, 2013. 12 40. The competitive spirit of reform-minded leadership offers scope for demonstration effects to help spur growth, strengthen institutions, and reduce existing or possible arenas for violence within the country. Nigeria, like other developing countries, is examining global development experience and best practices with a view to adapt and embed those into its strategies, policies, and projects. In addition, many states within Nigeria are looking at the experience of Lagos state and seeking to emulate its progress. Once cited as an example of a failed megacity, Lagos has made strong progress in improving infrastructure and services and reducing poverty, and many states in Nigeria seek to learn from its experience. Clearly, demonstration effect holds great potential to impel federal and state authorities in Nigeria toward similar policies and projects in order to emulate international or domestic success. II.E. Opportunities for Growth, Increasing Shared Prosperity and Accelerating Poverty Reduction in Nigeria 41. With large reserves of human and natural resources, a large domestic market, a decade of strong economic growth, evolving democracy, and macroeconomic stability, Nigeria has major opportunities to accelerate development and reduce poverty. The growing demand for services and manufacturing associated with the emerging middle class and rapid urbanization 20 present huge growth opportunities for SMEs and the agricultural sector, benefiting from the large size of the domestic market. Globally there is a strong causal link between urbanization and economic development.21 Power sector reform is the backbone for future growth which, together with efforts to increase financial services and address the transportation infrastructure deficit, will effectively connect poor households as producers in productive markets. Millions of small farmers will have the potential to produce more and become part of competitive agriculture value chains, although only few are currently linked to markets that would provide them with the stable income necessary for long-term productive investment. 42. ICT holds a strong potential for contributing to economic growth, jobs, productivity, transparency, accountability, and social inclusion. New technologies have the potential to raise opportunities for the middle class, and create greater domestic inclusion, with appropriate policies. ICT can itself reduce the cost of some of public services. E-delivery can improve transparency and governance as it reduces discretion and corruption. The mobile telephone is an example of a technology product whose falling costs made it accessible to all income classes. Mobile telephony has been one of India’s success stories, demonstrating the potential of ICT for inclusion. The Nigerian economy has already embraced e-commerce with two e-platforms fully functional and with the potential of leapfrogging e-trade in Nigeria in the next decade. This sector is already attracting a number of young Nigerians from the diaspora. 43. There is scope for increased growth and diversification through regional and global integration. Consolidation of the Economic Community for West African States (ECOWAS) market (300 million people) will create spillover effects that will benefit all partners. ECOWAS offers significant growth potential for Nigeria’s agriculture sector and gas-based industries, and also holds tremendous opportunities for Nigeria’s financial sector. The potential for cross‐ 20 About half the total population now lives in cities compared to 35 percent in 1990, and this share is projected to increase to about 65 percent by 2025. 21 World Development Report, 2009. 13 border portfolio investments by ECOWAS institutions and individuals is high, although full integration is still a long way off. Nigeria still has weak links with the rest of the region.22 The recent decision at the October 2013 ECOWAS Summit to consolidate the common market and adopt the ECOWAS Common External Tariff, along with measures to simplify customs procedures at the border, will offer Nigeria additional opportunities to develop regionally and globally competitive sectors and to diversify exports through a vibrant and globally competitive private sector. 44. The Convergence and Stability Pact 23 concluded among the ECOWAS Member States may help maximize the potential for economic growth in Nigeria with important ripple effects for neighboring countries. The Convergence Pact is a formal commitment by the ECOWAS Member States to (a) coordinate economic policy, (b) strengthen macroeconomic management and macroeconomic stability, and (c) consolidate monetary cooperation in the region. Efforts are underway to integrate the region’s three leading stock exchanges—the Nigerian Stock Exchange, the Bourse régionale de valeurs mobilières in Abidjan, and the Ghana Stock Exchange—and develop mechanisms for cross-listing and trading. III. GOVERNMENT PROGRAM AND MEDIUM-TERM STRATEGY 45. Nigeria aims to become one of the 20 largest economies in the world by 2020. Its development agenda, laid out in the Vision 20:2020 document focuses on two transformational objectives: (a) optimizing the country’s human and natural resource potential to achieve rapid economic growth; and (b) translating that growth into equitable social development for all citizens. In this context, the outcome of the ongoing GDP rebasing exercise will offer a reassessment of the size and structure of the Nigerian economy, and should offer a new framework for informing economic policies that promote competitiveness and the future development of the country. 46. The Government’s medium-term strategy for achieving these goals is articulated in the 2011 Transformation Agenda (TA), which aims at laying the foundation for a robust and inclusive growth of the Nigerian economy. The Transformation Agenda places strong emphasis on measures to address the constraints identified in the previous section, with special emphasis on creating sufficient jobs to address the protracted problems of unemployment, poverty and inequality, and improving and sustaining the well-being of all Nigerians regardless of their personal circumstances and location.24 The mid-term review of the TA presents actions already taken by the Government to: address the country’s huge infrastructure constraints; broaden the nation’s productive base and promote private sector investment with particular emphasis on non- oil sectors with strong job creation and multiplier potential; and improve social outcomes and strengthening social safety nets.25 Underpinning the TA is a fiscal reform program that seeks to build fiscal buffers and safeguard macroeconomic stability, reduce the deficit of the federal Government and the level of domestic debt, and increase capital spending, particularly for infrastructure where the needs are huge. 22 Economic Outlook; Sub-Saharan Africa. International Monetary Fund. 2012. 23 Adopted in 2012. 24 Mid-Term Report of The Transformation Agenda (May 2011–May 2013):Taking Stock, Moving Forward, NPC, 2013. 25 Idem. 14 47. The mid-term progress report of the TA emphasizes improvement of governance, as exemplified by a number of steps taken. The new National Sovereign Wealth Fund (NSWF), which was established in 2011 and is now fully operational, will likely be less vulnerable than the ECA to political demands for ad hoc withdrawals.26 The Government succeeded in reducing fuel subsidy payments by both reducing the subsidy rate and cracking down on corruption – the petrol subsidy program had been blighted by vested interests and massive corruption. In the agricultural sector, there has been progress in cutting some corruption out of the fertilizer subsidy scheme. The Subsidy Reinvestment and Empowerment Program (SURE-P) was introduced to cushion the partial deregulation of the downstream petroleum sector and mitigate the immediate impact of the petroleum subsidy discontinuation, especially on the poor and vulnerable, and accelerate economic transformation through investments in critical infrastructure and social safety net projects. Efforts are being made to streamline the activities of the Ministries, Departments, and Agencies (MDAs) with a view to reducing the financial burden and enable government operate more efficiently and effectively. The Treasury Single Accounting and the Governments Integrated Financial Management and Information System (GIFMIS) were introduced in 2012, representing an important step forward in increasing the efficiency of PFM. The transition of federal and state governments to International Public Sector Accounting Standards (IPSAS) has improved the consistency of government financial reporting with international standards. A chip-based secure national identity card has been launched and the deployment of the NIMS infrastructure commenced in early 2012. The scheme is expected to deliver a single database system for the management of identity in Nigeria and prevent the use of false, multiple, duplicate, or ghost identities. The biometric payroll system (the Integrated Personnel and Payroll Information System, IPPIS), piloted in 2007 in 7 MDAs, is being progressively rolled out across a large number of MDAs (with plans for full roll-out in 2014). The deployment of IPPIS is estimated to have saved the federal government millions of Naira due to elimination of ghost workers from the federal payroll. 48. Continuing efforts are made to increase the internally generated revenues from the non-oil sector. Tax administration reforms introduced since 2004/5 are progressively helping to streamline and clarify tax procedures, affording taxpayers easy payment options. Tax procedures, processes and forms for registration and payment, as well as the tax laws, are now available online on the Federal Inland Revenue Service (FIRS) website. The most notable achievement under tax administration in 2013 was the piloting of an Integrated Tax Administration System (ITAS) solution to automate and electronically tie all core tax administration modules together for higher efficiency. The Government is currently working with McKinsey to identify pockets of productivity improvement in tax administration. Great strides have also been made in the last few years in introducing automation and modern information technology into the operation of the Nigeria Customs Service (NCS). The NCS has been progressively modernized and given the additional role of trade facilitation through the reforms. Results to date include taking over the Destination Inspection operations from the previous Pre-Shipment Inspection service providers, and setting the system for independent monitoring of NCS revenue collection and operational performance, for example. The ongoing reforms in the NCS will help improve the transparency 26 NSWF has three vehicles. One, a stabilization fund, will take on the mandate of the ECA and be used to shield the country against external shocks. An infrastructure fund will make direct investments to improve transport and power networks, while a third, the Future Generations Fund, will invest in a broader portfolio of international assets, with the aim of preserving and growing the country’s cash reserves. 15 of fees paid for services rendered, will enhance regional and continental trade, and are also expected to help boost security in the country. 49. Progress is being made in expanding financial markets and increasing credit access to non-oil sectors with strong job creation and multiplier potential. One of key strategic orientations of the Government is to secure economic diversification and promote job creation by improving financial markets and increasing credit access to productive sectors of the economy. In the housing sector, for example, the Government has partnered with the private sector to increase the supply of longer-term financing to enable better access to mortgages. This will create a more liquid property market in lower income segments of the population and encourage private investment in housing and construction. In addition, the Central Bank has developed a financial inclusion strategy that aims to increase access to finance for SMEs and the largely underserved rural areas. The strategy includes extending agent banking and mobile banking, as well as reform of the development finance framework for Nigeria. 50. The Government is making strong efforts to promote SME development and creation. The national policy on micro, small and medium enterprises has been revised and has led to the recent launch of the National Enterprise Development Program for MSME development (NEDEP), which restructures the institutional framework for SME support. Furthermore, several programs have been launched to support entrepreneurship and enterprise creation in Nigeria. For example, the Youth Enterprise with Innovation in Nigeria (YouWiN) is an annual business plan competition supporting promising entrepreneurial young individuals to develop and execute business ideas that will lead to jobs creation. The program attracted 50,000 aspiring entrepreneurs in the first year, and over 100,000 in the second year. The program has trained 6,000 entrepreneurs so far, provided grants to about 50 percent of the entrepreneurs trained, and is set to contribute to 80,000 jobs over its period. 51. In view of achieving diversification and stronger job creation, focus is especially placed on agriculture and manufacturing as major drivers of growth and exports. The agriculture sector reform aims to increase productivity, but also trade and investment linkages and expanding value addition to locally-produced agricultural products. Successful reform in this sector is expected to create over 3.5 million jobs by 2015. 27 Within the manufacturing sector, the TA targets petrochemicals, chemicals, food, textiles, metals, and non-metal minerals, and adopts a cluster-based approach (geographic distribution of these key priorities across six main regions of the country). Increasing the downstream linkages of agriculture and manufacturing with wholesale and retail trade would potentially allow the country to generate more jobs locally and to retain more value added. These efforts have been crystallized in the Nigeria Industrial Revolution Plan (NIRP) recently launched by the President as well. The results of the agricultural sector reform are already visible, as exemplified by some corruption cut out of the fertilizer subsidy system and by increased food production. Progress in the manufacturing sector has been constrained by multiple challenges, including poor power supply, high cost of inputs and of doing business, multiple taxation, infrastructural deficit, low access to finance (particularly long-term finance) and weak and poor information flow. The stronger implementation of the power sector reform will have a significantly positive effect on manufacturing in Nigeria. Increasing FDI inflows 27 Mid Term Report of the Transformation Agenda (May 2011-May 2013): Taking Stock, Moving Forward, NPC, 2013. 16 in manufacturing and services, 24.3 percent and 12.2 percent in 2011 respectively, are encouraging signs for non-oil investment and future growth. 52. Reducing infrastructure bottlenecks is one of the key elements of the Government’s agenda. The National Integrated Infrastructure Master Plan (NIIMP) is being developed to promote a coordinated approach to infrastructure development in the country. This is a 30-year plan to be implemented using 10-year operational plans and 5-year medium-term plans. It is estimated that Nigeria needs approximately US$350 billion over the period 2011-2020 to close the infrastructure gap.28 The limited fiscal space in the public budget, however, constrains the Government’s ability to rely solely on public funding for productivity-enhancing investments.29 Tackling Nigeria’s infrastructure bottlenecks thus requires both public funds and effective leveraging of private sector resources. Accordingly, there has been increasing momentum towards developing infrastructure projects through public-private partnerships (PPPs), including for developing the vitally important gas-to-power infrastructure. Gas-to-power infrastructure is vital for meeting the domestic demand for power as well as for developing regional exports. In the transport sector, the Government’s endeavors to rehabilitate roads across the country have led to improved conditions of key road corridors (including about 600 km of roads under Bank- supported projects) and to launching road safety initiatives to tackle the high rate of road traffic crashes and fatalities in Nigeria. The Government is also using the Subsidy Reinvestment Program (SURE-P) to accelerate the rehabilitation of key road links totaling more than 1,600km, such as Abuja-Abaji-Lokoja, Benin-Ore-Sagamu, Onitsha-Enugu-Port Harcourt, Kaduna- Maiduguri, and East-West Road. As for air transport infrastructure, over 20 airports have been earmarked for rehabilitation and reconstruction, and funding has been approved for the construction of five new airport terminals. To fully reap the benefits from investment in air transport infrastructure, authorities need to continue strengthening the capacity of air transport regulatory bodies and infrastructure providers. Addressing Nigeria’s transport connectivity problems can also benefit from well-performing railways. After many years of decay, attempts are being made to revive the existing Lagos-Kano railway corridor. In parallel, authorities are investing in the rehabilitation of railway lines and are seeking to open new railway corridors with a view of concessioning those to potential investors. Transport infrastructure challenges are huge. The authorities need to focus more on strengthening the governance of the sector through better strategic planning and enhanced managerial, institutional, and technical capabilities in various transport modal institutions and entities. An integrated multi-modal approach, including multi-model spatial planning, is needed to prioritize projects, to optimize allocation of resources, and to take advantage of growth corridors and increasing urbanization over the medium term. 53. Significant headway has been made in the power sector which has the highest potential to propel the economy to the desired level of growth and development. Nigeria’s power sector reform program is one of the most comprehensive and complex ever undertaken in Africa. The program: (a) establishes an independent regulator for the sector, the Nigerian Electricity Regulatory Commission; (b) sets up a commercial framework for the sector, with cost-reflective electricity tariffs; (c) establishes a bulk trader; (d) privatizes the Power Holding Company of Nigeria’s (PHCN) six successor generation companies; (e) privatizes the eleven PHCN successor distribution companies; and (f) continues efforts to strengthen the gas-to- 28 An Infrastructure Action Plan for Nigeria: Closing the Infrastructure Gap and Accelerating Economic Transformation, African Development Bank, April 2013. 29 Financing Options for Infrastructure PPPs in Nigeria. WB, 2012. 17 power segment. Significant progress has been achieved in all these areas, which has already led to tangible improvements in available supply, increased grid stability, increased revenue collection, and the introduction of a cost-reflective, multi-year tariff. On 30 September 2013 the share certificates of 15 state-run electricity distribution and generation companies were handed over to a consortium of domestic and foreign investors, marking a major milestone in the power sector’s privatization process. The reform program also improved governance mechanisms and oversight by clarifying roles and responsibilities of key sector institutions to improve the transparency, accountability, corporate governance, and general oversight of the sector. As distribution underpins the fundamental soundness of the sector, the success of the reform will be largely determined by the capacity of the private operators to transform the newly-privatized distribution companies, which will in turn help attract additional investment in generation and transmission. 54. Alongside the economic objectives, the Transformation Agenda pursues social objectives. Recognizing the need for addressing social challenges, the Government has decided to redirect savings from the reduced oil subsidy through to investing in the SURE-P, expanding its interventions in health, education and social safety nets. The total subsidy savings for the Federal, state and local governments is N816 billion ($5 billion) from February 2012 (inception of SURE-P) to December 2013. More than 50% of the Federal portion was deployed to social sector/safety net interventions (Public works, CCT-MCH, Vocational Training, Graduate Internship Scheme, etc.). Nigeria budgeted N273.52 billion (US$1.7 billion) for SURE-P in 2013, and another N268 billion ($1.67 billion) is planned in 2014 (including a balance of 88.4 billion naira carried over from the previous year). Social safety nets are being set up along with a minimum wage and other initiatives to improve access to housing and financing through micro- credit. In the education sector, the TA aims to improve access and quality, infrastructure, funding and planning, as embodied in a new four-year strategy adopted by the Federal Ministry of Education (FMOE) 30 with the overarching objectives of providing access to education with equity, quality, and relevant skills for the labor market. In the health sector, there have been achievements in strengthening the institutions needed for progress. At the federal level, important steps include the development of a National Strategic Health Development Plan, creation of a coordination template for accountability and tracking of resources in response to the International Health Partnership (IHP+), the establishment of a central coordination mechanism for data management in the health sector, the rehabilitation of the Nigeria Health Insurance Scheme (NHIS), and increased investment in data and surveys (including the MDGs survey of 2012). In parallel, an accountability framework for improving immunization coverage on polio was developed with the involvement of the Governors, reinforced by the Polio Task Force which was inaugurated by the President of the Republic. To bolster the attention paid to primary health care at state level, a large number of states have established, or are in the process of establishing, state primary health care development agencies. These agencies have responsibility for strengthening the delivery of basic services particularly in rural areas where publicly provided services predominate. The Saving One Million Lives (SOML) initiative is taking a results-based approach to: (a) strengthening basic health services – particularly in rural areas, with the goal of preventing deaths of mothers and children; (b) improving clinical governance across all care levels; (c) strengthening primary and secondary prevention care; and (d) creating an enabling environment for private sector involvement in health services and commodities. A number of 30 Federal Ministry of Education: 4-year Strategic Plan for the Development of the Education Sector (2011-2015). 18 new initiatives were launched, such as support for the Midwives Service Scheme, Village Health Workers Program, roll out of the Community-based Social Health Insurance Scheme, the Community Health Extension workers, and support for immunization and lifesaving commodities for women and children. Over 9,000 health care workers were recruited to provide quality ante-natal, skilled birth delivery and post-natal services for underserved, poor women in rural areas. 55. Efforts are being made to enhance the climate resilience of the country’s development agenda. Aware of the country’s high vulnerability to climate change, the Government is in the process of finalizing a National Climate Change Policy and Response Strategy (NPCC-RS).31 In parallel, the National Adaptation Strategy and Plan of Action for Climate Change in Nigeria (NASPA-CNN) are also being finalized. These will provide a guide for the integration of climate change adaptation goals into government policies, strategies and programs. Concerning agriculture in particular, the NPCC-RS calls for the “development of an integrated agricultural intervention plan to reduce the sector’s vulnerability to climate change and enhance its productivity for food security and poverty reduction.” A high-level advisory committee on agriculture resilience in Nigeria (ACARN) has been established to provide scientific support to this effort. Finally, the Government has been working with other African countries to establish African Risk Capacity (ARC), a groundbreaking extreme weather insurance mechanism designed to help African Union member states resist and recover from the ravages of drought. ARC is an African solution to one of the continent’s most pressing challenges, transferring the burden of climate risk away from governments – and the farmers and pastoralists whom they protect – to the ARC that can handle that risk much better. 56. The water sector recently witnessed a resurgence of activities. The rapid and uneven expansion of many Nigeria’s cities is putting pressure on water and sanitation services, leading to increased efforts to improve the quality and coverage of those services.32 A Water Summit, organized under the leadership of the President of Nigeria, focused on ways to identify innovative financing options in the sector where the needs are significant. In addition, the dam projects which were hitherto abandoned have now been reactivated and are now at various stages of rehabilitation for supply of bulk water to treatment plants, generation of hydro-electricity, provision of water for irrigation farming and fisheries to boost food security. Furthermore, efforts are underway to modernize the institutional framework of the water utilities to give them more autonomy and allow them to improve access, reliability, financial viability, and sector governance more broadly. 57. Increased women’s representation in government, gender budgeting requirements in selected ministries, and gender-sensitive programs should aid in the fight for more access and inclusion. Women’s representation in government has increased with the appointment of 13 female Ministers out of 42, increasing the cabinet posts for women from 16 percent in the 2004 administration to 33 under the current government. 33 The ministries of Agriculture, Communications, Health, Water Resources and Works are allocating budget resources to support programs for women, and have to that end signed Memoranda of Understanding with the Federal 31 Approved by the Federal Executive Council in September 2012. 32 The priority was reaffirmed during February 2013 Water Summit, which re-established the consensus among the federal and state governments and partners on the need to act promptly and jointly to improve water service delivery in Nigeria. 33 Mid-Term Report of the Transformation Agenda. 2013. 19 Ministry of Finance and the Federal Ministry of Women Affairs. This initiative, tagged Growing Girls and Women in Nigeria (G-WIN), was piloted under the 2013 federal budget in these five Ministries/sectors and is continuing in 2014 with plans to mainstream across all sectors in the future. The Maternal and Child Health Care program (implemented as part of the SURE-P) and the second round of the Youth Enterprise with Innovation in Nigeria program are targeting women in health, education and entrepreneurship and business opportunities. 58. The Government has made notable progress in advancing ICT agenda in Nigeria. It developed the ICT Policy and the National Broadband Development Plan for 2013-2018, and is currently preparing the e-Government Strategy. The Federal eGovernment Services Portal was launched to drive efficiency and service delivery by institutionalizing a Government-wide messaging system and establishing Federal Government ICT Cadres and Council of ICT Heads. Efforts are also being made to nurture ICT incubation and accelerator centers (iDEA and Techlaunchpad), in addition to launching initiatives such as “Federal Open Data”, “NaijaCloud microworks” and “Girls in ICT”, all with the aim of IT industry development and job creation. IV. WORLD BANK GROUP PARTNERSHIP STRATEGY IV.A. Lessons from CPS Completion Report, IEG Evaluation and Stakeholder Consultations 59. The key lessons from the CPS FY2010-2013 Completion Report (Annex 7) that underpin the design of the new CPS include the need to: (a) better understand the political economy of various levels of government, and ensure that all activities are assessed from a governance perspective, with a focus on strengthening institutions and policy frameworks rather than funding inputs; (b) deepen the Bank’s engagement at the state level in recognition of the strong role played by states in economic and social development of the country; and (c) balance federal and state reform efforts to enhance and ensure the sustainability of development outcomes. Highlights of CPS Completion Report Overall progress toward achieving the CPS outcomes is rated moderately satisfactory. Results for Pillar 1 Achieving Sustainable and Inclusive Non Growth were partially achieved: Activities supported transformational reforms, particularly in the agriculture and energy sectors where technical support and policy dialogue helped generate broad consensus on and momentum for the reform agenda. Planned improvement in business environment was less successful mainly due to the late start of the main instrument, the Growth and Employment in Markets, and a shortcoming in the design which covered the entire country whereas Bank’s interventions focused on selected states. Results for Pillar 2 Sustainable Human Development were partially achieved. Significant progress was achieved in improving health sector development, community development and post-basic education outcomes. This period also helped to lay the foundation for results-based activities, implemented under this new CPS period. Results for Pillar 3 Governance for Results were fully achieved. The governance pillar, a core aspect of the program, also demonstrated remarkable achievement towards expected outcomes, considering the strengthening of Public Financial Management (PFM) systems, improved integrity in payroll and personnel control mechanisms in the civil service. Notwithstanding, scaling up governance reforms remains a priority for this CPS. 20 60. The new CPS also incorporates key lessons from IEG validation of previous CPSs. These include the need to: (a) ensure that economic and sector work is accompanied by sustained dissemination and dialogue with Government; (b) forge better links with state ministries and local Governments, and (c) continuously monitor macroeconomic developments and maintain the dialogue with the federal and state Governments on fiscal discipline. 61. The Nigeria Country Survey 2013 and the CPS consultations with Government, civil society, think tanks, and the private sector suggest that the Bank’s processes, procedures, and instruments will have to be more adaptable, context-specific and responsive to clients’ needs. By broadening strategic collaboration with key partners and stakeholders in the country, the WBG can help generate broader consensus for reform. IV.B. Overview of World Bank Group Country Partnership Strategy 62. The overarching objective of the CPS FY2014-FY2017 is to support the Transformation Agenda’s goals of laying the foundation for socially and regionally inclusive economic growth. Based on the country diagnosis, strong level of demand by federal and state authorities, and the comparative advantage of the WBG, the CPS organizes the Bank’s interventions around three strategic clusters with concerted efforts to strike the right balance between actions to strengthen the enabling environment and direct interventions: a) The federally-led structural reform agendas for growth and jobs. The agendas seek to foster diversified growth and job creation by addressing the two key constraints (power and access to finance) and target agriculture as a means for improving living conditions in rural areas. WBG support focuses on: (a) increasing installed power generation and transmission capacity and improving the efficiency and governance of electricity delivery; (b) increasing supply of long-term financing for the housing sector, expanding financing opportunities for SMEs, and strengthening the ability of state-owned Development Finance Institutions to mobilize private finance for key sectors of the economy; and (c) boosting agricultural productivity, improving farmers’ linkages with agro-processors, and scaling up Nigeria’s resilience to current and future climate variability. b) The quality and efficiency of social service delivery at state level for greater social inclusion. WBG support will focus on developing more effective mechanisms for social service delivery (social protection programs, education, health, and water services delivery) to help address inequities in income and opportunities. c) Governance and public sector management. The WBG program aims at strengthening accountability and public expenditure and investment management. Considerable savings could be realized from public sector efficiency gains and reallocated towards the objective of inclusive growth. The CPS integrates gender, equity and conflict sensitivity as essential elements of governance. 21 63. The WBG has strong comparative advantages in each of these strategic areas. The Bank has been the main interlocutor for the Government on power development for the past 10- 15 years and this is an area where the WBG products and expertise play a critical role in leveraging private investment in the power sector. The WBG broad financial expertise and global knowledge will also help to leverage local, regional and international financial markets for financing for development. Building on its successful long engagement with the government on community-driven approaches to increasing income and productivity of farmers, the WBG will continue to bring to bear its global experience and knowledge on agricultural productivity, agriculture value chain development, and climate adaptation and mitigation measures. In social services, the Bank will continue to be a main interlocutor with the authorities on social safety nets, water sector reform, and a results-based approach to delivery of education and health services. As a foundational principle, all of these efforts will be underpinned by the Bank’s strong engagement on governance and public finance management at state and federal levels. This is also an area where IDA is increasingly leveraging support from other partners. 64. These three strategic clusters are already embedded in the existing portfolio and will be reinforced through new lending and non-lending support. The current IDA portfolio (end- February 2014) consists of 23 active IDA projects (US$4,920 million), 2 regional IDA operations (US$180 million), 4 GEF projects (US$26.2 million), and 68 active trust funds (US$198.2 million). The current IFC and MIGA exposure is $1.13bn and $14.5m, respectively. The WB’s portfolio is well-aligned with the Government’s strategy. It includes eight lending operations in infrastructure (electricity, rural roads, urban transport, water, and PPP), eight in social sectors (education, health, social protection, including youth public workfare programs), one in natural resource management (mitigating land degradation), five in sources of growth (agriculture, housing finance, ICT, and light manufacturing), and three in public sector (PFM and public sector management). 22 Box 2: The CPS approach to Northern Nigeria The key elements of the CPS approach to Northern Nigeria include:  Recognition of the critical importance of understanding of cultural and institutional specificities of the region and its political economy, including the drivers of conflict and fragility. The Bank’s governance work (Annex 6) will provide critical tools and inputs to understanding the drivers of conflict.  Emphasis on engagement at the state and community levels, with some exploratory capacity building activities in education and PFM at the local government level in a limited number of states.  Emphasis on collaboration with CAF partners in supporting the efforts of federal and state authorities in Northern Nigeria to: (a) increase routine immunization in the North, where rates of immunization are particularly low; and (b) increase access to primary and secondary education, recognizing the comparative advantage of DFID and USAID in this area. Within the context of the CAF, the Bank will continue to deepen its collaboration and dialogue with partners and federal and state authorities on support to Northern Nigeria.  Emphasis on broadening the Bank’s strategic collaboration with stakeholders from the North of Nigeria. The Bank has initiated dialogue with the group of Northern governors (Northern Governors TA) to respond to their request for advisory support to develop a strategic framework for accelerated socio- economic development in the North, and is working on a special initiative for the North East states under state of emergency.  Flexibility in adjusting the CPS program to the evolving security situation, and within the overall framework of support of the CAF partners to Northern Nigeria. The CPS will maintain a cautious but scalable approach that takes advantage of any expanding window of opportunity, drawing, as appropriate, on a range of specialized instruments that could provide the level of scalability and flexibility necessary in what is likely to continue to be a rapidly-changing situation. The lending support to states in the North aims to: (a) increase infrastructure stock (roads and irrigation) in areas with high agriculture potential and improve their connectivity with markets; (b) improve the employability of labor force by increasing the capacity of training institutions to meet the demand for technical skills, and by increasing access to and quality of primary education; (c) improve social protection programs and livelihood opportunities for poor households; (d) increase access to and quality of health services; (e) strengthen the capacity for reform of water utilities; (f) strengthen the capacity for enhanced climate change resilience; and (g) improve PFM. In each of these areas, the CPS will seek to increase transparency and promote social accountability – both of which are considered important for reducing arenas for violence. The EU-funded SLOGOR operation will support public financial management reforms in the states of Kano, Jigawa and Yobe while an IDA operation will support similar reforms in Adamawa, Kebbi and four other Northern states. 65. The diagnostic work planned in FY2014-2015 will provide the strategic platform for further selective support, and for engaging with the Government. The CPS will develop a strong knowledge platform to underpin the dialogue on poverty, jobs, inclusive finance and markets, education/skills, safety nets, and urbanization issues. Importantly, this knowledge work will help initiate WBG’s strategic engagement on urbanization and socio-economic development in the North (Box 2), where it will also help guide the design and implementation of the CPS program by providing a more thorough understanding of how specific operations may contribute to reducing conflict arenas and to enhancing inclusiveness. The CPS mid-term review will offer an opportunity to reassess the program and fully define the FY16-17 lending program in consultation with the new Government. 66. The emphasis on demonstrational and catalytic interventions is reflected in the CPS results matrix (Annex 1). The majority of results are expected to be generated by demonstration operations whose impact will maximized over time, beyond this CPS period, through knowledge sharing and scaling up. To that end, a state-level platform will be developed to facilitate knowledge exchange among states in the areas of capacity building, project implementation, impact evaluation, and beneficiary feedback to strengthen policy and project design and 23 execution. The platform will help in strengthening the capacity of states from all geopolitical zones in the country, and is expected to help promote the emulation of successful experiences and practices. The CPS Principles of Engagement:  Selectivity is driven by (1) the country diagnostic work, level of demand from federal and state authorities, and WBG comparative advantage, (2) emphasis on maximizing the CPS impact in the context where WBG financial resources are small compared to the country’s own resources, and (3) potential for impact through support of reform-minded leadership.  Tailoring to Context: Understanding the political, cultural and social context within which interventions take place so that best practices can be appropriately adapted to their environment. A Governance, Gender and Conflict filter will be rolled out to ensure new products have sufficiently understood the local context, opportunities and risks. Guide the design and implementation of the program thorough understanding of the concrete factors that may drive violence and how specific operation may contribute to reducing conflict arenas and to enhancing inclusiveness.  State level lending support will be guided by (a) satisfactory portfolio performance (overall disbursement delay not greater than 6 months and satisfactory fiduciary and safeguards performance), (b) demand for support and commitment to reforms, including participating in financing, (c) state interest to participate in the planned governance benchmarking pilot, and (d) the availability of information on public expenditure and budget execution.  Leverage for results: Leverage government programs, and promote results-based lending, which will provide greater opportunity to influence the way the state governments spend their own resources and to strengthen their capacity to achieve and sustain results. Leverage private resources and promote private investment, giving priority to transformative projects and programs. Facilitate knowledge exchange among states through a state-level platform, helping to build/strengthen the capacity of states from all geopolitical zones in the country. The Bank will also continue to pursue an open engagement with Nigerian civil society and think tanks on critical questions for the country’s development through its sector work, including the regular release of the Nigeria Economic report, workshops and forums. 67. The CPS consolidates and deepens the WBG’s engagement at state level. Under the federal system of government, states and local governments control a large share of public expenditures and have direct responsibility for delivering many social and other services to poverty reduction and promoting diversified growth. The federal government has always been keen to ensure that the WBG's portfolio is distributed across the 6 geographical regions of the country more or less equitably, in order to maintain some unity. This is a strong factor in Nigeria's political economy and will continue to influence the distribution of the WBG program. Within this setting, the WBG’s lending support will be guided by each state’s: (a) satisfactory portfolio performance (overall disbursement delay not greater than 6 months and satisfactory fiduciary and safeguards performance); (b) demand for support and commitment to reforms; (c) willingness to participate in the planned governance benchmarking pilot; and (d) the availability of information on public expenditure and budget execution. IV.C. Engagement Areas Supported by Lending and Non-Lending Activities First Strategic Cluster: Federally Led Structural Reforms for Growth and Jobs 68. Given the evidence that diversified growth and job creation have an important impact on poverty reduction, the CPS will support private sector-led diversified growth and job creation. The bulk of the financing program will focus on: (a) increasing installed power generation and transmission capacity and improving the efficiency and governance of 24 electricity delivery; (b) boosting agricultural productivity, improving farmers’ linkages with agro-processors, and scaling up Nigeria’s resilience to current and future climate variability; and (c) increasing access to finance, including long-term financing, for key sectors such as housing, SMEs, agriculture, and infrastructure, through various mechanisms involving both private sector and PPPs, and potentially through a state-owned wholesale financing mechanism. The WBG’s approach under this strategic cluster is to maximize the impact of the CPS by: (a) strengthening linkages among mutually reinforcing agendas (e.g. rural roads, agriculture, irrigation); (b) promoting synergy among programs and projects implemented by different levels of government, including through spatial analysis; and (c) maximizing the synergies between the WB, IFC and MIGA, particularly as regards leveraging additional resources and providing a basis for stronger private sector investment. MIGA’s products, which include both its traditional political risk insurance coverage against transfer and convertibility restrictions, expropriation, breach of contract and war and civil disturbance as well as the Agency's new non-honoring of financial obligations cover aimed at enhancing credit and increasing access to commercial financing, can help leverage cross-border investment, in particular for critical infrastructure, such as power, water and transportation. During the CPS period, MIGA will actively seek to deepen its engagement in Nigeria through additional business development efforts in the infrastructure, manufacturing and agribusiness sectors, in addition to its already strong engagement in the energy sector. MIGA will also engage with Nigerian outward investors in support of their projects in Africa and elsewhere. 69. The three areas of focus under the First Strategic Cluster are discussed in details below: POWER GENERATION AND TRANSMISSION CAPACITY, AND EFFICIENCY OF POWER SUPPLY TO CONSUMERS CPS outcome Outcome indicators Increase power generation and transmission  16 percent increase in generation capacity capacity  8% increase in transmission capacity. Improve the efficiency of electricity delivery  8% reduction in the aggregate technical and commercial losses of privatized DISCOs supported by the WBG EBP. Improve access to modern lighting for the base  1 million solar lanterns distributed of the pyramid through supporting the value  5 million people with improved energy chain of procuring and distributing solar services products such as lanterns and cook-stoves  100,000 tCO2 being GHG avoided. 