The economic context of Nigeria
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Africa’s leading economy, Nigeria – in close competition with South Africa – has a population of nearly 209 million people. Worldwide, it is the 30th largest economy, by GDP volume. However, Nigeria’s economy is highly dependent on oil and is therefore very vulnerable to fluctuations in crude oil prices and production. As a result, the economic crisis caused by the Covid-19 pandemic and the fall in oil prices strongly influenced the country’s growth. In 2020, the Nigerian economy retracted due to the COVID-19 outbreak, reporting a negative growth balance of 4.3%, compared to 2.2% in 2019. According to the IMF’s October 2020 forecast, growth is expected to resume in 2021, estimated at 1.7% of GDP, and stabilise in 2022 at 2.5%. In its most recent January 2021 update of the World Economic Outlook, the IMF revised its GDP growth projections for Nigeria to 1.5% in 2021 and 2.5% in 2022 (representing a difference from the October 2020 WEO projections of -0.2% in 2020).
As with most other economies in the world, Nigeria’s sharp fall in GDP growth is mostly due to a slowdown in economic activity after the country resorted to a lockdown in April to contain the spread of the virus. However, the Nigerian economy has also been hampered by external factors, as the coronavirus pandemic brought economic activity to a near standstill worldwide. The sharp drop in oil prices amidst a drop in global demand has left Nigeria drastically deprived of earnings, given its dependence on this commodity as a major source of income. Public debt rose to 35.5% of GDP in 2021, from an already high level in 2020 (35%) and is expected to increase in 2022 (36.2%). This trend is the result of increased public spending to cope with the Covid-19 pandemic. The government responded to the crisis by providing financial assistance to businesses and households affected by the Covid-19 outbreak. The monetary authority adopted accommodative monetary policies and offered targeted lending support of NGN 3.5 billion. Inflation rose to 12.9% in 2020 but is expected to gradually decrease to 12.7% in 2021 and 11.2% in 2022, according to the IMF’s latest World Economic Outlook (October 2020). Moreover, the country’s current account reached -3.7% in 2020. The IMF expects the current account deficit to decrease slightly to 2% in 2021 and to fall to 1.5% in 2022. The latest economic data show that Nigeria continues to fall far short of the projections of its Economic Recovery and Growth Plan, created by the government in the aftermath of the 2016 recession to set aggressive growth targets from 2017 to 2020. The Economic Recovery and Growth Plan aims to industrialise Nigeria by establishing industrial clusters and staple crop processing zones to give firms a competitive edge through access to raw materials, skilled labor, technology, and materials. The main obstacles to development in Nigeria are the unappropriated energy supply, deficient transport infrastructures, inefficient judiciary system, widespread corruption, together with high inflation. The gap between the official value of naira and its value on the black market is substantial and the banking system is fragilized by the deteriorating quality of assets.
Despite the country’s dynamism, the real challenge for Nigeria is the risk of a demographic explosion. According to the United Nations, the population of Nigeria could reach 730 million inhabitants in 2100, up from 209 million today. Concern regarding this potential boom is exacerbated by the fact that currently half of the inhabitants live below the poverty line; pandemics are rampant (HIV, tuberculosis), infant mortality is high and the country struggles with significant levels of inequalities. Before the COVID-19 pandemic, Nigeria’s unemployment rate was already high at 23.1%, while underemployment stood at 16%, according to the NBS. The pandemic exacerbated the trend and fuelled youth unemployment. This prompted the Nigerian government to launch a huge public works programme to create jobs.\\
Main Sectors of Industry
The Nigerian economy is dominated by crude oil, which accounts for about 10% of the country’s GDP, 70% of government revenue and more than 83% of the country’s total export earnings, according to OPEC. Nigeria is the world’s 8th oil exporter, and its oil reserves are estimated at about 35 billion barrels. The country also has become one of the lead exporters of liquefied natural gas, which accounts for an additional 15.5% of exports. The country also extracts tin ore and coal for domestic use. Nigeria’s other natural resources include iron ore, limestone, niobium, lead, zinc and arable land. Another key sector of the Nigerian economy is agriculture, which employs 34.7% of the workforce and contributes for about 21.9% of GDP. The Southern and Central regions of the country produce yam, rice, and maize while the Northern regions produce sorghum, millet, rice, and livestock farming. Other major crops include beans, sesame, cashew nuts, cassava, cocoa beans, rubber, soybeans, and bananas. Nigerian agriculture is mainly centered on subsistence farming and it is not modernized enough.
The industrial sector makes up 27.4% of the GDP and employs 12.2% of the workforce. Its development has been constrained by power shortage. The largest industries in the country are the petroleum industry, tourism, agriculture, and mining. The petroleum industry currently suffers from oil theft, which is believed to cost the country potential revenues valued as much as USD 10.9 billion. Significant oil losses are also recorded due to oil spills.
Services represent 49.7% of the GDP and employs 53.1% of the population. Financial sectors, telecommunications and retail especially, are very dynamic. Tourism is also a significant sector, and to foster its growth, the government has established the Ministry of Culture, Tourism, and National Orientation. However, this sector still struggles from the country’s poor power supply, insufficient road infrastructures, and a poor water quality. The Covid-19 pandemic has had a huge impact on tourism in Nigeria. It is estimated that travel to Nigeria was reduced by 3.5 million in 2020 leading to a revenue loss of $0.7 billion. The pandemic has also greatly affected the Nigerian entertainment industry by distorting the Nigerian Film Industry (NFI) 2020 revenue projection.
Source: World Bank and IMF (2020)