Modeling the Impact of African Development Bank Projects: A Case Study of Bank's Portfolio in Selected Sectors

Introduction

African countries have indicated significant improvement in their economic performance following the financial support they have been receiving from multilateral financial institution. The economic improvement has been realized in terms of the growing Gross Domestic Product, unemployment reduction, poverty reduction, human development and economic stability. African Development Bank has been among the financial institution that continues to fund Africa through various projects in different sectors ranging from agriculture, health, finance, and manufacturing. Since its inception, African Development Bank has enjoyed good working relationship with Nigeria where multiple projects have been initiated, completed, and others ongoing in different sectors. Considering the year ranging from 2006 to 2018, it is evident that African Development Bank has supported 93 projects in Nigeria most of which have been completed. The implementation of these projects has however significantly impacted the country in different ways. In this study, the purpose is to examine how the African Development Bank's projects in some selected sectors have impacted the economic development of Nigeria in terms of poverty reduction, human development, sectoral growth, and growth of GDP. From the results of the analysis, it is evident that African Development Bank projects undertaken in Nigeria positively contribute to the country positive financial stability, its ability to reduce poverty, and achieving human development.

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In recent years, there has been the improvement in the economic performance of Africa based on the highlights by the observers. Multiple African countries seem to indicate signs of growth, human development, and establishing a virtuous cycle of stability. The positive changes in the continent are attributable to the support provided by the African Development Bank. Nigeria is a developing African country that embraces developmental projects initiated and financed by the African Development Bank (Lawal, & Oluwatoyin, 2011). Since 2006 up to 2018, the African Development Bank has been helping the country to undergo reforms in various sectors including education, agriculture, and infrastructural building. Following the 2015-2016 economic recession, Nigeria has been slowly regaining its potential through new measures of foreign exchange, rising oil prices, tighter monetary policy, and attractive yields on government securities (AfDB, 2013). However, these improvements have not yet achieved reduced unemployment, banking sector vulnerabilities, the targeted range of inflation, or non-oil non-agricultural activities. In this, the purpose is to examine how the African Development Bank's projects in some selected sectors have impacted the economic development of Nigeria.

Nigeria Macroeconomic Performance

Nigeria's economy seems to have picked up and slowly improving especially after the end of the recession period. The significant boost to the broad economy of the country was realized after the African Development Bank provided it with a much-needed lifeline when it facilitated a budget support loan to Nigeria. Further improvements have been noticed in the robust customer spending and the capital investment that has seen companies coming up to impress the economy (Nzotta, & Okereke, 2009) . From the Nigeria data portal, it is evident that countries GDP had been doing well since 2011 when the real GDP was 57, 511, 041 million naira and now at 84, 064, 363 million naira (Nigeria Data Portal, 2019). The economy has been doing well despite the recession that hit the country in 2015 when the country was hit by an economic recession after which the GDP started to drop (Team, Perrault, Kilo, & Hettinger, 2013). The unemployment rate has been increasing since 2006, and the latest rate stands at 7.3 %. Similarly, the inflation rates seem to be growing yearly since 2006 with the latest rate being 16.5%. Both the imports and exports seem to be going down annually as the prices of oil continue to lower which has affected major oil-industry.

Sectoral Growth in Nigeria

The sectoral growth in Nigeria has varied over a decade ago with the manufacturing sector accounting for about 6% of the GDP in 2006. Looking at the manufacturing chart on the Nigeria data portal, it shows the GDP at the current basic price was increasing from 2006 when it was about 2.5 million naira to about 10 million naira in 2017 (Nigeria Data Portal, 2019). However, moving forward, the manufacturing sector experienced a slow growth of about 5% due to high production costs that resulted in infrastructure becoming inadequate. Until date, the utilization of the manufacturing industry in Nigeria is low except the oil sector that has been doing well with a significant contribution towards the GDP. Agriculture seems to be the fast growing sector based on the Nigeria data portal where many jobs continue to be created in the sector as the economic activities increase. The data portal table indicates that by 2015, only about 2, 500 formal jobs were created in agricultural sector. However, following the many economic activities supported in the sector, the formal jobs created increased to 8, 600 in 2017 (Nigeria Data Portal, 2019). Being the third producer of oil in Africa, the oil sector is doing well accounting for about 95% of foreign exchange and 90% total exports (George, & Ibiok, 2015). Nigeria's textile industry is not doing so well since it is still in its early stages of development. They are only the Indian and Chinese investors that seem to have much interest in the textile industry. The service sector in Nigeria has also been growing and has the potential to generate substantial employment for the people. Being the largest sector in the economy, the share of the services sector to the GDP has been increasing from 54.1% in 2006 to 56.9% in 2018 (Nigeria Data Portal, 2019). The education sector has been growing at a rate of 6% yearly since 2006