70. Establishing an effective power supply in Nigeria will enable households to make social and productive investments that will improve their livelihoods, and enable firms to increase productivity and be more competitive. The Government has embarked on an ambitious energy sector reform process that is resulting in tangible improvements in energy services. The reform program also improved governance mechanisms and oversight by clarifying roles and responsibilities of key sector institutions to improve the transparency, accountability, corporate governance, and general oversight of the sector. While a strong institutional structure is now in place, many of these institutions are new, and until viability of new arrangements is proven, the risk perception of private investors will remain high. 25 71. The WBG will assist the Government in increasing installed power generation and transmission capacity, and improving the efficiency and governance of electricity delivery. The Bank is providing ongoing support through the IDA Nigeria Electricity and Gas Improvement Project (NEGIP), focusing on core transmission and distribution investments and capacity building needed to deliver the increased power supply expected from the 10 NIPP power plants. NEGIP is also providing partial risk guarantees for gas producers entering into long term supply agreements with state owned or recently privatized power plants to improve the credit worthiness of these transactions, thus providing the comfort necessary for much needed upstream gas infrastructure investment. The Joint World Bank Group "Energy Business Plan" (EBP) (Box 3) will support the privatization process, delivery of an initial group of Independent Power Producer (IPP) projects, strengthening the transmission backbone, as well as preparation of a future portfolio of renewable energy, access and domestic gas supply projects. The newly- created public trading company (Nigeria Bulk Electricity Trader, NBET) will increase the quality and transparency of transactions and ensure compliance with best practice procedures including internationally accepted IFC performance standards. The mobilized private investment will increase installed power generation capacity and improve the efficiency of electricity delivery, helping to spur economic growth and increase shared prosperity. Specific focus will be put on the Northern states facing dire power deficit in the absence of proximate power generation sources (the bulk of power is generated in the Nigeria’s gas-rich south), and insufficient transmission capacity to deliver the limited quantities they receive. MIGA has a number of projects in its pipeline in the power and gas sectors which are in line with the objectives of the NEGIP project and the joint EBP. By leveraging private sector financing, WBG support will ensure transparency and a fair deal for consumers while reducing the need for additional public spending on power generation and distribution, enabling more public funds to be deployed to address other infrastructure and social needs identified in Vision 20:2020. Box 3: The Joint Bank Group Energy Business Plan for Nigeria (EBP) The power sector reform in Nigeria encompasses the entire power sector value chain – from upstream gas development, through generation and transmission, to distribution and end-user tariffs. It is more comprehensive and ambitious than any power sector reform undertaken so far in Africa. The Energy Business plan aims to accelerate implementation of the Power Sector Reform Roadmap by leveraging WBG products and expertise to attract private investment in new generation capacity. Joint solutions by IBRD/IDA, IFC and MIGA for the first set of IPPs/GENCOs/DISCOs under the reforms are expected to have a measurable impact on the sector. The fast-tracking of key projects to financial closure will enable the power sector to attract some of the most experienced and capable private sector investors while removing duplicative due diligence steps across WBG, making it easier to do business and deliver results. The targeted transactions may benefit from a mix of different types of IBRD partial risk guarantee support (credit enhancement, debt mobilization, regulatory) as well as the joint WBG support (IFC equity and lending participation and MIGA guarantees) where justified, and where there is no duplication of WBG coverage. While IBRD has taken a lead role on the overall sector dialogue, due diligence with regard to the power sector reform program, and the power sector’s financial situation and prospects, IFC is playing a leading role on lender coordination and investor due diligence. MIGA's value added is expected to be credit enhancement through termination guarantees, regulatory risk and other investment guarantees paired with vast knowledge and experience in developing political risk insurance instruments for power and gas sectors in other countries with similar types of reform. 26 72. An increased supply is expected to provide a sustainable base for future access expansion to the 65 percent of Nigeria's population that lack access to electricity services. IDA and IBRD investments through NEGIP and the Nigeria Electricity Transmission and Access Project are expected to add significant transmission capacity to the national grid over the medium term, allowing the increased power generated from new NIPP and IPP projects due to come online between 2014-2017 to reach consumers in Nigeria's urban growth centers as well as in the under-supplied North. Increased supply is expected to improve the commercial viability and quality of service of distribution companies, leading to considerable cost savings for connected households and SMEs and reducing their dependency on self-generation. Increased supply will also provide a sustainable base for future expansion to the 65 percent of Nigeria's population that lack access to electricity services. Due to the weak financial, technical and operational position of Nigeria's distribution companies, large-scale access expansion to rural areas is not expected to be achieved within the CPS period. However, the expected improvement of utility service levels and commercial viability represent critical milestones to expanding access in the medium to long term. AGRICULTURAL PRODUCTIVITY AND CLIMATE CHANGE (RESILIENCE) CPS outcome Outcome indicators Improved access of small  Increased effectiveness of publicly supported seed and farmers to inputs and fertilizer distribution systems as measured by the increased technology, and increase in number of farmers benefiting from those programs their average income (Baseline: 30% in 2012; Target: 60% in 2017)  Additional 20,000 hectares of improved irrigation in North and North-West areas  40% increase in average income of rural households in Fadama areas Improved horizontal  Number of farmer associations and or marketing coordination of small farmers cooperatives established in supported areas increased from 0 to 7,400 Improved road transportation  Additional 2,000 km or rural roads rehabilitated in connectivity of rural markets supported states  Additional 2 million people in rural areas gained access to an all-season road in supported states. Enhanced preparedness of  2,800 additional ha of land treated for erosion Nigeria to respond to natural  60% of upgraded or new HydroMet stations provide data hazards, climate risks and that are published annually and uploaded to the web. natural disasters 73. One percent increase in agricultural productivity will decrease a person’s likelihood of being poor by between 2 to 3 percent. 34 The agriculture sector employs half of the workforce, providing livelihood for about 90 percent of the rural population. The agricultural sector was leading contributor to GDP in 2011, accounting for 31 percent. Within agriculture, a major driver of growth is staple food crops (35.8 percent of the agricultural GDP in 2011).35 As 34 Agriculture and Rural Poverty in Nigeria, World Bank 2013 (forthcoming). 35 Nigeria: First Agriculture Development Policy Operation, World Bank, 2013. 27 the majority of small farmers in Nigeria grow staples, broad based productivity gains in staples will have a far reaching impact on the rural poor, including women, who account for 60-79 percent of the rural labor force.36 Yet, access to the necessary productivity enhancing inputs is limited, due to the inadequate investment in agricultural research and development, limited private investment in developing improved seeds and fertilizers, the insufficient availability of improved technologies to farmers, use of various ICT enhanced tools, as well as lack of knowledge about their use. Value chains remain underdeveloped due to poor infrastructure, a lack of finance for agriculture, and a dearth of market information. Significant deficiencies in large-scale dam and irrigation infrastructure negatively impact agricultural productivity, notably in the North where the bulk of Nigeria’s dam and irrigation infrastructure is located. Lack of access to markets, including through various ICT enabled mechanisms, is a key determinant of rural poverty and low agricultural productivity. In 2007, it was estimated that less than half of the rural population lived within 2 km of an all-weather road,37 and less than 10-15 percent of the country’s state and rural roads are in good or fair condition. 38 Deteriorated infrastructure increases transport costs for farmers and agro-business, which in turn lowers their productivity. It also affects human capital, as poor households can neither send their children to local schools nor access social services provided in health or community centers. 74. Agricultural productivity is sensitive to climate and land degradation. Climate change is likely to exacerbate Nigeria’s current vulnerability to weather variability, leading to a longer- term reduction in crop yields of up to 20-30 percent; declining productivity of livestock with adverse consequences on livelihoods, and worsening prospects for food security, particularly in the north and south-west, among others.39 Land degradation accounts for between 1.7 and 6.4 percent of GDP,40 and is accelerating in the South-East and the arid and semi-arid North. 75. The WBG will support the agriculture and climate change (resilience) reform agenda and its implementation through the federated structure. The ongoing Programmatic Agriculture DPO, Fadama 3, Commercial Agriculture Development Project (CADP), Nigeria Erosion Management and Watershed Management Project (NEMWAP), Rural Access and Mobility Projects 1 and 2 (RAMP 1 and 2), and the planned Irrigation Project, Staple Crop Processing Zone Project (SCPZ), and Disaster Risk Management and Climate Change Operation (DRM-CC) are all instruments that focus on strengthening agricultural productivity and enhancing climate resilience, with benefits accruing to the rural population and other communities exposed to weather and climate shocks. Key measures include: (a) improving farmer’s access to fertilizers, seeds, and extension services; (b) improving farmers’ linkages in selected staple value chains in order to help reduce their transaction costs of accessing inputs or distributing outputs, thus enhancing their competitiveness; (c) improving farmers’ access to rural infrastructure (roads and irrigation, with increasing focus on the North where the bulk of Nigeria’s largest dams and irrigated cropped area are located); (d) reducing immediate and long- term climate risks to rural livelihoods by treating and reversing land degradation, supporting climate smart agriculture, water catchment management, reducing deforestation and forest degradation and fostering reforestation, and enhancing capacity to prevent and manage climate- 36 Gender in Nigeria, DFID 2012. 37 Rural Accessibility Index of 47 percent. 38 Nigeria’s total road network consists of 194,000km of roads (34,000km federal roads; 30,000km state roads, 130,000km) registered rural roads. Rural Access and Mobility Project 2; World Bank, 2012. 39 Towards Climate Resilient Growth in Nigeria, WB. 2013. 40 Nigeria Erosion and Watershed Management Project, World Bank, 2011. 28 related disasters including through more efficient hydro-meteorological systems and innovative finance to respond to shocks. Building on the quantitative and qualitative analysis of gender and agriculture in Nigeria, projects supported by the Bank in this area increasingly target women as beneficiaries, in addition to tracking the share of women in the total direct beneficiaries. Recognizing the increasing vulnerability of Nigeria’s urban settlements to floods which tend to hit the urban poor and vulnerable particularly hard, the CPS support may include support to improving resilience of urban centers to natural disasters. 76. The impact of the above operations will vary in terms of its geographical scope. The Programmatic Agriculture DPO is expected to achieve the country-wide impact, given its focus on the policy framework. Commercial Agriculture Development Project, Nigeria Erosion Watershed Management Project, Staple Crop Processing Zones project, Rural Access and Mobility Project 1 and 2, in contrast, have a demonstrational and catalytic nature and are not expected to generate country-wide impact but to offer models and practices that could be scaled up. For example, the efforts to treat land for erosion include strong community involvement in order to help secure their participation and ownership of the larger erosion management planning and implementation of activities that will ultimately bring a more permanent solution. It also bears noting that the 2,800 additional ha of land treated for erosion that will be achieved during this CPS is only a fraction of the total 12,000 ha that will be treated for erosion beyond the CPS period. The Disaster Risk Management – Climate Change operation would focus on flood prone areas such as those along Benue river basin. The other example of demonstrational support is the IFC and the WB work on a joint business plan to help strengthen linkages between farmers and agro-processors through the demonstration SCPZ project. Consistent with the emphasis on synergy and complementarity between projects, the CPS pairs this work with support under the Growth and Employment in Markets (GEM) project to improving linkages among agro- processors, logistic providers, certification services, and farmers, which will help reduce the vulnerability of rural households to volatility in market demand. MIGA will continue to seek opportunities to support private investments in the agribusiness sector, including smaller projects. MIGA currently has three projects in the pipeline. 77. A common theme to the support package is the strengthening of institutional and governance arrangements across all levels of Government. The CPS will augment the use of stakeholder analysis for project design and policy dialogue and continue to embed strengthening institutional set-up, regulatory framework, financial management, capacity building and social accountability in projects. In addition, RAMP 1 and 2 projects will help strengthen sub-national capacity to implement sound rural transport policies and to manage rural roads in a financially sustainable manner. RAMP 2 will also promote social accountability by linking road funding to the performance of state and local Governments and by introducing community-based and performance-based approaches to rural transport infrastructure management and maintenance. 78. Through the Country Assistance Framework, the WB will coordinate its activities with other partners, mobilize and implement trust fund support as appropriate, and promote opportunities for leveraging additional resources. Strong collaboration is already established with DFID, IFAD, AfDB, USAID and UNIDO on support to staple crop processing zones. Trust fund support continues to play an important role by funding technical assistance, such as for implementing recommendations of the Post Disaster Risk Assessment and strengthening the capacity of Nigeria’s post disaster risk management institutions (EU/GFDRR funded projects), and engaging with the Government on agricultural commodity exchange in 29 Nigeria (Trade Facilitation in Nigeria Agricultural Markets). IDA resources under RAMP 2 are leveraged in several states with resources from the French Development Agency, with a view to scaling up to include more states and attract more donors. FINANCING FOR DEVELOPMENT CPS outcome Outcome indicators Expanded financing  Additional 100,000 loans provided to SMEs by IFC opportunities for  Additional 2 million micro entrepreneurs provided with financial SMEs services by IFC. Improved supply of  Percentage of long term financing >24 months of outstanding private longer term sector credit increased to 5% of the total private sector credit financing  Percentage of housing finance loans in the financial sector increased to 5% of the total loans  Volume of corporate bond issues increased on average to 2 issues every year. 79. Nigeria needs to broaden and deepen its financial services to diversify its production structure and promote a structural shift in employment demand. Lending by financial institutions is heavily concentrated on larger corporations and their supplier value-chains.41 Oil and gas is the main lending sector, representing approximately 22 percent42 of total credit to the private sector. The domestic local currency savings (primarily from pension funds) are not channeled to the productive sectors such as infrastructure, housing/mortgages, and SMEs. 43 Long-term financing, particularly for infrastructure and housing, is largely absent.44 SMEs in Nigeria have enormous potential to play a crucial role in economic growth, poverty reduction, employment and wealth creation. However, many find it difficult to survive and grow, as they lack access to the finance, skills and information to expand and grow. 45 Nigeria’s SMEs account for only about 5 percent of total lending by commercial banks.46 80. The CPS program includes support to expanding access to financial services for SMEs and enhancing their capacity to absorb those services. The package of support envisions IFC working with local banks to expand access to financing for SMEs, while in parallel building the banks’ capacity to innovate, manage risk, and efficiently monitor SME lending. IFC also plans to provide support for establishing and/or improving financial infrastructure (e.g. collateral registry, credit bureaus, payments/mobile banking) to lower the risks associated with SME lending by banks and other SME financiers. It also plans, directly and through wholesale solutions, to finance commercial microfinance institutions to better reach the base-of-the-pyramid entrepreneurs (especially women). 81. Consistent with expansion of financial services, capacity building support will be provided to SMEs and agricultural enterprises to make full use of those services. IFC plans to scale up its capacity building support to SMEs through a country-wide roll-out of its Business 41 Financial Sector Assessment Program Update: Nigeria, 2012, IMF/WB. 42 Idem. 43 As of June 30, 2013, the estimated aggregate pension funds-under-management were US$22 billion from only 5.6 million registered pension contributors, of which over 80% is invested in the federal Government’s Treasury bonds. 44 Financing Options for Infrastructure PPs in Nigeria, WB, 2013; Housing Finance Project, PAD, WB, 2013. 45 Radwan I, Pellegrini J: Knowledge, Productivity, and Innovation in Nigeria: Creating a New Economy, World Bank, 2010. 46 Financing Small- and Medium-Sized Enterprises in Nigeria, April 2012. 30 Edge and SME toolkit access programs. 47 Recognizing that a significant portion of Africa’s MSMEs are owned and run by women, IFC will seek to address obstacles that women face in business and will target sectors for investment that tend to employ women. IDA will continue its support to promising industry clusters that have the potential for employment growth – the ICT, entertainment, construction and manufacturing sectors – through the Growth and Employment (GEM) project. CAF partners DFID, GIZ, and EU will closely complement this focus through their work on addressing regulatory and administrative barriers to specific cluster/value chains. The support in this area is evolving and the CPS progress report will offer an opportunity to capture and reflect its impact in the results matrix, as appropriate. 82. The WBG program will also focus on increasing the supply of long-term financing, which is expected to help boost productive employment. The planned Development Finance operation will help reform the development finance framework and build a leveraging framework to securely channel long term savings from pension and other funds into long term lending for the SMEs, agriculture and infrastructure. By supporting the establishment of the Nigeria Mortgage Refinance Company (NMRC), the Housing Finance Project supported by IDA and IFC will help to increase the supply of long-term finance to the housing market, and enhance access to finance for lower income borrowers. Unlocking the residential housing market through the development of the housing finance market can provide a wide range of income opportunities through the construction sector and related industries, as evidenced in Colombia and India. The WBG work in the housing sector is complemented by efforts by DFID and Gesellschaft fuer Internationale Zusammenarbeit (GIZ) to improve land and legal systems, and the quality of housing construction.48 83. Given the scarcity of bank lending for diversified growth, IFC plans to promote the development of non-bank financing. Its support will focus on: (a) local currency bond; (b) regulatory approvals for an IFC medium-term notes shelf program, to enable IFC to periodically issue bonds to fund projects in Nigeria with longer-term financing; and (c) the Efficient Securities Markets and Institutional Development program, supporting regulatory capacity building at the Securities & Exchange Commission and National Pension Commission, among others, to help rejuvenate the non-sovereign bond market. Diversifying financial intermediation to the debt capital markets complements the strengthening of the banking sector. 84. Knowledge work represents an important element of the support package. The proposed sector work – Inclusive Markets, Inclusive Finance and an Investment Climate Assessment Report on Drivers of Job Creation – will aim to enhance the overall effectiveness of the program. In conjunction with the planned Job Assessment Report, this work will provide policy-makers and new Government with an evidence-based platform to adjust policy mix in order to optimize the overall impact of finance for development reforms on jobs and income. This knowledge work will also help shape eventual additional lending support in FY16-17. 47 These are upgraded toolkits designed to assist small and medium entrepreneurs in optimizing their businesses. 48 The building blocks of the housing sector are sound macroeconomic policies, access to long term financing, improved land and legal systems and increased housing construction. 31 Second Strategic Cluster: Quality, Effectiveness and Efficiency of Social Service Delivery at State Level for Greater Social Inclusion 85. The CPS support seeks to address inequities in income and opportunities by developing more effective mechanisms for social service delivery (social protection programs, education, health, and water services delivery). Social services delivery in Nigeria is largely poorly targeted, with limited coverage, and is not evaluated periodically. This results in sub-optimal utilization of funds, and constrains the ability of all members of society, and especially the poor and vulnerable, to reap the benefits of growth or to buffer the economic and climatic shocks faced by the poor. STRENGTHENING COMMUNITY DRIVEN MECHANISMS FOR SOCIAL INCLUSION, AND EFFECTIVENESS OF SOCIAL PROTECTION PROGRAMS CPS outcomes Outcome indicators Improved targeting of  # of states using the unified registry of beneficiaries and common social protection and targeting mechanism increased from 0 to 10 increased employment  Additional 100,000 youth who received orientation and life skills readiness of youth in training supported states.  40 percent increase in the number of poor beneficiaries (lowest quintiles) from targeted poor households receiving cash transfers. Increased access of  Increased number of poor and vulnerable people (of which not less poor and vulnerable than 50% are women) with access to social and livelihood support households to social services through community development plans. and economic services 86. For a country to respond effectively to shocks and protect its vulnerable citizens, it needs a coherent social safety net system. Over the last ten years or so, the WB has been supporting community driven development approaches in many Nigerian states as a major mechanism for increasing access and utilization of human development and social services by poor and vulnerable. The projects have generated good results to date, suggesting the continuing validity of this approach. However, given the marginal poverty reduction in Nigeria, there is clearly a need for much stronger efforts to accelerate its pace and strengthen the targeting system. In particular, social safety nets need to play much stronger role in mitigating inequality of income and opportunity. 87. WBG support combines the continuing support to the CDD approach to poverty reduction and efforts to strengthen the social safety net system. The ongoing Community Social Development Project (CSDP), State Expenditure Effectiveness for Results (SEEFOR), the Youth Employment and Social Support Operation (YESSO) and the planned Additional Financing for the CSDP and Social Inclusion and Welfare Advancement project are all instruments that will focus on strengthening community driven mechanisms for social inclusion and effectiveness of social protection programs. These interventions will complement the recent initiative by the federal Government to develop a comprehensive national social safety net framework for the country. A multisectoral federal task team has been established to fashion a robust social safety net coordination program in consultation with state governments and development partners and complimentary to existing interventions. Key elements of the ongoing and planned support in the area of social protection include: (a) empowering the poor and 32 vulnerable in the effort to fight poverty; (b) strengthening the capacity for coordination, monitoring, policy development and the creation of co-financing mechanisms for social safety net programs at the federal level and establishing a common targeting system and the Unified Register of Beneficiaries at the state level; (c) supporting the existing public workfare program and training unskilled youth for job opportunities, while ensuring that women are included and do benefit from those programs; (d) conditional cash transfer program to encourage poor families to invest in education and health of their children and female young adults; and (e) increasing the share of participating local governments that are funding and incorporating community development plans in their budget. Results achieved to date regarding the number of youth trained, common targeting mechanism, unified registry of beneficiaries, and cash transfers to poor beneficiaries reflect progress in improving the efficiency of government programs. States are expected to scale up mechanisms and practices which have been developed to deliver those results. The WBG will reinforce and support social protection programs in the immediate future through the planned Social Inclusion and Welfare Advancement Project. The Bank will also continue to coordinate its activities and collaborate with United Nations Population Fund (UNFPA), United Nations Development Program (UNDP), International Labor Organization (ILO), DFID, UNICEF and UN Women within the CAF framework to ensure complementary and effectiveness of efforts. 88. The planned diagnostic work will play an important role in advancing the WB’s dialogue and national debate on social protection in Nigeria. Sharing Prosperity in Nigeria: An Analytical Work Program on Jobs and Social Protection; the Social Protection Status Report 49 and the Nigeria-specific follow up to the World Development Report on jobs will provide a strong knowledge platform to stimulate national debate and engage with the new Government on those issues. This work will be complemented and supported by the work funded under the Governance Partnership Trust Fund, Rapid Social Response Trust Fund and the trust fund on environmentally and socially sustainable development. COVERAGE AND QUALITY OF HEALTH SERVICES CPS outcomes Outcome indicators Improved coverage  The share of child deliveries that are assisted by trained health and quality of personnel in 3 states increases to 43 % by 2017 (baseline: 33% in health service 2013; delivered by the results-based financing of health services in 3 delivery states)  The share of children 12-23 months old who are fully immunized in 3 states increases to 45.4% by 2017 (baseline: 25.4% in 2013; delivered by the results-based financing of health services in 3 states)  % of under-5 children sleeping under insecticide treated net the night preceding the survey increased from 44.6 % in 2010 to 60%  At least 80 % coverage with oral polio vaccine sustained in every state by 2017.  % of pregnant women living with HIV who receive a complete course of antiretroviral prophylaxis to reduce the risk of mother to child transmission increased from 18% to 40%. 49 Undertaken in coordination with DFID, UNICEF and AfDB. 33 89. Economic growth has not improved health status. Rates of malnutrition among children has either stagnated or worsened depending on the indicator used and the total fertility rate remained stagnant over the last decade. The bright spot has been a reduction in under-five mortality rates and this is likely due to the distribution of long-lasting insecticide-treated bed nets that prevent malaria (malaria accounts for almost 24% of the entire burden of disease in Nigeria). The upper income quintiles in Nigeria have access to a large private health sector that is mostly beyond the reach of the poor who have to rely on a public sector that is not performing well enough to meet their needs. Governance, rather than an absolute lack of resources, appears to be the main problem in the public health service delivery. Failure to address key governance issues such as accountability, incentives, availability of credible data, and capable management has consistently impeded progress in improving service delivery even when inputs have been available 90. The CPS program will support the Government in implementing bold approaches to addressing governance issues and strengthening service delivery. The ongoing Nigeria State Health Investment Project and the proposed Program for Results (P4R) operation will promote results-based financing to address governance issues. The focus is on changing incentives and increasing accountability for service delivery by linking disbursements (and payments to health facilities) to increased quantity and quality of health services. Health facilities in remote areas receive higher payments to address equity issues. The Nigeria State Health Investment Project has successfully piloted results-based financing and will now expand this to cover 3 states. Building on the lessons learned, the proposed P4R operation will use a variety of results-based approaches in an additional 6-12 states. Effective use of ICT systems will be explored for improved service delivery by encouraging data-driven decision-making, targeted beneficiary feedback, and tracking progress against DLIs. 91. Efforts will be made to help improve monitoring and evaluation, with trust funds providing important support in that respect. The HRITF Impact Evaluation Trust Fund is supporting the Nigeria State Health Investment Project to assess its progress, thus providing an evidence base for its scaling up. Through the Quality of Service grant, the Bank is piloting service delivery indicator surveys in 12 states. Data collection systems will also be strengthened through the proposed P4R operation, including by leveraging various ICT tools. 92. The package of support also comprises IDA and IFC collaboration to pilot improved hospital management through PPPs and the continuing implementation of the on-going HIV/AIDs, malaria, and polio projects. The Polio Buy-Down Program (trust fund) has continued to provide critically important support to eradicating polio in Nigeria. Additional financing operation may be required in order to help the government eradicate polio and shift effectively to strengthened routine immunization (RI), especially in conflict-affected areas of the country where polio is still circulating. The country needs to maintain the polio-free status for three years after interrupting transmission to be declared polio-free. Since the most polio endemic states, Borno and Yobe, face serious security challenges, the new support will test innovative approaches to improve the very low routine immunization coverage and strengthen primary health care more broadly. 34 EFFICIENCY, EQUITABLE ACCESS AND QUALITY OF EDUCATION SERVICES CPS outcomes Outcome indicators Improved learning environment  10,000 additional teachers in rural areas (baseline: and management capacity for 31,243 in 2013, delivered by the results-based education financing of education services in 3 states)  50% of supported schools demonstrate improvements in learning outcomes (baseline: 4000 schools in 2013, delivered by the results-based financing of education services in 3 states). Strengthened responsiveness of  # of states with approved Strategic Plan for improving public and private training quality and relevance of TVE increased from 4 to 15. institutions to skills demand 93. Education is key for Nigeria’s economic growth and poverty reduction. Despite the progress made, many challenges remain to increasing enrollment in primary education. About one in every three primary-school-age children still does not have access to primary education. Poverty has been consistently found to be the dominant factor that prevents many children from starting school on time or even setting foot in school.50 Most of these children are concentrated in the North, in rural areas, and in poor households. Girls from such backgrounds are substantially more disadvantaged in education than are boys. On average, only 37 percent of students finish primary school at the official age of 11. At the national level, 60 and 44 percent of students, after completing grade 4 and grade 6 respectively, cannot read a complete sentence. About 10 percent cannot add numbers at the end of primary education. Lack of technical and vocational training and low productivity affect product quality and the growth of value chains in Nigeria. Many graduates are unable to find jobs, while skills remain in short supply in some industries. A recently-completed Policy Note on Access, Quality and Equity in Education Nigeria established that student achievement is hindered by the lack of qualified teachers, insufficient teaching, learning resources, school autonomy and weak accountability for results. Underlying Nigeria’s skills gaps are a weak basic education system and a lack of coordination between firms and education and training institutions. 94. Given that the WB’s contribution to the education and training sector in Nigeria is a very small percentage of overall financing of education (less than 3 percent), the Bank’s support will be primarily catalytic, aiming at transforming behaviors and practices. The recently-approved State Education Project pilots the results-based approach in three states to increase the number of qualified teachers in rural areas (rural schools usually lack qualified teachers), ensure a regular system of state-level standardized assessments, and improve quality and relevance of technical and vocational education. The planned Global Partnership for Education project will promote a similar approach in 9 states in the North, in close coordination with DFID, USAID and UNICEF, all of which have existing interventions in the area. The planned additional financing for the Lagos Eko Project will consolidate good progress in 50 Nigeria Education and Skills Policy Notes; Policy Note 1: Education Access, Equity and Quality in Nigeria, 2013. 35 improving the quality and relevance of vocational training, 51 while the Africa’s Centers of Excellence Project will aim to strengthen Nigeria’s capacity to respond to the demand for skills through West Africa and the continent. 95. Knowledge work will play an extremely important role in advancing the WB’s dialogue with the Government and other stakeholders, and the national debate on education and skill challenges. The planned series of Policy Notes on Skills for Growth and Competitiveness, Political Economy of Education Reforms, Public Expenditures in Education and Training First (PET), Poverty, and Jobs will aim to (a) improve the national awareness of the significance of the education problem in Nigeria and the critical importance of education for the national development, and (b) provide a platform for a much stronger strategic engagement with federal and state authorities on how to bring about a profound institutional reform in the education sector. COVERAGE AND EFFICIENCY OF WATER SUPPLY SERVICES CPS outcomes Outcome indicators Improved coverage and  # of people with access to improved water supply increased by efficiency of water supply 4 million service in selected states  45 percent average increase in cost recovery for operation and maintenance. 96. Nigeria has invested heavily in the water supply and sanitation sector, but significant challenges remain. Over the last 20 years, access to safe drinking water increased by 13 percentage points from 48 percent of the population in 1990 to 61 percent in 2010.52 During the same period, the share of those with access to improved sanitation actually declined by about 15 percent, from 37 to 31 percent. The sector has been weakened by poor operation and maintenance, inept institutions, poor tracking of budgeted funds and expenditures, insufficient technical capacity, lack of coordination across different levels of Government, and lack of inter-sectoral coordination. Lack of financial autonomy is at the heart of the poor performance of all water utilities, coupled with frequent changes in management. 97. WB support will help improve coverage and efficiency of water supply service. Building on the ongoing Urban Water 1 and 2 projects, the new investment support (Water 3) will also address governance aspects such as institutional strengthening, policy and regulatory reform, tracking system for access to potable water, service standards for State Water Boards, and the involvement of civil society in sector dialogue to increase transparency and accountability. WB activities will be anchored at the federal and state levels in order to promote synergies between state level reforms and federal awards of investment support. In a number of states, the WB’s expertise in the sector is leveraged with resources form the AfDB and AFD. MIGA can also play a role in facilitating private investments in infrastructure, both at the federal as well as state levels, and is currently actively looking at two projects in the water sector. 51 Formal partnerships established in the Lagos States under the Lagos Eko Project between the five public technical colleges and private companies resulted in nearly 100% of the Lagos Eko graduates with jobs. 52 UN MDG Database, 2013. 36 Foundational/Cross Cutting Cluster: Governance and Public Sector Management CPS outcomes Outcome indicators Enhanced  # states and the Federal Government with an integrated fully transparency on functioning financial information system producing and publishing budget execution consolidated quarterly financial statements within 14 days of end of in targeted states each fiscal quarter (Baseline: 0 in 2012; target: federal Government and and at Federal 8 supported states in 2017) level  # of states that have adopted procurement law increased from 24 in 2013 to 30 in 2017  % of public procurement contracts above threshold awarded through open competition in 12 states increased from 30 % in 2013 to 75% in 2017. Improved quality  Increased availability of official statistics to all users at federal and state and accessibility level as measured by 40 percent increase in the number of states with of the statistics State Statistical Yearbook which is less than 3 years old (Baseline: 14 States, 2013)  40 percent increase in the number of statistical thematic areas where internationally agreed concepts and standards are applied at federal and state level (Baseline: 7 areas, 2013). 98. Governance has been at the center of the Bank’s engagement and country strategies since the transition to democracy in 1999 and has gradually evolved and deepened. The focus on strengthening public financial management systems and public sector reform more generally at federal level has gradually expanded to also include support to (a) the implementation of the Nigeria Extractive Industries Transparency Initiative (NEITI), and (b) to improving public finance management and governance in states. Concurrently, emphasis on sector governance has been increasing. This CPS will continue supporting the NEITI, including data handling, standardization, quality control, and trend analysis, and other efforts related to the NEITI process, such as outreach and sensitization of professional accounting bodies, auditing and accounting firms, and the Bureau of Public Procurement. The CPS will also continue to consolidate support aimed at strengthening public financial management at federal and state levels while scaling up previous experiences in sector operations by mainstreaming institution building, political economy considerations and efforts to strengthen good governance into the portfolio. Investment lending and grant support for public financial management reforms will increase through operations already approved by the World Bank and other development partners. The geographic coverage of the engagement will expand. Cooperation with partners to improve governance will be strengthened under the CAF and the close cooperation between the Bank and DFID, currently anchored in the Governance Partnership Facility framework, will continue. The WBG direct engagement with anti-corruption entities will be scaled down in light of the substantial engagement by other CAF development partners. 37 PUBLIC FINANCIAL MANAGEMENT 99. Continuing commitment is critical for strengthening public financial management and policy formulation and implementation at all levels of Government. Notwithstanding the progress in initiating important reforms at both federal and state levels during the last CPS, the remaining reform agenda is large. The continuing Bank support to improving PFM systems in 21 states will help strengthen the fundamentals for improved service delivery, which inter alia, is expected to facilitate gains in human development outcomes, growth and competitiveness. Exploratory PFM capacity building activities will be initiated within a limited number of local authorities. Part of the engagement with the Federal Government will continue to focus on effective macroeconomic and reserve management. 100. The CPS will help enhance transparency in budget execution in targeted states and at Federal level by: (a) offering on-demand technical assistance to specific technical areas; (b) promoting greater transparency over budget planning and execution; (c) continuing the dialogue on the importance of 'good enough' financial management with a range of stakeholders, (d) continuing the support to budget monitoring platforms and facilitating their engagement in multi- stakeholder dialogues, (e) expanding the scope of GIFMIS at the federal and state levels to reduce budget fragmentation, and enhance spending controls through all stages of budget execution and (f) strengthen treasury management and improve the efficiency of budget execution. Attention will be given to the sequencing and interconnectedness of reforms. While some financial management reforms can be embedded in sector operations others require changes to overall systems and regulatory frameworks. These activities will be targeted at both federal and state levels. At the federal level, new lending support will be available in advancing the PFM reform agenda. At the state level, the Bank’s support is anchored in the ongoing investment operations in 21 states. The WB will continue to make available support to state-level development policy operations (Lagos DPO2 and 3, Edo Growth and Employment Operation 2) as a strong vehicle for deep engagement at the state level, particularly for improving public financial management. 101. Building on engagement under the previous CPS, public procurement is identified as a special area of focus in the CPS. Important reform progress was made in the area of procurement in the last CPS. The legislative framework is now in place at federal level and in 24 states, while the remaining 12 states are at various stages of this reform engagement. The next stage is support to the implementation of the frameworks. The WB will facilitate e-procurement, the use of framework contracts, standard bidding documents, and self-assessments of procurement policy and practices. Assistance will be provided through capacity building initiatives including technical assistance and South-South learning activities focusing on lessons from other countries. Support will continue for independent, third-party monitoring of procurement processes in various MDA at both the Federal and in targeted state levels. 102. Multi-sectoral teams will ensure that institutional strengthening, including public financial management, is embedded in sector engagements. The WB’s sector engagement during the previous CPS has increasingly incorporated institutional strengthening and public financial management. For example, the engagement on social safety nets and in the health sector will seek to strengthen the functioning of existing institutions and financial management arrangements. 38 103. An important element in the general PFM engagement will be the facilitation of state-to-state comparison and learning. Taking into account approaches and lessons from Bank work in other Regions as well as previous initiatives in Nigeria, efforts will be made to facilitate communities of practice with relevant stakeholders at the state level across the PFM cycle. IMPROVED QUALITY AND ACCESSIBILITY OF STATISTICS 104. The poor quality of data and statistics in Nigeria undermine the quality of policy design and dialogue across all sectors. Although the use of statistically rigorous impact evaluation is increasing, most notably in the health sector, capacity in the use of this tool to improve the management and effectiveness of policies and programs remains highly limited. 105. To address these issues, the WBG will provide new lending support for building a modern effective statistical system in Nigeria (Annex 5), and continue supporting the work on the Service Delivery Indicators package of tools and public expenditure tracking like instruments. The aim is to improve the quality and accessibility of the evidence base for decision making. Support to statistical capacity building, which will generate results after this CPS period, will emphasize long-term institutional strengthening through a multi-donor approach, as opposed to support for individual surveys and analyses. Additionally, the impact evaluation will continue to be used to complement statistics and monitoring and evaluation in order to advance the science of delivery and promote a culture of results. This engagement will feed into a longer-term agenda aimed at improving the basis for decision making and feedback on growth and competitiveness as well as on the inclusion agenda. One important priority is to improve the methodologies and accuracy of core economic statistics in Nigeria. The WBG is currently cooperating with the IMF on the GDP rebasing exercise that should significantly improve the methodology for determining the national accounts and GDP in Nigeria. This model can potentially be further developed and extended to other areas of core statistics. 106. Further, the WBG will continue its TA support on Open Government and Open Data to the Federal Government and targeted states. The aim of this support is to enable greater participation by citizens and improve transparency and collaboration, including via various ICT platforms. These efforts will build on the successful launch of the Open Data Initiative at the federal level and in Edo State, and are expected to facilitate more effective communication flows among government departments and between the government and the public. STRENGTHENING OVERSIGHT AND SOCIAL ACCOUNTABILITY 107. Legislative oversight of the executive is evolving at the federal level and is very uneven at the state level. A key element of good governance and sometimes an important driver of PFM reforms, strengthening legislative oversight could have transformative potential in Nigeria by (a) strengthening the credibility of the elected houses, (b) strengthening the quality of oversight, and (c) creating needed legislative support for the PFM reform agenda. 