# **Box 1. The Relationship between Spending Decisions and Sector Performance**

Significant budget expenditures in the past did not always bring improvement in service delivery.

_Health:_ It is estimated that total spending in the sector (public and private) exceeds 6 percent of the gross domestic product (GDP), which is rather high by international standards. However, the health outcomes remain extremely low and have not improved over the years. Infant and maternal mortality rates remain high at 110 and 8 per 1,000 births in 2005, respectively. Moreover, infant mortality increased by 20 percent between 1990 and 2005 (Nigeria 2006 MDGs Report). Communicable diseases (particularly malaria and diarrhea) are the main causes of mortality, which can be easily prevented or treated at relatively low cost.

_Education_ : The education sector has been attracting a significant amount of funding over the last four to five years from all tiers of the government without much change in social indicators. This significantly improved net primary enrollment. Also, the share of the primary school students that reach grade five increased from 71 percent in 2000 to 78 percent in 2005 (Nigeria 2006 MDGs Report). But the quality of nation‘s teaching and schooling remains of concern, and this is reflected in poor literacy outcomes. Adult literacy rate was only 64 percent in 2004.

_Roads:_ Inadequate funding for maintenance, rehabilitation, and asset renewal during the previous decades is the major reason for high transportation costs and poor safety conditions. It is estimated that between 50 and 70 percent of road network is in poor condition (Willoughby 2007). The FGN recently has increased funding for the sector to address the problem.

_Power:_ In 2001–05, the federal government spent, through investment grants, subsidies, and loans in the sector, about N270 billion or more than US$2 billion, while the massive power shortages remain the major development constraint for the private sector and a critical social problem. A partial explanation for this low impact of budget spending relates to the low completion rate of initiated investment projects in the sector. The value of unfinished construction has increased by N82 billion since 2000.

_Source:_ World Bank 2007, 33.

# **b. Sustainable Development Policies and Projects: Impact of Public Expenditures**

96. The impact of Nigeria‘s public expenditure does not compare favorably with those of other oil-producing countries. A World Bank report (2007, 33) estimated that Nigeria‘s historical incremental capital output ratio at 12.7% ―was very high, more than double that of a better managed oil economy such as Indonesia.‖ Nigeria‘s low average efficiency of government spending was attributed to mismanagement under military rule.

97. This corroborates the view that waste (particularly in the oil sector), more than the Dutch disease, explains the low real GDP growth of Nigeria (Sala-i-Martin and Subramanian 2003). Sala-iMartin and Subramanian (2003) pointed out that oil revenues were used to enhance physical capital accumulation between 1973 and 1980 when two major oil price shocks occurred. The capital stock grew an average of 14 percent per year, totaling a threefold increase in capital stock in eight years. At the same time, public investment as a share of GDP rose to 7 percent. Conversely, capacity utilization in manufacturing (mostly government owned) started to decline from an average of about 77 percent in 1975 to about 50 percent in 1983, and even more so since then.

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