The COVID-19 pandemic has given rise to what may be the most challenging global health and economic crisis of our lives. In response, governments around the world have committed at least $12 trillion in stimulus to COVID-19 recovery, much of it focused on immediate needs like health, food security and jobs. Yet countries must also focus on building their economies for tomorrow — economies that are resilient to global health crises, economic shocks and climate change. By prioritizing COVID-19 stimulus that tackles multiple challenges, countries can build back in a way that is more inclusive, sustainable and resilient.
So far, too many countries are still focusing on the past — more stimulus funds are going to fossil fuels than to clean energy. But there are also promising examples of green recovery. Nigeria, the largest oil and gas producer in Africa, is one nation taking steps toward a sustainable economic recovery. By providing stimulus funding for clean energy, supporting women-owned businesses and reforming fossil fuel subsidies in a fair way, Nigeria has an opportunity to build a more inclusive, equitable and sustainable economy.
The economic shock created by the pandemic is expected to trigger Nigeria’s worst recession in four decades. Nigeria’s economy shrank 6% in the second quarter of 2020, the first contraction since the first quarter of 2017 and the steepest since the first quarter of 2004.
In addition to grappling with the pandemic, Nigeria is also on the front lines of climate change. Rising temperatures make the country more susceptible to disease, food and water shortages and extreme weather events, all of which could exacerbate public health crises such as COVID-19 in the future.
Nigeria’s stimulus package can tackle both crises simultaneously, offering the world an example of what stimulus packages can do provided they are used smartly and strategically.
Stimulus For Clean Energy and Small Businesses
To address the economic challenges of the pandemic, Nigeria’s federal government approved the $5.9 billion (N23 trillion) Nigerian Economic Sustainability Plan in July 2020. The plan costs roughly 1% of GDP and is intended to stimulate and diversify the economy, retain and create jobs and extend more protections to the poor.
The recovery plan includes investments in clean energy, agriculture and infrastructure. The most noteworthy piece of green spending is a $619 million commitment to the Solar Homes Systems Project, which will help install solar home systems for up to 5 million households, serving about 25 million individual Nigerians who are not currently connected to the national grid. It also provides monetary incentives for private solar installers and aims to create more domestic jobs in the solar industry. This is one of the largest renewable energy COVID-19 stimulus interventions from a middle- or low-income country to date and is intended to increase energy access and equity.
The Economic Sustainability Plan also includes a National Medium, Small and Micro Enterprises (MSMEs) Survival Fund to cushion the impact of COVID-19 on the economy and create an environment for small businesses to thrive. MSMEs are the engine of the Nigerian economy; there are over 37 million MSMEs in Nigeria that contribute nearly 48% of the nation’s GDP. COVID-19 has severely constrained MSMEs in Nigeria, with many either laying off staff or going out of business.
The MSME Survival Fund will support the private sector to help diversify the economy, with a particular focus on women. Sixty percent of the MSME Survival Fund has been reserved for women entrepreneurs, who make up at least 41% of micro-businesses in the country. These interventions will help to empower women and close the gender gap, promote gender equality and equal representation and build a fairer Nigeria.
More Room For Sustainability
However, there is more to be done to reduce emissions and dependency on fossil fuels, strengthen climate change adaptation and put Nigeria’s post-COVID-19 economy on a trajectory of green and resilient development.
While investment in solar accounts for only 10% of the entire stimulus plan, there are opportunities to embed green recovery and resilience in the rest of the package. For example, the plan proposes an agricultural program to significantly increase the acreage under cultivation — which is expected to create jobs for thousands of young people — and implements measures that guarantee steady income for farmers. This program should incorporate climate-smart agriculture strategies such as drought-resistant crops and land and water management to achieve emissions reductions and adaptation commitments made in Nigeria’s climate pledge and its 2016-2020 Agriculture Promotion Policy.
The plan also invests in public works such as roads and promotes natural gas, which Nigeria sees as a bridge from more polluting fossil fuels to clean energy. As it makes these investments, Nigeria needs to ensure that it doesn’t lock into an emissions-intensive pathway and forget to build in resilience to climate change. The Nigerian government pledged to reduce its greenhouse gas emissions 20% below business as usual by 2030 under its Nationally Determined Contribution (NDC) and identified several climate adaptation priorities under its National Adaptation Strategy. Nigeria should aim to mainstream these targets and priorities into national budgets and its COVID-19 economic recovery package and look for opportunities to enhance its climate ambition as it invests in long-term growth and jobs.
Reforming Fossil Fuel Subsidies and Economic Diversification
Nigeria is also taking broader steps to reduce reliance on fossil fuels. It is one of only a few countries so far to remove fossil fuel subsidies during the COVID-19 pandemic as part of the reforms. Leaders made the decision due to the recent drop in oil prices and a need for funds to manage the pandemic and the economy at large. The subsidy removal is expected to save the government at least $2 billion a year.
The removal of fossil fuel subsidies is promising, but will only work if substantial efforts are made to ensure that these reforms do not negatively impact the most vulnerable. In the past, removal of fossil fuel subsidies in Nigeria led to mass protests because it was done too quickly and may have widened the wealth gap in a steeply unequal country.
Subsidy removals must be designed in a way so as not to damage trust between the government and the people. Provisions to support the poor should oil prices rise again must be carefully thought out and put in place before subsidies are removed, rather than added as an afterthought. The government should go beyond subsidy removal to implement reforms that do not widen inequality, such as expanding its cash transfer program to accommodate more poor families.
Nigeria is Africa’s biggest crude producer: oil accounts for 80% of its exports and 50% of government revenue. The massive drop in oil prices is a further call for Nigeria to diversify its economy. Nigeria’s oil sector recorded negative growth in the second quarter of 2020 and had stockpiles of unsold crude in April and May 2020. Minister of State for Petroleum Resources Timipre Sylva said that current challenges in the oil and gas industry are “a wakeup call for Nigeria to increase efforts and reduce its dependence on oil.” Nigeria is already working to diversify the agricultural sector and incentivize in-country manufacturing of solar infrastructure. It will be important to avoid stranded assets by continuing to diversify the economy away from fossil fuels and carefully plan investment in renewables to line up with transmission capacity.
The Economic Sustainability Plan and Nigeria’s Medium Term Expenditure Framework (2021-2023) both emphasize the need to diversify Nigeria’s economy and ensure growth in non-oil exports. Nigeria is showing what green recovery can mean for countries that are most impacted by the climate crisis. By investing in renewable capacity, energy access and equity, women’s empowerment, climate-smart agriculture and economic diversification, Nigeria can set itself on a path to build back fairer, stronger and cleaner. This is the time to reset Nigeria’s economy.
The views expressed here do not represent the views of the African Development Bank.