108. The WB will provide TA support to the National House of Assembly and State Houses of Assembly to strengthen the quality of their involvement in the PFM cycle. Participation in national and international peer-to-peer networks will be facilitated. Trainings will be provided (especially to committee clerks and other staff) and work with the embryonic National Budget and Research office will be intensified in close cooperation with other 39 development partners. This engagement will aim at improving the overall governance environment for development but also more specifically at strengthening the demand and support for public financial management reforms. 109. The strategy will continue to harness civil society for development effectiveness through the use of social accountability mechanisms piloted during the previous CPS. At the policy level, the CPS will continue supporting a dialogue around open government and open data, and targeted initiatives on procurement reform, open budget, freedom of information and health reform. At the project level, efforts will continue to support greater transparency, participation, leveraging innovative ICT tools for targeted beneficiary feedback and third party monitoring in the agriculture, health, education and urban sectors. In an effort to improve the internal transparency and accountability of civil society itself, capacity building support will be provided to non-state actors, including specialized support to governance-specific CSOs. 110. Understanding that demand for good governance and social accountability also stems from a sense of identity, investment and aspiration on the part of the citizenry, the Bank will continue to promote policy dialogue and targeted interventions aimed at promoting social cohesion, nation building and “voices for change”. This will build on previous efforts focused on gender inclusion and targeted support women’s coalitions. It will build on efforts to support coalitions of CSOs that focus on a range of governance issues in order to aggregate voice and promote broad-based networks for reform. Finally, it will build on targeted efforts to support initiatives that aim to promote social cohesion and ‘positive’ identities- such as previous support for key cultural events. MAINSTREAMING POLITICAL ECONOMY AND GOVERNANCE INTO THE BANK’S ENGAGEMENT IN NIGERIA 111. With a view to improving the Bank’s effectiveness, a Programmatic Approach to Governance has been developed and will be rolled out during the CPS period. The approach, developed over a year with buy-in from the country team and accompanied by high- level technical work, has the following key elements:  Political economy analysis of the macro, sector and project levels will help improve the WB’s understanding of governance and political economy constraints to development in Nigeria and thus the design and implementation of operations.  A Governance, Conflict and Gender filter will support task teams in better identifying problems and assumptions in approaches, understanding local contexts, learning lessons from the past, measuring reform potential, ensuring that fiduciary and corruption risks are addressed, and setting in place tracking mechanisms that will make it easier to engage a broader range of actors, learn throughout the project cycle, recognize risks and implementation challenges, and react accordingly, with increased flexibility.  Specifically on facilitating social accountability and the demand for good governance, the filter is intended to ensure that operations: (a) are designed to promote and facilitate citizens engagement in the reform process; (b) support beneficiary assessments and feedback and promote third-party monitoring; (c) allow for iterative improvements in design and implementation based on (a) and (b).  In the area of conflict, the filter is intended to ensure that operations (a) are designed to mitigate conflicts in locations where operations are implemented, (b) clearly identify risks 40 of augmenting conflicts and include mitigating features, and (c) in designing supervision arrangements, take into account the potential impact of violent conflict for staff safety, fiduciary risks and ability to facilitate implementation.  In the area of gender, the filter will seek to support analysis and consultation on gender- related issues as part of project preparation and implementation. Specifically, the aim is to ensure that projects, where relevant, support specific actions to reduce potential differentiated impact of the project activities, address the distinct needs of women and girls, or men and boys, or narrow the gender gaps. The design of the gender filter builds on the Gender in Fadama Research Project (2012) and the Nigeria Gender Portfolio Review (2012) and their recommendations for the better inclusion of gender in the Bank’s projects in Nigeria.  Following on lessons learned from the previous CPS, the WB has constituted an external Governance Consultation Group, increasing its external outreach and consultation. The Group consists of eminent Nigerians, reflecting the diversity of Nigerian society. Its objective is to provide real time advice on local contexts to management and task teams. 112. The governance filter ultimately seeks to improve the capacity of the Bank to deliver results and will be implemented through an interdisciplinary committee. The committee will include financial management, procurement and monitoring and evaluation colleagues, in addition to the Country Management Unit (CMU) and a governance expert. The roll-out of the filter will require a number of changes to the incentives, resources and accountability mechanisms for the country team as well as additional attention to tailoring and adapting to evolving local context at the project level. IV.D. Implementing the FY2014-2017 Country Partnership Strategy Financing Sources 113. In order to keep the flexibility mentioned previously, the WBG is proposing a well- defined program for the first two years (US$3.1 billion IDA and US$1.6 billion IBRD) (Table 4). For the outer years, the program will be based on the outcome of the AAA and the priorities defined by the new government. Overall IBRD/IDA financing will average about US$2 billion per year over the CPS period, and additional support will be provided by IFC and MIGA. The IDA amounts in the first year of the CPS are based on allocations in IDA16. Actual allocations will depend on (a) the country's own performance; (b) its performance relative to other IDA recipients; (c) the total amount of resources available to IDA; (d) any changes in the list of IDA-eligible countries; (e) any changes in the performance-based allocation system for IDA17, and (f) the overall size of the IDA17 replenishment.53 The indicative IBRD financing envelope over the four years period under this CPS is US$2.9 billion. In addition, Nigeria’s support under this CPS includes an indicative trust fund financing of about US$200 million and Analytical and Advisory Activities, which are set out in Table 5. 53 As Nigeria is no longer IDA-only, it will not be eligible for compensatory reallocations from MDRI netting out assuming this mechanism is carried forward into IDA17. IDA’s lending terms will also be hardened from FY14 to IDA blend terms, reflecting Nigeria’s level of income. 41 Table 4: Proposed Lending Program FY2014 FY2015 IDA/IBRD in US$ Million IDA IBRD IDA IBRD Structural Reforms for Growth and Jobs Programmatic Energy Sector Support 400 700 Programmatic Financing for Development Support 300 500 Programmatic Agriculture and Climate Change (Resilience) Support 676 100 Quality and Efficiency of Social Services Delivery for Increased Social Inclusion Programmatic Social Inclusion/Safety Net Support 140 500 Education/Skills 112 Health 300 Water 250 Governance and Public Sector Management Lagos Programmatic DPO 2 and 3 200 200 Edo Growth and Employment Operation 2 75 Federal level support to PFM/Statistics 200 Total 1,678* 400 1,375 1200 *includes approximately US$71.4 million cancelled and recommitted 114. The CPS will optimize and diversify lending instruments in support of the proposed lending program. In addition to traditional investment lending, the proposed program includes development policy support to states to support multi-sectoral solutions with a focus on growth and poverty. At the federal level, DPOs will be available to support implementation of agricultural policy reforms and possibly also to support activities in the area of disaster risk management/climate change. Similar, possible state-level DPOs will support the reform agenda at the state level, building on the previous CPS. The WB will continue to emphasize performance-based approaches in investment lending, notably in the human development sector where a Program for Results (P4R) operation is proposed in the health sector. IBRD lending may be supported using various instruments, such as DPOs and Guarantees. Presently, the Government has requested that much of IBRD support be directed to the financing for development support, and to the power sector, to leverage private sector investment through partial risk guarantees. . 115. While the overall ratio of trust funds (TFs) vs. IDA assistance for Nigeria is low, TFs have been providing important support. Over the last three fiscal years, total commitments under recipient-executed trust funds (RETFs) amount to $182.19 million, while cumulative disbursements amounted to US$95.57 million. The Polio Buy-Down Program, the largest trust fund, has provided critically important support to eradicating polio in Nigeria. Statistics for Development TF is supporting the Bank’s engagement in the statistics area. Much of the impact evaluation activities are trust-funded, such as earlier mentioned impact evaluation under the Nigeria Health Sector Investment Project. Support from the Global Facility for Disaster Reduction and Recovery provided a vehicle for mobilizing and responding to the Government’s request for support after 2012 flooding. The Nigeria program continues to benefit from the GFDRR support. Another example is the Governance Partnership Facility – it supported the development of the Governance Approach and continues to play an important role in the WBG engagement in the governance and public management area. 42 Table 5: CPS Indicative Knowledge Services Program, FY2014-2015 Engagement Area FY2014 FY2015 1st Strategic Cluster: Federally led structural reforms for growth and Jobs Financing for Development  Inclusive Finance  Inclusive Markets  ICA Drivers to Jobs Growth Agriculture and Climate Change  Trade in Agricultural Markets (Resilience) (TFF)  PDNA and Recovery Framework  TA support to climate resilient development along the Benue river basin 2nd Strategic Cluster: Quality and Efficiency of Social Services Delivery for Inclusive Growth  Programmatic Poverty Work  Education Programmatic AAA  Jobs Assessment Nigeria  Service Delivery Indicators. Foundational/Cross-Cutting Cluster: Governance and Public Sector Management Public Financial Management  Value Chain Analysis (Procurement)  Improved PFM  State Governance Benchmarking Strengthening Oversight and Social  Nigerian National Assembly Accountability  Open Government Technology Framework. Cross-Cutting Knowledge Work  Nigeria Economic Report  Nigeria Urbanization Review  Programmatic Poverty Work  Northern Governors dialogue  Jobs Assessment.  Demographic Dynamics 116. As already discussed, knowledge work plays an important role in the CPS program. The work planned in FY2014-2015 will provide further selective support as well as the platform for engaging with the new Government. For this engagement, the CPS will develop a strong knowledge platform around the poverty, jobs, inclusive finance and markets, education/skills, safety nets, and urbanization issues (Table 5). Portfolio Management 117. Portfolio implementation experienced challenges during FY2013 mainly due to the delay in the approval of the 2012 Borrowing Plan by the National Assembly of Nigeria. This, in turn, caused delays in signing the Financing Agreements for 7 projects, delayed effectiveness of 8 projects, and an increase in the number of problem projects. Yet, in spite of those challenges, the Country Team achieved 19.5 percent disbursement rate by end FY2013, which is a significant achievement. Following the approval of the Borrowing Plan, all projects approved have become effective and the portfolio implementation is expected to further improve. 118. The CMU has put in place a robust portfolio management mechanism. The key elements of that mechanism include: (a) an implementation support team (IST) consisting of 43 country operational staff to work with project teams to address challenges; (b) rigorous periodic assessments with multi-sector task teams to pro-actively determine issues in key operational areas and offer solutions; (c) monthly portfolio monitoring reports; (d) bi-weekly portfolio meetings of the CMU leadership team (the CMU and sector leaders); (e) periodic meetings with Project Coordinators and Task Team Leaders; (f) on-boarding events, capacity building programs and hands-on clinics to support clients and project teams; and (g) Country Program Performance Reviews (CPPRs) at project, zonal and national levels to identify and resolve operational issues. The recently-completed zonal CPPRs covering all geopolitical zones have fostered renewed momentum, greater ownership and better alignment of IDA programs with state programs and priorities. Financial Management and Procurement Systems 119. Nigeria is making progress in improving its financial management systems, but important reforms are still pending. The GIFMIS for budget execution has been established across 207 federal Ministries, Departments and Agencies (MDAs), and a new Cash Management Policy has reduced interest costs arising from Central Bank advances to finance the budget. There has also been progress at the federal level and in some states in reducing submission time for monthly and annual financial statements. Reforms in budget classification are ongoing, and a new GFS/COFOG compliant chart of accounts will allow the Government to record all sources of funding and report more details of transactions. However, Government has yet to (a) amend the Finance (Management and Control) Act of 1958, the organic PFM law, to better reflect current financial management requirements; or (b) the Audit Act, to strengthen the functions and independence of the federal Auditor General; or (c) transition from prepayment internal audit method to the risk-based method. 120. Nigeria has also improved its procurement policies and practices and strengthened procurement capacity at the federal and state levels. A Public Procurement Act has been enacted at the federal level and procurement laws are in place in 24 States. Regulatory agencies and cadres of public procurement professionals have been established, and a range of procurement tools have strengthened budget planning and efficient implementation. At the federal level alone, these improvements have resulted in savings of N572 billion (US$3.7 billion) in 2012 compared to 2011.54 121. These improvements have enabled greater use of country systems for the procurement of goods, works and services. For instance, the National Standard Bidding Documents are now used by Bank-financed projects for National Competitive Bidding without exceptions, because of their improved quality. The market has responded with increased participation in bidding for contracts funded by both Government and Bank leading to more competition and cost reduction. The WB will continue to work with authorities to address any remaining weakness in the procurement system, to further increase the use of country system in WB-funded project. 54 BPP Summary of Contract Awards Against 2012 Capital Allocation Budget. 44 Monitoring and Evaluation and Advancing the Science of Delivery 122. The CPS outcomes have been carefully chosen to ensure that they are measureable and that progress can be monitored and assessed. Each project will have its own monitoring framework with gender-disaggregated and conflict data, where appropriate, and civil society monitoring will be promoted to enable citizens to hold local officials to account. Together with the CAF partners, the WB will explore opportunities for supporting the Government in building coherent and effective national M&E systems. 123. The CPS will place emphasis on advancing the ‘science of delivery’. Its program of impact evaluation aims at (a) improving the effectiveness and operational efficiency of specific policies and programs, and (b) promoting the use of impact evaluation more broadly as a tool for evidence-based policymaking and to build knowledge, including around effective use of ICT in support of service delivery. Impact evaluation cuts across key themes in the CPS principles of engagement, including innovative and catalytic interventions, knowledge, and the delivery of results, and will be used to complement statistics to advance the science of delivery and promote a culture of results. The WB will also use the Country Team meetings, Country Portfolio Performance Reviews and CAF framework to capture the knowledge, experience and learning collected by project teams and country partners during implementation. 124. An effective communication strategy will aim at raising awareness of relevant stakeholders and the general public on the CPS program to foster their participation in implementation. The communication strategy will be mainstreamed in all lending operations from conception to completion to enhance project performance and achieve development objectives. The CPS will emphasize regular and consistent briefing of policy makers key Government officials on project processes and results. There will also be capacity building in strategic communications for Project Implementation Units and show-casing of results to stakeholders to enhance buy-in, support and participation. The communication strategy will also address issues of lack of awareness and understanding of WB projects and activities, as indicated by the 2013 client survey. Partnerships 125. The CPS is embedded within the broader Country Assistance Framework (CAF) (Annex 8). The partnership arrangement under the previous CPS with DFID, AFDB, and USAID was expanded to include other partners and led to the development of a comprehensive CAF. CAF partners currently include African Development Bank, Canadian International Development Agency, European Union, French Development Agency, Department for International Development (UK), Embassy of Brazil and Embassy of China in Nigeria, High Commission of India in Nigeria, International Monetary Fund, Japan International Cooperation Agency, the Agencies of the UN, particularly UNDP and UNICEF, USAID and WBG. 126. The CAF is proving as very effective in furthering the coordination and synergies among partners’ strategies of support to Nigeria. For the first time, AFD, CIDA, EU, USAID and WB jointly consulted with the Federal Government, private sector, civil society and media on their respective country strategies. 45 127. The WBG will collaborate with CAF partners to enhance the role of knowledge partnerships in building capacity at the state level, furthering the federal Government’s reform agenda and developing platforms for engagement in new areas such as job creation, socio- economic development in the North, and urbanization. CAF partners have also agreed to establish a coordination forum on governance to ensure sharing of knowledge and operational lessons and to enhance cooperation. DFID and the WB initiated a closer cooperation through the Global Partnership Facility towards the end of the previous CPS period. This partnership is expected to continue in the new CPS period with DFID continuing to support the mainstreaming of the governance agenda across the portfolio. 128. The WBG will also promote knowledge partnerships on the science of delivery. It will continue partnering with CSOs on third-party monitoring of WB-funded projects. Such monitoring provides valuable insights into the dynamics among stakeholders during project implementation, and into qualitative factors that affect project performance. The WB will use the framework of Country Portfolio Performance Review to promote learning across projects and implementation units. Additionally, together with the CAF partners, the WB will support knowledge exchange among states in the areas of capacity building, project implementation, impact evaluation, and beneficiary feedback to strengthen project design and execution. The platform is expected to help in building/strengthening the capacity of states from all geopolitical zones in the country. V. MANAGING RISKS 129. There are several risks to the CPS implementation, including economic volatility related to the fluctuation of oil prices and decline in oil output, a political situation that will become more fluid leading to the 2015 elections, in-country violence and insecurity, the opposition of vested interests to reform, and instability in the region. 130. Given the high dependence of the country's external balance and consolidated budget on oil, Nigeria is vulnerable to fluctuations in oil prices or output. Although Nigeria has been protecting itself against oil price volatility by maintaining a fiscal reserve, it is still quite vulnerable to macroeconomic risks related to oil. Thus, there is potential for an external shock to the macroeconomic picture that could change the nature of Government priorities and the demand for WB assistance very quickly. This CPS recognizes that the immediate policy priorities of the Government could shift very quickly due to this uncertainty, and therefore adopts a flexible approach that allows the WB to respond dynamically in the case of significant exogenous shocks. The WB will continue to make policy recommendations that support prudent macroeconomic management as the key to providing fiscal space for the Government to adjust appropriately to external shocks if and when they occur. 131. Macroeconomic risks have increased in 2013. A largely unexpected decline in oil output in the first half of 2013 of roughly 10%, together with somewhat weaker oil prices, have tightened the budgetary and balance of payments situation in the country. In this context, the balance of the fiscal reserve declined from US$9 to US$5 billion during the first half of 2013 and the balance of payments surplus that the country had been generating since September 2011 has disappeared. Gross foreign reserves remained at close to US$47 billion from February through early September, 2013. An additional potential source of volatility in this context is significant short-term portfolio inflows that have sought to exploit high interest rates (12-14%) in the 46 context of expected exchange rate stability. The increasing proximity of the presidential elections, which are typically associated with measurably higher budgetary spending, is yet another factor that complicates this picture. 132. The WB will stand ready to adjust to shifting priorities of the Government related to a worsening of the macroeconomic picture. If the oil output does not stabilize, or oil prices decline significantly, Nigeria may find itself in need of a macroeconomic adjustment and without the fiscal reserve to support planned budgetary outlays. On the positive side, Nigeria’s sovereign debt position is still quite strong, with external debt at only 3% of GDP and domestic debt at 16%. Given these risks, the WB will keep the flexibility to shift emphasis to budget support or other operations that may become highly demanded by the client, likely in support of key reforms and institutions that could help insulate the country better from macroeconomic volatility in the future. 133. The evolving and volatile security situation in Northeastern Nigeria represents a significant risk to the CPS implementation. In early 2013, Boko Haram shifted its strategy from conducting insurgent attacks on Government installations to establishing control over swathes of territory of far northeast Borno state. The recent state of emergency in the three affected states have displaced civilians and militants alike, raising the risk of pushing fighters to other states within Nigeria or over the border to Cameroon or Niger, out of the reach of the security services. The counter-insurgency campaign will likely last at least through the full six months allowed by the statute but the threat of terrorism and armed conflict will persist beyond that period, as it did the recent state of emergency (January-June 2012). In addition to the terrorist threat in the northeast, further risk to the implementation of the CPS is manifested in the criminal activity along the north-south corridor and communal violence that affects the middle belt of the country, from Zamfara to Nasarawa and Taraba. Finally, the kidnapping for ransom and express kidnapping risk in the southern part of the country further impedes partners’ ability to deliver and supervise projects, especially in the Delta region. 134. There are three key elements of the WB’s strategy in mitigating the adverse effect of the security situation on its portfolio: 1) agreement with the federal and state Governments to modify/restructure projects and reallocate (on a competitive basis) funds to other states under the same projects, should there be no improvement in the security situation over an agreed and clearly defined period of time (this practice is already in place); 2) utilization of the 3rd party monitoring should WB staff not be able to travel/visit the project areas (this practice is already in place); and 3) within the CAF framework, dialogues with the Government and CAF partners, so as to be fully informed and up-to-date on the security situation. Should violence escalate, creating implementation difficulties for CPS implementation, necessary adjustments to the program will be made in consultation with the Government. Additionally, the WB will monitor security challenges in the Sahel Region, their developmental impact in the sub-region and potential implications for Nigeria, and will dialogue with the Government in that respect, drawing on the WB’s strategy for Sahel and the commitment of the Nigeria Government and ECOWAS member states to promote peace and security in the Sahel. 135. Gaps in capacity, especially at the sub-national level, and institutional weaknesses continue to pose challenges to the successful implementation of the CPS program: The increasingly transformative nature of the program pushes the boundaries of public sector expertise and brings to light systemic issues that pose challenges to successful implementation, such as lack of coherent approach to monitoring and evaluation, contract and project 47 management, and effective use of resources. Continuing attention will be needed to support implementation of institutional reforms, adequate staffing, regulatory strengthening, and practices and systems for better project management. Likewise, the Bank remains vigilant as regards corruption risks to the implementation of its portfolio. New projects will seek to address this concern through focused technical assistance, but increased efforts are needed to build capacity in local agencies to ensure longer-term sustainability of ongoing projects. Better collection of data is critical to effective and evidence-based monitoring and evaluation, which in turn helps strengthen the focus on results. 136. Finally, the lack of clarity regarding the preparation of the Government’s external borrowing plan and delays in its approval could pose risks to successful implementation of the CPS. The WB will manage these risks by engaging with the Government on how best to align its annual assistance cycle with the Government’s processes and practices for external borrowing. In addition, as part of its strategy to reach out to its main stakeholders, the WB will deepen its engagement with the National Assembly, particularly the committees in charge of aid and donor agencies. Most of the FY14 operations are already approved in the 2013 Borrowing Plan. The remaining ones will be submitted in the 2014 Borrowing Plan with the 2014 Budget. 48 ANNEX 1: RESULTS MATRIX Overarching Goal: Socially and Regionally Inclusive Economic Growth Country Development Challenges CPS Outcomes and Indicators Bank and Partner Program Development addressed by CPS Goals First Strategic Cluster: Federally-led Structural Reform Agendas for Growth and Jobs Engagement Area: Power Sector Reform Increase the Nigeria’s electricity consumers, 1. Increased power generation Financing power including the poor, are provided and transmission capacity. Ongoing: NEGIP IDA, NEGIP generation and with unreliable service due to poor Outcome Indicators Guarantee, transmission quality of supply, high losses and a 16 percent increase in generation capacity; and lack of generation capacity to capacity supported by the WBG New: Power Sector Guarantees Project, improve the service demand. interventions by 2017 (Baseline: Transmission and Access Project; Gas efficiency of 6000MW in 2012) Sector Development Project, joint electricity The transmission system remains a IDA-IFC-MIGA Energy Business Plan key bottleneck to a successful sector 8 percent increase in transmission (EBP) delivery and capacity (Baseline: 8588 MVA on access to reform. The existing wheeling capacity is estimated at 4,800 MW 330kV level in 2013) modern lighting for while demand is over 10,000 MW. 2. Improved the efficiency of IFC Investment the base-of- The Government’s investments in electricity delivery IFC investments (project development the-pyramid new power plants are therefore in Outcome Indicators funding, equity, mezzanine and debt) risk of becoming stranded. in IPPs, gas infrastructure, and select Aggregate Technical and Commercial losses (AT&C) of privatized generation and distribution The Nigerian distribution network is companies privatized distribution companies heavily dilapidated with high losses, (DISCOs) supported by the WBG. poor voltage profile and inaccurate EBP reduced by 8 percentage points metering and billing functions. from 25% in 2013 to 17% in 2017. (Baseline subject to revision The poorest rely on kerosene lamps following post privatization for light at high cost and poor verification exercise in 2014) 49 Overarching Goal: Socially and Regionally Inclusive Economic Growth Country Development Challenges CPS Outcomes and Indicators Bank and Partner Program Development addressed by CPS Goals quality while exposing themselves 3. Improved access to modern to safety hazards such as fires and lighting for the base-of-the – explosions. pyramid through supporting the value chain of procuring and distributing solar products such as lanterns and cook-stoves IDA-IFC Advisory Services program: Lighting Africa AS Outcome Indicator Program 1 million solar lanterns distributed; 5 million people with improved energy services (assumes industry estimate of 5 people per household) 100,000 tCO2 being GHG avoided (Key assumptions: (i) kerosene lamp emission factor (t/Coe/ltr) = 0.0026 (ii) kerosene consumption per year for a lantern = 55 ltrs (iii) solar lantern to kerosene lamp displacement factor = 70% ) Engagement Area: Agriculture Productivity and Climate Change (Resilience) Promote Limited access of small farmers to 4. Improved access of small Financing competitive, inputs (seeds, fertilizers), farmers to inputs and Ongoing: Fadama 3, Commercial sustainable technology, information, modern technology, and increase in Agricultural Development Project, and modern methods and mechanization limits their average income Agriculture DPO1, Fadama 3, RAMP 1 agriculture to agriculture productivity and increase Outcome Indicator: and RAMP 2, Nigeria Erosion and contribute to in income of rural households. Watershed Management Project job creation Increased effectiveness of publicly Significant infrastructural 50 Overarching Goal: Socially and Regionally Inclusive Economic Growth Country Development Challenges CPS Outcomes and Indicators Bank and Partner Program Development addressed by CPS Goals and poverty deficiencies in the large scale supported seed and fertilizer New: Agriculture DPO2, Irrigation reduction. irrigation sector impact agricultural distribution systems as measured by Project, Agriculture/Agribusiness Improve productivity, notably in northern the increased number of farmers Project, Rural economic inclusion transportation Nigeria where the bulk of Nigeria’s benefiting from those programs project; Ibadan Flood Rehabilitation networks for dam and irrigation infrastructure is (Baseline: 30% in 2012; Target: Project agricultural located. 60% in 2017). AAA: Spatial Analysis TA. markets. Inadequate transportation networks Additional 20,000 hectares of hinder market connectivity. improved irrigation in North and IFC Investment Reduce the vulnerability Poor roads infrastructure makes it North-West areas (baseline 26,000 IFC investments for input suppliers of Nigeria’s difficult to access urban and ha 2014; target 46,000 in 2017). (seed, fertilizer, and pesticides), agriculture agricultural markets. agricultural equipment leasing/hiring sector to land Rural households in supported companies, food processing, Small farmers have difficulty in Fadama areas reporting 40% agricultural commodity trading, joint degradation, entering farming contracts, due to natural increase in average household ventures with financial institutions limited production scale, weak income (Baseline: N184,240 in targeting the agricultural sector. disasters and bargaining power and high climate 2013: Target N257,937 by 2016). transaction cost. This represents a IFC Advisory change challenge for the Government 5. Improved horizontal IFC A2F Core Banking and Agri efforts to promote inclusive value coordination of small farmers Finance Advisory Program; chain modernization of the Outcome Indicator: interventions to include training; agricultural sector in Nigeria. Number of farmer associations and Investment Climate Program, Support The Southeast suffers widespread or marketing cooperatives to SCPZs. Specialized modules. erosion, and land degradation and established in supported areas. modules and Business Edge environmental insecurity are also (Baseline: 0 in 2013: Target 7,400 accelerating in the arid and semi- in 2017). arid North. 6. Improved road transportation Nigeria’s disaster profile is connectivity of rural markets characterized by extreme hydro- 51 Overarching Goal: Socially and Regionally Inclusive Economic Growth Country Development Challenges CPS Outcomes and Indicators Bank and Partner Program Development addressed by CPS Goals meteorological events, which are Outcome Indicator: expected to increase in frequency Additional 2,000 km or rural roads and magnitude due to climate rehabilitated in supported states change. (incremental indicator, baseline 0). Nigeria’s monitoring and early Additional 2 million people in rural warning systems and its response areas gained access to an all-season mechanisms are not well developed. road in supported states In addition, Nigeria’s flood (incremental indicator, baseline 0). protection infrastructure is 7. Enhanced country’s insufficient and poorly maintained. preparedness to respond to natural hazards, climate risks and natural disasters (resilience) Outcome indicators: # ha of land treated for erosion (Baseline: 0 ha; Target: 2,800 ha). % of upgraded or new HydroMet stations providing data that are published annually and uploaded to the web (Baseline: 0%; Target: 60%). Engagement Area: Financing For Development Support The SME finance gap is estimated at 8. Expanded financing Financing: SME’s growth 1 million SMEs and requiring up to opportunities for SMEs Ongoing: Growth and Employment and survival. $22 billion. Their limited access to finance impedes their growth and Outcome indicators (GEM) project 52 Overarching Goal: Socially and Regionally Inclusive Economic Growth Country Development Challenges CPS Outcomes and Indicators Bank and Partner Program Development addressed by CPS Goals survival. Additional 100,000 loans provided New Development Finance, to SMEs by 2017 by IFC. Competitiveness Project (EU TF) AAA: TA Reform of the Nigeria Additional 2 million micro Development Finance Sector; Inclusive entrepreneurs provided with Financial markets financial services by IFC. IFC Advisory Services: Efficient Securities Market & Institutional Development AS program; IFC A2F Core Banking Advisory Program; Business Edge, Capacity building programs with banks MFI advisory services; supporting banks to provide unsecured credit lines to viable MFIs IFC-DFID SME Program: Includes financing to banks focused on SME lending, improving financial infrastructure and expanding SME solutions. Increase Nigeria faces an enormous long- 9. Improved supply of longer Financing supply of term financing gap, which is term financing Ongoing: Housing Finance long-term significantly hampering its financing to economic growth potential. This gap Outcome Indicator New: Development Finance, SME promote non- relates particularly to the financing Percentage of long term financing Inclusive Finance oil sectors of infrastructure, including housing. >24 months of outstanding private with strong Mobilization of private sources of sector credit increased to 5% of the IFC Investments 53 Overarching Goal: Socially and Regionally Inclusive Economic Growth Country Development Challenges CPS Outcomes and Indicators Bank and Partner Program Development addressed by CPS Goals growth and funds through such instruments as total private sector credit. Direct debt instruments, warehouse job creation the proposed liquidity facility for Percentage of housing finance loans facilities, PCGs, and risk sharing potential, such housing and public private in the financial sector increased to arrangements; MFI investments as housing, partnerships (PPPs), as well as pure 5% of the total loans agriculture, private arrangements, is critical to for example meeting these needs. Volume of corporate bond issues increased on average to 2 issues every year. Second Strategic Cluster: Quality, Effectiveness and Efficiency of Social Service Delivery at State Level for Greater Social Inclusion Engagement Area: Strengthening Community Driven Mechanisms for Social Inclusion, and Effectiveness of Social Protection Programs Improve Low coverage of existing programs, 10. Improved targeting of social Lending: effectiveness the implementation of only a narrow protection and increased Ongoing: Community and Social of social set of instruments, poor service employment readiness of Development (CSDP), Youth protection delivery, and the fragmentation of youth in supported states. Employment and Social Support programs approaches and projects across the Outcome Indicator: Operation (YESSO), State Expenditure country. Effectiveness for Results (SEEFOR) Improved targeting of social Improve Most of public expenditure on social protection programs in states as New: CSDP Additional Financing, access of poor services and assistance programs are measured by the # of states using Social Safety/Inclusion Operation to social and untargeted. the unified registry of beneficiaries AAA economic Large share of the population, and common targeting mechanism services particularly in rural areas and in the (Baseline 0; Target 10 in 2017) Programmatic Poverty Assessment, northern Nigeria, is vulnerable to Sharing Prosperity in Nigeria: An Enhanced resilience of the youth Analytical Work Program on Jobs and falling into poverty due to shocks participating in workfare programs and have limited access to social and Social Protection in supported states as measured by economic services. the number of youths who received 54 Overarching Goal: Socially and Regionally Inclusive Economic Growth Country Development Challenges CPS Outcomes and Indicators Bank and Partner Program Development addressed by CPS Goals orientation and life skills training (baseline 0; Target 100,000 by 2017) Increased in % of poor beneficiaries (lowest quintiles) from targeted poor households receiving cash transfers (Baseline 0 in 2013; Target 40% by 2017) 11. Increased Access of Poor and Vulnerable to Social and Economic Services Outcome Indicator 50 percent increase in the # of poor households with access to social and livelihood support services through community development plans in supported areas (baseline: 900,000 in 2012) Engagement Area: Coverage and Quality of Health Services Increase A very large remaining burden of 12. Improved coverage and Lending: access and infectious diseases including quality of health service Ongoing: utilization of malaria, HIV, pneumonia, diarrhea, delivery quality health and polio. Nigeria State Health Investment Outcome indicator: Program, HIV/AIDS 2, Malaria services. Low quality of care and poor client The share of child deliveries that are Booster Project, Polio Eradication orientation that results, inter alia, in assisted by trained health personnel Support Project. high maternal mortality ratios. in 3 states increases to 43 % by 55 Overarching Goal: Socially and Regionally Inclusive Economic Growth Country Development Challenges CPS Outcomes and Indicators Bank and Partner Program Development addressed by CPS Goals Little focus on results, inadequate 2017 (baseline: 33% in 2013; New: P4R Health Operation incentives, and lack of delivered by the results-based financing of health services in 3 IFC Advisory accountability among health workers and managers. states) Ongoing: The share of children 12-23 months  NHIS financial, regulatory; Inequitable access to and coverage old who are fully immunized in 3  IT & business improvement project of health services. states increases to 45.4% by 2017 (NHIS FRIMP) (baseline: 25.4% in 2013; delivered  Healthcare PPPs at state level by the results-based financing of Pipeline health services in 3 states)  P4R health operation  African health markets for equity % of under-5 children sleeping (AHME) supported demand side under insecticide treated net the financing schemes: supporting at night preceding the survey increased least 2 states with Community from 44.6 % in 2010 to 60%. Based Health Insurance Schemes; At least 80 % coverage with oral  TA to the Nigeria FMoH & polio vaccine sustained in every selected regulatory agencies state. (MDCN, PCN & Nursing and Midwifery council); % of pregnant women living with  TA to the Nigeria FMoH on the HIV who receive a complete course New National Health Bill of antiretroviral prophylaxis to reduce the risk of mother to child transmission increased from 18% to 40% Engagement Area: Efficiency, Equitable Access and Quality of Education Services Increased Primary school enrolment, 13. Improved learning Lending: access to and performance and reading outcomes environment and management 56 Overarching Goal: Socially and Regionally Inclusive Economic Growth Country Development Challenges CPS Outcomes and Indicators Bank and Partner Program Development addressed by CPS Goals delivery of are low. capacity for education Ongoing: quality Incentives for new students to Outcome indicator: education State Education Program Investment engage in learning are often low 10,000 additional teachers in rural Project; SEEFOR, Fadama 3, GEM services given the weak environment for areas (baseline: 31,243 in 2013, learning in schools. delivered by the results-based New: GPE Education Project, Lagos Eko Additional Financing; Africa Weak management at the central and financing of education services in 3 Centers of Excellence Regional school levels, inadequate number of states) Project, qualified teachers, weak curriculum 50% of supported schools and shortage of core textbooks have demonstrate improvements in AAA hampered the quality of education. learning outcomes (baseline: 4000 Political Economy of Education Reforms; Public Expenditures in Low responsiveness of the education schools in 2013, delivered by the Education and Training ; Skills for system to firm level demand for results-based financing of education services in 3 states) Growth and Competitiveness Policy technical skills constraints Note; Jobs Assessment opportunities for growth and 14. Strengthened responsiveness competitiveness in the private of public and private training sector. institutions to skills demand Outcome Indicator: Increased # of states with approved Strategic Plan for improving quality and relevance of TVE (Baseline 4 in 2013; Target 15 by 2017). Engagement Area: Coverage and Efficiency of Water Supply Services Increase Nigeria is off- track in reaching its 15. Improved coverage and Lending: access to water and sanitation MDGs. The efficiency of water supply Ongoing: improved chronic lack of reliable sector service in selected states water performance data makes it difficult Urban Water Projects 1 and 2 Outcome indicators: 57 Overarching Goal: Socially and Regionally Inclusive Economic Growth Country Development Challenges CPS Outcomes and Indicators Bank and Partner Program Development addressed by CPS Goals resources and to accurately track progress. # of people with access to improved New: Urban Water Project 3 improve the Water supply services, where water supply increased by 4 million sustainability accessible, are still unreliable and (baseline: 9.2 million in 2013, of water often characterized by poor quality target: 13.2 million in 2017). delivery of services. Services are often services. Cost recovery for operation and unsustainable and many water maintenance increased in average supply systems experienced by 45 percent in supported states by extensive deterioration and poor 2017 (baseline: Lagos 55% in 2012; utilization of existing capacities due Cross River 66% in 2012; Kaduna to under-maintenance, inadequate 65% in 2012; Ogun 56% in 2012; capital investment, and power Enugu 65% in 2012). supply, among other factors. Foundational/Cross Cutting Cluster: Governance and Public Sector Management Improve Weak processes and systems for 16. Enhanced transparency on Lending: public sector public expenditure management, budget execution in targeted Ongoing: SEEFOR, Public Sector management. weak procurement practices, limited states and at Federal level Governance Reform and Development transparency, oversight and Outcome Indicators: Project, Lagos DPO 1; EDO Growth management capacity in the public # states and the Federal Government and Employment Operation sector. with an integrated fully functioning New: Lagos DPO 2, ERGP2 financial information system producing and publishing consolidated quarterly financial statements within 14 days of end of each fiscal quarter (Baseline: 0 in 2012; target: federal Government and 8 supported states in 2017). # of states that have adopted 58 Overarching Goal: Socially and Regionally Inclusive Economic Growth Country Development Challenges CPS Outcomes and Indicators Bank and Partner Program Development addressed by CPS Goals procurement law increased from 24 in 2013 to 30 in 2017. % of public procurement contracts above threshold awarded through open competition in 12 states increased from 30 % in 2013 to 75% in 2017. Statistics and data measurement and 17. Improved quality and Lending: tracking capacity inadequate to accessibility of statistics Ongoing: Statistics for Results Facility underpin informed policies and Outcome indicator: (SRF) Grant decision making. Increased availability of official statistics New: ERGP2 to all users at federal and state level as measured by 40 percent increase in the number of states with State Statistical Yearbook which is less than 3 years old (Baseline: 14 States, 2013). 40 percent increase in the number of statistical thematic areas where internationally agreed concepts and standards are applied at federal and state level (Baseline: 7 areas, 2013). 