Nigeria’s Economy: More Pains, Less Gains

There is no gainsaying the fact that Nigeria has come of age, having attained political independence for six decades. In spite of its numerous challenges ranging from socio-economic to infrastructural deficit, insecurity and endemic corruption, Nigeria remains Africa’s big brother and and an important member of the world body – the United Nations.
Beside being the largest economy in Africa and the 27th in the world in terms of nominal Gross Domestic Product (GDP), Nigeria has the 6th largest gas reserves and the 8th largest crude oil reserves in the world. It is rich in commercial quantities with about 37 types of solid mineral and has a population of over 200 million people. In addition, the debt-to-GDP ratio is 16.075 percent as of 2019.
Yet, the Nigerian economy has grossly underperformed in comparison to its enormous resource endowment and its peer nations. In the 1970s, the emerging Asian countries like Thailand, Malaysia, China, India and Indonesia were far behind Nigeria in terms of GDP per capital. Today, these countries have transformed their economies and are not only miles ahead of Nigeria, but are also major players in the global economy.
In April last year, Nigeria was rated the poverty capital of the world, with 91.51 million people living in extreme poverty. Only recently too, Nigeria’s Country Director of Oxfam International, Constant Tchona, revealed in Abuja that 94.48 million Nigerians live below N684 per day, meaning they are living below poverty level. This also means that 25 percent of the world’s extremely poor will be living in Nigeria by 2030. In this circumstance, it is difficult for the country to meet the Sustainable Development Goals set by the United Nations.
This is not a good testimonial for a country that prides itself as the giant of Africa and the 27th largest economy in the world.
How Nigeria came about this ugly narrative has remained a disturbing paradox of a nation.
In the closing days of Nigeria’s independence, things seemed to be well arranged for a new country to take off. The lands and rivers were in their pristine state – virgin, lush and sumptuous, to guarantee a rich harvest for the farming and fishing population which then constituted 80 percent of the native population. The weather was generally good and the people were energetic and hardworking.
We have gold in Ilesha, cocoa in the South-West, palm oil in the East and groundnut pyramid in Jos, which sustained the economy and earned the country good revenue as a net exporter of agricultural produce. As a bonus, the nation found oil in Oloibiri, in the present-day Bayelsa State, which made the story sweeter and the future rosier.
Initially, the agricultural sector, driven by the demand for food and cash crops production was the centre of the growth process, contributing 54.7% to the GDP during the 1960s. The second decade of independence saw the emergence of the oil industry as the main driver of growth.
As the nation began to produce oil in commercial quantity, Nigeria abandoned its agrarian economy and embraced an economy driven by oil. Oil thus became the mainstay of the nation’s economy. Since then, government expenditure has become dependent on oil revenues, more or less dictating the pace of the economic growth.  Paradoxically, the oil boom turns out to be the bane of the country’s development till date.
Since independence, economic policies have not been in short supply. Successive governments have, since 1960, pursued the goal of structural changes without much success. There was the First National Development Plan between 1962 and 1968, the Second Development Plan (1970-1974), the Third Development Plan (1975-1980) and the Fourth National Development Plan (1981-1985).
We also had Operation Feed the Nation during General Olusegun Obasanjo’s military regime, Green Revolution under President Sheu Shagari, Structural Adjustment Programme (SAP) under President Ibrahim Badamosi Babangida, the National Economic Empowerment Development Strategy (NEEDS) under President Olusegun Obasanjo, as well Nigeria’s Vision 2010 and Vision 2020. All these plans and programmes  are geared towards breathing life into the nation’s economy, by reducing dependence on oil, diversifying the economy, generating employment, and creating a globally competitive and stable economy.
The purpose of the NEEDS, for instance, was to raise the country’s standard of living through a variety of reforms, including macroeconomic stability, deregulation, liberalization, privatization, transparency and accountability.
It was also intended to create seven million new jobs, diversify the economy, boost non-energy exports, increase industrial capacity utilization, and improve agricultural productivity. The initiative was meant to be replicated at the state level known as the State Economic Empowerment Development Strategy (SEEDS). But the programme, like many others before and after it, didn’t succeed much due to various factors ranging from insincerity on the part of its drivers, policy inconsistency and somersaults and lack of continuation by successive governments.
However, the transformation in telecommunications sector stands out as the most successful reform in 60 years. Many sectors of the economy have leveraged on this transformation to make significant progress in the use of information and technology in the service sector of the economy. This has enhanced service delivery although it is prone to impairment by frauds and corruption. Sadly, the corruptive activities of fraudsters in the banking industry have made the telecoms transformation unsatisfactory. Moreover, the poor quality of service, the high cost of doing business and multiple taxation, unrest and banditry are sources of concern to investors.
