Introduction
In the inaugural edition of this treatise, we examined the challenges of the subject matter; the need for major reforms; the concept of sustainable economic development in such areas as agriculture, human capital, environmental stewardship and social inclusion in the peculiar context of our economy. This sophomore edition considers other socio-economic challenges and the reforms necessary for sustainable economic growth, including diversification, agriculture, ICT (and technology generally) as well as manufacturing. Enjoy.
The Nigerian economy (continues)
By the 1980s, Nigeria’s economy began to decline as global oil prices plummeted. The country’s dependence on oil exports worsened the impact of falling prices, leading to a sharp decline in government revenue and foreign exchange earnings. This economic downturn resulted in a significant reduction in per capita income and deterioration in living standards for many Nigerians. The government’s response to the crisis was the Babangida’s Structural Adjustment Program (SAP) of 1986, which introduced market-oriented reforms, including privatization and reduced government spending, intending to address economic imbalances and attract foreign investment. (World Bank, Nigeria – Structural adjustment program: policies, implementation, and impact https://documents.worldbank.org/en/publication/documents-reports/documentdetail/959091468775569769/nigeria-structural-adjustment-program-policies-implementation-and-impact accessed 9th December 2024). Nigerians had kicked against the IMF-instigated reforms.
Despite these challenges, Nigeria’s oil industry remains a crucial driver of the economy, accounting for a significant portion of government revenue and foreign exchange earnings. However, the country’s long-term economic prosperity will depend on its ability to diversify its economy, reduce its reliance on oil, and address underlying structural issues such as corruption, infrastructure deficits, and inadequate education and healthcare.
Nigeria enjoyed a period of significant economic growth between 2000 and 2014, averaging an impressive 7% annually. This sustained expansion was fueled by a combination of favourable global economic conditions and initial domestic policy reforms. (Nigeria High Commission United Kingdom, Economy https://www.nigeriahc.org.uk/economy/#:~:text=Between%202000%20and%202014%2C%20Nigeria’s,conditions%20and%20initial%20structural%20reforms. accessed 9th December 2024). However, the trajectory of Nigeria’s economic growth shifted dramatically from 2015 onwards. A confluence of factors, including distortions in monetary and exchange rate policies, widening fiscal deficits stemming from declining oil production and the costly fuel subsidy, coupled with external shocks such as the COVID-19 pandemic, contributed to a significant slowdown in growth rates and stagnation in GDP per capita.
Nigeria’s economic trajectory slowed down more in 2023, with growth moderating from 3.3% in 2022 to 2.9%. This was primarily attributed to the confluence of domestic and external factors. Domestically, soaring inflation, stemming from rising fuel costs and a depreciating naira, exerted significant pressure on economic activity. Externally, the sluggish growth in the global economy, which contracted from 3.5% to 3.2%, further dampened Nigeria’s economic prospects African Development Bank, Nigeria Economic Outlook https://www.afdb.org/en/countries-west-africa-nigeria/nigeria-economic- outlook accessed 9th December 2024).
On the supply side, the services and agricultural sectors were the primary drivers of growth. Conversely, on the demand side, consumption and investment fueled economic expansion. The inflationary surge, culminating in a rate of 24.5% in 2023, was heightened by the sudden 167% increase in petrol prices and the 95.6% depreciation of the naira following its flotation in June 2023. In response to these inflationary pressures, the Central Bank of Nigeria tightened monetary policy, raising the policy rate from 17.5% to 18.75%. While the fiscal deficit narrowed slightly from 5.4% to 5.1% of GDP, owing to improved revenue collection, the government’s debt service to revenue ratio remained alarmingly high at 111%. Public debt, though relatively low at 40% of GDP, poses significant challenges due to the burden of debt servicing. The current account surplus strengthened to 0.9% of GDP, driven by higher oil prices and exports.
However, international reserves declined from 6.6 months of import cover to 5 months, reflecting tighter global financing conditions.