59 ANNEX 2: NIGERIA - SELECTED INDICATORS OF BANK PORTFOLIO PERFORMANCE AND MANAGEMENT (AS OF MARCH 10, 2014) Indicator 2011 2012 2013 2014 Portfolio Assessment Number of Projects Under Implementation a 28 24 27 25 Average Implementation Period (years) b 4.0 3.4 3.5 3.8 Percent of Problem Projects by Number a, c 10.7 12.5 25.9 32.0 Percent of Problem Projects by Amount a, c 13.6 11.5 28.0 32.5 Percent of Projects at Risk by Number a, d 17.9 12.5 25.9 44.0 Percent of Projects at Risk by Amount a, d 23.8 11.5 28.0 40.8 Disbursement Ratio (%) e 15.8 20.4 19.4 12.7 Portfolio Management CPPR during the year (yes/no) Supervision Resources (total US$) Average Supervision (US$/project) Memorandum Item Since FY 80 Last Five FYs Proj Eval by OED by Number 102 13 Proj Eval by OED by Amt (US$ millions) 7,804.9 1,741.4 % of OED Projects Rated U or HU by Number 50.0 23.1 % of OED Projects Rated U or HU by Amt 45.6 21.8 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. 60 ANNEX 3: NIGERIA – OPERATIONS PORTFOLIO (IBRD/IDA-GRANTS) (AS OF MARCH 10, 2014) 61 ANNEX 4: STATEMENT OF IFC’S COMMITTED AND DISBURSED OUTSTANDING INVESTMENT PORTFOLIO AS OF FEB 28, 2014 (US$millions) 62 ANNEX 5: STRENGTHENING STATISTICS IN NIGERIA - A SUGGESTED PATH FORWARD 1. The long-term goal of Nigeria’s national statistical system is to evolve into a system that delivers timely, reliable and relevant information about the demographic, social, economic and environmental conditions of the country to citizens, businesses, Governments, institutions and other interested parties. To be useful, such information must not only be regularly available and credible; it must also be consistent. In particular, Nigeria’s determination to implement the Transformation Agenda and, beyond and achieve the goal of Vision 20:2020 would be aided substantially by adequately planned and implemented statistical information, which the National Statistical System (NSS) has to provide on a sustained fashion. 2. Following a long period of decline, the capacity of the National Statistical System is being rebuilt to enable it to discharge its core functions, and progress has been made in several areas. With support from Statistical projects including the Trust Fund for Statistical Capacity Building, the Statistics for Results Facility (SRF) and the LSMS-ISA, as well as other Bank and donor (UN, EU, DFID, AfDB, and USAID) projects with statistical sub-components, the national and sub-national statistical systems have been strengthened, with noticeable improvements in data collection, processing, management and dissemination as well as in the legal and institutional framework, in staff professionalism, and, to a lesser extent, in the coordination of the NSS. 3. Results include passage of the Statistics Act at Federal level in 2007 and Statistics Edict in 21 states of the Federation; the preparation and implementation of the National Strategy for the Development of Statistics (NSDS) 2010-2014 at Federal level, and 23 State Statistical Master Plans at state level; the revamping of statistical dissemination tools (websites, yearbooks) at federal and state levels; the publication of backlogged statistical products such as state statistical yearbooks and sector statistics reports; and deployment of a release calendar. Better coordination of the system, at both vertical and horizontal levels, and better donor coordination for enhanced aid effectiveness for statistical development in Nigeria, was also promoted by SRF. 4. In 2011, the Government prepared the 2012-2014 Corporate Strategic Implementation Plan (CSIP) to operationalize the NSDS and provide an overarching framework for the development and ownership of statistics in Nigeria. The CSIP provides a mechanism for a comprehensive reform of the NSS as an integrated, unified data production system. It brings together all agencies involved in data production across the three tiers of Government and engages all major statistical stakeholders as well as policy makers. The NSDS and CSIP are a major attempt to modernize the institutional framework for the production, use, and dissemination of statistics in Nigeria including better coordination of the statistical system, both horizontally and vertically. 5. Notwithstanding the recent progress, important constraints hinder the production, quality and dissemination of data, which need to be addressed so that the NSS can effectively play its role in supporting the formulation, implementation, monitoring and evaluation of development policies at the national and subnational levels. 6. First, strategic planning and implementation for statistics needs to be improved. The results obtained to date in the implementation of the NSDS have been rather limited. Despite an implementation plan, the strategy was too broad in scope and over ambitious, paid little 63 consideration for available resources, lacked a clear advocacy strategy, and a credible financing plan. Ideally, the implementation of the NSDS required that the Government ensure a sustainable and predictable flow of budgetary resources for statistical development independently of political interests. This has not been consistently the case, although the Government made an effort during 2012 to raise the capital budget of NBS. Moreover, no monitoring and evaluation system was set up to regularly assess implementation of the NSDS. 7. Second, organization of data production and dissemination needs more coherence and accountability. Critical core sector statistics, macro-economic and poverty data remain relatively scarce, old and of uncertain quality. For example, while a cursory look at Nigeria surveys systems indicate a large volume of data being produced (see Table 1), household and economic surveys are conducted sporadically, depending on the availability of donor funding; and, when conducted, results are not rapidly disseminated. Moreover, the metadata, the information about the methods used to produce the data, is insufficient to ensure transparency about the quality of the data. This has created over time a vicious cycle where the limited availability and uncertain quality of official statistics has led to a low demand for data by policy makers at all levels. In turn, the underfunding of the NSS by the Government is impeding improvements in the quality of data produced by the NSS. To many users of Nigerian statistics, data availability and quality are still lagging behind. 8. Third, financial and technical support for the NSS between the Government and development partners as well as among development partners has not been well coordinated. In the past few years, as development partners stepped up their engagement, the Government drastically reduced the capital budget for statistical production. While the recurrent budget more than doubled in 2011 to reach US$24 million compared with the US$11 million provided yearly during 2006-2010capital budget for NBS declined steadily during the same period, from close to US$4 million in 2008 to barely US$1 million in 2011. This has made the statistical system highly dependent on donor funding for its development and this is not sustainable. As a result, realizing that the current model of financial support for statistical development has major deficiencies, development partners are becoming increasingly reluctant to maintain their support for statistics. Consequently, Nigerian statistics are under threat; and some of the most important new instruments introduced in recent years (for example, the GHS- panel survey for monitoring household behavior and welfare) risk being discontinued due to lack of resources. 9. Fourth, Nigeria is a three-tiered Federation, and this adds a layer of complexity to the functioning of the national statistical system. Nigerian statistics – demographic, social and economic – are produced by multiple actors at the Federal and state level, which means that effective coordination is essential for the production of harmonized data. At the Federal level, the apex organization, since the passing of the Statistics Act in 2007, is NBS. Other important players include the National Population Commission (NPopC), which has formal responsibility for population and demographic statistics, including carrying out the population and housing census; and the Central Bank of Nigeria (CBN), responsible for financial and monetary statistics. The Departments of Planning, Research and Statistics of the Ministries, Departments and Agencies (MDAs) are responsible, under the methodological guidance of NBS, for the compilation and dissemination of statistics in their areas of competence. In general, the statistical units in the MDAs are not properly set up, are under-resourced, and have very limited capacity to undertake the required data production and dissemination activities. There is a similar statistical 64 structure at state level. However, for each state, in addition to the state-level replication of the Federal level structure, there is either a State Statistical Agency (SSA) or a State Bureau of Statistics (SBS), depending on the legal structure. All this leads to a poorly functioning statistical system competing for the same scarce resources. 10. In response to the recent increased demand for credible statistics on Nigeria, the Government has requested the WB’s assistance to strengthen the implementation of the NSDS. This provides the opportunity for a bold and effective transformational approach, including a comprehensive review of the production of Nigeria core statistics and stronger coordination of donor support, to place the NSS on the path to world-class statistics provider. 11. The main beneficiaries of the planned support are the users and producers of statistics on Nigeria. These include: (I) NBS; ii) NPopC; iii) SSAs and SBSs, (iv) MDAs; (v) policy makers and planners; (vi) Parliament; (vii) non-state actors (viii) the private sector; and (viii) researchers. The Bank and other development partners’ support have a better chance of success if it focuses on four core areas:  Strategy built on core products: The main objective will be to support the NSS to define a brand, of core economic and social statistics products, with a clear roles and responsibilities, defined time table of production, and dissemination plans.  Support to the Strategy of Financing Statistics, possibly through innovative financing models such as P4R or results buy-down. Since frequently inadequate, unpredictable and donor-dependent financing is a major contributor to dysfunctional data production systems, it is crucial that the financing model aligns incentives for better results.  Technical support to production and dissemination of statistics produced through (a)better documentation of methodologies; (b) alignment of national methodologies with international standards and concepts; (c) professionalization of staff in NBS and other statistical agencies in Nigeria to ensure sustained implementation of methodologies; (d) improved coordination between the different components of the NSS for enhanced statistical production and dissemination.  Strong Partnerships. The Bank is strongly committed to the Partnership approach. The Development Partners objective is to maximize the impact of Development Partners’ support in improving production and use of M&E and statistics in Nigeria. The group’s priority work plan for the period 2012-14 emphasizes support for initiatives that will have as priority outcome the enhancement of the quality of core statistics including national accounts, health and education, at the federal and sub-national levels. 65 Table 1: Inventory of Nigeria Micro-Surveys Surveys Year Remarks General Household Surveys (GHS) 2006 - 2011 The 2010 had 22,000 households, of which 5,000 became part of panel. The 2011 is part of panel 2013 Expected GHS Panel 2010, 2012 Harmonized Nigeria Living Standard 2004, 2010 2014 Expected Measurement (HNLSS) Nigeria Youth Survey 2012 Labor Force and Job Creation Survey 2013 Ongoing Multiple Indicator Cluster Survey 1999, 2007, 2011 National Agricultural Sample Survey 2011 National Adult Disability Survey 2010 MDG Survey 2013 Nutrition Survey 2011, 2012 For 8 States in the North Demographic and Health Survey (DHS) 2003, 2008 Lagos Household Survey 2005-2006 National Literacy Survey 200109 National Agricultural Census Pilot Survey 2006, 2007 Private farmers, not completed National Core Welfare Indicators Survey 2006 African Peer Review Mechanism Survey 2006 National Water Supply and Sanitation 2006 Baseline Survey Socio-economic Survey, Crop-Private 2005 Farmers National Survey of Agricultural Export 2003 - 2007 Commodities Child Labor Survey 2000 Baseline survey on micro-finance institutions 2009 Food Security Survey 2010 Commercial Agriculture Development 2010 Program Survey Export Commodity Survey 2010 National Sugar household consumption 2010 survey Global Adult Tobacco Survey 2012 State GDP Survey 2013 For 7 pilot states, ongoing 66 ANNEX 6: GOVERNANCE APPROACH 1. In order to scale up reform initiatives and support Nigeria in accelerating poverty reduction, the Bank will mainstream a governance approach across the portfolio. Based on the Bank’s recent review of the portfolio through a governance lens, it is clear that the Bank can identify and support pockets of capability, as well as promote socially inclusive coalitions for reform that can reduce the potential for conflict and accompany Nigeria on a path of long term institution building. Under the past CPS, the Bank fostered a number of reform dialogues through a proactive use of its knowledge role with decision makers and state governors, as well as other stakeholders. The recent client survey underlines the need for the Bank to do more of this. A number of sector teams also used their relationships and knowledge to support reform minded teams, including in the energy, health and agriculture sector. The Bank will continue to mainstream its use of political economy and governance tools to further mainstream the potential to scale up success across the portfolio. State level DPLs have proved effective in supporting reform minded leadership, as well as setting in place good governance building blocks. The Bank will continue to seek state level interaction through its portfolio and will pursue the opportunity to increase competition around performance through a state level performance index. Finally, the Bank will roll out the recently designed Governance, Conflict and Gender filter across the portfolio, staring in FY14, and the recently constituted Governance Consultative Group will continue to provide real time advice on local contexts to management and task teams. 2. Against this background, the objective of the Governance Approach for the Nigeria WB country team is to improve the development effectiveness of WB operations and take steps to enhance the enabling environment for good governance in the country. Knowledge products and policy dialogue will be used to improve the understanding of governance and political economy constraints to development. This understanding will guide the Bank’s engagement (including in particular lending/credit operations). A two-pronged strategy seeks to make incremental gains through the Bank’s portfolio in the short to medium-term, while using demand for good governance entry points and a more proactive convening and communication role to improve the overall environment in the long term. This approach allows the Bank to build on its recent global move to incorporate upstream governance analysis around projects, learn from and scale-up its cross-sectoral approach to good governance, apply a more systematic and predictable governance lens to the preparation of all products, and promote greater transparency and issues-based debates in the country.55 3. The Governance Approach sets out a number of analyses and processes to strengthen the potential that projects contribute to concrete outcomes. This will be done through:  An improved understanding of “macro level” political economy issue: through 1) an enhanced literature review of governance and political economy in Nigeria, 2) a review and assessment of the Banks previous use of political economy analysis and governance engagement including DFGG, and 3) an analysis of the drives of successful and non- successful reforms in the country.  Support to task teams throughout the project cycle through a Governance, Gender and Conflict Filter for all operations augmenting preparation of investment operations 55 The World Bank Governance and Anti-Corruption (GAC) Strategy and GAC Implementation strategy, World Bank, 2012. 67 with political economy analysis where appropriate.  Increased outreach, consultation and external guidance to the Bank in order to enhance the flow of information on relevant development issues, while enabling the Bank country team to update and evolve its thinking on relevant political economy issues. 4. At the time of the presentation of the CPS, the analytical work was at an advanced stage of preparation and the findings have informed the strategy. An external Governance Consultation Group has been established and met on several operations. The Filter has been developed and piloted on two operations. The Approach is illustrated in the figure below: 68 5. The aim of the Filter is to support the country team in understanding key (formal and informal) institutional arrangements and funding flows to improve their capacity to achieve results throughout the project cycle. It also aims at helping the teams to assess the political feasibility of suggested reforms to be supported in proposed projects, identify the level of governance, conflict and gender risks that the project is likely to face and appropriate mitigation measures and inform sector and country management decisions on new projects taking into account the expected risks and possible mitigation measures. The Filter will be implemented in a phased manner:  As a first step, all new projects under preparation will be supported with a filter at an early stage pre-PCN/PCN stage. These projects will also be monitored through the filter during ISRs. The filter will be rolled out more comprehensively across the project and ESW cycle, after the pilot is concluded.  The filter will be open ended but will ask teams to submit a template prior to the PCN review, addressing: (i) the fiduciary arrangements for the project including institutional arrangements, funding flows and procurement capacity, (ii) conflict, gender and institutional and governance lessons from previous operations, (iii) additional analysis of 3 areas: a) the political economy and reform environment, b) delivery incentives and accountability lines for different levels of counterparts, c) possibilities for transparency and engagement of demand side actors.  This information will help task teams to prepare the ORAF at the Decision Meeting with an opinion submitted to SD and whether risks are sufficiently identified and mitigated.  The team will receive guidance NGAG will propose governance indicators that should be monitored throughout project implementation.  Teams that undertake additional analytical work will prepare governance annexes summarizing the findings  This pilot approach will be reviewed in December 2013, and findings from analytical work, as well as pilot, incorporated. 6. The proposed analytical work will inform the Filter which will be adjusted on an ongoing basis as the understanding of the governance challenges improve. The Governance Consultation Group is primarily a sounding board for the Country Management Unit Leadership Team but will equally inform the evolving design of the filter. Project teams will therefore, as a general rule, not approach the Consultation Group directly on project related issues. 69 ANNEX 7: FY10-13 JOINT COUNTRY PARTNERSHIP STRATEGY COMPLETION REPORT FEDERAL REPUBLIC OF NIGERIA I. Executive Summary 1. This CPS Completion Report assesses the performance of the second joint Nigeria Country Partnership Strategy (CPS)56 for FY10-13, discussed by the Board of Executive Directors on July 29, 2009. It describes the relevance, achievements and effectiveness of the FY10-13 support and articulates lessons for developing the next Country Partnership Strategy (CPS) for FY14-17. The CPS was prepared against the backdrop of two challenges facing Nigeria: (a) the need to overcome the effects of the global economic crisis; and (b) the need to sustain non-oil growth and develop human capital over the medium term. The core issue of governance underpinned both challenges. At the end of the CPS period, Nigeria’s economy continues to be vulnerable to oil price shocks, and faces three major challenges: (a) translating growth into job opportunities, particularly for youth; (b) addressing increasing social and regional disparities; and (c) addressing political challenges and reducing the security threat in the North. 2. The report assesses overall progress toward achieving CPS outcomes as moderately satisfactory, and WB performance as moderately satisfactory. The CPS program achieved sixteen (16) of the twenty-five (25) planned outcomes. Activities under the non-oil growth pillar supported transformational reforms, particularly in the agriculture and energy sectors, where technical support and policy dialogue helped generate broad consensus on and momentum for the reform agenda. The governance pillar, a core aspect of the program, also demonstrated remarkable achievement towards expected outcomes. Progress under the sustainable human development pillar was slower, but laid the foundation for results-based activities during the next CPS period. On WB performance, the clear alignment of the CPS design with the Government’s priorities; the WB’s effectiveness in adapting to changing country conditions and unanticipated risks; its strength in leveraging partnerships; and its intensive program delivery structure and well-organized portfolio implementation support were strong achievements. However, implementation challenges with two projects contributed to the moderately satisfactory performance rating. 3. Important lessons were learned during the implementation period: First, a deeper understanding of the political economy and needs of various levels of Government is needed to function effectively in Nigeria’s complex governance setting. This will be a critical element in deepening the Bank’s engagement with a strategic set of stakeholders during the next assistance period. Second, improving selectivity and simplifying project design will enhance implementation progress and make it easier to achieve expected outcomes. Finally, a finer balance and synergy of reform efforts between the Federal and State levels is needed to enhance development outcomes. 56 The strategy was prepared with the UK Department for International Development (DFID), United States Agency for International Development (USAID), and the African Development Bank (AfDB). 70 II. Progress toward Development Outcomes 4. During the CPS period, Nigeria made progress in three key areas aligned with its development goals: (a) macroeconomic management, toward the goals of improving Government performance and achieving sustainable and broad-based growth; (b) structural reforms, to improve critical infrastructure, the investment climate, and food security; and (c) security in the Niger Delta, which both the Government and the partners considered necessary for the success of the program, although other unanticipated security threats arose during the CPS period. Macroeconomic management 5. Nigeria experienced stable economic growth averaging over 7 percent over the CPS period. 57 The Government used part of its US$22 billion in fiscal reserves (Excess Crude Account, ECA) to offset the sharp decline in oil revenues during the 2008-2009 global crisis which helped to maintain economic growth from 6 percent in 2008 to 7 percent in 2009. However, despite the recovery in oil prices in 2010, Nigeria expanded its fiscal stimulus which kept growth at 7.9 percent, but nearly exhausted the fiscal reserve while keeping the balance of payments in deficit and inflation in double digits. Efforts to rein in excessive fiscal expansion started in 2011. Despite the upheaval of January 2012,58 the Government managed to reduce the weight of oil subsidy payments which along with other real spending cuts contributed to the general Government budget deficit falling from 5.7 percent in 2010 to 1.9 percent in 2012. 6. Macroeconomic risks remain significant, but the short and medium term outlook is generally positive. The pace of GDP growth is expected to pick up somewhat in 2013; the inflation rate, in double digits in recent years, fell from 12 percent in 2012 to 9 percent in 2013 and should continue to decline. The balance of payments should remain strong, at least in the short term.59 The risk of an oil price shock is still high, given that the ECA balance is now about US$4.88 billion. An unexpected decline in crude oil output has tightened the budgetary situation and increased the medium-term balance of payments risk. In addition, the fiscal burden of the subsidy60 is still significant and could become unsustainable as Nigeria faces the prospect of diminishing oil revenues relative to GDP. Investments in the oil sector that could have ensured strong medium-term growth in the sector have been delayed pending the passage of the Petroleum Industry Bill, which the National Assembly has been debating for a number of years. 7. Although oil receipts account for 90 percent of Nigeria’s export revenue and 75 percent of its budget revenue, real GDP growth is mostly supported by the non-oil sector, and non-oil GDP will remain the main engine of growth. Since early 2000, expansion of the service sector has been at the fore-front of Nigeria’s economic diversification. Public investment and a growing middle class should continue to support rapid growth in the coming years. To help strengthen the underlying structure of the Nigerian economy, the Government started increasing the relative share of capital spending in the budget within the CPS period. In the longer term, this 57 National Bureau of Statistics, GDP Report 4th Quarter and Full Year 2012. 58 Public reaction to removal of fuel subsidy. 59 The balance of payments has mostly been in surplus since the fourth quarter of 2011, allowing authorities to increase gross monetary foreign reserves from US$32 billion in September 2011 to US$48 billion in May 2013. 60 The fuel subsidy accounted for 4.6 percent and 2.5 percent of GDP in 2011 and 2012, respectively. Although the Government’s bid in January 2011 to entirely eliminate the fuel subsidy resulted in civil unrest and a national strike, a compromise solution was eventually proposed with a lower increase of the enforced fixed naira price for petrol. 71 trend should sustain considerable capital expenditure growth. Transport infrastructure development and power supply projects will be the main areas of attention and will boost Government expenditure, investments and jobs over the coming decade. However, Nigeria will have to overcome economic and institutional challenges, such as infrastructure bottlenecks and a weak climate for doing business, in order to promote more inclusive economic growth and employment and sustain improvements in the Millennium Development Goals (MDGs). Social Outcomes 8. However, growth has not been inclusive and has not triggered significant poverty reduction. The poverty headcount in Nigeria declined marginally from 48.4 percent in 2003- 2004 to 46 percent in 2009-2010.61 Considering the high population growth rate, the number of Nigerians living in poverty has increased from 60 to 75 million within 5 years. While poverty seems to have declined faster in the coastal south and around the Federal Capital Abuja, the North-East appears to have experienced a significant increase in poverty. Furthermore, unemployment has shown little improvement. In fact, formal unemployment grew from 19.7 to 23.9 percent between 2009 and 2011; and youth unemployment (ages 15-24) rose from 25 to 37.7 percent,62 with a concomitant increase in the risk of social unrest. Structural reforms 9. The banking system was strengthened and the stability of the financial system was maintained in the face of the 2008-09 fiscal crisis. By 2012, the sector had been recapitalized and governance had significantly improved. As of end-2011, gross financial system assets were equivalent to 61 percent of GDP, with banks and pension funds comprising 79 and 12 percent, respectively, of total system assets. However, further deepening of the sector through access to long-term financing is essential to unlock nascent markets. While bank lending is heavily concentrated on the larger corporations and their supplier value chains, longer-term finance is largely absent from the sector, and this gap is significantly hampering Nigeria’s economic growth potential. 10. The country made significant progress toward major structural reforms. In the power sector, the Government made substantial progress on the implementation of a Presidential Roadmap to Power Sector Reform and a Gas Master Plan. These initiatives established a commercial framework for domestic gas-to-power sales; allowed for the privatization or private management of generation, transmission and distribution utilities; and established a cost- reflective tariff. Secondly, agriculture has been identified as a key engine of growth under the new Agriculture Transformation Agenda (ATA), initiated by the new Government elected in 2011 which desires more focus on agriculture to ensure food security and more equitable growth. First steps include reorganization of the fertilizer and seed sectors, the improvement of market institutions, and efforts to set up processing zones to attract the private sector. Political and security challenges 11. The CPS period was marked by political changes and security challenges. The CPS saw Nigeria’s third consecutive civil president in the 2011 general elections, which were considered historically one of the fairest but were also highly contested in the North, where the 61 Using adult equivalent methodology. 62 National Bureau of Statistics, Socio Economic Survey: Unemployment 2011 Report. 72 post-election upheaval claimed hundreds of lives. Security became a growing concern in many parts of the country, exacerbated by North-South religious and ethnic tensions. While the Government’s successful amnesty program for combatants in the Niger Delta Region led to a drastic reduction in attacks on oil pipelines and kidnappings of foreign oil workers, the unexpected rise in bombings in the North, abductions and organized crime in the South-East, and sporadic but vicious communal conflict in the Middle Belt exacerbated challenges for the Government. Most recently, the Government declared a state of emergency in three Northern states to curtail the violence and insurgency acts of Boko Haram. III. CPS Program Performance 12. The evaluation of program performance, summarized in Annex 1, is based on the outcomes and indicators in the CPS Progress Report (CPSPR), which reflects the revisions to the CPS program requested by the new Government elected in 2011. The CPSPR annexes 3-1 to 3-10 present detailed subprogram reviews and assessments for each of the sectors and main areas of engagement. Overall, program performance is assessed to be moderately satisfactory: the program achieved good progress toward most major expected outcomes, and no major shortcomings were identified. Significant progress was achieved under all three pillars, and outcomes were quite solid for 16 of the 25 indicators. Overall, the results for Pillar 1 and Pillar 2 were partially achieved, and results for Pillar 3 were achieved. C.1 Pillar 1: Achieving Sustainable and Inclusive Non-Oil Growth 13. Substantial results were realized in power generation capacity and transmission efficiency, road network conditions, environmental and climate change management, and in the financial system. Of these outcomes, three (power generation, transmission efficiency and road network conditions) were key elements that addressed infrastructure deficits and have a cross-cutting impact on all other aspects of non-oil growth. Majority of business owners in Nigeria consider poor supply of electricity the biggest challenge to doing business63 and the poor condition of roads is one of the factors that discourages foreign investors.64 These outcomes also rose from a substantially low base to attain the planned targets, demonstrating that substantial investments in these areas, if channeled right, has potential for achieving strong results. The achievements in the environment and financial system outcomes also had significant effects on enhancing capacity and establishing a policy base in key institutions, where formerly none existed. 14. Expected outcomes in public transportation, urban water supply, PPPs and agricultural productivity were partially achieved, though targets were close to being met, with very minor shortcomings. The non-achievement of planned improvement in business environment was mainly due to the late start off of the GEM project and a shortcoming in the design of the indicator which covered the entire country whereas the Bank only focused on selected states. Increased access to critical physical infrastructure 15. Putting the power reform back on track: The program’s leveraging of private sector financing for power generation and distribution reduced the need for public spending in the sector, enabling more public funds to be directed to other Vision 20:2020 priorities. The Bank’s 63 ICA2011. 64 Nigeria Country Report Infrastructure, Africa Infrastructure Series, WB, 2011.  73 investment and technical support for the power sector reform contributed to the following notable achievements:  Development of a commercial framework for domestic gas-to-power sales, supported by partial risk guarantees (PRGs) totaling US$400 million for the Nigeria Electricity and Gas Improvement Project (NEGIP), which helped to significantly increase gas-based generation capacity;  Implementation in June 2012 of a cost-reflective multi-year tariff order (MYTO2), which was instrumental in attracting private investment for the privatization of state generation and distribution utilities, which reached its final stages in early 2013;  Effectiveness of a three-year contract with Manitoba Hydro International (MHI) for management of the Transmission Company of Nigeria (TCN); and  Launch of an Energy Business Plan (EBP) developed jointly by IDA/IBRD, IFC and MIGA to help mobilize private investment in new generation capacity totaling 1,500 MW, for the benefit of independent power producers (IPPs). 16. Improved road network conditions: Support to the transport sector resulted in an increase in the number of rural and federal roads rehabilitated to good or fair condition, as well as improved road safety. The introduction of output and performance-based approaches for road rehabilitation and maintenance took time to materialize,65 and is now being implemented on a smaller scale than originally envisaged by the authorities. Progress on road sector governance has been slower than anticipated, as a draft legal framework for management of the federal highway system is still being debated. 17. Improved public transport services in Lagos state: The remarkable improvement in public transport management capacity in Lagos state is attributable to the Bank’s sustained technical assistance to the Lagos Metropolitan Area Transport Authority (LAMATA). Established under the first Lagos Urban Transport Project and strengthened under the follow-on project, LAMATA was recently selected by the World Bank Institute’s (WBI’s) Knowledge Hub Community of Practice (CoP) to participate in peer-to-peer learning with other transport agencies that are also functioning as regional hubs. Sustainable agriculture development and market access 18. Improved agricultural productivity: In the agriculture sector, the community-driven development (CDD) approach increased the productivity and income of beneficiary farmers in every state, providing a model that could potentially be scaled up by Government. The spatial analysis conducted by the Bank will be a tool for aligning infrastructure investment with agriculture programs, with a view to improving rural access and regional connectivity and stimulating product diversification and job creation. When the new Government defined its Agriculture Transformation Agenda (ATA), which aims to position agriculture as an engine of growth, the Bank responded by adding an Agricultural Development Policy Operation (DPO) to the CPS program to support policy reforms aimed at improving farmers’ access to improved technologies, inputs, and markets. 19. Improved environmental and climate change management: The capacity for environmental management has improved at all levels. WBG supported development of two key 65 Due to the need for more preparation to address contractual risk sharing, financing, and the overall readiness of contractors and government agencies to implement these innovative approaches 74 elements of an early warning system for coastal disaster risk management, and helped to strengthen environmental planning at the community level. The Bank also worked with the EC, DFID, UN and other partners to conduct a Post-Disaster Needs Assessment (PDNA) after the devastating floods of 2012; and this PDNA is now providing the framework for long-term reconstruction and resilience efforts. Finally, the Bank team’s climate risk analysis provided adaptation options for the country’s agriculture, water resource, and energy sectors. The report’s recommendations are already being applied in the agriculture sector. Improved investment climate and financial system 20. Improved business environment: Expected improvements in the business environment were not fully realized: the Medium, Small and Micro Enterprise (MSME) project aimed at providing entrepreneurs in three states (Abia, Lagos and Kaduna) with increased access to financial services; and the DFID-funded, Bank-executed Investment Climate Project (ICP) aimed at reducing selected investment climate barriers that constrained firm performance in four states (Lagos, Kaduna, Kano, and Cross River). Targets were only partially achieved, with only two of the four ICP states (Kano and Cross River) having improved the ease of starting a business, and only two of the three MSME states (Kaduna and Lagos) having improved contract enforcement.66 Ministerial commitment to federal-level reforms has now been secured, and the WB and DFID are providing technical support to the Federal Doing Business and Competitiveness Council, established following a high-level workshop on business climate reform in January 2012. 21. Maintaining confidence and stability in the financial system: Overall, assistance to the Government and Central Bank achieved its objectives of maintaining confidence and stability in the financial system, and strengthening the banking system. Support to help manage the recovery from the global crisis began with a DPO in 2009 aimed at strengthening regulation and supervision in the banking sector. Bank restructuring began in the second half of 2009 and was consolidated during the CPS period; and since 2011, Nigeria’s financial system has been stable and the capital adequacy ratio (CAR) of banks has remained above 15 percent. By the end of the CPS period, the Nigerian banking sector was recapitalized, and the incentives and responsibilities of commercial banks significantly improved. In 2012, the Bank and IMF prepared a Financial Sector Assessment Program (FSAP) which focused on winding down the bank restructuring agency, the Assets Management Company of Nigeria (AMCON) and reforming the framework for development finance. At the request of the Government, the Bank and IMF also prepared an Infrastructure Finance Note exploring options for involving domestic financial institutions in infrastructure public-private partnerships (PPPs). This Note and the FSAP will form the basis for Bank Group support to the financial sector under the next CPS. 22. Increased number of public-private partnerships: Efforts to increase PPP were only partially successful. The Privatization Project under the first CPS had helped to move the Government toward adoption of a National Policy on PPP under the 2010-2013 CPS. A PPP operation approved in March 2011 aimed at encouraging private investment in Nigeria’s core infrastructure sectors; however, the operation faced some implementation challenges, including the preference of a number of new ministers for a public investment scheme, leading to a dearth of bankable projects, as initially envisioned. On the other hand, the Bank’s efforts to help 66 Sub-National Doing Business Study, 2008 and 2010 (World Bank and IFC). A new sub-national Doing Business study is currently underway that will assess progress from 2010 to 2013. 75 establish PPPs in the power sector, by mobilizing PRGs and preparing model business plans, helped to boost the confidence of private investors and mobilize financing for privatization. C.2 Pillar 2: Human Development 23. The Bank achieved significant results in improving health sector development; community development and social protection and; in post-basic education outcomes. Conversely, achievements were modest in improving access to malaria health care services and in enhancing the quality of basic education. Merging the demand side activities with the supply aspects and the technical capacity of the implementing agencies in the malaria program at state level contributed to the considerable short-fall in implementation outcomes. The quality of basic education was impacted by the low achievements in the transition rates and the math and literacy scores of grade 4 students in the states that participated in SESP. 24. The Bank took a system-strengthening approach to improving access, quality, and equity in health and education. Interventions specifically targeted improvements in quality and access to maternal and child health services, quality of basic education, and access to post-basic education; as well as the utilization of services by the extreme poor and vulnerable. Results in the areas of health and education were partially achieved; and outcomes under the equitable utilization of human development services were achieved. Improved health care services 25. Health sector development: A review of the Health System Fund Project and the Second Health System Development Project (HSPD 2) found that (a) large-scale, input-based approaches rarely translate into improvements in health services; (b) failure to consistently address key governance issues such as accountability, incentives, and management impede progress even when inputs are available; and (c) lack of attention to monitoring and evaluation is a critical barrier to success. In response to these lessons, the new Government developed the Saving One Million Lives (SOML) initiative, which takes a strategic approach to implementing high- impact, evidence-based, cost-effective public health interventions, building on the performance-based financing approach piloted under the ongoing Nigeria State Health Investment Project (NSHIP). 26. The HSDP 2 supported the Ministry of Health in producing a policy document on PPPs in health care delivery. The new Government is also working to attract private investments to the sector and several states are now using the innovative models proposed in the policy document to structure health care investments, with IFC support. 27. The CPS contributed significantly to progress in polio eradication. As of June 14, 2013, 28 states have been polio free for one year, and coverage of oral polio vaccine (OPV) in Northern endemic states increased from 44 to 90 percent during the project period (spanning CPS 1 and 2). 67 The intensive vaccination efforts, strengthening of the disease surveillance system, rigorous monitoring, and regular reviews of progress, which depended on collaboration among Government, the World Health Organization (WHO), and faith and community-based organizations, were instrumental in achieving the CPS targets. 67 The buy-down arrangement of the Bank’s Polio Project enabled the financing and delivery of OPV without delays for the period. 76 28. The Bank has made the response to HIV/AIDS more effective and evidence-based. Bank interventions 68 helped to stabilize the HIV epidemic by: (a) strengthening prevention efforts aimed at the most at-risk persons, such as commercial sex workers; (b) carrying out an epidemiological analysis to identify states with the highest HIV prevalence rates; (c) increasing access to critical HIV-related services such as prevention of mother to child transmission (PMTCT); and (d) strengthening the institutions responsible for coordinating programs at national and state levels.69 Improved quality of basic and post-basic education 29. As in the health sector, lessons in the education sector are driving the Bank’s transition from the financing of inputs to the achievement of outcomes. The positive experience and lessons from the devolution of decision-making and financial resources to the school level through School Development Grants supported by the State Education Sector Project (SESP) laid the groundwork for introducing two performance and results-based operations: The Lagos Eko Project, which featured competitive funding and performance incentives; and the State Education Programmatic Investment Program (SEPIP), approved last year for implementation during the next CPS period, which will make disbursements to three states contingent on their achievement of indicators for increased teacher effectiveness, increased school-level effectiveness and management accountability, and international learning benchmarks. 30. Nigeria’s competitiveness has been constrained by limited opportunities for post- basic education and training, particularly in science and technology. The CPS supported Government efforts to expand access to post-basic education, primarily through the Lagos Eko Project and the Science and Technology Education Post-Basic (STEP-B), which, like Eko, featured competitive funding and performance incentives. The outcomes were quite compelling: senior secondary school students’ grades in Lagos state surpassed expectations, and the proportion of students obtaining grade B and above in science and technology was more than double the CPS target. There are also ongoing efforts focused on skills development and improvement; and an ongoing analytical study of skills development for the new economy will be completed during the next CPS period. Equitable utilization of HD services 31. The Bank’s aid to human development (HD) increased the equitable utilization of HD services by the extreme poor and vulnerable in rural communities, and access to social and natural resource infrastructure services in 27 states (see Annex 1). The achievements exceeded the target by 600 percent, and produced far-reaching benefits in terms of school enrollment of poor children, access to improved water sources, and access to health care. Beneficiaries of the Community and Social Development Project (CSDP) were selected through a demand-driven, participatory and transparent process that ensured inclusion of the poorest communities. The project generated increased participation and transparency at the community level, and strengthened community organization processes. Participating local community groups and local 68 The Government received US$225 million under the Second HIV/AIDS Program Development Project (HPDP 2), in addition to the US$150 million provided under HPDP 1 (2002-2012). 69 The Bank facilitated the transition of the National and State Action Committees for AIDS (NACAs and SACAs) to official AIDS control agencies, which have their own budget lines and serve as channels for donor AIDS prevention and control resources. 77 and state authorities have now started to commit their own resources to community-level planning. The challenge during the next CPS will be to empower local Governments to support more community-led development. C.3 Pillar 3: Governance for Results 32. The majority of the outcomes under pillar 3 were achieved especially considering the strengthening of PFM systems, improved integrity in payroll and personnel control mechanisms in the civil service and the effectiveness of anti-corruption institutions. These advances were the resultant effects of the technical assistance and financial aid provided by the Bank. Notwithstanding, escalating governance results and scaling up reforms continue to be a challenge because of Nigeria’s complex demographic, geographic and political context. For this reason, the new CPS proposes to approach governance as a cross-cutting theme through system-wide improvements in PFM, technical assistance to improve the selectivity of public investments and by improving quality and access to data for decision making. 