GDP Growth

Even though, Nigeria's GDP growth was fluctuating years before the before the 2015, the growth was relatively positive and the country recorded improved real GDP based on the data from the Nigerian portal. Looking at the growth rate of real GDP graph on the Nigeria data portal, it is evident that there was slow growth in 2015 before the country started to pick up to indicate positive growth in GDP (Nigeria Data Portal, 2019). In 2006, Nigeria's GDP was at about 4.3% which underwent growth, and by 2014, the GDP of the country was 6.2% before the recession set in 2015 (Imaenyin, 2015). During the year, the GDP of the country dropped sharply to 2.8%, and since then it has never regained stability. Until 2018, Nigeria's GDP was at 1.2% which was slightly above what the country recorded in 2016 and 2017. Hence, all signs indicate the GDP of Nigeria has since been increasing after the recession though the rate is very slow.

Nigeria MPI and Poverty Rate

In measuring poverty rate, the multidimensional poverty helps to bring out comprehensive picture of who are poor, why and why they live in poverty. This involves breaking down the level of poverty in different areas and groups in a country relative to the global acute poverty. From the National Multidimensional Poverty Index for Nigeria, the North part of the country experiences high incidence of poverty. There are Northern states whose population is 80% classified as poor. For most of the states in this region, their intensity of deprivation is more than 40% thus accounting for an average number of household that falls under the deprivation range (Ogwumike, 2002). Compared with the southern part of the country, the poverty level is low. There are states in Nigeria perceived poorest including Jigawe, Sokoto, and Yobe whose MPI scores range between 0.35 and 0.45 (Mitchell, 2005). The range of values indicates that these parts of Nigeria experience acute poverty where they cannot access internationally agreed standards (Oxford Poverty & Human Development Initiative, 2019). The least poor states have MPI scores between 0.06 and 0.12. This indicates that the level of poverty among this group is less than 12 percent of the weighted indicators hence only experience denial to some few needs.

Overview of African Development Bank Group

Since its inception in 1964, the African Development Bank, there has been an essential symbol of the special relationship between the bank and Nigeria. The Bank has initiated multiple High-Fives development priorities in the country under various presidents. These include lighting up and powering Africa, industrialize Africa, Feed Africa, improve the quality of life for Africans, and integrating Africa (Mambula, 2007). The investment initiatives by the bank have been in various economic areas of Nigeria including infrastructure, education, agriculture, healthcare, and the increased access to water and affordable energy. The Bank also approved a Ten Year Strategy in 2013 running from 2013 to 2022 (AfDB, 2018). The strategy is known as "At the Center of Africa's Transformation" whose intention involves achieving growth that is all-inclusive and green growth transition through the identified five operational priorities (Meier, & Rauch, 2005). There are particular areas of emphasis that have been highlighted by the strategy including food security and agriculture, fragile states, and gender.

The Model

The model is meant to estimate the effect that the given project has on the various macroeconomic variables. The variables to be measured by the model include the demand and supply increase or decrease caused by the implementation of the various projects. This further examines the change in the GDP growth and how various sectors benefit. The project impacts are examined based on how they respond to issue of poverty in the country and human development. Thus, the general model will be:

PtB5= DB+SB0+GDPB1+S^GB2+RB3+EB4

In the model, the project contributes to the reaction of the mentioned macroeconomic factors differently depending on whether state of the project.

Demand-Side Effects Caused by Project Implementation

As the project will be implemented, the demand for various goods and services will increase. The demand will have impact on various macroeconomic variables including: Consumption, GDP, import, and investment (Aliyu, 2009). To understand the demand-side effect, estimation is done on the marginal propensity to consume across different sectors such as agriculture, manufacturing, services, transportation. Hence the equation:

DtB4=N4 (GDPB1+S^GB2+RB3+EB4- SiB0)

The demand equation illustrates the total goods and services needed as the project is implemented based on the various sectors identified.

Supply-Side Effects Generated by the Completed Project

Similarly, as infrastructure and other areas such as agriculture and education start to receive funding services from the bank, production is enabled. Various investors also come into the economy as the projects allow and open up the market. Thus, there will be the general improvement in the GDP as indicated in the model.

GDPtB0= GDPtB(G+M+T+SV+......