Other socio-economic challenges
Amid all these, Nigeria grapples with significant socioeconomic challenges. Poverty remains endemic, with multidimensional poverty affecting 63% of the population and income poverty impacting 40% (World Bank, Poverty & Equity Brief: Nigeria
https://datacatalogfiles.worldbank.org/ddh-published/0064942/DR0092448/Global_POVEQ_NGA.pdf?versionId=202416T15:19:00.4018291Z#:~:text=Based%20on%20World%20Bank%20projections, by%20the%20end%20of%202024.> accessed 9th December 2024.)
The overdependence on oil revenue, a volatile commodity market, leaves the economy vulnerable to fluctuations in global oil prices, limiting fiscal flexibility and hindering diversification efforts (AFSIC, The Impact of Oil Prices on Nigeria’s Economy <https://www.afsic.net/the-impact-of-oil-prices-on-nigerias-
economy/#:~:text=Nigeria’s%20reliance%20on%20oil%20has,strategy%20 to%20mitigate%20these%20risks.> accessed 9th December 2024.). The nation’s infrastructure, particularly in transportation, energy, and telecommunications, remains inadequate, impeding economic activity, increasing the cost of doing business, and discouraging both domestic and foreign investment (US Department of State, 2022 Investment Climate Statements: Nigeria, <https://www.state.gov/reports/2022-investment-climate-statements/nigeria/#:~:text=Despite%20these%20improvements%2C%20Nigeria%20remains,regulatory%20uncertainty%2C%20policy%20inconsistency%2C%20poor accessed 9th December 2024.) Additionally, the public sector is plagued by inefficiencies and corruption, undermining governance, stifling innovation, and reducing the effectiveness of public policies. The weak regulatory environment, characterized by bureaucratic hurdles and inconsistent enforcement, further discourages private sector investment and hinders economic growth.
Human capital challenges, including low literacy rates, poor healthcare, and a lack of skilled labour, limit productivity and hinder the nation’s ability to compete in the global economy. These structural issues pose significant obstacles to Nigeria’s economic advancement. To overcome these challenges, Nigeria must embark on a comprehensive program of strategic economic reforms, including diversifying the economy, improving governance, investing in infrastructure, and developing human capital.
Economic reforms necessary for sustainable economic growth
For Nigeria to achieve sustainable economic development, several key areas must be addressed through strategic reforms. If effectively implemented, these reforms could transform the Nigerian economy and lead it to long-term stability and prosperity.
Economic diversification
Nigeria’s overreliance on oil exports has long been a double-edged sword.
On the one hand, oil has brought significant revenue, enabling infrastructure projects and government programs. On the other, this dependence has rendered the economy highly susceptible to external shocks, as demonstrated by the 2014 oil price crash (Mulat AK and others ‘Scaling up community-based health insurance in Ethiopia: a qualitative study of the benefits and challenges’ BMC Health Serv Res [2022] 22(1).) and the global economic slowdown during the COVID-19 pandemic. When oil prices plummet, government revenues shrink, foreign reserves deplete, and the value of the naira often declines, leading to inflation and economic instability. This reliance also discourages diversification, as policymakers are often reluctant to shift focus away from the lucrative oil sector. Countries like Norway, which established a sovereign wealth fund to insulate their economy from oil price volatility (Kenneth Iloanya and Nduka Christopher Ndidi ‘Sovereign Wealth Fund (SWF): A Tool for Diversifying Nigeria’s Emerging Economy’ The International Journal of Humanities; Social Studies [2020] 8 (7).), provide a clear example of how Nigeria could better manage its oil wealth. Without reducing its dependency on oil, Nigeria will remain vulnerable to future global market shocks.
Nigeria must transform its petroleum-dependent economic model, which has been since its discovery in 1956. Oil currently accounts for 95% of Nigeria’s export earnings and 80% of government revenues, leaving the country vulnerable to global oil price fluctuations (Kabir Haruna Danja, Globalization and the Challenge for Nigeria’s Development
http://article.sapub.org/10.5923.j.m2economics.20120101.02.html#Ref> accessed 9th December 2024.). For instance, the collapse of oil prices in 2014 led to a severe recession, emphasizing the dangers of overreliance on a single commodity.