33. Most CPS indicators were met and notable results were achieved under this pillar. The Bank continued interventions aimed at improving public financial management (PFM) institutions and systems at the Federal level, and deepened engagement at state level. Key achievements included strengthening the legislative framework for PFM; introducing automated treasury systems at the Federal level and in some states; and a comprehensive policy dialogue on PFM which led to two DPOs in Lagos and Edo states. The Public Expenditure and Financial Accountability (PEFA) study, in particular, laid the groundwork for deepening the Bank’s engagement in PFM during the next CPS period. In addition, activities to strengthen social accountability were piloted, and will be scaled up under the next CPS. 34. At the Federal level, the Economic Reform and Governance Project (ERGP) facilitated improvements in budget planning, implementation, reporting and auditing. The project introduced a Government Integrated Financial Management Information System (GIFMIS) connecting the central bank and more than 200 Government agencies; strengthened the Treasury Single Account (TSA); introduced medium-term sector strategies; and improved accounting procedures. The Bank also facilitated a gap analysis of the consistency of Government financial reporting with international standards, resulting in the federal and state Governments transitioning to International Public Sector Accounting Standards (IPSAS)- compliant financial reporting. 35. The Bank’s longstanding engagement in procurement reform continued under the CPS, with a focus on modernizing the legal framework. As a result, large federal public contracts awarded through open competition increased from 30 to 100 percent,70 and the open publication of a greater number of federal and state contract awards increased citizens’ access to public procurement information and enhanced accountability and transparency. In addition, the number of agencies with third-party monitoring of procurement increased from 0 in 2010 at the federal and state levels to 28 at the federal and 12 at the state level, respectively. A recently established electronic procurement portal by a coalition of civil society organizations (CSOs) has further strengthened accountability. These improved practices reduced waste in public expenditure at the Federal level by about US$3.7 billion over the CPS period.71 70 BPP Summary of Contract Awards against 2012 Capital Allocation Budget. 71 Ibid. 78 36. The Bank’s state-level engagement helped a number of state Governments to lay out a comprehensive framework for PFM. By the end of the CPS period, public expenditure management and financial accountability reviews (PEMFARs) had been concluded in more than 20 states; programmatic integrated fiduciary assessments (PIFAs) had been carried out in six states; DPOs were on track to be completed in two states; and four states had successfully implemented PFM reforms. The state-level review processes and the credit-funded operations have laid the groundwork for a significant scaling up of the governance agenda during the next assistance period, when various TA operations supported by the Bank and EC will expand the PFM-anchored governance agenda to 21 states. 37. State-level engagement also resulted in the passage of procurement laws in 24 states; the establishment of regulatory agencies in 18 states and of public procurement professional cadres in 10 states; preparation of standard bidding documents in three states; and the introduction of a procurement planning tool to improve the efficiency of capital budget implementation at the Federal level. As a result, public contracts above thresholds awarded through open competition increased from 25 to 40 percent.72 38. The Bank’s support for development of the country’s statistical systems has advanced the availability of critical data at the national and sub-national levels. There were noticeable improvements in the collection, processing, management and dissemination of data; in the legal and institutional framework for management of statistics; and in staff professionalism. However, critical sector statistics and macroeconomic and poverty data remain limited and of questionable quality and will continue to be improved during the next CPS period. 39. The Bank tested a number of accountability tools to make the use of public funds more transparent. These efforts included: (a) Open Government initiatives at the federal and state levels; (b) CSO-led monitoring of social services provision; and (c) beneficiaries’ rights and entitlements campaigns, including under the NSHIP. ICT-based feedback and redress mechanisms were also tested in selected areas under NSHIP and Fadama III, with beneficiaries using mobile phones and web-based technologies to comment on access to service delivery, satisfaction, and complaints. These tools were also used in a teacher absenteeism pilot in the SEPIP and Edo DPO projects; and for web-based mapping and monitoring of urban violence in Benin City. IV. WORLD BANK PERFORMANCE 40. The WB’s performance in the 2010-2013 CPS is rated moderately satisfactory. The Bank’s flexible response to the new Government’s priorities made it possible to achieve most CPS outcomes, including revised outcomes; and established the basis for an expanded partnership during the upcoming CPS period. The CPS program was well aligned with the country’s challenges and Government development priorities. It was anchored in the Government’s Vision 20:2020 and its Seven Point Agenda, and focused on four sets of challenges: (a) offsetting the fiscal impact of the global financial crisis and maintaining the momentum of reform; (b) enhancing the competitiveness of the country in order to expand non- oil growth; (c) building on advances made in health and education service delivery and social assistance, to improve human development outcomes; and (d) improving public sector 72 Data sources: Programmatic Integrated Fiduciary Assessments (PIFAs) in Edo, Rivers and Lagos States and State Governance and Capacity Building Project (SGCBP) ICR in Cross River and Bauchi (2011) 79 governance and PFM efficiency at the federal and state levels. The new Government reaffirmed these priorities and also introduced a Transformation Agenda and a National Implementation Plan (NIP) centred on improving macroeconomic stability, governance, human development, infrastructure, agricultural productivity, and the power sector. A. Design 41. The 2010-2013 CPS improved on the design of the earlier CPS in several important ways. First, the choice of available lending instruments was significantly expanded. While the first CPS offered only investment operations, the second CPS also included DPOs to help the Government cope with the global financial crisis; and (after the 2011 election) to support states in improving their fiscal and budgetary management.73 It also included partial risk guarantees to encourage private sector investment in the energy sector. 42. The method for selecting target states was also significantly improved. Whereas the earlier CPS concentrated resources in a few high-performing states, the selection of states under the 2010-13 CPS was based on their needs, existing programs, state-level governance capability and commitment, and zonal/geopolitical balance. Lending instruments were also tailored to the conditions of each state. The CPS expanded the Bank’s engagement at the state level, thus enhancing its impact on MDG-related activities, for which the states are responsible (see section III on CPS performance). IDA financing was used mostly to help increase impacts in areas where the participation of CPS partners was not deep. As the same time, more effective supervision and increased selectivity in operations resulted in improved outcomes. Going forward, to achieve some minimum institutional capacity and standards, the Bank will have to balance this approach with the need to ensure that regional disparities are reduced. 43. The WB responded flexibly to Government’s adjusted needs at mid-term review and after the 2011 elections. During the mid-term review, a new irrigation project was added; while a number of planned projects were scaled up (e.g. erosion and watershed management and youth employment). A proposed Malaria II project was dropped, although additional financing for the first malaria project was approved. In addition, as the CPS put greater emphasis on evidence- based and performance-based approaches, two performance-based loans in education and health replaced the traditional investment loans earlier envisaged for health, maternal and child health and nutrition, and state education. In response to the 2011 new Government’s adjusted priorities, namely agriculture, long-term financing and energy, the WB provided significant resources to finance the ATA through a DPO and two investment operations (one of which will be delivered under the new CPS) and funded a housing finance project to be delivered in Q1-FY14. Finally, an additional financing for NEGIP was approved, and a power sector guarantee project was added to the pipeline for the next CPS period. 44. Leveraging partnerships: The partnership arrangement under the CPS began with four partners – DFID, AfDB, USAID and the WB; but eventually expanded to include the EC and AFD after 2011. Currently, the Bank is engaged in co-financing arrangements with the EC on governance and with AFD on water and transport projects. The Bank also maintains a strong 73 Although the Bank upheld the plan to utilize state DPOs (SDPOs) in strongly reforming states, and Lagos state successfully pioneered the SDPO as planned, it was only able to access the first tranche during the CPS period. The second tranche, scheduled for FY12, was stalled because of resistance from some newly elected executive and legislative officials. However, given the results achieved, the second Lagos DPO was finally authorized and is expected to be delivered in FY14. 80 partnership with DFID on governance and statistics. DFID has also seconded staff to the Bank to support project supervision in the health and Finance and Private Sector Development (FPD) sectors. The broadening scope of engagement has led the development partners to establish a comprehensive Country Assistance Framework (CAF) for the next assistance period. Under the CAF, development partners will agree on modalities to intensify engagement and measure impacts in critical areas. Such collaboration is already apparent in Nigeria’s newly launched African Health Markets for Equity (AHME) program, jointly funded by DFID and the Gates Foundation. 45. The WB conducted a gender review of the IDA portfolio and building on the Gender World Development Report, organized an evidenced-based gender dialogue with DFID covering all the geo-political zones, in recognition of the inadequate emphasis on gender in the portfolio. These two activities helped design an approach which will be fully integrated in the new CPS. 46. The CPS was deemed to have met the principle of flexibility and responsiveness in responding to Nigeria’s changing environment and needs. However, the 2012 Country Opinion Survey 74 carried out as part of stocktaking for the CPS indicated that the Bank’s processes, procedures, and instruments will have to be more adaptable, context-specific and responsive going forward to respond to Nigeria’s rapidly changing circumstances. B. Implementation Lending and non-lending support 47. The indicative amount from IDA over the FY10-13 period was US$5.5 billion, compared to actual commitments of US$5.2 billion, or US$350 million less than planned.75 The IDA portfolio (26 projects) and GEF (4 projects) were well aligned with the Government strategy, including the new Government’s Agricultural Transformation Agenda (ATA). The portfolio focused primarily on non-oil growth (57 percent), human development (33 percent), and state-level governance (10 percent). 48. The delays in the approval of the 2012 Borrowing Plan prevented the timely signing of agreements related to investments of US$1.57 billion, of which US$160 million was from IDA 15. With the recent adoption of the Borrowing Plan and signing of long-pending agreements, the WB teams and the client (federal and state) are now working hard to compensate for the delays and accelerating implementation of new projects. 49. The Bank produced a variety of sector work at the country and state level, which formed the basis for policy discussions. The Bank prepared studies on fuel subsidies and the fiscal management of oil wealth, highlighting major challenges and opportunities. Two other important pieces of analytical work, on enhancing resilience to climate change (which was the basis for erosion and watershed project and agriculture DPO), and on opportunities for low carbon development, were discussed during a workshop in December 2012 with technical stakeholders, and afterward during high-level consultations. In Human Development, the Bank produced critical work on the quality of primary education, skill gaps, and the status of social protection in Nigeria. In addition, the Bank’s poverty profile of Nigeria, developed in 2013 in 74 December 2012. 75 As of May 2013, the World Bank Group’s active commitments in Nigeria include US$5.3 billion from IDA, US$1.1 billion from IFC, and US$98 million from MIGA. 81 collaboration with the National Bureau of Statistics, will be the foundation for a more detailed poverty assessment to be used in the next CPS program. A study was completed on making fiscal federalism work for economic development; it will be followed by a deeper study on spatial economic development. The Bank also carried out a Debt Management Performance Assessment (DeMPA), undertaken within the broader framework of the Public Expenditure and Financial Accountability Assessment, which could be the basis for a programmatic approach, with other CAF partners, to strengthen debt management capacity. 50. Partnership and South-South collaboration: The Bank has actively facilitated South- South collaboration and knowledge exchange to inform development activities in Nigeria. Field visits to Brazil, India and other African countries on safety nets programs informed the Youth Employment and Social Safety Net Operation (YESSO); peer learning events helped to strengthen project impact evaluations; the Finance and Private Sector Development Department supported the Government’s SME cluster development program through South-South collaboration with China; and the visit of the Fadama 3 project team to India, Singapore and Sri Lanka prompted the creation of federations of economic interest groups, a revolving funds scheme, and a mobile-based agricultural advisory services pilot. Likewise, in the education sector, the Lagos Eko project management team and participants from Ekiti state used a study tour to Chile as an opportunity to strengthen partnership, collaboration, and cooperation among higher education institutions in both countries. The Bank and IFC also facilitated a trip to the Lesotho National Referral Hospital to give Nigerian officials a first-hand look at the use of PPPs in healthcare investments. 51. The Bank used other innovative tools to improve service delivery. Most notable was the development of impact evaluation (IE) which was used as tool to drive operational effectiveness. The current country IE portfolio includes 19 ongoing and planned IEs in 7 sectors and cuts across the three CPS2 pillars.76 The majority of IE activities are concentrated in human development and in health in particular, where the Bank is supporting the Saving One Million Lives (SOML) Initiative with a dedicated IE program in addition to conducting IEs on IDA- financed investments. Financial literacy and financial inclusion is another area of focus, including an IE of the YouWin business grant program. Additionally, in NEWMAP, YESSO, and the SOML IEs, the IE design process is helping to plan for more efficient and timely delivery and; in Commercial Agriculture Development Project, Malaria Control Booster Project, State Health Program Investment Credit, IE evidence is being used to inform program management. Portfolio management and performance 52. As of end June 2013, the Nigerian portfolio (World Bank) reached an historic high of US$5.3 billion, consisting of 26 national operations (US$5.1 billion), 3 regional operations (US$226.7 million); and 4 GEF operations (US$26.2 million). The current disbursement ratio of the Nigeria portfolio is 18.3 percent (US$530.2 million disbursed in FY13), and the FY12 disbursement ratio was 16.4 percent. Seven projects 77 are currently classified as problem 76 Increasingly, the trend is towards “2nd generation” IEs, which examine variations in design of specific interventions to understand which variant is most effective in achieving intended results, reflecting a shift towards the proactive creation of evidence and knowledge. 77 Lagos Metropolitan Development and Governance Project (LMDGP), Growth and Employment (GEM), Public Private Partnership project (PPP), Edo Growth and Employment Operation (Edo DPO), Public Sector Governance Development Project (PSGDP), and Nigeria Erosion and Watershed Management project (NEWMAP) and Rural Access and Mobility Project 2 (RAMP 2). 82 projects (unsatisfactory or moderately unsatisfactory). The signing of new Financing Agreements for three and the restructuring of two are expected to improve the performance of these projects. 53. The delays in effectiveness of some projects contributed to lags in their implementation and disbursement. The average disbursement lag in the Nigeria portfolio is 13 months. Most delays were associated with changes in Government procedures which resulted in the lengthy intervals between Board approvals and effectiveness of projects. In the case of the Borrowing Plan, the delay in approval resulted in eight projects being flagged for delayed effectiveness. In spite of this, the share of commitments at risk was lower in FY13 (21.9 percent) than in FY10 (46 percent), and the disbursement rate for FY13 was 19.5 percent, a significant achievement 54. At mid-term review, both the Bank and the new Government realized that strong efforts were needed to accelerate portfolio implementation. The Bank and senior officials from the Ministry of Finance collaborated on standardizing procedures to process new operations. Procurement clinics were organized for 332 project staff from 150 project implementation units, and special workshops were held for slow-disbursing projects. Additionally, M&E training was provided to key staff in the Ministry’s International Economic Relations Department (IERD), with support from the Bank’s Institutional Development Fund (IDF). In addition, to strengthen the portfolio over the second half of the CPS period: (a) the Country Director constituted a multi-sector task team to conduct intensive assessments of key operational areas and offer solutions; (b) the Country Management Unit (CMU) prepared monthly Portfolio Monitoring Reports to identify projects requiring closer attention; (c) a CMU leadership team, consisting of the CMU core team and sector leaders, met monthly to deliberate on project, governance, and political economy issues that had the potential to impact the Country Program; (d) the Country Director met periodically with Project Coordinators and Task Team Leaders; (e) hands-on clinics and Country Program Performance Reviews (CPPRs) were carried out to resolve operational challenges. 55. Despite these efforts, two projects presented particular challenges. Implementation of the malaria project was threatened with the detection of fiduciary weaknesses, confirmed by integrity vice presidency (INT) investigation. However, the Bank team reacted in a way which was considered as best practice. A follow-up in-depth review by the Bank’s FM team led to the introduction of corrective measures and a turnaround of the project after a disbursement lag of six to eight months. The LMDG project, aimed at slum upgrading in Lagos, faced technical and safeguards issues leading to an underperformance. While efforts were made to address them, it was agreed to close the project and draw lessons for future operations. 56. Civil society organizations (CSOs) and community-based organizations are now formally participating in new projects and providing formal feedback on the progress of ongoing projects,78 after a stocktaking of social accountability mechanisms in Bank projects showed that communities’ informal inputs were not being properly documented or taken into account in decision-making. Several pilots involving CSOs in project implementation and feedback gathering are now being assessed, with a view to scaling up their engagement in project implementation and monitoring during the next CPS period. 78 Edo Growth and Employment Operation (Edo DPO), State Employment and Expenditure for Results project (SEEFOR) 83 C. Management of Risks 57. Some important risks were identified during CPS preparation. The impact of the global financial crisis on the Nigerian economy could not be determined at the start of the CPS period, but the Bank anticipated that policy reforms could be threatened. The Bank also understood the risks of the turmoil in the Niger Delta and possible disruptions related to the 2011 elections. The Bank planned to alleviate these risks by ensuring that the program had comprehensive support and by cultivating relationships with strong champions at both the federal and state who could be expected to maintain a steady pace of reform. 58. While such efforts mitigated those particular risks, the Bank’s program was actually more strongly impacted by one unanticipated risk – increasing insecurity in other parts of the country. The risk of deadly attacks constrained project supervision in the North-Eastern states of Borno, Yobe, Adamawa, and Gombe during the last year of the CPS, although some supervision was carried out by implementing partners on the ground. The Bank’s Corporate Security Office has been collaborating with the UN and other partners to continually analyze and report on security risks and put mitigation measures in place for the next CPS period. The team in Nigeria is also learning from Bank teams in countries such as Pakistan to adjust its supervision response. V. LESSONS LEARNED AND RECOMMENDATIONS 59. Stocktaking activities and assessment of the results of the 2010-2013 CPS confirm meaningful progress on the governance agenda and policy reforms, as well as on the use of CDD approaches to drive growth and sustainable change in rural areas. However, the following lessons will be essential in shaping the CPS for 2014-2017. 60. Widespread governance challenges remain a binding constraint to Nigeria’s development, in spite of the significant gains in the CPS period. Nigeria shares the complicated political economy of other resource-rich countries, and the size, ethnic diversity, cycles of violent conflict and evolving democratic institutions make development a challenging affair. In a shared response to these challenges, the WB has kept its engagement narrowly focused on public financial management while other CPS partners have concentrated on strengthening democratic institutions and the judiciary. However the Bank has also understood the need to better understand and reflect the political economy of the country in sector operations. Progress is most notable when such reforms are accompanied by intense policy dialogue, technical assistance, and multi-stakeholder involvement, although the challenges to achieving good governance through PFM reforms remain substantial. Also, preliminary pilots in water and health projects towards the end of the CPS period demonstrate that a better understanding of the political economy, financing, and institutional setup for operations could potentially improve project performance and development impact. 61. A number of projects were found to be too complex or overly ambitious, which slowed implementation and ultimately impacted the achievement of outcomes. An implementation study commissioned by the WB 79 as part of a broader portfolio review ascertained the need to improve the quality at entry of projects by: (a) keeping designs simple, with a small number of implementing agencies; (b) establishing clear roles, responsibilities, and accountabilities for the different implementing agencies, and ensuring each agency’s readiness 79 Nigeria Portfolio Implementation Arrangements Review, April 2013. 84 for implementation; and (c) setting clear project development objectives and indicators to allow for unity of purpose. Improving the design of projects will also benefit from sound analytical underpinnings and from a re-examination of the choice and mix of Bank Group instruments. 62. Facilitating the right balance and fostering synergies between federal and state-level reforms will accelerate development. Nigeria’s governance and administration architecture has multiple dimensions, and the needs of the federal and state Governments do not always align. However, the structural reforms aimed at improving public sector management at both levels have been relatively successful, and attest to the possibilities for harmonization. For instance, monitoring and evaluation units have been established within the National Planning Commission to monitor and evaluate federal Government activities, and these units and their functions are being replicated at the state level. To facilitate the alignment of federal and state reforms during the next assistance period, the Bank will prepare sector policy notes for state Governments, and will strengthen the dialogue with state Governments on the use of DPOs. Moreover, the criteria for selecting target states will need to be re-assessed to achieve an optimum balance between the performance-based approach and the need to respond to lagging regions, particularly in the North. 63. A final important lesson is that adequate stakeholder engagement is essential to enhance results and outcomes. The country survey conducted in December 2012 revealed the need to make better use of stakeholder engagement as a channel for collaborative dialogue to achieve results. In response, the Bank is reorganizing its strategic outreach to Government at all levels, and has initiated regular consultations with the Nigerian Governance Advisory Forum, which includes opinion leaders from academia, think tanks, Government, civil society, and the private sector. This will help the Bank team further understand the perspectives of different actors and better adapt its programs to relevant priorities. Finally, the Bank team has started to deepen its engagement with the National Assembly and will continue to do so along with other partners to better explain its interventions and facilitate smoother approval of the Borrowing Plan. 85 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes CAS Objective 1:Achieving Sustainable and Inclusive Non-Oil Growth [Rating: Partially Achieved Increased access to critical physical infrastructure [rating: Achieved] Power Improved power generation capacity Status: Achieved Lending: Improved coordination and deep  National Energy commitment from the current  Power supplied increased from The sector reform agenda was re-launched as Development Project administration led to some 2800MW in 2009 to 4500MW in part of the current administration’s power (NEDP) FY 05 -12; tangible improvements in power 2013 sector reform roadmap and led to Nigeria  Nigeria Electricity and supply. It will be important to setting a new all-time record in available Gas Improvement Project strengthen the provision of grid supply as of May 2013 with an available (NEGIP) FY 09 -14. lifeline tariffs and ensure supply of 4,500 MW while halving the adequate and timely investment number of grid collapses compared to the Knowledge Activities in the transmission subsector as previous year (reduced from an average of (ESW/AAA) and Technical the Government and partners about 40 per annum to 18 during 2011). Assistance: sustain the efforts to complete NG: Performance Contract for the privatization of the power  Multi Year Tariff Order (MYTO), The MYTO was revised in 2011. It took Power Utilities in Nigeria; companies. including corresponding feed-in effect on May 31, 2012 and will last for 5 GEF MSP- Nigeria: National tariffs for generation plants, years. MYTO is designed to provide financial Energy Development Project; revised. motivations for instantly needed incremental NIGERIA: Support for Private investments in the industry and increase the Development of the Nigerian average Tariff from 8` Naira/kWh to cost Power Sector. reflective levels (~ 21 Naira/kWh). The NEBT, also known as the bulk trader,  The Nigerian Bulk Electricity was established in 2011. It was set up by the Trading (NBET) Company takes National Electricity Sector Reforms Act of effect as a “Single Buyer” to enter 2005 to fight recouping of investment by into power purchase agreements distribution companies which was the single with Independent Power biggest risk in the growth of the power sector. Producers and manage the contractual risks. The Roadmap for Power Sector Reform was  Action Plan and roadmap for launched in August 2010. This roadmap is The Roadmap aims to power sector reform with critical for improving the gas-to-power implement the National Electric 86 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes indicative timelines for planned infrastructure which will result in increased Power Policy (2001) and the actions. electricity generation. Electric Power Sector Reform (EPSR) Act (2005), both developed with support from the WB. WB non-lending technical advice has continued throughout the launch and implementation of the Roadmap, including funding of the development of the contract for the TCN management, advice on the PHCN privatization bidding package, etc. Improved power transmission efficiency Status: Achieved Lending:  National Energy National  Transmission losses reduced from Transmission losses reduced from 13 Energy Development 13 percent in 2010 to 9 percent in percent in 2010 to 9.4 percent in 2012. These Project (NEDP) FY 05 - 2013. include losses in transmission between sources 12; of supply and points of distribution and in the  Nigeria Electricity and distribution to consumers, including pilferage. Gas Improvement Project (NEGIP) FY 09 -14. Knowledge Activities and Technical Assistance: GEF MSP- Nigeria: National Energy Development Project; NIGERIA: Support for Private Development of the Nigerian Power Sector Infrastructure program Transport 87 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes Improved road network conditions Status: Achieved Lending: The OPRC method of  Rural Access and Mobility contracting requires a long  Additional 150 Km of selected Additional 262 Km80 of selected unity roads Project (RAMP1) FY08- procurement process. The delays unity roads rehabilitated to fair were rehabilitated to fair and good condition, 14; in rehabilitation of roads and good condition by 2013. exceeding the target.  Federal Roads occurred primarily because this (Baseline: 99.8Km) Development Project lengthy process was not factored (FRDP) FY09-16; into the project design and  Additional 600 Km of selected  Commercial Agriculture hence, the contracts for the rural roads rehabilitated to fair An additional 450.6981 Km of roads was Development Project construction of rural roads using and good condition by 2013. rehabilitated, compared to the target of (CADP) FY09-14; OPRC concept started later than rehabilitating 600 Km of selected rural roads to  Fadama 3 project FY08- expected. (Baseline: 0Km) fair and good condition. The rehabilitation of 13. another 157Km of roads is underway and expected to be completed by the end of 2013, Knowledge Activities and which will bring the total length of Technical Assistance: rehabilitated roads to 607Km. PHRD: Nigeria-Federal Roads Development Project; NIGERIA: Fadama Information and Knowledge Services. Improved Public Transport Services in Status: Partially Achieved Lending: Setting up a strong institutional Lagos  Lagos Urban Transport basis for coordinated planning A decrease from 45 – 60 minutes in 2007 to Projects 1 & II (FY02-10; and regulation is critical to the  Average bus speed on BRT between 7 - 12 minutes per trip at the end of FY10-15) success of urban transport corridors increased from 10 2010 was reported in the total time saved in projects. LUTP II will continue Km/hr in 2009 to 20Km/hr in 2013 motorized travels per day on selected legs of to support the strengthening of the declared road network. Knowledge Activities and the capacity of LAMATA to Proxy used: Total time saved in Technical Assistance: effectively deliver this service motorized travels per day It was considered that several factors would Lagos Urban Transport Project and implement the Strategic influence the increase in average bus speed on 2 Transport Master Plan. BRT corridors and the total time saved in 80 FRDP only 81 Fadama, RAMP and CADP 88 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes motorized travels per day on selected legs of the declared road network is considered a better reflection of improved public transport in Lagos.  Money spent by poor households on bus travel per trip along The money spent by poor households on bus project corridor reduced from travel per trip along project corridor has N108/day in 2009 to N92/day in reduced from N108/day in 2009 to N96/day 2010 in 2010.  Single Agency coordinating urban transport at the state and local Lagos Metropolitan Area Transport level in Lagos Authority (LAMATA) was established by law in 2010 and has continued to operate as a single Agency coordinating urban transport at the state and local level in Lagos. Water Improved Access to Urban Water Supply Status: Partially achieved Lending:  National Urban Water An internal delegated  Number of people with access to Sector Reform 1 SIL management system was improved water supply increased As of March 2013, nearly 9.2 million people (FY04 - 13); introduced. It has given more from 5 million in 2009 to 12 living in urban and peri-urban communities in  National Urban Water autonomy to the districts in million in 2013 in urban and peri- Kaduna, Ogun, Enugu, Lagos and Cross River Sector Reform SIM 2 Kaduna State, has raised morale urban communities in targeted states received up to 760 million litres of (FY05 - 16); of staff and will strengthen States. improved water.  Community Based Urban sustainability of the utilities. Development Project This model should be (CBUDP) FY02-11. showcased and adapted in other States. Knowledge Activities and Technical Assistance: GPOBA W1: TA - OBA in small towns and peri-urban water supply schemes in Nigeria; NG: Workshop on 89 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes Water Utility Reform in Nigeria Increased Public Private Partnerships Status: Partially Achieved Lending: The effective reform in the  National Policy on Public Private  Public Private Partnership energy sector was triggered by Partnership approved The National Policy on Public Private Project (FY11 – 17). political pragmatism, and Partnership was approved in August 2009. commitment to resolving the The approval of the Policy was a result of Knowledge Activities and intractable challenges in the consistent dialogue and strengthened Technical Assistance: sector and instituting due  Inter-MDA Agreement reached engagement with Government prior to 2009. Nigeria: Assessment of diligence for economic by 2013 on key legislative Potential Water PPP Projects in advancement. amendments and new legislation Although the inter-MDA Agreement on key Nigeria; Nigeria: Support for required to strengthen the legislative amendments and new legislation Private Development of the With this in view, the new CPS enabling environment for PPPs required to strengthen the enabling Nigerian Power Sector; will assist in strengthening environment for PPPs is not yet in place, Nigeria: Assessment of specific sectors that have efforts are underway to improve the legal and Potential Water PPP Projects in demonstrated commitment to regulatory framework governing FGN PPP Nigeria; NG Investment develop and implement viable activity. The PPP facility is now available to Climate Program & SPPIM; PPP projects. Ministries and Government Agencies who wish PPIAF: Nigeria: ICRC to implement PPP projects under their Institutional and Capacity Ministries. Building. 2. Sustainable agricultural development and market access [rating: Partially Achieved] Agriculture Improved Agricultural Productivity Status: Partially achieved Lending: The agricultural productivity  Commercial Agriculture program was hinged on the  Increased volume of sales of Beneficiaries of CADP in Cross River, Development Project community driven approach agricultural products in targeted Kaduna, Kano, Enugu and Lagos states (CADP) FY09-14, with strong community areas for selected crops from 2.1m succeeded in increasing the volume of sales,  Fadama 2 & 3 (FY00-09; involvement. That lesson from MT in 2009 to 2.9m MT in 2013 indicated by an overall increase of 3.21 percent FY09-13) past initiatives had demonstrated more than the targeted 20 percent over the good results. The new CPS project baseline. 12,762.94mt from fresh fruit Knowledge Activities and should deepen that lesson and bunch (ffb), pineapples, guava fruit, cocoa, Technical Assistance: ensure that Government drives maize, rice and processed fish (baseline: NIGERIA: Fadama the CDD strategy. 2665.87mt). Additionally, project beneficiaries Information and Knowledge 90 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes sold 8,392,000 juveniles (Baseline: 4,066,450) Services; GEF FSP-Nigeria: and 6,694, 275 crates of eggs (Baseline: 68,000 Second National Fadama crates). Development Critical Ecosystem Management Following the CPS PR, the contributing project Project; Nigeria: Agriculture realized that the ‘million Metric Ton’ value and Rural Information, used is too high a target and erroneous. Since Knowledge and Business the project targets were established differently, Services; Strengthening the value has been adjusted to correspond to Agricultural Production the program contribution in this summary. Systems and Facilitating Access to Markets in Nigeria.  Increase in income from The progress from sales is gradually agricultural produce in selected influencing the income generated from communities per household per agricultural produce in selected communities year from N135000/hh/yr to per household per year. A substantial increase N189000/hh/yr was achieved, from N135000/hh/yr to N184241/hh/yr .82  National Agriculture Strategy The national agriculture strategy was adopted Adopted in 2010, reflecting the positive efforts of the reform agenda in the sector. The commitment to this program was consolidated by the subsequent launching of the Agricultural Transformation Agenda (ATA) by the new Agriculture Minister in 2011. Environment Improved Environmental and Climate Status: Achieved Lending: Given Nigeria’s predicted Change Management  Nigeria Erosion and population growth, it is vital to Watershed Management ensure that economic growth is  Key features of an early warning Three key features of an early warning system Project (NEWMAP) built on clean technology, and system for coastal disaster risk for coastal disaster risk assessment, planning, (FY12-20); that new infrastructure will itself assessment, planning, and and management were defined. These are (a)  Local Empowerment and not prove vulnerable to climate 82 Fadama 3 data only 91 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes management defined by 2013 developing a disaster profile for Nigeria, (b) Environmental change. building DRM capacity and (c) the framework Management Project for the early warning system. The first two (LEEMP) FY03-09; To further understand climate have been fully developed.  Fadama III GEF (FY09- change dynamics in Nigeria, the 13) Climate Change Assessment The recently conducted Post Disaster Needs report will assess climate risks Assessment (PDNA) will inform the Knowledge Activities and and adaptation options in the development of the framework for the early Technical Assistance: GEF agriculture and water resource warning system, which is the third expected FSP-Nigeria: Second National sectors and provide a brief feature that is being developed. Fadama Development Critical description of the vulnerability Ecosystem Management profile of Lagos state.  Number of LGAs that are Using the Community Driven Development Project (06); Landscapes and supporting communities with (CDD) approach, 279 LGAs have integrated Livelihoods (Development of environmentally sustainable environmentally sustainable LDPs in their Nigeria Erosion and Watershed development plans increased from annual workplan and budget (AWPB). Project - NEWMAP); 0 in 2009 to 200 in 2013 Environmentally sustainable micro-projects Enhancing the Climate include, for example, community woodlots, Resilience of Growth in bee-keeping, water production, and Nigeria: Disaster Risk agroforestry. Management PDNA (GFDRR: Track III TA); Nigeria -  Watershed Management At the Federal level, a National Environmental Scaling Up Sustainable Land Coordination Capacity established Policy is in place. At the state level, watershed Management Practice, in 6 targeted states. management and coordination capacity has Knowledge, and Coordination; been built in seven states (Abia, Anambra, Nigeria Climate Change Cross River, Ebonyi, Edo, Enugu and Imo Assessment. States) and Geographic Information System (GIS) for poverty and environmental information management has been set up in the 7 states. 3. Improved Investment Climate and Financial System [rating: Partially Achieved]  Policy making influenced by Status: Partially Achieved. Lending: considerations on growth and  Growth and Employment employment, and trade The Doing Business reviews and growth and project (FY11-16) liberalization employment study have contributed to key policy decisions in Nigeria. The Annual Doing Knowledge Activities and 92 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes Business reports have enabled states to Technical Assistance: Putting examine impediments to growth more closely. Nigeria to Work; Nigeria Trade The Bank completed the Investment Climate Facilitation Intervention; Trade Assessments (ICAs), reviewed the experiences facilitation in Nigerian of over 3000 surveyed business owners in 26 Agricultural Markets; NG- states about the aspects of the business climate Employment and Growth that affect their enterprises. The Bank also Study; Nigeria Economic provided policy advice through workshops Report 2013; SME Finance which led to Government establishing Ports, Study; Employment and Competitiveness and Business Councils Growth Study; Investment including reducing the number of agencies in Climate Study in 26 States. Ports from 17 to 7. Overall, 60 reforms were identified and DFID is providing technical support through GEM. Similar progress was made under the land regulations. The challenge that remains is translating the reforms into results, because the business climate and trade regime in Nigeria are quite restrictive. Improved Business Environment Status: Not Achieved Lending: Unrealistic to expand this to  Growth and Employment contribute to a country wide  Reduction in procedures, time and The Bank’s support through the Medium, (GEM) project (FY11-16); increase. cost involved in starting business Small and Micro Enterprise (MSME) project  Micro, Small and Medium and enforcing contracts in 6 aimed at enabling individuals in three targeted Enterprise project selected states by 20 percent. states (Abia, Lagos and Kaduna) to increase (MSME) FY03-11. access to financial services and the GEM project was to reduce selected investment Knowledge Activities and climate barriers that constrained MSME Technical Assistance: performance. None of the states supported by Nigeria Consumer Finance; the Bank improved in starting a business. NG Investment Climate However, Kaduna and Lagos states83 improved Program & SPPIM in enforcing contracts.84  Individuals that have access to This indicator was not in the direct control of 83 Kaduna, Lagos and Sokoto 84 Sub-National Doing Business Study, 2008 and 2010. 93 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes financial services (savings, loans, CPS activities because it covered the entire insurance, lease) increased as a country whereas the Bank only focused on percent of the total adult selected states. However, results of a study population conducted on a national scale indicate that individuals that have access to financial services (savings, loans, insurance, lease) increased as a percent of the total adult population. The study supported by DFID and Bill and Melinda Gates Foundation85 had the following findings:  The proportion of adults that are formally included86 increased from 23.6% in 2008 to 43.0% in 2012, which is an increase of 17.4 million;  The proportion of adults that are financially served87 increased from 47.5% to 60.3%, which is an increase of 11.7 million;  The number of adults that are financially excluded88 decreased by 10.5 million Maintained confidence and stability in Status: Achieved Lending: Impact of fast-tracked budget the financial system  Financial sector DPO support alleviated (FY10). macroeconomic crisis-impact  Capital adequacy ratios remain Following the successful recapitalization of the and successfully supported 85 Enhancing Financial Innovation and Access (EFInA) Access to Financial Services in Nigeria 2012 survey 86 “Financially included” refers to: (a) all adults who have access to or use a deposit money bank in addition to having/using a traditional banking product, including ATM card, credit card, savings account, current account, fixed deposit account, mortgage, overdraft, loan from a bank, or Islamic banking product; including indirect access; and (b) all adults who have access to or use other formal institutions and financial products not supplied by deposit money banks, including Insurance companies, microfinance banks, pension schemes or shares. It also includes remittances (through formal channels); including indirect access. 