Generally, the major factors accounting for the relative decline of the country’s economic fortunes in spite of these lofty policies, are easily identifiable as political instability, lack of focused and visionary leadership, economic mismanagement and corruption. Weak infrastructure and weak institutions also pose threat to the nation’s economy, just as power supply remains a major burden on businesses.
Prolonged period of military rule stifled economic and social progress, particularly in the three decades of 1970s to 1990s. However, since 1999, the country has returned to the path of civil democratic governance and has sustained uninterrupted democratic rule for a period of 21 years. But have things changed? Maybe; maybe not.
No doubt, economic growth has risen substantially over the last decade, with annual average of 7.4%. But the growth has not been inclusive, broad-based  and transformational. This implies that economic growth in Nigeria has not resulted in the desired structural changes that would make manufacturing the engine room of development and induce poverty alleviation.
Even though economic statistics shows that the non oil and gas sector accounts for 90.9 percent of the GDP while oil and gas accounts for 9.1 percent, the paradox is that the oil sector accounts for over 50 percent of the nation’s revenue more than 80 percent of its foreign exchange earnings. This reflects the imbalance in the economy since independence and also underscores the declining productivity in oil and gas for the past 60 years.
The lack of political will to restructure the oil and gas sector remains a major drawback to Nigeria’s economic growth and prosperity. It is this lack of reform, restructuring and planning that is the bane of the nation’s economic backwardness so far. It makes the Nigerian economy vulnerable to external shocks owing to its weakness in economic inclusion.
Although oil revenues contribute two-thirds of state revenues, oil only contributes about 9.1% to the GDP. This means that oil remains a small part of the country’s overall economy.
The fall in oil prices since 2015 has further weakened Nigeria’s economic base. The country experienced economic recession for the part of 2016 and 2017. The period witnessed serious devaluation of the Naira with high inflation throwing ordinary Nigerians off-balance and the private sector groaning in excruciating pain.
One sector Nigeria has failed to develop maximally over the years is agriculture.
Nigeria ranks sixth worldwide and first in Africa in farm output. The sector accounts for about 18% of GDP and almost one-third of employment.
However, the largely subsistence agricultural sector has not kept up with Nigeria’s rapid population growth. The sector suffers from extremely low productivity, reflecting reliance on antiquated methods, thus making Nigeria, once a large net exporter of food, to now import some of its food products.
However, the present administration under President Muhammadu Buhari, through prioritisation of local agricultural production and ban on importation of foreign food items, is making efforts towards making the country food sufficient again. Mechanization is now gradually leading to a resurgence in manufacturing and exporting of food products, and the move towards food sufficiency.
Other sectors which could have helped the nation’s economy such as tourism and mining suffer from the country’s poor electricity, roads and potable water.
For instance, the mining of minerals in Nigeria accounts for only 0.3% of its GDP, due to the influence of its vast oil resources. The domestic mining industry is underdeveloped, leading to Nigeria having to import minerals that it could produce domestically, such as salt or iron ore.
It will be recalled that organized mining began in 1903 when the Mineral Survey of the Northern Protectorates was created by the British colonial government. A year later, the Mineral Survey of the Southern Protectorates was founded. By the 1940s, Nigeria was a major producer of tin , columbite, and coal .
Iron and steel sector in particular, received priority attention in the 1980s. For instance, iron and steel industry was established in the nation’s bold march towards industrialisation. It will be recalled that about one billion Naira at that time was allocated to this sector in the Third National Development Plan.
Considering the increasing demand for steel, the availability of iron ore and coal in the country and the importance of steel industry to rapid industrialisation, the Federal Government established iron ore and steel plant in the country. A steel authority was also created which gave birth to three organisation – the National Steel Council, the Ajaokuta Steel Company Limited and the Associated Ores Mining Company Limited. In addition, the Delta Steel Company was established in Aladja, Warri, Delta State. Contracts were also signed for the establishment of three rolling mills at Osogbo, Jos and Katsina.
The concentration on oil resources, however, hurt the mineral extraction industries, as both government and industry began to focus on oil resources. The Nigerian Civil War in the late 1960s did not help matters either as many expatriate mining experts left the country.
The Nigerian economy further suffers from an ongoing supply crisis in the power sector. Despite Nigeria’s oil and gas potentials, power supply difficulties are frequently experienced by residents.
Private sector-led economic growth remains stymied by epileptic power supply leading to the high cost of doing business in Nigeria. This is in addition to the need to duplicate essential infrastructure, the lack of effective due process, and non-transparent economic decision making, especially in government contracting.
