Research Paper on Impact of African Development Bank Projects

Introduction

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.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

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) .Comparing the years since 2006, it is evident that countries GDP had been doing well especially years before 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 Rrowth 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. 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 to accept the oil sector that has been doing well with a significant contribution towards the GDP. 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. The education sector has been growing at a rate of 6% yearly since 2006

GDP Growth

Nigeria's GDP experienced significant increase from 2006 until the country went into an economic recession in 2015 after which we saw a drop in the GDP. 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

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 least poor states have MPI scores between 0.06 and 0.12.

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. 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+.......)

The equation indicates that there will be economic improvement in various sectors that will increase their output including agriculture and manufacturing among others.

Overall Effects on Key Macroeconomic Variables

The Impact of the Investment Projects on GDP Growth Dynamics

Since 1964 as the African Development Bank was incepted, the bank has been funding the Nigerian budget for economic development. Examining impacts the country has had following the financial support of the African Development Bank in various sectors including agriculture and education (Aiyedogbon, & Ohwofasa, 2012). The GDP has been undergoing growth over all these years more so the years before the recession in 2015 in various sectors as indicated in the model.

GDPtB0= GDP tB (G+M+T+SV+.......)

The Impact of the Investment Projects on Sectoral growth

The bank has had investments in various sectors ranging from Agriculture, energy, education, and health. Prioritizing these areas was part of the Ten Years Strategy initiated in 2013 that saw many industries continue to improve. Agriculture and Energy sector seem to be the most benefitted sectors that have experienced impressive changes (Obadina, 2009). Agriculture has been the main contributor towards the GDP accounting for about 22 percent while oil accounts for 10 percent according to the recent economic analysis. Other sectors that have been flourishing due to the input by the bank include manufacturing, mining, and quarrying as shown in the equation.

S^GtB4=N4 (AGB1+MB2+MiB3+EB4- SiB0)

The Impact of the Investment Projects on Poverty rate Dynamics

Following the upfront by the bank to prioritize various areas in its Ten Year Strategy, the intention was to address the issue of the poverty level. Even with the initiatives to uplift people from their poverty, 42 percent of the Africans live in poverty with about $1.25 in a day which is below the poverty line (Smith, 2010). Still, it is estimated that one in four people suffer undernutrition with a lot of inequality where the poor has no access to something good. However, with the implementation of these projects, there has been a slight drop in the poverty level as some of these projects deal directly with the victims where they facilitate them to stay out of the unfortunate situation.

The Impact of the Investment Projects on Human Development

Even though the rate of unemployment remains high with about 120 million people staying without jobs, the various project plans by the Bank have been in the frontline to assist human development. Initiative programs such as school building and health facilitation have gone all the way to enhance the living of people (Nzotta, & Okereke, 2009). The projects have focused on making growth inclusive where more economic opportunities have opened up for my African people that has led to them improving the way of living and becoming economically better.

Case Study: Analysis of Bank Portfolio in Nigeria

Bank Portfolio 2006 - 2018

The African Development Bank portfolio in Nigeria from 2006 to 2018 involves several projects he initiated in the country. The initiated projects include all the sectors that have seen the sectoral growth in the country over the period. Depending on the need of the country, different areas funded by the bank involved different amounts (Balassa, 2000). These sectors include agricu...