87 “Financially served” includes the group of individuals described above in addition to all adults who do not have any banked or formal other products, but have access to or use only informal services and products. This includes savings clubs/pools, esusu, ajo, or moneylenders; as well as remittances (through informal channels such as via a transport service or recharge card) 88 “Financially excluded” refers to adults not in the banked, formal other or informal only categories, even though the person may be using or have access to any of the following: loan/gift from friends or family and loan from employers, as well as remittances via a friend/family member 94 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes above 15 percent rescued banks, the average Capital Adequacy Knowledge Activities and specific reform actions and Ratio (CAR) of all the banks operating in Technical Assistance: dialogue relating to authorities’ Nigeria has risen significantly to 17.12 Nigeria Consumer Finance; bank restructuring initiatives. percent89 in 2013 from >15percent in 2011, Nigeria: State Credit Rating surpassing the CPS target. and Credit Advisory; Policy Just-in-time, technical assistance Note on analysis of Credit is associated with high level Squeeze, policy impact. Nigeria Housing Finance Financing Small and Medium Scale Enterprises in Nigeria, Financial Sector Assessment Program Update, Financing Options for Infrastructure PPPs CPS Objective 2: Sustained Improvement in Access to, Quality and Utilization of human Development Services [Rating: Partially Achieved] 4. Improved access to, utilization, and quality of health care services [rating: Partially Achieved] Heath Sector Development  National Health Bill passed by the Status: Achieved. Lending: This result was not in the direct National Assembly  Health Systems control of the project and its The National Health Bill was passed by the Development Project 2 achievement was hindered by National Assembly in 2011 before the (FY02-12) political factors. Awareness of general election. The bill was revised Knowledge Activities and the political economy and early substantially and resubmitted to the Assembly Technical Assistance: engagement and participation of and has just passed the third reading. The bill NA the main stakeholders within aims at protecting and prioritizing the rights of that knowledge context is Nigerians, particularly the vulnerable and important in sectoral disadvantaged, to get basic minimum package interventions that involve of health care, among other objectives. development of policies. Improved vaccination coverage Status: Achieved. Lending: Recent intensive data-driven Health Systems Development performance management  Increased proportion of children Data shows that the proportion of under-2 Project 2 (FY02-12); Polio efforts reversed the increasing 89 Central Bank of Nigeria Database 2013 95 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes under 2 years fully vaccinated years fully vaccinated with OPV (3 doses) Project (03 & 12) trend of polio cases – As of May with OPV from 20 – 30 percent in within the age bracket has increased. In 2010, a 8, only 15 cases has been found 2009 to 40 – 50 percent in 2013 value of 74.0 percent was reported on a Knowledge Activities and compared to 38 cases in 2012 national scale (NICS 2010), exceeding the CPS Technical Assistance: during the same period. Of the target. For campaign immunizations, the NG-Polio Eradication (FY03) – 15 cases, 10 cases are in security OPV coverage of the endemic states TF; NG Third Grant for Polio compromised Borno and Yobe increased from 44% in 2003 (CDC) to 90% Eradication; states. in 2012 (PHSS).90  Proportion of children (12-23 months old) fully vaccinated Data available from country surveys indicate increased from 13 percent in 2009 that this result was fully attained: Against the to 71 percent in 2013. baseline of 22.7 percent from the National Demographic and Health Survey (NDHS 2008), the National Immunization Coverage Survey showed an increase to 53% in 2010 (NICS 2010). World Development Indicators (WDI) data showed an increase to 71 percent in 2011. Improved access to maternal health Status: Achieved. Lending: The health systems support services Health Systems Development program provided Government Project 2 ((FY02-12) and the Bank with the basis to  Number of births attended by In actual terms, the program contributed to improve the financing and skilled health personnel increased increasing the number of births attended by Knowledge Activities and functioning of the health system. in selected states from 0.8 million skilled health personnel in selected states91 Technical Assistance: Inputs are not necessarily the in 2010 to 6 million in 2013. from 0.8 million in 2010 to 6,739,593 in Community Based Health and issue but there must be an 201192, over the CPS target of 6 million. Nutrition; Nigeria HRBF adequate framework with  Number of additional health Design - Bank-executed; policies, strategic directives, and service providers trained in Nigeria - Health Systems - priority plans for deploying Northern States increased from 0 The Bank’s support to health delivery was Healthy Mothers and Health inputs and measuring results. 90 Public Heath Solutions Services (PHSS) 91 28 States were supported by HSDP2: Benue, Federal Capital Territory (FCT), Kogi, Kwara, Nasarawa, Niger, Plateau, Adamawa, Bauchi, Borno, Gombe, Taraba, Yobe, Jigawa, Katsina, Kano, Kaduna, Kebbi, Sokoto, Zamfara, Abia, Anambra, Ebonyi, Enugu, Imo, Akwa Ibom, Bayelsa, Cross River, Delta, Edo, Rivers, Ekiti, Lagos, Ogun, Ondo, Osun and Oyo. 92 Health Facility/HMIS data 96 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes in 2009 to 2,700 in 2013. responsible for the training of an additional Babies; Service Delivery Increased accountability with 29,203 health service providers in Northern Quality Assessment and the involvement of beneficiaries States93 between 2009 and 2012. Resource Tracking Study in and stakeholders was a key Nigeria. component of successful implementation. These lessons have been a strong contributing factor in the critical need for the move to a results-based approach in the new State Health programmatic investment lending. HIV/AIDS Improved access to HIV/AIDS health Status: Achieved. Lending: The slow start up of the second care services HIV/AIDS Programme HIV/AIDS Program Development Project I (FY06 - Development project hindered  Percentage of women and men Available evidence demonstrates that the joint 11) & HIV/AIDS Programme more substantial contributions aged 15-49 who received an HIV collaboration of partners contributed to the Development Project II (FY09) from Bank support. In the new test in the last 12 months and who increase in the number of people aged 15 to 49 CPS period, the Bank team will know their results increased from who received an HIV test in the last 12 months Knowledge Activities and be supporting projects to 10.8% of males and 10.4% of and who know their results by 57 percent Technical Assistance: strengthen the quality of entry females in 2009 to 20% in 2013. between 2011 and 2012 (from 1.65 Million to Technical Assistance to and speed up implementation by 2.8 Million94; 1,512,810 females and improve the Effectiveness and working with the Government to 1,279,801 males).95 Efficiency of HIV in Nigeria fast-track legal and Prevention Programs administration processes. Malaria Improved access to Malaria Health Care Status: Partially Achieved. Lending: Recent data is not yet available. services Malaria Booster Control The next LQAS is being Project (07 & Additional conducted and results will be  Percentage of under-5 children The support from the Malaria Booster Control Financing). ready in a few months. 93 Selected states were Benue, Federal Capital Territory (FCT), Kogi, Kwara, Nasarawa, Niger, Plateau, Adamawa, Bauchi, Borno, Gombe, Taraba, Yobe, Jigawa, Katsina, Kano, Kaduna, Kebbi, Sokoto and Zamfara. 94 Actual amount is 2,792,611 95 Nigeria Global AIDS Progress Report 2012 97 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes sleeping under insecticide treated Project contributed to the increase in the Nonetheless, a comparison of nets increased in seven states96 percentage of children less than 5 that slept Knowledge Activities and key PDO/IR performance from 3.6 percent in 2009 to 60 under an ITN the preceding night to the survey: Technical Assistance: indicators of WB assisted states percent in 2013. 50.2 percent97 (compared to 6 percent in 2006 Round 28 Nigeria Community with other states using the and 3.6 percent in 2009) among a total health systems strengthening recently conducted National population of 8,348,611 children under 5. This for malaria control in Anambra Malaria Indicator Survey (NMIS result is supported by a corresponding increase and Akwa Ibom (Bank - 2011) shows clearly that there in households that own at least insecticide Executed); NG-Malaria Impact is wide positive disparity in treated nets/long lasting insecticide treated nets Evaluation Program (FY10) results documented from the  Percentage of under-5 children (ITN/LLIN) from 71.7 percent in 2011 seven states compared with with fever treated with an compared to 2.6 percent in 2006. other states. There were initial effective anti-malarial within 24 teething challenges which hours from onset of symptoms The percentage of children less than 5 years included synchronizing the increased in seven states from 10 with fever treated with an effective anti- demand side activities with the percent in 2009 to 60 percent in malarial medicine within 24 hours from onset supply, and capacity challenges 2013. of fever was 5.8 percent in 2010 from a at the state level. baseline of 1.7 percent (NDHS 2008; 1.5 percent MICS 2007; and 0 LQAS 2006).98 5. Improved access and inclusiveness to quality and relevant education at all levels [rating: Partially Achieved] Basic Education Improved quality of basic education Status: Partially Achieved. Lending: Increasing the quality of basic State Education Sector Project education in a grossly  Transition rates from Primary The CPS target99 was achieved only in Kwara (SESP) – FY07-11. disadvantaged setting will to Junior Secondary in targeted State for boys and girls. In Kaduna, transition for require concerted and consistent states girls increased while the rates in Kano remained Knowledge Activities and effort and resources. The CPS the same for girls and decreased for boys. Technical Assistance: period was not a realistic Nigeria - Preparation For timeframe in which improved States Kwara Kano Kaduna Country Education Status quality of education could have Report); Nigeria - Education been achieved in robust terms. 96 Jigawa, Rivers, Gombe, Bauchi, Akwa Ibom, Anambra and Kano States 97 National Malaria Indicator Survey (NMIS) 2011 98 The baseline used in the CPS and CPS PR was calibrated from standard sources. 99 Kaduna: Girls 54.4 percent; Boys 64.9 percent, Kano: Girls 30 percent; Boys 54 percent, Kwara: Girls 38 percent; Boys 44 percent 98 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes (%) Girls Boys Girls Boys Girls Boy Sector Policy Note; Nigeria: s Strengthening Sector Actual 59 59 25 46 51.8 50.7 Governance and Promoting Target 43 49 30 54 53.4 64.9 Partnership in Service 2011 Delivery; Nigeria - Girls' Baseline 38 44 25 49 49.4 59.9 Education CCT Pilot – Kano; 2009 Nigeria - State Education  Average national math and Sector Analysis. The CPS target was exceeded for Math in Kaduna reading test scores of primary and Kano, and in Kwara for reading and literacy 4th grade students in targeted test scores. states (percent) States Kwara Kano Kaduna (%) Math Lit Math Lit Math Lit Actual 5.02 43.6 10.15 8.0 42.16 25.8 1 Target 12.4 33.7 9.6 11.3 12.7 30.4 Baseline 8.4 29.7 5.6 7.3 8.7 26.4 2009 Post-Basic Education Improved access to post-basic Status: Achieved. Lending: Innovative competitive funding education Lagos EKO Project (FY09-13), and performance incentive can The proportion of senior secondary students in STEP B project (FY08-13) work, given the appropriate  Percentage of public senior public schools with pass grade in WASSCE enabling environment (e.g. secondary students with pass achieved the CPS target. Knowledge Activities and Government ownership and grade in WASSCE Technical Assistance: commitment, institutional disaggregated by Math, English, Nigeria - Science and capacity, partnerships), as Science (Biology). Subjects Biology Math Englis Technology Education in Post- demonstrated for S&T under Actual 65.20 47.27 84.48 Basic (STEP-B); Nigeria - the STEP-B Project, and for Target 28 25 26 Education Sector Policy Note; school level management and 2011 Nigeria: Strengthening Sector accountability for results under Baseline 09 23 20 21 Governance and Promoting the Lagos Eko Project.  Increase in the number of students obtaining grades B and Partnership in Service above in Science and The number of students obtaining grades B and Delivery; Nigeria Global Technology disciplines in above in Science and Technology disciplines in Partnership for Education Fund federal Post Basic Institutions federal Post Basic Institutions also increased to (GPEF). 99 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes 56,552: 53 percent increase against target of 25 percent and a baseline of 36,953 in 2009. Forty Four (44) percent of eligible students were enrolled in senior secondary schools in 2010. 6. Equitable Utilization of Human Development Services [rating: Achieved] Community Development and Social Protection Equitable utilization of HD services Status: Achieved. Lending: The major lesson in this CDD Community and Social approach is the ownership,  Increased number of poor The CPS target was well exceeded as 700,000 Development Project relevance and effectiveness of households utilizing primary households (in 1,800 new communities) are now (FY09-13) the establishment of the micro- health care, basic education and benefiting from HD services. Also within the CPS projects and the utilization of rural water in targeted period, CSDP contributed to the following: Knowledge Activities and the services. The approach communities in selected states100 (i) No. of school age children enrolled in primary Technical Assistance: ensures inclusiveness and increased from 50,000 households schools in participating poor communities Poverty Monitoring; W1- flexibility to tackle emerging in 2009 to 150,000 households in increased from 265 to 16, 298 (male) and from NIGERIA: Strengthening vulnerability. 2013. 241 to 12, 748 (female); in secondary schools, Sector Governance and enrollment increased from 237 to 10,685 Promoting Partnership in The major challenge is the (male), and from 205 to 7, 759 (female); Service Delivery; NG: partnership of the community (ii) Increase in proportion of community members Social Safety Nets Develop groups with local Government with easy access to improved water facilities Dialogue. authorities in terms of the now 77 percent from less than 30 percent; maintenance and sustainability (iii) Reduction in average cost of water by about 62 of the services from the percent nominal cost; projects. Most local Governments are not "stable". There is also a high turnover of political office holders, with implications for the continuity of the approach. CPS Objective 3: GOVERNANCE FOR RESULTS [Rating: Achieved] 7. Improved effectiveness of anticorruption institutions [rating: Achieved] Improved effectiveness of anticorruption Status: Achieved. Lending: Improvement to Governance is institutions Economic Reform and the key to equitable and 100 Selected states include Abia, Benue, Delta, Imo, Anambra, Adamawa, Kogi, Niger, Bauchi, Enugu, Kebbi, Cross River, Plateau, Yobe, Osun, Oyo and Rivers. 100 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes Governance Project (FY05-13) sustainable development as well  Cumulative total amount proceeds Cumulative total amount proceeds of as to stability and cohesion; of corruption recovered increased corruption recovered increased to US$9.11 Knowledge Activities and while at the same time being from US$5.9 Billion in 2009 to billion (2011), surpassing the CPS targets. The Technical Assistance: very challenging. US$7 Billion in 2013. Bank supported the Nigeria Anti-Corruption NG: Extractive Industries For Nigeria to be up to date Agency (EFCC) to strengthen its capacity to Transparency Initiative (EITI) with reporting and to sustain recover misappropriated funds through the Management and Gas and Oil. these efforts, NEITI needs to Economic Reform and Governance Project ensure that the results of the (ERGP). reports are continuously  Bill on National Sovereign Wealth integrated into development Fund passed by the Senate by The NSWF bill was passed by the Senate in initiatives to trigger reforms. 2013 2011 and Governors concurred in 2012. A Sovereign Wealth Investment Agency was formed and its Board and Management constituted with a seed fund of $1 billion from the Excess Crude Account (ECA).  Nigeria complies with Based on the WB support to Nigeria Extractive the Extractive Industries Transparency Initiative (NEITI) and Industries Transparency Initiative (EITI) continuous engagement of USAID-supported civil society partners, the Oil and Gas Revenue audit for 2006 – 2008 was completed and the report made available to the public by the NEITI. Similar reports were completed for 1999 - 2004 and 2005. In addition, the NEITI engaged a consulting firm to conduct Oil and Gas Revenue audit for 2009 - 2011. Efforts were also made by the NEITI to ensure the implementation of the recommendations of remediation actions on the audit reports. With these actions, Nigeria became EITI compliant in 2011. 8. Improved performance management system in the civil service [rating: Achieved] 101 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes Status: Achieved. Lending: NG State Governance project I (FY05-11), Federal DPC Improved performance management The performance-based management system (FY10), Lagos DPC (FY11) & system in the civil service was launched and has been initiated by the EDO Growth and Employment Head of Service in October 2012 for 30 Project (FY12)  No. of MDAs using new MDAs.101 All civil servants including the performance-based management Cabinet Ministers have to enter into Knowledge Activities and system at Federal level increased Performance Contracts which will be evaluated Technical Assistance: Sector from 0 in 2009 to 6 in 2013. annually. Dialogue; NG: Promoting Good Governance Niger Delta By end-2011, Cross River had reduced the discrepancy to 3 percent, Kaduna to 0 percent  Reduced discrepancy between and Bauchi to 8 percent from a baseline of 20- personnel records and payroll 25 percent in 2009. This system is expected to records in database in 3 selected enhance savings on recurrent expenditure in the states from 15 percent in 2009 to states. For instance, estimated savings for less than 5 percent in 2013. Kaduna State was USD 0.1 million per year. 9. Strengthened public financial management systems [rating: Achieved] Improved auditing and accounting Status: Achieved. Lending: At the sub-national levels, which NG State Governance project I accounts for about 50 percent of  Time for submission of Annual (FY05-11), Federal DPC national public expenditure, Financial Statement of Time taken to submit Annual Financial (FY10), Lagos DPC (FY11) & realistic and objective budgeting Government by Office of the Statements of Government by the Office of the EDO Growth and remains a challenge. It would be Accountant General reduced at Accountant General reduced at Federal level Employment Project (FY12) essential to pursue interventions Federal level and in selected states and in selected states102 from 6 – 9 months in that can strengthen Integrated from 6 – 9 months in 2010 to 3 2010 to 2 – 3 months (Federal and States)103 Knowledge Activities and Financial Management months which is in line with the CPS target. Technical Assistance: Sector information Systems 101 Thirty Federal Ministries and their agencies are covered under the Performance Management system. Some of these key ministries are; Health, Education, Agriculture and Natural Resources, Water Resources, Petroleum, Solid Minerals, Housing and Urban Development, Works, Transport, Aviation, Defense, Police Affairs and Communication Technology. 102 The states are Bauchi, Cross River and Kaduna. 103 Cross River, Bauchi, Kaduna, Lagos. 102 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes Dialogue; Capacity implementation across states.  Time for issuing of audit report on The time for issuing of audit report on Annual Strengthening of ICAN to Annual Accounts by Office of the Accounts by Office of the Auditor-General Support National and Regional Auditor-General reduced from 12 reduced from 12 months in 2010 to 4.5 months Accountancy Development months in 2010 to 2 – 3 6 months in Bauchi, 2 months in Cross River and 5 (Federal and States) months in Kaduna. At the Federal level, the four-year backlog in 2005 reduced to a one- year back log in 2012.  Month-end financial statements of federal Government MDAs 59 percent of the MDAs now produce produced within 7 days by 75% of automated statements from a zero baseline in the MDAs. 2010. In addition to this, the time taken to produce these reports reduced to 14 days in Bauchi, 7 days in Cross River and 14 days in Kaduna, down from an average of 60 days at the inception of the CPS. Improved budget planning Status: Achieved. Lending: The MTSS initiative has been of NG State Governance project I critical importance in helping to  Use of multi-year budgeting in Multi-year budgeting now taking place at (FY05-11), Federal DPC focus Government spending on FGN and at least 3 states Federal level and in Bauchi, Cross River, (FY10), Lagos DPC (FY11) & its strategic priorities and the Kaduna and Lagos States. EDO Growth and attainment of the MDGs. The  Medium Term Sectoral Strategies Employment Project (FY12) next step to further enhance the (MTSS) prepared and published The CPS target was achieved beyond the initial efficiency and effectiveness of by 10 ministries in the Lagos State plan: As of April 2013, twenty Five (25) budget execution and Ministries104 in Lagos State are now preparing Knowledge Activities and expenditure controls is the  Preparation of the 2011 budget and publishing MTSS. DFID SPARC Technical Assistance: Sector planned transition to expenditure based on at least 10 MTSS and in supported the MDAs to develop the MTSS and Dialogue controls at the commitment stage accordance with the Medium build internal capacity for budget preparation. including a systems-based Term Expenditure Framework Appreciable progress has been made where the control from the point of 104 The Ministries are: Education; Health; Environment; Rural Development; Agriculture; Housing; Ministry of Economic Planning and Budget; Office of the head of service; Transportation; Establishment & Training; Youth and Social Development; Office of Sports; Justice; Women and Poverty Alleviation; Information; Finance; Special Duties; Home Affairs; Tourism and Intergovernmental Relations; Works and Infrastructure; Local Government and Chieftaincy Affairs; Lagos Waterfront Administration; Physical Planning and Rural Development, Lands Bureau and; State treasury office and Department management office. 103 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes (MTEF) Bank engaged, by introducing a multiyear requisitions to final payment. perspective to budgeting. Bauchi, Cross River This will help the Federal and Kaduna States prepared 2011 budgets Government to have direct based on MTSS105 and in accordance with their control over its expenditure MTEF. In 2010, thirteen (13) key federal arrears especially where the roll- MDAs developed and documented MTSS for out of the control process the 2011 - 2013 period, which formed the basis extends to the planned additional of more detailed budget submissions by the 135 MDAs, equivalent to total MDAs; and also for evaluation of the budget expenditure coverage of 79 proposals by the parliament. percent at the Federal level. 10. Improved value for money and transparency in the public sector procurement system[rating: Partially Achieved] Improved value for money and Status: Partially Achieved. Lending: The findings of the transparency in the public sector NG State Governance project I Programmatic Integrated procurement system (FY05-11), Economic Reform Fiduciary Assessment and Governance Project contributed to the lending to two  Public contracts awarded above At the Federal level, public contracts awarded (FY05-13) States (Lagos and Edo) using the threshold through open above threshold through open competition DPO approach. The public competition increased from 50 exceeded the CPS target of 90 percent, Knowledge Activities and procurement value chain analysis percent at the Federal level and 25 increasing to 100 percent whereas the 30 Technical Assistance: at the Federal level will help to percent in five selected states to 90 percent value at state level fell below the target Programmatic Integrated further identify bottlenecks in the percent at federal and 70 percent of 70 percent and was only a marginal increase Fiduciary Assessment; Public current Government practices in the states. from the baseline.106 procurement value chain that can hinder effective and analysis at the Federal level, efficient use of public resources.  Public contracts awards published NG: Promoting Good The study also suggested increased from 30 percent at the The publication of public contracts awards Governance Niger Delta, Ekiti mitigating measures to address Federal level and 0 in five selected performed much better, increasing from 30 Procurement Reform the identified bottlenecks. states to 100 percent at federal percent in 2009 to 100 percent at Federal in Initiative. and 60 percent in the states. 2013. In the states, it increased from 0 to Although substantial progress between 90 and 100 percent; Lagos, Edo, Cross has been made in PFM reform River, Bauchi, Rivers and Kaduna now publish both at Federal and State levels, 100 percent of all contracts above approved it will be necessary to intensify 105 These are in 10 key sectors. 106 The states are Lagos, Edo Rivers, Bauchi, Kaduna, Ekiti, Osun and Cross River. 104 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes threshold, while Bauchi publishes 90 percent efforts aimed at full from a baseline of 30 percent at federal and implementation of this agenda in zero at state level. the next phase of support by  Number of MDAs with third deepening dialogue with the party procurement monitoring Procurement third party monitoring by slow reforming States. increased from 0 in 2010 at the organized civil societies has been introduced Third party procurement Federal and State levels to 40 and MDAs with third party monitoring have monitoring will continue to MDAs at federal and 20 MDAs in increased to 28 at Federal and 12 at State level, feature in the new CPS to the states. falling below the CPS target of 40 MDAs at strengthen the established Federal and 20 at State level.107 However, an building blocks and further electronic procurement portal has been consolidate budding results. established to further strengthen accountability. 11. Strengthened national statistical system [rating: Partially Achieved] Strengthened national statistical system Status: Partially Achieved. Lending: Credible policy formulation and  Annual and monthly data Economic Reform and monitoring of development disseminated by the NSS or NBS 83 percent of the targeted 100 percent of Governance Project (FY05- progress in all sectors are according to agreed pre-published statistical outputs released within GDDS time 13) severely hampered by the current release schedules and frequency limits, falling below the CPS poor statistical capacity. In this target of 100 percent but well above the Knowledge Activities and context, improving the collection  Statistical template for production baseline of 10 percent in 2010. Technical Assistance: and processing of data, as well as of annual State Statistical Year Nigeria: Building Statistical optimizing the use of the limited Book by states As of December 2012, 15 states (Niger, Ondo, Capacity at State Level; data available, are key elements Lagos, Anambra, Ogun, Kano, Ekiti, Oyo, Nigeria Statistics for success in enhancing Zamfara, Borno, Ebonyi, Bayelsa, Kebbi, Cross Development Program governance and decision-making River and Bauchi) have statistical year book no (NSDP), LSMS-ISA Nigeria in the CPS period. older than 2010, nearly reaching the CPS target General Household Survey. of 17 States from a zero base. The statistical A catalytic effect of the SRF agencies at federal and state level have project has been achieved, with a improved their capacity considerably within the New TA Operation being 107 The states are Lagos, River, Cross River, Bayelsa, Edo, Nasarawa, Enugu and Kaduna. 105 Annex 1 Summary of Nigeria CPS Program Self-Evaluation Matrix Lending and Non-Lending CPS Period Outcomes to be directly Lessons and Suggestions for Status and Evaluation Summary Activities that Contributed to influenced by the Bank Indicators the new CPS the outcomes CPS period. Starting from a very bleak discussed to support capacity background, twenty four (24) states108 currently building efforts including have statistical master plan in place; 15109 have statistics. passed statistical Laws and 11 state bureau of statistics110 have been established with state Statistician General appointed. 108 Anambra, Abia, Gombe, Niger, Plateau, Nasarawa, Kwara, Sokoto, Kaduna, Bauchi, Ondo, Ekiti, Lagos, Rivers, Delta, Cross River, Abia, Imo, Ogun, Enugu, Jigawa, Kano, Bayelsa and Edo 109 Abia, Anambra, Rivers, Cross Rivers, Delta, Ondo, Ekiti, Niger, Kwara, Nasarawa, Sokoto, Zamfara, Gombe and Imo 110 Anambra, Ondo, Cross River, Niger, Kwara, Ekiti, Lagos, Zamfara, Oyo and Gombe 106 Annex 2: FY10-13 CPS IDA Program Plan and Actual Project Indicative Actual Comments (as of end-November 2012) Amount Amount Year ($M) ($M) Approved FY10 First National Urban Water Sector AF 100 80 FY10 Second National Urban Water Sector AF 80 120 FY12 Not signed. Rural Access and Mobility Project (RAMP) II 100 170 FY13 Not signed. Additional $25M in FY14. State Governance and Capacity Building II 100 120 FY10 Renamed State Governance and Capacity Building and approved as Nigeria Public Sector Governance Reform and Development. Project signed but not effective as of September 2012. Growth, Employment and Markets in States 175 160 FY11 Renamed GEM. Not signed. IDA15 allocation. (GEMS) Financial Sector DPO 500 500 FY10 Financial Sector and PFM Development Policy Credit Lagos Urban Transport II 150 190 FY10 Sub-Total for FY10 1,205 890 FY11 Conditional Cash Transfer 100 FY13 Originally funded in FY09 for FY10 delivery. Additional funding in FY10 and FY12. To be included as a component of YESSO (FY13) Public/Private Partnership 300 115 FY11 State Health 300 150 FY12 Not signed. Additional $20M grant from HRIDF trust fund. Started project development in FY10 but discussion was lengthy. Energy Project 200 100 FY12 Approved as AF and not signed. PRG for another $100M, so IDA credit used is $25M Agriculture Competitiveness 100 45 FY11 Nigeria’s share of the West Africa Agricultural Productivity Program (WAAPP) State DPO 200 200 FY11 Lagos. This was to be first in a series of programmatic DPOs, with two more of $200M each. Also, the CPS intended to have programmatic vertical DPOs. Post-CPS, it was decided to do horizontal DPOs in 8 states (check CPS PR). Lagos DPO II and horizontal DPO were funded for FY13. Polio AF --- 60 FY11 Sub-Total for FY11 1,200 580 FY12 Climate Risk Management 100 CPS PR raised this to $450M. Component of NEWMAP (FY13), which is for a total of $500M. Rural Access and Renewable Energy 100 107 Annex 2: FY10-13 CPS IDA Program Plan and Actual Project Indicative Actual Comments (as of end-November 2012) Amount Amount Year ($M) ($M) Approved Electricity Transmission and Distribution 200 200 FY12 Dropped Youth Employment Scheme 100 Funded starting in FY10. To be included as a component of YESSO (FY13) State Education III 150 FY13 Renamed State Education Program Investment. Planned Board: 2013. State Education Project III originally funded for FY09 (P106280) was dropped. Maternal Child Health Nutrition 200 CPS Progress Report said other donors will take lead in Health Malaria II 200 State DPO (different state) 100 75 FY12 Edo State, not signed. Previous Government approved only $50M in the borrowing plan. Pending approval of an additional $25M. Nigeria Electricity Generation Improvement Project --- 100 FY12 Not signed. PRG for $100M, so IDA allocation used is $25M AF Nigeria Erosion and Watershed Management --- 500 FY12 Not signed. Project (NEWMAP) State Employment and Expenditure for Results --- 200 FY12 Originally funded for FY11 delivery and renamed from State Project (SEEFOR) Expenditure Effectiveness and Opportunities. Not signed. Sub-Total for FY12 1,150 1,345 2013 State Governance and Capacity Building III 100 Dropped in CPS CR State DPO (different state) 200 --- --- While the CPS considered vertical DPOs, the Bank realized this was a politically sensitive issue and considered in 2010 to having horizontal DPOs in up to eight states. However, the new Government is not favorable to state DPOs so the DPO series are currently off the table. State DPO (different state) 200 --- --- Same as above. The CPS put in up to another $200M for the DPO series Agriculture Productivity 200 Amount reduced to $278M in the CPS Completion Report Transport Infrastructure 300 Public Private Partnership --- 200 New in CPS Completion Report even though the 1st PPP is not disbursing. Was funded in FY12 for FY13 delivery. Now dropped. Polio Eradication Support --- 95 FY13 Not signed. Youth Employment and Social Support (YESSO) --- 300 FY13 Agriculture DPO --- 100 FY13 Board: May 2013. Another $100M in FY14. 108 Annex 2: FY10-13 CPS IDA Program Plan and Actual Project Indicative Actual Comments (as of end-November 2012) Amount Amount Year ($M) ($M) Approved Commercial Agriculture Development AF --- 150 FY13 Board: May 2013 Fadama III AF --- 150 FY13 Board: May 2013 Irrigation and Water --- Added in CPS Completion Report for $400M in FY13. However, this project was funded in FY11 and FY12 for delivery in FY12. Now postponed to FY14. Sub-Total for FY13 1,000 1,115 FY10-FY13 Total 4,555 3,930 MEMORANDUM State and Local Governance Reform Project --- 75 FY13 EU Funded. RVP presentation in … 2013 Additional Financing from the EU for the SEEFOR --- 100 FY13 EU funded. RVP presentation in November 2013 Project in Nigeria 109 111 Annex 3: FY10-FY13 Indicative and Actual AAA Product Output Year of Cost ($’000s) Comments Year Completion BB TF Total Ongoing ICT Policy Dialogue FY10 FSS 2020 Phase 2 FY10 Projects Procurement Capacity Building FY10 Dropped EITI Management and Gas and Oil FY10 Communication Outreach FY10 Dropped Proposed in CPS Lagos PER FY10 FY10 139 139 Governance of Service Delivery Phase II for FY10 FY11 166 166 Originally funded $100K for FY09 delivery FY10 water and FY11 State Health Energy Sector Policy Analysis for energy FY10 FY11 lending in FY12 Investment Climate Assessment FY10 FY11 38 38 Community Based Health and Nutrition for FY10 FY11 FY12 Maternal and Child Health Agriculture Strategy and NACRDB FY10 Dropped 101 101 Restructuring for Agricultural Competitiveness in FY11 Fiscal Federalism Phase II FY10 Transport Dialogue FY10 Dropped Poverty Monitoring FY10 Results Based M&E for Vision 20:2020 FY10 Dropped Skills Development FY11 State Level PER FY11 FY11 577 577 Originally funded $300K in FY09 Education Sector Strategy [same as the FY11 Dropped Country Status Report Education?] Climate Risk Assessment FY11 Poverty/Growth Assessment FY11 Customs Reform/Revenue Enhancement FY11 Dropped Financing of Tertiary Education FY12 FY11 New 111 The CPS noted that for FY12 to FY13, many of the FY10/11 will continue and new AAA added in FY12 and FY13 based on client demand. 110 111 Annex 3: FY10-FY13 Indicative and Actual AAA Product Output Year of Cost ($’000s) Comments Year Completion BB TF Total Financial Sector Strategy FY10 Malaria Control FY10 Socio-Economic Assessment FY11 New in the CPS Progress Report ROSC Accounting FY11 Investment Climate Program FY12 Skills Development in IT and ITES FY12 Climate Change Implications for Growth in FY12 the Non-oil Sector in Nigeria Federal Government of Nigeria PEFA plus FY12 (EFO 353) State Public Expenditure Management FY12 Strengthening Sector Governance and FY12 Promoting Partnership for Service Delivery Promoting Good Governance in Nigeria’s FY12 Niger Delta PSIA on Petroleum Subsidies FY12 Programmatic Integrated Fiduciary FY12 Assessment Dialogue with Civil Society FY12 Transforming Nigeria Into West Africa Lion FY13 Regional Integration AAA FY13 EITI Management and Gas and Oil Sector FY13 Policy Phase II PPIAF/SNTA Nigeria Credit Rating and FY13 Credit Advisory Social Safety Nets Development Dialogue FY13 and Policy Development 111 Annex 4: ICR Ratings for Projects Evaluated During the CPS Period IEG Bank IEG IEG IEG IEG IEG IEG IEG Bank M& Exit Qual Overal Borrower Borrower Overall ICR Proj ID Project Name Eval Date Outco Supervisio E FY @ l Bank Implement Complianc Borrowe Qualit me n Qual Entr Perf. n e r Perf. y y 10/20/201 Substanti P063622 NG-Fadama SIL 2 (FY04) HS HS HS HS HS S S S 1 al NG-HIV/AIDS Prog Dev 10/31/201 Negligibl P070291 U MU MS MU MS MU MU S (FY02) 2 e 2010 NG-Privatization Supt SIL P070293 7/14/2011 MS MS MS MS MU MS MS S Modest (FY01) Substanti P117088 Fin Sec + Pub Fin Mgmt DPC 8/1/2011 MS MS S MS MS MU MS S al Avian Influenza Emergency Substanti P100122 2011 9/4/2012 S S S S MS S MS S ERL (FY06) al NG- Health System Dev. II Negligibl P070290 4/26/2013 MU MU MU MU MU U U S (FY02) e NG-State Governance & Cp Substanti P074447 5/2/2013 S MS S S MS MS MS S Bldg TAL (FY05) al 2012 Substanti P080295 NG-Polio Eradication (FY03) 2/25/2013 S S S S S S S S al P083082 MSME 5/28/2013 MS MS MS MS MU U MU S Modest Substanti P096151 NG - State Edu Sector Project 1/9/2013 MS MS MS MS MS MS MS S al 112 ANNEX 8: COUNTRY ASSISTANCE FRAMEWORK FOR THE FEDERAL REPUBLIC OF NIGERIA COUNTRY ASSISTANCE FRAMEWORK FOR THE FEDERAL REPUBLIC OF NIGERIA March, 2013 113 Table of Contents The Country Assistance Framework What is the CAF? The Rationale for the CAF A. DEVELOPMENT CONTEXT 1. Country Background 2. Country Vision 3. The Economy and Budgetary Management B. OPPORTUNITIES AND CHALLENGES 1. Opportunities 2. Challenges C. CAF FRAMEWORK AND FOCUS 1. Fundamentals 2. Strategic Directions 3. Approach D. CAF PRINCIPLES AND MODALITY OF ENGAGEMENT E. RISKS AND RISK MITIGATION STRATEGIES F. ANNEXES Annex 1. Government’s Process for Handling External Financing of Projects Annex 2. Total Donor Commitments as of end-December 2012 Annex 3. Distribution of Donor Funds Per Partner Agency Annex 4. Distribution of Donor Funds per Sector 114 A. THE COUNTRY ASSISTANCE FRAMEWORK 1. What is CAF? 1. The Country Assistance Framework (CAF) is the common strategic approach of Nigeria’s development partners in support of the Government’s development plans. The CAF is derived from the program priorities articulated in Vision 20:2020 and its implementation strategy, the Transformation Agenda (TA) 2011-2015. It was developed through a dynamic priority-setting process characterized by inclusiveness and stakeholder consultations, and focused on achieving national ownership of the development agenda. 2. The CAF is also a platform to increase aid effectiveness in Nigeria. In line with the Paris Declaration and Accra Agenda for Action, the CAF is intended as an instrument to promote donor coordination and improve aid effectiveness through better harmonization of interventions, avoidance of duplication of tasks, use of common implementation mechanisms wherever possible, and periodic discussions around key themes/topics and consultations within and across sectors. 3. The CAF is a living document as well as an instrument for policy dialogue. It facilitates discussion and cooperation among partners and stakeholders, and provides flexibility in responding to Nigeria’s evolving social, economic, and political context. Partners have agreed to formulate their respective country programs and strategies in line with the CAF in order to amplify the development impact of their assistance. 4. The CAF sets out two strategic levels of results expected from the cooperation of development partners. Vision 20:2020 and the Transformation Agenda represent the broad, high- level changes in each of the CAF priority areas to which the partners will contribute. The second strategic tier of results will be elaborated separately by each of the CAF partners and reflected in their respective country programs and strategies. 2. Rationale for the CAF 5. The CAF seeks to streamline partners’ support in order to increase aid effectiveness, accelerate implementation, and deliver rapid transformational results. The effectiveness of this assistance to Nigeria will not derive exclusively from the size of financial contributions, which are small relative to the country’s own resources. Total ODA assistance received by Nigeria in 2010 was US$2.05 billion,112 compared to the gross domestic product (GDP) in the same year of close to US$200 billion113 and the federal budget of US$26.6 billion. 6. Nigeria is a dominant economic and financial force across West Africa, and its success will impact the entire Sub-Saharan region. It is home to more than 20 percent of sub-Saharan Africa’s population, the largest oil producing country in Africa, and the tenth largest global producer. It has the sixth largest Muslim population in the world, and is by far the largest country in the world to have nearly equal numbers of Christians and Muslims. It is also the fifth largest contributor to United Nations peacekeeping forces. As the most influential and militarily powerful member of the Economic Community of West African States (ECOWAS), Nigeria has 112 OECD statistics. 113 In 2010, the Nigeria economy was ranked the 45th in the world in terms of its gross domestic product (WB). 115 played a key role in helping to resolve major political and security disputes in West Africa, from the Liberian and Sierra Leone crises in the 1990s to the political problems in Guinea, Niger, Côte d’Ivoire in the past few years, to Guinea Bissau more recently 7. Nigeria also presents some complex development challenges. It displays the characteristics of various types of African economies, namely: (i) a middle income economy with buoyant activity in the Lagos metropolitan area with a vibrant financial and private sector; (ii) a natural resource rich country facing the challenges of managing the rent and translating these resources into improved social outcomes, especially for the poor and the most vulnerable; (iii) a country facing complex security challenges ranging from militant extremism and inter-communal conflict over resources to ethno-religious polarization and organized crime; and (iv) the rest of the country which displays the features of a typical low income Sub-Saharan African economy with high levels of inequality. B. DEVELOPMENT CONTEXT a. Country Background 8. Nigeria is a federal state, comprising the federal capital territory administration, 36 state Governments, and 774 local Government councils (LGCs). The 1999 Constitution gave significant autonomy to the states in the delivery of economic and social services and the provision of infrastructure, both directly and jointly with local Governments. The Federal Government remains responsible for setting standards, coordinating policy, and discharging national functions such as security, foreign affairs, and macroeconomic management. b. Country Vision 9. Nigeria aims to become one of the 20 largest economies in the world by year 2020. Its long-term development agenda, as laid in the Vision 20:2020 (NV 20:2020), focuses on focusing on two broad objectives: (a) optimizing the country’s human and natural resource potential to achieve rapid and sustained economic growth, and (b) translating economic growth into equitable social development that guarantees a dignified and meaningful existence for all citizens. 10. The implementation plan for the Nigeria Vision 20:2020 is in three phases: the First National Implementation Plan (2010 – 2013); the Second (2014-2017); and the Third (2018- 2020). As part of the operationalization of the NV20:2020, the Government has developed a medium-term strategy to transform the Nigerian economy during the period 2012-2015 which is articulated in the 2011 Transformation Agenda (TA). 11. The Transformation Agenda is focused on: (a) building fiscal buffers in the uncertain global environment and safeguard macroeconomic stability, (b) making growth more inclusive and (c) supporting economic diversification and increasing the competitiveness of Nigeria’s economy. The TA is underpinned by a fiscal reform program that seeks to reduce the deficit of the federal Government, maintain domestic debt, and increase capital spending, particularly for infrastructure where the needs are huge. 12. These priorities are interlinked, with progress in one area supporting and depending on advances in the others. Inclusive growth will require a sustainable increase in employment, which in 116 turn will depend on faster growth in the non-oil sector, and a more skilled and competitive labor force. In addition, all levels of Government will need to improve service delivery efficiency, particularly in sectors related to the Millennium Development Goals (MDGs). 13. An integrated and coordinated approach across and between all levels of Government is critical for the realization of Nigeria’s development goals. The country vision is complemented at state levels by State Economic Development and Empowerment Strategy, where those exist. Many states in Nigeria lack their own development strategies, missing to make the full use of their high degree of autonomy. 14. Nigerian states operate with a high degree of legal and de facto autonomy in the areas of service delivery, internal organization, and revenue generation, which coexists with a strong federal mandate in the areas of public order, control over subnational borrowing, and appointments to the judiciary. While this autonomy provides states, particularly those with dynamic and progressive leadership, an opportunity to move ahead on their own, it also poses a challenge to building national consensus across different levels of Government, including in the areas of macroeconomic stability (management of oil wealth and the general Government budget), prioritizing public resource allocation, and meeting minimal national standards in service delivery. Creating consensus in those areas can be a difficult task, particularly considering the country’s political and institutional complexities. The high level of state autonomy also poses a challenge to creating a framework for convergence toward the best experiences, which would significantly enhance the country’s progress toward achieving its goals. For example, if Nigeria adopted nationwide all of the state-level best practices identified in Doing Business 2010, it would rank 72nd out of 183 economies globally – 53 places above its actual ranking. c. The Economy and Budgetary Management 15. Since the return to democratic rule, Nigeria has experienced more than a decade of rapid GDP growth. The Nigerian economy exhibited strong GDP growth over the last decade, averaging close to 8 percent. This growth has been driven by a rapid expansion of domestic demand, and concentrated in sectors servicing the Nigerian market, most notably trade and agriculture. In 2012, growth in trade and agriculture slowed in the context of a national strike (in January), severe flooding, and growing security challenges to business in parts of the North. By preliminary estimates GDP growth in 2012 amounted to 6.6 percent, as opposed to 7.4 percent in 2011. 16. The high dependence on inherently volatile oil revenues presents major balance of payments and budgetary risks to the country. Nigeria is highly dependent on oil, which accounts for over 95 percent of exports, nearly about 75 percent of consolidated Government revenues, and over 40 percent of GDP (at current prices). The uncertain global environment and associated oil price volatility emphasize the critical importance of prudent macroeconomic management and economic diversification in order to reduce the vulnerability of the country’s public finance and balance of payments to a fall in oil prices. 