The heavy dependence of the country on crude oil exports has exposed the economy to the boom-and-bust cycles and the concomitant unstable and unpredictable volume of revenue receivable by the government. For instance, Nigeria’s total export receipts from goods, services and transfers dropped from N10,899.6 million in 1979 to N7,884.2 million in 1983 (Ugal, David & Betiang, Peter. (2009). Challenges for Developing Human Capital in Nigeria: Global-Local Connection. SSRN Electronic Journal.
https://www.researchgate.net/publication/228313475_Challenges_for_Developing_Human_Capital_in_Nigeria_Global-Local_Connection> accessed 9th December 2024.). The country’s imports, at the same time, increased from N9,890.1 million to N11.022.1million during the same period (CBN Economic and Financial Review 1981-1986). This also affects contributions to the country’s Gross Domestic Product (GDP). For instance as at 1999, oil and gas contributed 36.5% of the GDP, while agriculture (including livestock) accounted for 32.8% (Kabir Haruna Danja, Globalization and the
Challenge for Nigeria’s development
In the same period, wholesale and retail trade contributed 16.6%, while manufacturing accounted for only 5.5% of the GDP.
There is therefore the need for the country to diversify the economy and focus on the non-oil sectors. To build a more resilient economy, Nigeria must diversify into sectors such as agriculture, technology, manufacturing, and services. This will not only reduce the country’s vulnerability to external shocks but also create jobs, reduce poverty, and promote inclusive growth.
Agriculture
Agriculture presents one of the most promising opportunities for diversification. Nigeria has 84 million hectares of arable land, of which only 40% is currently being used for farming (SDG Fund. (n.d.). Nigeria food Africa – Empowering youth and promoting innovative public-private partnerships. SDG Fund. <https://www.sdgfund.org/case-study/nigeria-food-africa-–-empowering-youth-and-promoting-innovative-public-private#:~:text=Nigeria%20has%2084%20million%20hectares,significant% 20potential%20for%20productivity%20gains). The country is already the world’s largest producer of cassava and a major producer of cocoa, yams, and palm oil, but much of this production is not geared towards exports. To truly unlock the potential of the agricultural sector, Nigeria must invest in Page 6 of 7 modern farming techniques, irrigation systems, and value-added processing.
TECHNOLOGY &
ICT The technology sector is another key area for growth. As of 2022, Nigeria had nearly 84 million internet users. This figure is projected to grow to 117 million internet users in 2027 (Statista. (2024). Number of internet users in Nigeria from 2013 to 2028. Statista. <https://www.statista.com/statistics/183849/internet-users- nigeria/>. Accessed on the 1st of October, 2024.), Nigeria has one of the largest digital populations in Africa. The rise of tech startups such as Flutterwave, Paystack, and Andela has put Nigeria on the map as a hub for innovation and venture capital. The government should build on this momentum by investing in digital infrastructure (such as high-speed internet and reliable electricity) and by reforming education to focus on STEM (Science, Technology, Engineering, and Mathematics) disciplines.
MANUFACTURE
Manufacturing is another sector with significant potential for growth. Currently, manufacturing contributes only 10% of Nigeria’s GDP, a low figure considering the size of the population and the availability of raw materials. To boost manufacturing, Nigeria must improve its power supply, invest in industrial parks, and reduce the cost of doing business through tax incentives and regulatory reforms.
Nigeria’s dependence on oil revenues has made its economy vulnerable to global price fluctuations. Diversification into agriculture, manufacturing, technology, and services is critical. Diversifying the economy enables sustainable and inclusive growth, enhances resilience to external shocks, and fosters industrialization and productivity enhancement. However, diversification may necessitate significant broad-based reforms, with potentially important support from judiciously designed, effectively implemented industrial policies that consider the specific context of a country, including its existing economic structure, its capabilities, and the state of its institutions. (Delechat, C. C., Melina, G., Newiak, M., Papageorgiou, C., Wang, K., & Spatafora, N. (2024). Economic Diversification in Developing Countries). (To be continued).
THOUGHT FOR THE WEEK
Page 7 of 7
“The thing is, continuity of strategic direction and continuous improvement in how you do things are absolutely consistent with each other. In fact, they’re mutually reinforcing”. – Michael Porter.
Thought for the week:
“The thing is, continuity of strategic direction and continuous improvement in how you do things are absolutely consistent with each other. In fact, they’re mutually reinforcing.” – Michael Porter