In all of these, the ordinary Nigerian bears the brunt of economic hardship. For example, the pump price of Premium Motor Spirit (PMS) which was N87 in the run-up to the 2015 general elections has increased to N160 despite the fall in oil price. The Federal Government attributed this steady increase since June this year to removal of fuel subsidy.
In the same vein, electricity tariff has jumped up by 100 percent, despite epileptic power supply in the country. Just four days ago, a nationwide strike called by the organised labour in protest against the increase in electricity tariff was averted due to the suspension of the new tariff by the Federal Government.
In all, Nigeria’s recent economic indicator showed that its GDP in real terms declined by 6.10% (year-on-year) in Q2 2020, thereby ending the three-year trend of low but positive real growth rates recorded since the 2016/17 recession.
This is according to the second quarter (Q2) GDP report, released by the National Bureau of Statistics (NBS).
According to the numbers contained in the GDP report, the performance recorded in Q2 2020 represents a drop of 8.22% points when compared to Q2 2019 (2.12%), and 7.97% points decline when compared to Q1 2020 (1.87%). Apparently, the significant drop reflects the negative impacts of the disruption caused by COVID-19 pandemic and crash in oil price on the Nigerian economy.
The latest GDP number somewhat surpassed both the IMF and World bank forecast for year 2020, which implies the nation’s economy may witness yet the biggest contraction in four decade. The International Monetary Fund (IMF) disclosed in its June outlook that the Nigerian economy would witness a deeper contraction of 5.4% as against the 3.4% it projected in April 2020.
According to the NBS, the 6.10% decline in GDP was largely attributable to significantly lower levels of both domestic and international economic activity during the quarter, which resulted from nationwide shutdown efforts aimed at containing the COVID-19 pandemic. The non-oil segment of the economy such as manufacturing, transport and trade were the worst hit even though the vital oil sector was also badly affected by the pandemic.
The recent labour statistics report released showed that unemployment rate in Nigeria rose to 27.1% at the end of Q2 2020, as the impact of Covid-19 pandemic is significantly being felt across critical sectors. While Nigeria has embarked on gradual easing of lockdown since Q2 2020 with a N2.3 trillion stimulus intervention, economic activities are yet to fully peak, indicating a muted outlook in the remaining quarter of the year.
Although economic activity, especially in the area of trade and services, seems to be gaining some momentum as restrictions are loosened, sentiment is still relatively downbeat and the recovery is likely to remain constrained going forward as the lingering effects of the health crisis continue to take their toll.
However, amidst high unemployment, mounting price pressures, tighter Forex liquidity and a subdued global economy that cloud the future outlook, economic experts are optimistic that the economy is expected to bounce back to growth, next year, even though it will remain modest. They project GDP to grow 2.3% by 2021, which is unchanged from last month’s estimate.
How this prediction will translate into economic fortunes for ordinary Nigerian, however, remains a puzzle only time will unravel.
Recommendations:
Nigeria has a bold vision of becoming one of the top 20 economies in the world by 2030. This is very achievable by virtue of its size, its vast oil wealth and human resources. But this goal can only be achieved if Nigeria makes the transition to a new economy based on knowledge, productivity, and innovation that will enable it to be competitive in a 21st century context.
According to the World Bank, there are common factors that are associated with successful development. No country has attained development outside these common denominators. These are:
Good governance: Good governance is perhaps the most important factor in development. Without good governance, every other thing is in disarray. Good governance in both public and private sectors creates an environment where contracts are enforced and markets can operate efficiently. It ensures that basic infrastructures are provided, with adequate health, education and security.
Economic growth: This has to do with poverty reduction. Experience has shown that countries that have reduced poverty substantially and in a sustained manner are the ones that grow fastest.
Vibrant private sector: It has been established that private firms, including small and medium-sized businesses play a critical role in generating employment, particularly for the youth and the poor. This is where the contribution of the micro-finance banks is needed.
Empowerment: The citizenry must be empowered to contribute to development. Accordingly, every person should be able to enjoy essential public services such as good health, education and safe water. These are critical social services that should be provided equitably.
Ownership: A nation’s development agenda must be homegrown. The country must start from the grassroots to transform the economy.
Knowledge development: Knowledge has always been central to development. The era when natural resources dominated trade has given way to an era in which knowledge resources are paramount. This has positioned countries like the US, Republic of Korea, China, and India in a better stead.
To achieve Vision 2030, Nigeria needs to move beyond the stop-start development patterns of an oil-based economy to create a stable and prosperous base for a 21st century society built on knowledge. How much is Nigeria ready for this transformation?  Only time will tell.