17. Nigeria made a major step forward in responsible macroeconomic management by creating the Excess Crude Account (ECA) as a fiscal reserve fund in 2004. Oil revenues accruing to the Government over and above an agreed benchmark price go to this fund. By September, 2008, Nigeria had accumulated US$22 billion in the ECA, much of which was subsequently used to 117 finance a fiscal stimulus package that maintained economic demand and rapid growth during the world financial crisis of 2008-2009. Nevertheless, remaining institutional vulnerabilities surrounding the ECA surfaced visibly in 2010 and early 2011, when political pressures led to excessive ad hoc withdrawals from the ECA, thus financing a large pro-cyclical fiscal expansion that put Nigeria’s reserve position and financial stability at risk. 18. Fortunately, the Government has worked to restore the countercyclical fiscal policy since mid-2011. The Federal Government has reduced its fiscal deficit to well under the 3 percent of GDP cap specified in the Fiscal Responsibility Law. The general Government deficit fell from an estimated 6.6 percent of GDP in 2009 and 5.7 percent of GDP in 2010 to 2.2 percent in 2011. In 2012, budgetary consolidation has continued, while the Government succeeded in reducing fuel subsidy payments by both reducing the subsidy rate and cracking down on corruption. The federal deficit is expected at 2.4percent of GDP (versus 2.6percent in 2011) and the general Government deficit should be about 1.9percent. The ECA has re-accumulated from a very low level at the end of 2010 to close to US$9 billion in early 2013. Nevertheless, prudent macroeconomic management continues to face challenges, particularly as the Excess Crude Account in Nigeria is managed and owned not only by the Federal Government, but by Nigerian States as well. The Government and National Assembly responded by passing a law in 2011 that establishes a new Sovereign Wealth Fund that will likely be less vulnerable than the ECA to political demands for ad hoc withdrawals. However, political controversies have so far delayed the transfer of functions from the ECA to the Sovereign Wealth Fund. 19. Over the near term, Nigeria faces a challenge of very slow or negligible growth in oil output, which implies that oil revenues should become an increasingly smaller share of GDP. In 2012, Government oil revenues already declined from an estimated 23 percent of GDP to 19.5 percent, despite generally strong oil prices. This speaks for the imperative of compensating for declines in oil receipts with increases in non-oil revenues. In the context of shrinking oil revenues relative to GDP, the opportunity cost of the fuel subsidy is increasing. The fuel subsidy, accounted for 4.6 percent and 2.5 percent of GDP in 2011 and 2012, respectively. An attempt by the Government to remove the fuel subsidy in January 2012 met with massive unrest and a national strike, which led to a compromise solution that doubled the enforced fixed naira price for petrol. Given inflation and (possible) currency depreciation, the fiscal burden of the subsidy (enforcing a fixed naira price for fuel) can grow rapidly with time, eventually reaching unsustainable levels. 20. The lack of official fiscal data at state level, with harmonized definitions and classifications comparable to those for the federal Government, further complicates the formulation of fiscal policy and the monitoring of its implementation at different levels of Government. Nevertheless, the FAAC has begun to take steps, in association with States, to roll-out a uniform chart of accounts and budget classification system, consistent with Government Finance Statistics (GFS) in order to harmonize the fiscal operations reporting across the Federation. 118 Key Macroeconomic Indicators21. Nigeria's debt position remains strong, with increasing emphasis on controlling domestic borrowing. Following the restructuring and write-off of its debt obligations to the Paris Club in 2005, Nigeria has committed to a yearly Debt Sustainability Analysis (DSA) exercise to monitor its debt portfolio and forestall potential crises.114 The 2012 DSA established that Nigeria remains at a low risk of debt distress with a robust debt outlook in the short to medium term based on standardized stress tests. External sovereign debt remains less than 3 percent of GDP and this is expected to remain the case over the short term. On the other hand, the domestic debt level has risen to 16 percent of GDP and is expected to rise further in the medium term. In response to the rapid growth in domestic debt and the high associated borrowing costs, particularly at the state level, the 2012 DSA recommends a shift from domestic to external sources of borrowing. The 2012 DSA also recognizes the potential impact of a negative oil price shock on debt sustainability and has recommended the implementation of policies that will fast-track the diversification of the economy to non-oil sources of revenue. C. OPPORTUNITIES AND CHALLENGES 22. Nigeria remains a country of opportunities and challenges. Its presence is felt across the West Africa region, and it accounts for an estimated 70 percent of the regions’ GDP. It is the second largest economy in Sub-Saharan Africa, after South Africa, and has the potential to become the largest, with even greater positive spill-over effects throughout the region. Nigeria is the most populous country in Africa, with an estimated population of 171 million in 2013. It is also the biggest oil exporter in Africa, and has the largest natural gas reserves on the continent. With these large reserves of human and natural resources, Nigeria is poised to build a prosperous economy; significantly reduce poverty; and provide health, education, and infrastructure services to its population. 23. In spite of its natural resource wealth and relatively strong economic growth over the last seven years, Nigeria faces widespread poverty and inequality, high youth unemployment, inadequate service delivery, low MDG indicators, and governance challenges. The oil industry creates few jobs, therefore failing to tackle the rising rate of youth unemployment in the country. All of these factors have fuelled grievances which gave given rise to violence that broke out, creating security risks in the country and the region. The 2012 Global Peace Index notes that in 2011 and early 2012 Nigeria experienced the second largest deterioration among Sub-Saharan countries and was ranked 146 out of 158 countries.115 a. Opportunities 24. The Transformation Agenda assigns great importance to supporting non-oil sectors that have strong job creation and multiplier potential, such as housing and agriculture. Nigeria’s 114 DSA is conducted by the Debt Management Office. 115 Other global fragility and conflict indices rank Nigeria similarly low and show a downward trend over recent years. Nigeria is in the bottom 4 percent countries globally in the World Bank ratings of Political Stability and Absence of Violence. The Failed State Index has repeatedly ranked Nigeria as in ‘danger’, the second-worst category, most recently as number 14 out of 177 countries (Failed State index 2012). 119 housing sector grew at 12.6 percent over 2006-2010, fueled by rapid urbanization, but there is still an estimated housing gap of 700,000 houses in different market segments. Government is working on developing housing finance mechanisms to support the sector and unlock its job creation potential. 25. The Government has embarked on an ambitious plan to modernize the agriculture sector, which accounts for a substantial share of non-oil GDP and employs 70 percent of the population. The sector recorded modest improvement in overall performance in recent years; it grew by about 6.8 percent annually between 2005 and 2009. However, this has been attributed mostly to land area expansion. While data on agricultural production in Nigeria are weak, it is widely recognized that Nigeria’s agriculture sector continues to have a high growth potential, and the Government is strongly committed to increasing productivity, guaranteeing food security, encouraging better use of existing cultivable areas and improving food processing capacity. The Agricultural Transformation Agenda aims to transform agriculture into a modern and commercially oriented sector with value-chain linkages to manufacturing. Efforts to encourage private investment include tax and tariff incentives. Moving forward, such measures will need to be regularly re-evaluated to encourage firms to wean themselves from this support – otherwise, policies meant to help firms in their formative years might become a disincentive for improving efficiency and productivity. Realizing the potential of agriculture will also depend on addressing structural bottlenecks and reducing the cost of doing business in the sector. 26. Nigeria’s significant mineral deposits also represent a strategic opportunity for growth. Before the oil boom of the 1970s, coal and tin were among the natural resources mined on a massive scale, with the former being used to generate electricity, power the railway network, and meet the demands of regional and international markets. Lead and zinc were a significant source of export revenue, and Nigeria was the world's largest exporter of columbite. Recently, there has been a growing recognition of the potential of the solid minerals sector for diversifying the economy. The Government’s commitment to mining sector is increasing along with revenues and employment generation, and more exploration is taking place by international companies. The Government recently developed a long-term roadmap for transformation of the solid minerals and metals sector as strategic catalysts of growth. A Solid Mineral Development Fund (SMDF) is being created in accordance with the Mining Act to fund the reforms articulated in the roadmap. The SMDF, in turn, is to be funded by the President-approved Natural Resources Development Fund (NRDF), which is a constitutional established fund to promote natural resources development as a whole. These efforts need to be reinforced by developing and implementing a well-functioning institutional framework that ensures inclusiveness and good corporate governance. 27. Rapid urbanization, while challenging, is another opportunity to boost growth and reduce poverty. Over the years, Nigeria has experienced rapid urbanization, with 50 percent of its population living in urban centers in 2010. The projected continuous high population growth will intensify the urbanization process (UN 2012), further increasing opportunities for income diversification, expanding options for more affordable service delivery, and widening horizons for innovation and skills acquisition. Accomplishing that will require a focus on both rural and urban development, improving livability of cities and villages, creating more jobs in cities and more off-farm jobs in rural Nigeria, improved urban management, and enhanced integration of domestic markets. 120 28. Strong efforts are needed to unlock the potential of cities to support economic growth. Traffic congestion costs, poor service coverage and delivery, and low quality infrastructure all negatively affect the competitiveness of urban areas and their capacity to support local economic growth and attract investment. The lack of effective urban governance is also a major issue across all states and cities. While the Constitution identifies local Government as the third tier of Government after the federal Government and state Governments, the presence of several local Government units (LGUs) within most large municipal areas has critically reduced the prospects for a cohesive management of large urban areas. 29. Further, most LGUs lack the capacity to sustainably finance and maintain urban services and infrastructure or to effectively accommodate an informal economy. This has had a negative impact on city landscapes, and on cities’ contribution to the national economy. The absence of an integrated approach at the local and state/Federal levels to maximize the growth potential of cities further complicates these challenges. If the economic growth and job creation of cities is to be unleashed, it will be necessary for Nigeria to implement needed policy and institutional reforms in land use planning and develop sustainable strategies to enhance investment in urban infrastructure and service delivery. 30. Nigeria also has opportunity for growth and diversification through regional and global integration, both of which have been associated with higher long-run growth. China, Korea, India, Brazil, Malaysia, Vietnam, Indonesia and Mexico have all become industrial power- houses through transformation of their export structure. 31. The West Africa Economic Community has a population of 300 million, and further consolidation of this large regional market is likely to attract more foreign direct investment and create economies of scale that would directly benefit Nigeria. There has been some progress, but trade networks within West Africa still are not well developed (intra-regional trade accounts for merely 10 percent of GDP), which constraints Nigeria’s ability to tap into the short and medium- term growth opportunities offered by the regional market. Nigeria’s ambitious Agriculture Transformation Agenda as well as strategies and programs adopted in the framework of the Comprehensive Africa Agriculture Development Program (CAADP) could be useful instruments to boost investment in the sector. However, the Government would need to adopt more open trade policies aligned with the ECOWAS trade regime, along with measures to simplify border customs procedures. 32. The West African regional market also offers significant growth potential for Nigeria’s gas- based industries, including (a) gas to power (supplying both domestic and regional demand through the West Africa Power Pool); (b) gas-based industrialization, including development of fertilizer, methanol, and petrochemicals; and (c) development of export capacity through investments in liquid natural gas (LNG) and regional pipeline infrastructure, building on the West African Gas Pipeline that currently services Nigeria, Benin, Togo and Ghana. 33. Similarly, the West African market holds tremendous opportunities for Nigeria’s financial sector. Financial integration with West Africa is one of the strategic pillars of Nigeria’s Financial Sector Strategy 2020. Efforts are underway to integrate the region’s three leading stock exchanges—the Nigerian Stock Exchange, the Bourse régionale de valeurs mobilières (BRVM) in Abidjan, and the Ghana Stock Exchange—and develop mechanisms for cross-listing and trading. These efforts are taking place in parallel with efforts to promote economic convergence and monetary union (between ECOWAS and WAMU). The potential for cross‐border portfolio 121 investments by ECOWAS institutions and individuals is high, although full integration is still a long way off. 34. To fully benefit from the growth potential offered by regional and global integration, Nigeria would need to develop regionally and globally competitive sectors; diversify exports through a vibrant and globally competitive private sector; and develop goods and services that comply with international standards. b. Challenges i. Political and Security Challenges 35. Since the transition from the military rule to electoral democracy in 1999, Nigeria has had four presidential elections, the latest in April 2011. The last general election in 2011 received high praise for being well-managed, despite some post-election violence in northern Nigeria. 36. Nigeria’s democracy is deepening although some institutions are still weak. Enactment of the Freedom of Information Act in 2011 strengthened the country’s framework for transparency and accountability by requiring that all publicly funded institutions must be open about their operations and expenditures, giving citizens the right to access information about their activities. The deepening of democratic practices was also evident in the conduct of the 2012 elections for governorship in Ondo, Adamawa and Edo, which were adjudged as free and fair. 37. Like other young democracies, Nigeria faces continuing challenges. The political environment is currently characterized by mistrust among the federal Government, states, and local councils over oil revenue-sharing arrangement. Concerns are also being voiced about some tensions between the executive and the legislative arms of the Government. Lastly, focus is gradually turning toward the 2015 elections which might limit the space for policy reform in the next 12 to 18 months. 38. Nigeria is also facing a range of complex conflict and security challenges, although the incidence and causes of violence differ significantly among Nigeria’s 36 states. Some states have proven to be remarkably resilient, while others have seen violence erupting much more frequently. Some of the most significant challenges include the insurgency of radical Islamists in the North; inter-communal violence over access to economic and natural resources and political power, for example in the Middle Belt states; kidnappings, armed robbery and conflicts over oil spills especially in the South-East; and ongoing efforts to reintegrate militants under an Amnesty provision in the Niger Delta. The current situation stems from a mix of historical, ethnic, regional and religious issues coupled with challenges in the value system, oil and gas resources, corruption, exclusion, weak checks and balances, poor social participation drive, and poor service delivery. 39. Many of the long-standing sources of instability have been compounded by the rise of Jama’atu Ahlis Sunna Lidda’awati Wal-Jihad (JAS), popularly known as Boko Haram, a violent Salafist group that began an uprising in 2009. The group carries out frequent attacks on state institutions and local populations, both Christian and Muslim. It is responsible for the August 2011 attack on the UN building in Abuja. State security forces deployed in response to JAS have been accused of alleged transgressions against local populations. Moreover, many civilians have 122 fallen victims to inter-communal reprisal attacks carried out in a climate of increasing ethno- religious polarization. 40. As a result, the death toll in recent years has been on the increase in what had already been the most violent country in Africa that is not at war. Reliable data are scarce but one of the best estimates available has recorded an average of 3,000 conflict-related deaths each year between 2006 and 2011.116 Violence against women and girls is underreported but also estimated to be high.117 41. The impact of violence goes beyond the loss of lives. Violence holds back social and economic development, and particularly hurts the poorest because they have few assets to begin with and face enormous challenges in recovering subsequently. Breaking the cycle of violence requires sustainable solutions that address its root causes and resolve the underlying grievances. Existing political and development responses are yet to start generating results in this regard. 42. Ultimately, the impact of political and security challenges on Nigeria’s development will depend on how political and other elites address, in words of Professor Akim Iwayemi, “a trilogy of discontent in contemporary Nigeria, namely: massive youth joblessness, social inequity, [and] huge public spending with marginal impact on social well-being of majority of the population due mainly to waste and large scale corruption.”.118 Governance 43. Lack of a well-functioning civil service poses challenges to achieving sustainable development outcomes. Decades of authoritarian rule have weakened the state and federal civil service. Human resources management in general is not well developed, and ghost workers are common. The degree of freedom with respect to human resources management varies between the federal agencies – those outside the core civil service, such as the Federal tax authority, enjoy greater freedom. Affirmative action, patronage and geo-political considerations in appointments crowd out merit-based hiring, thereby weakening overall capacity. Rotation policies take priority over continuity, making it difficult to sustain improved capacity over time. Further, the fragmentation of responsibilities across different commissions and agencies increases the difficulty of implementing reforms. There has been some success in cleaning up nominal payrolls and in strengthening merit-based hiring. The most senior positions are now tenured with renewals tied to performance and some top positions in several key public institutions were advertised and filled competitively in 2012. Other aspects of civil service reform such as merit- based recruitment, promotion and dismissal, remuneration structures, pension schemes, rotation policies and training remain largely unaddressed. More broadly, Nigeria still needs to strengthen public institutions and nurture effective leadership in the public administration. The weak civil service regime implies that top level leadership is the key to most reform efforts. On the other hand, many successful reforms championed by visionary leaders have proven unsustainable. 44. There is a great deal of variation across states in their capacity for governance. A new generation of state governors is emerging, albeit still a minority. Some are beginning to address public sector reform, through civil service modernization and right sizing, and strengthening financial management. The emphasis of some governors is being broadened to the quality of 116 www.nigeriawatch.org. 117 British Council Gender in Nigeria Report (2012). 118 Professor Akin Iwayemi, President, Nigerian Economic Society, Presidential Address Delivered at the 53rd Annual Conference of the Nigerian Economic Society, Abuja, 27th - 30th August, 2012. 123 services provided, and that entails modifying budget structures, inculcating a performance orientation in staff, and increasing transparency. 45. The three tiers of Government (federal, state and local) in Nigeria have overlapping but autonomous fiscal and policy jurisdictions for public services that directly impinge on the MDGs. In such federal settings, progress towards the MDGs is hindered or accelerated depending on synergy and coordination of policies and service delivery across the layers of Government. In particular, because Nigeria’s state and local Governments ideally should be closest to the grassroots in terms of providing basic public services, their actions or inactions could impact greatly on MDGs. In reality, however, states and local Governments in Nigeria largely follow the MDGs policy frameworks initiated by the federal Government. The fiscal and policy autonomy of state Governments is largely circumscribed by weak technical and institutional capacities. Also, because of the relatively higher concentration of more experienced public officials at the Federal level, state Governments generally suffer from weaker public service bureaucracies. 46. Capacity and institutional challenges also affect the policy design and dialogue. Due to inadequate data collection and monitoring (M&E), policies and funding decisions often are not informed by facts, and their impacts on poverty reduction and welfare cannot be monitored. 47. While many reforms have been initiated to improve public finance management (PFM), much remains to be done. Reforms have included strengthening the legislative framework at the Federal level through the Fiscal Responsibility Act, the Public Procurement Act, and similar laws and regulations at the state level. Improving the transparency and accountability of the country’s PFM and procurement systems is essential to improve the efficiency and effectiveness of service delivery. This will require (a) collating of data to identify bottlenecks in implementing reforms, (b) providing capacity development and incentives for civil servants in charge of exercising internal controls; (c) further automating financial management and e-procurement functions through integrated financial management and information system (IFMIS) at the state and Federal levels; and (d) enhancing oversight of procurement system performance. The challenge lies in the uneven capacity and commitment, across states and federal ministries, departments and agencies (MDAs) to embrace the needed changes and adopt practices consistent with modern PFM principles. In addition, given the low capital budget execution rates further capacity building is needed in the areas of procurement, implementation, and project evaluation to ensure that the planned scaling up of capital spending will result in productive and effective development. 48. While formal mechanisms of governance such as an independent judiciary, protection of human rights, legislative oversight, and free and fair elections have improved in recent years, they remain weak. The independence of parliament, external audit institutions and the judiciary from vested interests is of concern, and there are few incentives for reform. Given the centrality of these institutions in the governance of the country, improvements are badly needed. 49. Governance and the complicated political economy of reform are increasingly recognized as the primary challenges to development in Nigeria. Vested interests, complex networks of patronage, and traditional loyalties and affiliations result in grand and petty corruption, which is fueled by the extraordinary rents from oil and gas. 50. Civil society in Nigeria is not yet a reliable watchdog or source of pressure for reform. While there are many demands for governance reform in the traditional and social media, it is 124 difficult to discern any popular movement that is capable of channeling this dissatisfaction into a series of actions that can challenge the status quo or ensure the accountability of elected officials. However, some progress has been made in procurement monitoring at the Federal level with the development of a procurement observatory by a coalition of civil society organizations. ii. Competitiveness 51. Nigeria is making progress in improving its competitiveness. The Global Benchmarking Network has ranked Nigeria 115th in its 2012 Global Competitiveness Report, up from 127th in 2011, due to improved macroeconomic condition and recovery from the financial sector crisis of 2009. Yet, significant challenges still remain. 52. The institutional environment does not support a competitive economy because of concerns about the protection of property rights, ethics and corruption, undue influence, and Government inefficiencies, including regarding reform and policy implementation. The public private interface, business and property, registries, customs at port etc. perform badly when compared to other economies (reflected in an overall DB ranking of 133 from 183 countries). The Nigerian trade regime remains restrictive, and ineffectual as Nigeria ranks 149th in the Trading Across Borders category, in the Doing Business index. In addition, Nigeria ranks 180th in land administration, among the worst figures in the world. This insecurity of tenure is linked to lack of investment, especially in the construction sector. 53. Access to and cost of finance are the second and third greatest constraints faced by firms.119 Financial markets lack the depth to drive economic diversification and job creation, or finance infrastructure investment. Promoting the financial sector’s role in development is a key policy priority. Small and medium enterprises (SMEs) in Nigeria have very limited access to bank credit or other financial services – in 2011, fewer than 10 percent of SMEs had a loan or line of credit and SMEs represented only 5 percent of bank lending.120 The banking system (80 percent of financial system assets) is largely focused on servicing the largest Nigeria corporations in the oil and telecoms sectors and the "value chains" associated with them. Banks perceive that lending 'beyond the frontier' is too risky, particularly given the recent rise in Treasury security interest rates. 54. Nigeria is a diverse country with poorly integrated markets. Most Nigerian states still function largely in isolation and face enormous challenges in moving their economies beyond subsistence agriculture and local services. To benefit from economies of scale, sharpen international competitiveness, and improve non-oil growth and income levels, there is a need for better integration of markets in goods and services, labour, and finance within the country. At present, the efficient functioning of Nigeria’s domestic market is impeded by physical, policy and administrative barriers, including poor infrastructure and multiple taxes, fees, and inspections that constrain the movement of goods and services. Coordinated efforts are needed at both the federal and state levels to remove these barriers. 55. The country has a large infrastructure deficit, particularly in power and transport. Power: The electricity grid supplies approximately 4,300 MW of available generation, against an estimated demand of approximately 10,000 MW. Rural accessibility remains a serious problem, 119 Investment Climate Assessment (ICA), 2011. 120 Financing Small- and Medium-Sized Enterprises in Nigeria, April 2012 125 with major repercussions for agricultural and rural development; and 83 percent of Nigerian business owners consider lack of electricity the biggest obstacle to doing business.121 56. The Government’s power sector reform program is one of the most comprehensive and complex ever undertaken in Africa. The program (a) establishes an independent regulator for the sector, the Nigerian Electricity Regulatory Commission; (b) sets up a commercial framework for the sector, with cost-reflective electricity tariffs; (c) establishes a bulk trader; (d) privatizes the Power Holding Company of Nigeria’s (PHCN) six successor generation companies; (f) privatizes the eleven PHCN successor distribution companies; and (g) continues efforts to strengthen the gas-to-power segment. The first three pillars are already in place, and have led to some tangible improvements in available supply, increased grid stability, increased revenue collection, and the introduction of a cost-reflective, multi-year tariff. The privatization process is ongoing but faces resistance that will require sustained commitment to overcome. 57. Any increase in electricity generation is dependent on improved gas-to-power infrastructure. Nigeria has an estimated 185 trillion cubic feet of gas reserves, the eighth largest in the world and the largest in Africa. Increasing attention is now being given to this vital sector, both to meet increasing domestic demand and to develop regional exports. The development of alternative markets for Nigerian gas – LNG exports through the Bonny LNG terminal; regional exports through the 678 km West African Gas Pipeline (WAGP)122 to Benin, Ghana, and Togo – has increased incentives for commercializing gas assets. The Government has responded by developing the Gas Master Plan, which outlines reforms needed in the sector. Initial results can already be seen. Gas deliveries to the domestic market and the power sector reached 1000 mmscfd in 2012, an all-time high, compared to only about 300 mmscfd in 2009. Commercial negotiations are advancing to establish fair and equitable gas supply and aggregation contracts. And the improved availability and lower cost of gas compared to alternative fuels have triggered renewed interest from WAGP countries, which want to increase deliveries beyond the 133 mmscfd already agreed. 58. Transport: Nigeria’s national rail network is second only to South Africa’s in length, but traffic volumes have all but collapsed. 123 Due to deficient performance and erratic services, traffic volumes have been on a long-term decline from 3 million tons in 1960 to 15,000 tons in 2005 – equivalent to about five trucks per day.124 59. Revamping the transport infrastructure sector remains one of the key focal points for supporting growth. The Government has committed to a massive rehabilitation of roads and airports across the country, and has intensified efforts to fix the railways. However, an integrated multi-modal approach is needed to prioritize projects, and to take advantage of growth corridors and increasing urbanization over the medium term. Spatial planning could be particularly advantageous. In addition to facilitating greater integration across the housing, transport, energy and industry sectors, spatial planning would help to align rural road and agricultural development policies; align national and local systems of urban and rural development; and take account of environmental considerations. Rural areas in Nigeria are poorly connected to cities, resulting in weak value chains for agricultural products and slow rates of off-farm job creation. A multi- 121 ICA, 2011. 122 The Escravos-Lagos pipeline system has a capacity of 800 mmscfd, but currently is only used at 130 mmscfd due to supply constraints. 123 Nigeria’s Infrastructure: A Continental Perspective, AICD, V. Foster, N. Pushak, 2011. 124 Idem. 126 modal, spatial planning approach could also serve as a framework for phasing investments in line with available resources. 60. Skills: An adequate skills base is essential to achieve sustainable and inclusive economic growth. Nigeria faces skills gaps in both formal and informal sectors which are hindering the country’s efforts to improve competitiveness and increase employment. Universities and technical and vocational training institutions tend to be supply rather than demand driven. This leads to many graduates being unable to find jobs, while skills remain in short supply in some industries. 125 The first pilot from Assessment of Core Competence for Employability in the Services Sector (ACCESS)126 in Abuja, Lagos, Kaduna, Kano, and Enugu found that students do not have the skills needed for employment in that sector.127 Critical factors contributing to the low quality and relevance of training include a poor learning environment, as measured by physical facilities, essential textbooks, and instructional aids; lack of teachers in core subjects and in rural areas; low teacher attendance; and poor teaching quality due to inadequate teacher training, low motivation, and limited opportunities for professional development. These problems are compounded by the lack of coordination and dialogue among training institutions, research institutions, universities, ministries, and private sector employers about needed skills and training opportunities. Underlying Nigeria’s skills gap are weak basic education system, the lack of coordination and dialogue between training institutions, research institutions, universities, and ministries with those from the industries and private sector, leading to out of date curriculum and low quality of education and training. 61. Nigeria’s universal primary education policy, first implemented in 1976 and reinstated in 1999 and 2004 mandates free, compulsory education, but the progress has been slow and regressed since 2006. Trends in gross enrollment rate (GER) and net enrollment rate (NER) in primary school show deterioration in access to primary school in recent years. GER, after improving from 84.2 percent in 1990 to 102.9 percent in 2006, declined to 83.3 percent in 2010. At the same time, not much effort was made to get children to start school on time. The NER stayed flat at 61.3 percent from 1999 and even decreased slightly to 57.6 percent in 2010. 62. While access to education has been shrinking at the primary level, it has expanded substantially at the secondary and tertiary levels. Secondary GER almost doubled from 24.3 percent in 1990 to 44 percent in 2010. The territory enrollment rate increased about six fold from 1.9 percent to 11.9 percent, setting Nigeria at a level twice as high as the average African country (6.8 percent) and comparable with the average South Asian country (15.3 percent). This increase, however, would need to be balanced with the emphasis on primary education in terms of enrollment and education outcomes, so to strengthen the country’s skill base and, importantly, to ensure that the poorest and most disadvantaged children are not left out of primary school while secondary and tertiary schools are expanded for middle-class children. iii. Social Welfare 63. Wide spread poverty: In spite of strong economic growth in the last decade, poverty in Nigeria remains widespread. The poverty headcount declined marginally from 48.4 percent in 125 World Bank, 2006. 126 The ACCESS program is an IT-Enabled Services Foundational Skills Assessment and Certification Program for Nigeria that is conducted by Hewitt Associates LLC and sponsored by the World Bank. 127 World Bank, 2011. 127 2003-2004 to 46 percent in 2009-2010 (using adult equivalent methodology), but, given the growth in the population, this implies an increase in the number of Nigerians living in poverty from 60 to 75 million. Poverty rates vary across and within states. While some parts of the country, most notably Lagos, are experiencing genuine economic booms that are reducing poverty, a number of other states are most likely growing at a rate less than that of the population. 64. Across states, there is also a remarkable stability in poverty levels and trends. Some 6 in 10 states that had the lowest poverty rates in 2004 continued to be among the top 10 lowest poverty states in 2010. However, as noted above a few states have made substantial progress, in reducing poverty during the period. As indicated below, Lagos State has the lowest estimated poverty rate of 22.9 percent, while Jigawa has the highest at 77.5 percent. These numbers confirm the fact that poverty is particularly concentrated in the Northern part of the country, while the South West experiences the lowest poverty rates. Average poverty rates for the North East and North West areas are 59.7 and 58 percent, respectively, while the North Central has an average rate of 48.8. By contrast, average rates in the South West, South East, and South South are 30.6, 39, and 37.6, respectively. By far, the Lagos State made the greatest strides toward poverty reduction between 2003-2004 and 2009-2010, reducing its estimated poverty rate from 43.8 to 22.9 percent. By contrast, a number of States, particularly in the North, made little or no progress in reducing their poverty rates over this period. 128 Poverty rates by states, State-level head count per capita poverty measure (percent) State-level head count per adult equivalent poverty measure (%) 2003‐ 04 2009‐ 10 2003‐04 2009‐ 10 Abia 27.4 30.4 Katsina 56.9 57.0 Adamawa 64.2 64.5 Kebbi 78.7 50.4 Akwa Ibom 38.2 35.5 Kogi 86.8 54.2 Anambra 22.4 30.2 Kwara 82.3 51.8 Bauchi 75.0 65.0 Lagos 57.2 23.0 Bayelsa 27.5 29.9 Nassarawa 46.8 55.5 Benue 45.8 61.4 Niger 42.9 29.0 Borno 41.0 42.7 Ogun 32.9 40.2 Cross‐ river 50.6 43.7 Ondo 45.2 40.5 Delta 55.4 42.4 Osun 27.4 23.6 Ebonyi 44.4 71.2 Oyo 21.4 30.5 Edo 36.9 43.5 Plateau 51.2 54.1 Ekiti 43.4 40.2 Rivers 39.9 30.3 Enugu 32.3 47.7 Sokoto 62.8 71.8 Gombe 56.4 73.8 Taraba 44.9 47.7 Imo 29.6 28.4 Yobe 72.1 68.7 Jigawa 87.4 77.4 Zamfara 67.3 50.8 Kaduna 35.8 45.5 FCT Abuja 35.6 31.0 Kano 40.9 56.5   79. Unemployment: Jobs are an important component of poverty reduction, increased productivity, and social cohesion, and therefore are a cornerstone of development.128 Yet the pace of growth has so far not delivered significant employment opportunities for the population, particularly in the North-West, where the unemployment rate was 21.5 percent in 2009, compared to a low of 8.9 percent in the South-East. Nigeria is grappling with how best to provide opportunities to its burgeoning young workforce. Youth unemployment is particularly worrisome (37.7 percent for the age group 15-24 and 22.4 percent for the age group 25-44).129 With persistent high fertility rates of 5.5 births per woman (2010) 130 and 43 percent of the population below 15 years of age (2010), the projected strong population growth will further complicate this challenge. Most demographic growth will be in people of working age (15-64), and Nigeria faces the urgent challenge of absorbing them into productive employment. Failure to do so could become a major source of social and political instability. These challenges are complex in nature, but with well-coordinated and multi-sectoral approaches, they could be transformed into opportunities to capture the demographic dividend through skills enhancement of young people. 128 WDR, 2012. 129 Idem. 130 Idem. 129 80. Disparities: Wide disparities in terms of gender, geographical boundaries, and geopolitical zones complicate economic and social development. The country is ranked 79th out of 86 in the 2012 Social Institutions and Gender Index (OECD), and 120th out of 135 in the 2011 Global Gender Gap Index. Gender gaps are particularly notable in access to education, household decision making, and political representation. The Nigeria Digest of Education Statistics (2006-2010) shows 54,434 public primary schools in Nigeria, with an enrollment of 24.4 million, of which females account for 11.1 million (45.5 percent), indicating a gender parity index of 83.6. The rural North has persistently lower primary completion rates than other regions, and many children do not even complete primary school until age 18; and its secondary completion rate of 54 percent is significantly below that of the urban South, at 54 compared to 89 percent. (See para. 62 for analysis of overall education system.) The same regional differences seen in education are also observed in health outcomes. Maternal mortality in the rural North- East is 1,549, more than five times the national average.131 Malnutrition prevalence is highest in the North-West and North-East regions (35.1 and 34.5 percent, respectively) and lowest in the South-East and South-South (10.0 and 12.8 percent, respectively). 132 Regional disparities are also reflected in unemployment. In 2009, unemployment was highest in the North-West (21.5 percent) and lowest in the South-East (8.9 percent). The youth labor force participation rate (males and females) is highest in the Northern zones, likely because school enrollment rates in these regions are the lowest in the country and more youths are out of school. The South-West zone has the lowest youth labor force participation rate, also likely due to the relatively high school enrollment rates in this zone. 81. Health: Investments in human capital development have not resulted in more inclusive growth or brought the country closer to reaching the Millennium Development Goals. Despite large investments in the health sector over the last decade, Nigeria’s health statistics are worse than the average for African countries. Nigeria has 2 percent of the world’s population but has 10 percent of maternal deaths (545 per 100,000 live births), 10 percent of under-five mortality (157 per 1,000 live births), and 25 percent of the world malaria burden. The country also has 10 percent of the world burden for mother-to child-transmission of HIV. Nigeria lags behind the SSA average on three key health indicators: the maternal mortality rate is 545 per one hundred thousand live births (versus the SSA average of 500); the infant mortality rate is 75 per one thousand live births (versus 65 for SSA); and the under-five mortality rate is 157 per one thousand live births (versus 104 for SSA). However, the Government has developed an integrated response under the “Saving One Million Lives” initiative which is very promising. 82. Education: Access to and quality of education remain important impediments to sustainable growth and equitable development. There is limited access for the poorest, the quality of education is inferior at all levels, and the enrollment rate in basic and secondary education is low. Many students, especially in the rural North, delay their completion of primary school.133 In the North, completion is as low as 24 percent. On average, only 37 percent of students finish primary school at the official graduation age of 11. A high percentage of students never finish secondary school. Only 75 percent finish secondary school by age 24, and the remaining 25 percent never finish. Nationally, only 29 percent of those who start school graduate 131 DFID Gender in Nigeria Report 2012. 132 Idem. 133 Completion rate is measured as the percentage of the population in the relevant age group who ever attended school and completed primary school. 130 from secondary school at the official age of 17. About 7 million children are not in school. The total number of illiterate adults, almost 22 million, places Nigeria among only ten countries worldwide with more than 10 million adult illiterates (15 years and above). Nigeria spends about 5 percent of its GDP on education, which is in line with international benchmarks, but about 80 percent of that spending is allocated to recurrent costs. 83. Water supply and sanitation: Are central to improvements in health in Nigeria, as they are for improvements in education, urban and rural development, development of industry and general economic development. Responsibility for water supply is shared between three levels of Government – federal, state and local. The federal Government is in charge of water resources management; state Governments have the primary responsibility for urban water supply; and local Governments together with communities are responsible for rural water supply. The responsibility for sanitation is not clearly defined. Water supply service quality and cost recovery are low. Water tariffs are low and many water users do not pay their bills. Service providers thus rely mostly on occasional subsidies to cover their operating costs. Investments are mainly financed by foreign donors and fall short of what is needed to achieve a significant increase in access. 84. The challenges in the sector are huge. Over the last 20 years, access to safe drinking water increased by only 10 percent, from 48 percent of the population in 1990 to 58 percent in 2010.134 During the same period, the share of those with access to improved sanitation actually declined by about 15 percent, from 37 to 31 percent. The sector has been weakened by poor operation and maintenance, inept institutions, poor tracking of budgeted funds and expenditures, insufficient technical capacity, lack of coordination across different levels of Government, and lack of inter- sectoral coordination. These failures have dramatic consequences for lives, livelihoods, and development. 85. Social protection: The challenges of poverty and unemployment have highlighted the need to assess the effectiveness of the current approach to social protection. Public expenditure on social services and assistance programs has increased but is still insufficient. According to the annual reports of the Central Bank of Nigeria (CBN), federal Government spending on social programs (including education and health but excluding pensions and other related transfers) rose from about 1.4 percent of GDP in 2004 to almost 2 percent in 2009. Social expenditures at the state level were significantly higher ‒ 2.9 percent of GDP in 2008. Combined social spending by the federal and state Governments increased between 2004 and 2008 to almost 5 percent of GDP, which is still quite low compared with other countries.135 86. Over the last few decades, the Government has developed an array of social safety net and labor programs, but they are poorly targeted, have limited coverage, are not evaluated periodically, and are generally insufficiently funded. The conditional cash transfer (CCT) program that was introduced as part of the National Poverty Eradication Program (NAPEP) is the first major social safety net that is targeted and well-resourced at both the federal and state levels. The Government of Nigeria has shown an interest in CCT interventions as a way to reduce both short- term and long-term poverty, especially where effective supply-side interventions are in place. The Government’s interest in this approach was prompted by the fact that it combines the transfer of 134 WDR, 2012. 135 Youth Employment and Social Support Operation, World Bank. 2012 131 resources to the poorest households with incentives to increase investments in human capital, which is relevant to the nature of poverty and vulnerability in Nigeria. iv. Climate Change and Environmental Degradation Challenges 87. Nigeria is highly vulnerable to climate change impacts. The 2012 flood was the worst in a century. Preliminary estimates from the Post Disaster Needs Assessment suggest that the damage and losses are the worst in Nigeria’s history. Nigeria’s disaster profile is characterized by extreme hydro-meteorological events which will likely increase in frequency and magnitude due to climate change. Neither Nigeria’s monitoring and early warning systems nor its response mechanisms are well developed. 88. The cost of ongoing environmental degradation and associated disasters is likely to increase under a business-as-usual scenario. Nationwide, cropland degradation accounts for between 1.7 and 6.4 percent of GDP.136 Land degradation is accelerating in the South-East and land degradation and environmental insecurity are also accelerating in the arid and semi-arid North. High population growth and poverty levels, resource depletion, rainfall variability, recurrent droughts and floods, soil infertility and erosion, and deforestation threaten the 80 percent of Northern Nigerians who depend on land and water resources for their economic and physical security. Nigeria’s woody savannah systems are also under stress from clearing and reduced rainfall. 89. Environmental pollution and governance, including enhanced transparency in environmental decision making; management of natural resource rents; and environmental assessment and management; as well as waste and chemicals management is central to the environmental sustainability and the actualization of the Government’s Transformation Agenda. In general three major sources of pollution can be identified in Nigeria. They include (i) industrial waste including massive oil spills have continued for decades and compromised important mangrove and inland wetlands and fisheries in the Niger delta, (ii) domestic/municipal waste, (iii) radioactive/hazardous waste and e-waste, as Nigeria hosts numerous disposal sites. 90. As Nigeria works toward becoming one of the top 20 world economies by 2020, air pollution could also become an issue. Achieving that goal might entail a doubling by 2035 of emissions compared to current levels; and throughout the period, cumulative emissions might add up to some 11.6 billion tons of CO2—five times the estimated historical emissions over 1900-2005. 91. Nigeria already has several policies and strategic initiatives which if properly implemented can serve as adaptive as well as mitigating climate change measures. Thus, the country has many options to grow its economy with full respect for the ecological integrity of the country.137 The national benefits of the low-carbon strategy include cheaper and more diversified provision of electricity (with total savings up to 2035 on the order of 7 percent, or US$12 billion); more efficient operations in the oil/gas industry (with discounted net benefits on the order of US$7.5 billion); more climate resilient and more productive agriculture (with net additional benefits to 136 Nigeria Erosion and Watershed management project, World Bank, 2011. 137 Nigeria Climate Change Resilience and Nigeria Low Carbon Growth Policy Note, World Bank reports, forthcoming. 132 farmers on the order of 0.2 percent of GDP); and better transport services (resulting in economies of fuel, better air quality, reduced congestion). Over 25 years, the emission of some 2.4 billion tons of CO2e could be avoided, while at the same time reaping domestic benefits. 92. Building a climate resilient society within a low-carbon/high growth economic development framework will (a) integrated and comprehensive disaster risk management, (b) climate-responsive infrastructure development, (c) appropriate research and development, (vi) capacity building, institutional strengthening and governance, and (d) sustainable and coordinated climate change financing. D. CAF FRAMEWORK AND FOCUS 79. The CAF framework combines the growth and job agenda, to support the Government to establish a platform for strong, sustained, socially and regionally inclusive growth. a. Fundamentals 80. Macroeconomic stability, an enabling business environment, investments in human capital, the rule of law, and respect for property and personal rights are essential for growth and job creation. Finance, infrastructure, and business regulations set the quality of the investment climate and thus influence investment prospects and job creation by private firms. While good outcomes in nutrition, health, and education are development goals in themselves, they are also important from the growth and jobs perspective, because they equip people for productive employment. Rule of law and respect for rights are critical to give the private sector the confidence to invest and operate. In Nigeria and other countries that need to manage resource- 133 related risks, fundamentals also include efficient, accountable, and transparent public sector management, i.e., good governance. i. Economic Management 81. In support of sound macroeconomic management, the CAF partners will (a) provide the Government with financial support and offer regular analytical and policy advice aimed at improving budget and public financial management, deepening financial systems, ensuring debt sustainability, and enhancing the capacity for collecting and analyzing statistics. The partners will also support (b) a range of core diagnostic work to improve fiscal sustainability, including public expenditure reviews, fiduciary assessments, and expenditure tracking studies; (c) activities to increase mobilization of domestic revenues, reform utilities and enhance public service performance, and improve the selectivity and effectiveness of public investment; (d) provide analytical support on a range of issues associated with growth and its distributional aspect. ii. Improved Enabling Environment 82. Nigeria lacks the operating environment that businesses need to take full advantage of the many economic opportunities in the country. The most pressing constraints are infrastructure and financing. Accordingly, CAF support will focus on reducing infrastructure constraints to economic diversification and job creation; and on fostering the financial sector’s role in development. 83. Power sector: To improve the capacity and reliability of its generation, transmission, and distribution systems, Nigeria needs to: (a) ensure that the policy and reform agenda continues to move forward; (b) institute cost-reflective tariffs and appropriate commercial practices; (c) increase transparency in Government investment decisions, sector subsidies, and award of power purchase agreements (PPAs); (d) improve accountability by private operators, GENCO/DISCO management, and sector staff; and (e) develop the “Sustainable Energy for All” (SE4all) agenda for rapid expansion of electricity access, and related analytical data and reports. CAF support will also strengthen the Government’s capacity to develop sound technical and analytical reports for the sector, to ensure the efficiency and effectiveness of future investments in service expansion. These analytical products will include: (a) a power demand forecast; (b) a least-cost generation and transmission system expansion plan; (c) a detailed rural access expansion plan for each state; (d) viable pilots for sustainable off-grid provision of electricity and other energy services for cooking and productive uses; and (e) investment-ready feasibility and scoping studies for alternative and renewable energy generating options. The partners will provide analytical and advisory activities in support of prioritizing sector investments in a context of limited financial resources. The CAF will also assist the Government in covering the payment risk of the Nigeria Bulk Electricity Trading Co. as it enters into PPAs with independent power producers (IPPs); and support to Nigeria Bulk Electricity Trading Co. to establish a culture of excellence and transparency to give investors the confidence to develop cost-efficient electricity generation projects. 84. Transportation: In the transportation sector, priority will be given to creating infrastructure that improves connections to markets. A spatial knowledge platform will be developed to support: (a) coordination of ongoing activities; (b) geographically focused interventions; (c) prioritizing and sequencing of future investments in support of value chain 134 development; and (d) identification of future investments. Partners will promote an integrated and strategic approach to infrastructure planning, financing, operation and maintenance, and collaborate with the National Planning Commission to develop the Nigeria Integrated Infrastructure Master Plan. Other strategic priorities include strengthening institutions, ensuring the sustainability of assets, enhancing accountability, and building capacities among the various state and federal agencies. The partners will also look for opportunities to support projects aimed at increasing the integration of poorer-performing states and at shifting to more efficient modes of transport. 85. Access to finance: Lack of access to finance appears to be a barrier in particular for small business, which generally contributes significantly to the GDP of African economies. The easing barriers to access to finance to small business could significantly reduce bottlenecks to employment growth. The CAF partners will provide advisory and analytical support for fostering the financial sector’s role in development, including regarding infrastructure and SMEs financing. iii. Human Capital 86. As a country with a population of 162 million, Nigeria has tremendous human potential, which can be a source of immense creativity and innovation. To take full advantage of this demographic dividend and unlock human capital potential of all its people, Nigeria needs to overcome daunting challenges across a range of sectors, including education, social protection, skills development, and health and nutrition. Poor access to water and sanitation puts a particularly heavy burden on women and children, who spend a good portion of each day securing sufficient water for the households. 87. Health outcomes: Nigeria’s weak health outcomes undermine its competitiveness. The CAF partners are committed to supporting the Government’s Saving One Million Lives (SOML) initiative, which aims to strengthen the policy framework and systems aimed at improving nutrition. CAF support will focus on developing (a) an enabling environment for private health insurance; and (b) robust performance management and data tracking systems for health service delivery (The same types of systems will be used to track education service delivery.) Analytical work will focus on constraints and challenges that the poor and vulnerable face in accessing welfare-enhancing services. The results will help inform the support of CAF partners to all levels of Government to scale up innovative and successful targeting mechanisms and tools to ensure equity in social services delivery and utilization. Additionally, the CAF will support annual reviews of the effectiveness of MDG-related expenditures, as well as studies to investigate constraints and propose solutions for overcoming them. 88. CAF support will also aim to improve the lives of women by (a) improving the quality of maternal health services; (b) facilitating access to credit and land for women in agriculture, and access to credit and skills training for women entrepreneurs; (c) improving and strengthening legal rights and protections for women; and (d) piloting and mainstreaming gender in development programs. 89. Skills: A skilled and productive labor force is critical for Nigeria to achieve its Vision 20:2020 goals. The CAF partners will support the Government in (a) addressing weaknesses in the primary education, including improving reading and numeracy skills, (b) making technical and vocational education more relevant to the needs of the economy; (c) improving the quality of 135 educational outcomes; and (d) increasing cooperation with the private sector and non- Governmental organizations. The partners will also support Nigeria’s efforts to bolster its knowledge economy through enhanced science and technological research and teaching. Analytical work will include a diagnostic on the large segment of Nigeria youth with limited basic skills or without secondary or tertiary education. Assistance for implementing reforms and developing the technical education and training sector will focus on priority sectors and the North. In addition, the CAF partners will support results-based pilots to increase access to and quality of education, including public-private partnerships in the education sector. The CAF support will also focus on livelihood projects at the state and Federal levels, providing skills training for rural youth and connecting young people to jobs or entrepreneurship opportunities through innovative approaches. 90. Water and sanitation: The CAF partners will assist the Government in developing (a) country-wide baseline to track Nigeria’s progress towards meeting the water-related MDGs; (b) measurable service standards for State Water Boards; and (c) an integrated approach to improving water supply delivery (quality and coverage), and ensuring that water and sanitation services are sustainable, cost effective, and affordable to the poor. This shift in approach aims to transform the incentive structure and overall performance of the sector. 91. The CAF partners stand ready to continue partnering with Nigeria to address the huge challenges facing the sector, with a focus on reforms to improve governance and service delivery. The focus will be on developing and implementing a common results-based approach to providing financing to States, based on their commitment to reform and improved performance. Some states have already initiated various reforms to improve performance with respect to water supply and sanitation services. iv. Governance 92. The strategy to promote stronger capacity for governance and good governance will focus on dialogue with the Government and assistance to build capacity of key institutions. The CAF partners regard strengthened public financial management and reduced corruption as critical for development. Support will be provided to strengthening public financial management systems at all levels of Government, deepening the engagement with the Government on civil service reform, and to basing planning on accurate and timely management of data and sound human resources management. Continued support to civil society will be critical to strengthen the demand side for effective, accountable and transparent public sector management. 93. The CAF will also aim to support further consolidation of democracy, strengthening the rule of law, and oversight institutions. In this context, the CAF partners will endeavor to strengthen and deepen their understanding of the politics of reform in the country and of the complex structure of its governance challenges to better inform their intervention models. Recognizing the complexity of this reform area, partners will also work on deepening the understanding budgetary flows at different levels of Government. The engagement will include pilot engagements at different levels of the policy reform chain to assess the most effective entry points including efforts at the policy and project levels with Government stakeholders as well as non-state actors. 136 b. Strategic Directions 94. Product and market diversification and job creation are critically important for Nigeria’s sustained growth and continued progress toward the MDGs. i. Promote Product Diversification in the Non-oil Sector 95. Experience has shown that incomes in a country tend to converge to the level dictated by the complexity of their productive structures. This indicates the importance of creating the conditions that would allow complexity and innovation to emerge. 138 In Nigeria, this means expanding and multiplying value chains in the non-oil sector. Results from other countries suggest that innovative products and new value chains can be created either by combining existing capabilities in new ways; or acquiring critical new capabilities, often through foreign investment, and combining them with existing capabilities.139 As shown by the case of Chile, Government initiatives can play a critical role in this process. ii. Integrate Markets Domestically and Regionally 96. Increasing domestic, regional, and global market integration can help to drive product diversification and job creation, and significantly boost Nigeria’s efforts to achieve non-oil growth. Better domestic integration would contribute to more balanced growth among Nigeria’s states, helping weaker performing states to converge more quickly with the better performers. This will require the removal of policy and regulatory barriers across states. The CAF partners will continue to engage with the Government on the increased integration of domestic markets, as well as on issues related to regional and global integration. 97. As noted above, one of the key challenges to improving market connections in Nigeria is the large infrastructure deficit. A suggested way forward is to use the proposed spatial planning platform to align infrastructure investment with programs in strategic sectors of the economy. For example, rural accessibility remains a serious problem in Nigeria, with major repercussions for agricultural and rural development; and better alignment of rural road projects with agricultural development priorities would increase rural access and regional connectivity, with positive spillover effect on product diversification and job creation. 98. The CAF partners will seek to establish the spatial analysis platform in order to provide the Government with a better understanding of the geographical distribution of economic resources and their uses, markets and access to them, and how infrastructure services link and affect both. According to this multi-sectoral approach, infrastructure is viewed as a shared input to a range of downstream economic sectors (such as agriculture, mining, tourism, industry, manufacturing and services) and its simultaneous impact on the output of each of these sectors is explicitly taken into account. With limited fiscal space for public investment in infrastructure, the use of this platform to enhance selectivity and efficiency would also help to strengthen public service management and accountability. According to the Public Investment Management Index (PMI) 138 C.A. Hidalgo and R. Hausmann: The Building Blocks of Economic Complexity (2009), http://www.pnas.org/content/106/26/10570.full. 139 Idem. 137 developed by the International Monetary Fund, Nigeria now ranks in the bottom third – 52nd out of 71 surveyed countries.140 99. Market integration also depends on reform and standardization of the procurement system at the national and state levels. Uniform rules, procedures, and incentives are critical for an efficient and fair public procurement system. The CAF partners will continue supporting the authorities in developing procurement-related legislation and capacities, including management information systems; and will facilitate knowledge sharing and networking among public procurement institutions in Nigeria. iii. Enhance the private sector’s developmental role and stimulate entrepreneurship 100. The private sector is the main engine of job creation and the source of nearly nine out of ten jobs in the world. 141 Accordingly, Nigeria’s job creation strategy needs to be embedded within the broader strategy, as articulated in the Transformation Agenda, to promote private sector growth and entrepreneurship. However, the existing legal framework suffers from poor enforcement. In addition, there is ineffective coordination among ministries regulating the private sector and between the Government and the private sector; and many ministries have limited capacity to implement reforms. Despite those challenges, Nigeria has significant private sector potential, with investment opportunities in the telecommunications, construction, agribusiness, and tourism sectors. If these opportunities are realized, they will provide substantial sources of job creation and diversified growth. 101. Private sector involvement is also essential for strengthening the country’s skills base and identifying gaps. Further, the projected strong population growth and lack of capacity in the public education system is likely to increase the importance of the private sector in the delivery of education and training services, particularly for the large number of people with low or no skills which are beyond school age. 102. A stronger technological base is key to strong and sustained non-oil growth. Since commercial markets are the primary vehicles for technology transfer, these activities need to be in line with country development goals. A Government-supported technology transfer program could provide incentives and vehicles for domestic businesses acquire or develop innovative technologies. The success of such a program, however, will depend on a stronger intellectual property rights regime. Historically, businesses have been reluctant to engage in markets that lack adequate protection of property rights. The CAF partners will provide support the authorities to improve the enabling environment for technological transfer and innovation, giving priority to sectors with strong multiplier effects. 103. Nigeria’s informal economy has been estimated to account for as much as 58 percent of GNP,142 and because it is so large it has significant potential for business and job creation. Small enterprises and entrepreneurs may not be interested in formalizing, due to limited capacity or 140 The PMI measures the performance of public investment management in four areas – appraisal, selection, implementation, and evaluation. Nigeria fared particularly badly on selection and evaluation categories. The main project selection criteria are integration with the budget, legislative scrutiny, and public scrutiny. The main elements of the evaluation criteria are evaluation, audit, and assets management. 141 WDR on Jobs (World Bank, 2012); Africa at work: Job creation and inclusive growth” (McKinsey, 2012). 142 Schneider, 2002. The exact size of the informal economy is difficult to measure due to the scarcity of data. 138 risks associated with the transfer to the formal sector,143 but they often spread their risks and wealth by expanding horizontally. The CAF will support analytical work aimed at building a knowledge platform for sharing and scaling up successful entrepreneurial practices in the informal sector. c. Approach 104. Targeting: High unemployment and the need to diversify the economy have led the Government to target sectors with large multiplier effects and job creation potential, such as housing and agriculture. This approach reflects the increasing recognition that some form of vertical policy is probably inevitable for resource-rich countries seeking to diversify, since market forces alone will tend to pull the country back toward resource dependence. Paradoxically, this resource wealth also makes it easier to support diversification efforts, since it gives Governments the means to finance public investments that can bring down the costs of production for non-resource traded sectors.144 This vertical/targeted approach is therefore also important for job creation.145 105. In the housing sector, the CAF will support the development of long-term housing finance, the lack of which has been a major barrier to the growth of the housing market. Other obstacles include difficulties with property registration, titling, and the cost and time involved in foreclosure. The opaque land allocation and city planning processes are further sources of insecurity to households, leading to informal practices in land transactions or related investments. A legal framework for foreclosure exists; however, its implementation is not sufficiently clear and encourages informal practice. The housing sector also suffers from high construction costs, which limits the development of affordable housing. The CAF will support a coordinated approach to all parts of the value chain, with a focus on (a) land and legal framework, (b) access to housing finance, and (c) housing development. 106. CAF support will also aim to enhance understanding of Nigeria’s urbanization challenges, and provide a platform to engaging with the Government to address those challenges. Financial, analytical, and advisory support will be provided for (a) strengthening of urban management, infrastructure, and service delivery systems across the urban hierarchy; (b) in situ slum upgrading; and (c) selective developments in metropolitan areas. A spatial knowledge platform will be constructed to support the coordination of ongoing activities, focus geographically planned interventions, and identify and prioritize future investments. 107. In the agriculture sector, the CAF will engage across the following operational areas: (a) inclusive agricultural and rural growth; (b) technologies for increased productivity and climate resilience; (c) nutrition security; (d) agricultural markets; and (e) water and natural resources management. Engagement will be underpinned by financial and analytical work. The overall emphasis will be on innovation, and on addressing constraints to the development of selected value chains, strengthening systems, and supporting collective action (especially among women) to facilitate access to better economic opportunities. 143 Radwan I, Pellegrini J: Knowledge, Productivity, and Innovation in Nigeria: Creating a New Economy, World Bank, 2010. 144 A. Gelb, Economic Diversification in Resource Rich Countries, 2010. 145 WDR, 2012. 139 108. Understand the challenges: CAF support will focus on removing blockages that have prevented targeted sectors from reaching their potential. The effectiveness of this approach will depend on an in-depth understanding of political economy dynamics in a country that is (a) primarily agrarian but rapidly urbanizing; (b) rich in resources but with large regional disparities; (c) facing security challenges, including high youth unemployment. It will be important, for example, to understand how job creation challenges in Nigeria’s rural areas vary from those in growing cities, or in the manufacturing sectors. Moreover, security challenges, high unemployment, and poverty in the North may dictate that higher priority be given to labor- intensive sectors than to those with high growth potential. 109. Tensions created by Nigeria’s regional disparities highlight the need for geographically broad-based and inclusive development, and for improving access to and quality of public services in both urban and rural areas. The CAF will seek to strengthen the focus on the Northern states by developing a comprehensive understanding of:  the condition of and policies regarding semi-arid and arid lands, and the capacities of institutions responsible for land and water management in the region;  barriers to better performance in the education and health sectors; and  the precise nature of the challenges to economic diversification and job creation in the region. 110. The findings from this analytical work will provide a platform for engaging with the Government on designing an integrated approach to growth and job creation in the North. They will also inform the ongoing and planned CAF-supported projects in the region. 111. Reduce vulnerabilities: For a country to respond effectively to shocks and protect its vulnerable citizens, it needs a coherent social safety net system. To date, Nigeria does not have a broad-based social protection system and policy. Developing an effective social safety net system with interventions focused on youth employment and empowerment and demand-side support for human capital development as the starting point would help in increasing opportunities for the poor and increasing household resilience to shocks. 112. Nigeria is increasingly aware of its vulnerability to climate change risks, as demonstrated by the recent floods. The CAF will assist the Government and other stakeholders in also recognizing the risks associated with environmental and natural resource degradation, and in developing strategies, governance arrangements, monitoring and early warning systems, and response mechanisms for natural hazards. 113. To reduce the vulnerabilities of the rural population, the partners will assist national and state authorities in implementing rural-livelihood projects to promote inclusive growth, building on existing support for community-driven development initiatives. The three-pronged approach will aim at (a) improving existing livelihoods, by working with farmers to diversify products, lower production costs, and identify stable markets for their goods; (b) identifying self- employment opportunities and providing technical assistance for business development; and (c) developing skills that are better matched to the needs of the market. 114. Monitor for Results: The successful implementation of the diversification and job creation drive requires the involvement of all relevant stakeholders. It is thus imperative that there is a sustained effective process that links the implementing agents and provides due public 140 awareness of the strategy and priorities. The strategy, in turn, will only be a success if it can be implemented effectively and timeously, hence the critical importance of ensuring that programs are held accountable against measurable and transparent milestones. E. CAF PRINCIPLES AND MODALITY OF ENGAGEMENT 115. Principles: The CAF is centered on three principles, which are consistent with those articulated in the Paris Declaration on Aid Effectiveness. These are:  Supporting implementation of the country-owned strategy to achieve the MDGs and other developmental goals.  Collaborating more effectively, both among development partners and with the Government.  Focusing on results and outcomes (including managing resources and improving decision-making for results, and strengthening systems for monitoring and evaluation). 116. The CAF partners will build on progress made in harmonizing development assistance in Nigeria. The partners will strive to increasingly (i) use common arrangements to deliver aid, (ii) harmonize programming and policy dialogue, and to rationalize engagement in sectors, choice of aid instruments, and advisory capacity. They will seek to achieve greater harmonization at sector level, including through aligning partners’ support with sector priorities agreed with the Government and complementing support provided by other partners. 117. The key element that will guide this work is a country-based approach that emphasizes country ownership and Government leadership, includes capacity building, recognizes diverse aid modalities, and engages non-Governmental stakeholders, including civil society and the private sector. 118. The partners will seek to support the Government in leading the overall consultative institutions, including organizing and chairing consultative groups, high-level meetings, working groups and similar arrangements, and providing the secretariat. This requires adequate staffing, resources and appropriate location within the Government structure. Where necessary, the CAF partners will seek support the co-ordination process financially and technically. 119. The CAF assistance will comprise financial and analytical and advisory support. The partners will finance the implementation of the CAF through four main channels: budget and project support to the Government, support to the programs of civil society organizations, assistance to the private sector, and support channeled through U.N. agencies. The financing support will be complemented with analytical work and policy dialogue to build institutions and strengthen capacity in key areas and to provide the foundation for future support. 120. The CAF is flexible; partners will adapt their level and nature of support in response to emerging national developments and needs, as feasible. Adjustments will be made in consultation with the Government and with other partners. The annual CAF review process will provide the opportunity for identifying and agreeing any changes. 121. The CAF builds on Nigeria’s recent achievements, but also incorporates lessons learnt from the partner’s engagement in the country, to develop transformational and innovative solutions to tackle Nigeria’s most pressing challenges. In particular, the CAF will: 141  Focus on catalytic interventions which are innovative in design and approach and, scaled up with Government resources, would provide additional benefits that could far exceed their initial direct impact;  Enhance the synergy between state and national interventions and facilitate a mutual dialogue of different levels of Government around results;  Enhance the role of knowledge partnerships in building capacity at state level, supporting the federal Government in furthering its reform agenda, and developing platforms for engagement with the Government in new areas such as job creation, socio-economic development in the North, civil service reform and urbanization;  Promote an integrated approach to providing solutions/support, applying value chain approach where appropriate, and using the spatial analysis as one of the platforms for improving selectivity;  Leverage collaboration among partners to intensify support in selected areas with a view of accelerating the delivery of results. 122. CAF engagement at the state level is based on the recognition of marked regional disparities in Nigeria. The CAF supports dynamic and reformist states and the scaling up of their emerging good practices, while also strengthening the capacity of weaker states to address their development challenges. The CAF partners will seek to support the States Governors Forum as a state-level platform for (a) dissemination of knowledge and experience; and (b) provision of flexible support to strengthen the capacity of state-level systems to meet common norms and standards. 123. Modalities: In order to achieve the above objectives, the partners plan to follow some key practical modalities as follows:  Organize discussions on a selected number of priority sectors/themes (to be agreed upon with Government) through donor sector groups. A proposed list will be provided. Each group will be chaired (facilitated) by a partner who will take the leadership in facilitating periodic meetings, be the spoke person to represent partners in discussions with Governments and other stakeholders. TORs for the group will be reviewed and validated.  Use common implementation mechanisms as much as possible and leverage our instruments to maximize aid effectiveness in Nigeria.  Use the Governors Forum as a platform to organize strategic discussions with state and facilitate dissemination of knowledge and share experiences across states.  Develop a common approach to engage with states.  Use the development database to facilitate maintaining up to date information on aid in Nigeria and its recording in the Government budget, and  Develop a strategic platform for high level policy discussions with the Government. It will aim at meeting twice a year on strategic issues. 142 F. RISKS AND RISK MITIGATION STRATEGIES 124. There are several risks to the CAF implementation, including in-country violence and insecurity, a politically fluid situation leading to the 2015 elections, vested interests, regional instability, as well as economic volatility related to the fluctuation of oil prices. The CAF aims to be candid about identified risks and their impact - direct or indirect - on its implementation. 125. The most important risk pertains to the security which remains challenging. The continuing incidents of terrorist activities and other acts of violence in the North and of kidnapping across the country could hinder achievement of national and sub-national development objectives. Tension, infighting, and conflict could become more pronounced as the 2015 election approaches, making reform increasingly difficult to accomplish. Another external shock that may impact Nigeria is the risk of spillover from Mali which could jeopardize the whole region. Bilateral partners will seek to support the Government’s efforts to reduce incidents of terrorist activities. The CAF partners will maintain dialogue with the Government on development of the North region, and provide non-lending and lending support to that end. The partners will seek to strengthen civil society organizations to deliver services and to increase their engagement in monitoring the rule of law and respect of rights. Should regional instability spill over to Nigeria, creating implementation difficulties for the CAF implementation, necessary adjustments to the program will be made in consultation with the Government. 126. The volatile security situation is making supervision of projects challenging. To mitigate these risks, the CAF partners will seek to provide training and to undertake risk-based supervision missions as possible to help build capacity and ensure that adequate controls are in place for financial transactions and accuracy in financial reporting, audit and disbursement. The partners will establish an information sharing mechanism regarding their respective portfolio risk assessments and risk mitigation practices and experiences. 127. Under the above circumstances, it is important for the CAF partners to focus on what is possible, help sustain momentum within the Government’s economic development program, and build support for reforms across all parts of the coalition Government as well as with civil society and the private sector. Given the volatility of the security environment and the upcoming elections, the CAF will remain flexible and will strategically adapt its engagement to respond to the evolving situation on the ground. 128. With its largely oil-based economy, Nigeria is vulnerable to oil price fluctuations. While the risk of a major domestic crisis in Nigeria is not substantial, the implications of the global economic developments on Nigeria’s growth will need to be monitored closely. The need for a flexible approach that allows the partners to respond dynamically to such exogenous risks will be a hallmark of this CAF. The CAF partners will continue to make policy recommendations and support prudent macroeconomic management by the Government. Prudent macroeconomic management will remain the key to providing the fiscal space for the Government to adjust appropriately to external shocks when they occur. 129. A lack of incentives for performance and poor coordination between Government agencies and across different levels of Government may slow down the reform implementation as well as undermine the success of the CAF assistance. The partners will seek to mitigate this risk through advocacy program for civil service reform and targeting their capacity building support to key program areas. 143 130. Gaps in capacity, especially at subnational level, and institutional weaknesses continue to pose challenges to the successful implementation of the partners’ programs. The increasingly transformative nature of programs, pushing the boundaries of the public sector expertise and hence having to deal with systemic issues such as institutional weaknesses and a lack of a systematic approach to monitoring and evaluation, contract and project management, or asset management poses many challenges to the CAF implementation. Continued attention is needed to support implementation of institutional reforms, adequate staffing, strengthening regulatory frameworks, and institutionalization of practices and systems for better project management. New projects will seek to address this concern through focused technical assistance, but increased efforts are needed to build capacity in local agencies to ensure longer-term sustainability of ongoing projects. Better collection of data is critical to effective and evidence- based monitoring and evaluation, and in turn helps strengthen the focus on results. The CAF partners will also seek to pilot a governance filter to better identify ownership, capacity and institutional constraints and to systematically ensure that Government resources and policies are leveraged for development impact. 131. The lack of clarity by the CAF partners regarding the preparation of the external borrowing plan and delays in its approval impacts the CAF implementation (Annex 1). The partners will engage with the Government on how best to align their respective annual assistance cycle with the Government’s processes and practices for external borrowing and regarding how to manage risks that delays in the Government approval of the borrowing plan create for partners’ own planning and programming cycle. 132. Finally, the period leading to the elections will certainly reduce the momentum for major policy reforms as policy makers enter in electoral campaign. Again, partners will need to share views and harmonize ways to handle the dialogue during this period. Our counterparts are clearly indicating that 2013 is the year where most reforms can be implemented. It is therefore a window of opportunity that we must use collectively. 144 Annex 1: GOVERNMENT’S PROCESS FOR HANDLING EXTERNAL FINANCING OF PROJECTS Introduction: External Financing of projects in Nigeria is coordinated by two main interlocutors of Government: International Economic Relations Department (IERD) and National Planning Commission (NPC). The IERD in the Federal Ministry of Finance is responsible for articulating the external funding needs and requests of the Ministries, Departments and Agencies (MDAs) and state Governments based on the guidelines on foreign borrowing and the requirements in the National Implementation Plan (NIP). The International Cooperation Department (IC) in the National Planning Commission is responsible for the negotiation, coordination and monitoring of grants and other bilateral flows must sign on any bilateral Agreement as the National Authorization Officer (NAO) before such funds can be utilized. This matrix below presents the new guidelines provided by the Federal Executive Council (FEC) and Council of States (approved in 2001) which specified the terms and conditions under which foreign loans could be contracted. MINISTRIES, DEPARTMENTS & RESPONSIBILITY REMARK AGENCY STEP Federal Ministry of Finance Management and control of all finances of the FGN as It is also responsible for managing, 1 prescribed by the constitution controlling, and monitoring revenues and expenditures of the country. STEP International Economic Responsible for the articulation of the borrowing The external borrowing program of the 2 Relations (IERD policies, especially such as capital-related borrowing FGN is housed in the IERD projects STEP Constituencies under IERD: Responsible for funding and supervision of projects. 3 IDA, IBRD, IFAD, IFC, MIGA, Islamic Development Bank, IMF etc. STEP International Cooperation Responsible for the negotiation, coordination, This agency must sign off on any bilateral 4 Department (IC) monitoring of grants and other bilateral flows. agreement as the national Authorization Officer (NAO) before such funds can be utilized. STEP Debt Management Office The DMO advises the FGN on the financing gap for the 5 (DMO) succeeding financial year and the amounts to be borrowed for bridging the gap both internally and It monitors the degree to which the country 145 externally. is exposed to foreign financing. Federal, All external borrowing proposals of the FG, etc. for the states and local Governments or any of next succeeding year are submitted not later than 30th their agencies shall not obtain any external August of each year to the Honorable Minister of loan except with a guarantee issued by the Finance for vetting and incorporation into the public minister. sector external borrowing program for the following year. STEP National Assembly The National Assembly (NA) receives the final project 6 for ratification after Board Decision only to ratify. STEP IERD IERD includes the project detail in the Borrowing plan All external borrowing of the government 7 and submit to the Honorable Minister of Finance for and their agencies for the next fiscal year delivery to the President. must be submitted not later than 90 days preceding that year to the Minister of Finance for incorporation into the public sector external borrowing program for the coming year. STEP House of Representatives House Committee on External Loans invites Committee can only receive questions 8 National Assembly only representatives of Fed/State Governments, agencies and relating to the content of the borrowing deliberates on external Parastatals to the House Hearing to defend their plan funding for specific projects submissions and thereafter submits its recommendations brought to it by the Senate the to the Senate Executive. The Senate Committee on External Borrowing invites Representatives of the Federal, State representatives of Fed, state Governments, Local Governments, Local Governments and Governments and parastatals to the Hearing and parastatals are further required to defend thereafter delivers its submission to the President for their submissions. Sometime, a template Signature. The President in turn sends the package to may be given to guide them on the relevant the Honorable Minister of Finance. issues with FMoF. STEP FEC FEC receives the approved borrowing plan from the 9 Honorable Minister of Finance for review and a memo is raised on the extract from the minutes of the FEC meeting and it is submitted to the Ministry of Justice for legal opinion. STEP Appraisal Before a project is appraised, it is discussed at an inter- Based on the outcome, a borrowing intent 146 10 ministerial meeting which includes FMF represented by is sent to the Honorable Minister of IERD, the relevant MDA responsible for that sector, Finance by the Minister for that sector. DMO. CME reviews the intent alongside the borrowing envelope for the year as well as shown in the fiscal framework. At appraisal, the borrowing envelope for that project as endorsed by the Honorable Minister of Finance is then used to prepare project details. STEP Negotiations TTL sends notice of invitation to the Recipient. The Ministry of Justice comes on board at 11 Negotiations while the NA gets on stage after the Project Appraisal and negotiations. STEP Board Approval The CD sends package to RVP for onward delivery for 12 Board Approval. STEP Ministry of Justice A memo is raised on the Extract from the FEC meeting 13 and it is submitted to the Federal Ministry of Justice for a Legal Opinion or clearance. STEP WB proposes a date for Advance copies of Financing Agreement is delivered to 14 signing of the Financing the Director, Legal Services, FMoF. Agreement. STEP Financing Agreement is signed between the Bank and Country lawyers clears subsidiary 15 the FGN. agreement STEP Participating States execute FMoF arrange with participating states for the execution Country lawyers clears subsidiary 16 Subsidiary Loan Agreement of the subsidiary agreement. agreement with the FMoF. STEP Legal Opinion of the Attorney The AG provides his legal opinion on the Subsidiary FMoF through IERD formally deliver the 17 General of the Federation and Agreement and the Financing Agreement. Legal Opinion to the WB. Minister of Justice (AG). STEP Effectiveness Country Director declares project effective. Implementation begins. 18 147 Annex 2. Total Donor Commitments as of end-December 2012 148 Annex 3. Distribution of Donor Funds Per Sector Total Partner Funds per Sector Agriculture Human Development 10% 26% Water &  (Education: 5% Sanitation Health: 19% 14% Social Protection: 2%) Infrastructure 28% Governance (Energy & Power: 9% 15% Transport: 14% Urban: 2% Others: 3%) Private 4% Environment (inc.  Multi‐Sector of Climate  0% Change) 4% 149 Annex 4. 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Mt Abeokuta Chappal Waddi ONDO Udi Hills (2,419 m ) OGUN Go EDO th ENUGU To Enugu LAGOS ANA Lomé Benin Abakaliki Lagos City Asaba NIG ERIA MBR Awka EBONYI A Sapete CAMEROON r Nige CROSS SELECTED CITIES AND TOWNS D E LTA Owerri Umuahia Warri RIVER STATE CAPITALS IMO ABIA NATIONAL CAPITAL 5°N RIVERS Aba Uyo 5°N Yenogoa AKWA- Calabar To Port RIVERS Gulf of Guinea BAYELSA Harcourt IBOM Doula N MAIN ROADS ig er 0 50 100 150 200 Kilometers Delta RAILROADS SEPTEMBER 2004 IBRD 33458 This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information STATE BOUNDARIES shown on this map do not imply, on the part of The World Bank 0 50 100 150 Miles Group, any judgment on the legal status of any territory, or any Bioko I. INTERNATIONAL BOUNDARIES endorsement or acceptance of such boundaries. 5°E (EQ. GUINEA) 10°E