In April 2014, among fanfare within Africa’s most-populous country, it was announced that Nigeria now possessed Africa’s largest economy.
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The Atlantic wrote on April 7, 2014:
Something strange happened in Nigeria on Sunday: The economy nearly doubled, racking up hundreds of billions of dollars, ballooning to the size of the Polish and Belgian economies, and breezing by the South African economy to become Africa’s largest.
Suddenly, Nigeria had “economically arrived,” and the world had to take notice. To be fair, this was not overly surprising. Over the last decade, significantly increasing oil revenue, the emergence of a sophisticated and rewarding banking industry, rapid financial growth in the entertainment sector, and the growing telecommunications industry meant that Nigeria’s economy, at least on its face, had nowhere else to go, but upward.
Additionally, many Nigerians who had “checked out” of the country due to oppressive military leadership and dire economic conditions during the previous 20 years — as well as many others who had migrated to the West for advanced education — became returnees.
These returnees brought with them invaluable entrepreneurial skills, such as innovative ideas, energy, and expertise that have contributed to the creation of new ventures and improvement of existing industries.
The Economist added that Nigeria now boasts of “energetic entrepreneurs and aspirations to be the tech hub of Africa, boasting start-ups, such as Konga and Jumia,” both online retailers, and Iroko Partners, an online movie distributor.
The aforementioned are all good reasons behind Nigeria’s new status as the country possessing Africa’s largest economy. However, in practical sense, how did Nigeria attain this achievement?
It was simple revision by addition, or as the Atlantic described, “It was, in fact, a miracle borne of statistics.” Over the preceding two decades, Nigeria had neglected to update the manner in which it calculates its Gross Domestic Product (GDP).
For the non-economists, a country’s GDP is the primary mechanism used to calculate the “health” of the country’s economy. It represents the total market value of all finished goods and services produced in that country over a specific period of time.
Having decided to now update the GDP calculation, The Atlantic reported that Nigeria relied on a process known as “rebasing.” A method “that wealthy countries typically carry out every five years.”
When Nigeria finally relied on “rebasing” in 2014, its GDP rocketed to an astonishing $510 billion.
Despite its exploitation of “rebasing” in calculating its GDP, Nigeria’s rapid economic growth over the previous last decade is not fiction: According to the Economist, Nigeria’s “economy has been growing at an average of around 7 percent a year over the past decade.”
That is significant.
However, the actual impact of said growth on the lives of the people is weak, with the Economist explaining that “[n]othing has changed in Nigeria’s real economy . . . [d]espite the rapid growth of recent years, unemployment remains high and the number of people in poverty has actually increased.”
This revelation provides insight as to why Nigeria’s economy is deep in the gutter barely 10 months after it announced itself as Africa’s largest economy.
Certainly, a growth in the economy brings financial fortunes to the people?
- First — notwithstanding the 7 percent growth/year in its economy — the calculation of the GDP was only a correction of statistical error, and this error had no real-life impact since the economy had always been Africa’s largest over the past few years but went unnoticed due to incorrect reporting.
- Second, as fast as its economy grows each year, Nigeria has a faster growing population.
- Third, and more important to this article, Nigeria is overdependent upon revenue it receives from the sale of crude oil.
In January 2015, an article published by Al Jazeera explained that dwindling crude oil prices will have a devastating effect on countries that rely heavily on crude oil revenues.
Al Jazeera reports:
“African oil producers will be hard hit with varying severity. Veteran exporters like Angola, DRC, Equatorial Guinea, Nigeria, and South Sudan will be affected as they all depend on oil rents for 50 to 70 percent of their governments’ revenues and more than 90 percent of export earnings.”
Over the past couple of months, crude oil prices have dropped significantly.
While citizens of crude oil importers have jubilated with unparalleled elation, Nigeria’s economy has collapsed to its knees and her citizens have been badly affected: Unemployment has continued to increase, government workers struggle to receive monthly salaries, and small business owners are incapable of investing in their businesses.
In addition, the naira has hit a new deplorable low with the foreign exchange conversion rate increasing to a staggering ₦198 to every $1 as of February 2015. This latter effect, of course, will have inflationary consequences on consumer market, affecting citizens who are already unable to afford a proper standard of living.
Theoretical physicist and Nobel Prize Laureate Albert Einstein described insanity as “doing the same thing, the same way over and over again and expecting a different result.”
This is not the first time Nigeria’s over-dependence on crude oil revenue has negatively affected its economy. In 1992, when the price of crude oil fell, Nigeria’s economy became severely depressed. As it is today, the urban unemployment rate increased exponentially and a significant part of the population lived below the poverty line.
In order to protect its citizens, Nigeria needs to diversify: On February 16, 2015, Ifeanyi Okoye, who is the President of the Enugu Chamber of Commerce, Industry, Mines and Agriculture (ECCIMA) spoke to the Sun News Online, saying that Nigeria’s current economic crisis is “directly linked to the fact that we have a mono-economy, which depends largely on crude oil.”
Okoye explained that the federal and state governments all feed directly from the crude oil revenue source. When oil prices go up, “Everybody rejoices that we are progressing and getting richer,” Okoye explains, “and if price falls, as it recently did, then it exposes us as being poor, some say broke…. We need multiple and strong sources of earning.”
Over-dependence on one product is a very poor and narrow-minded way to protect Nigerian citizens from economic depression. As a consequence, the Nigerian government must invest heavily in other parts of the economy, including agriculture, manufacturing, and entertainment.
In addition, the government should create programs and emphatically support initiatives that encourage and benefit citizens who own or operate small- and- medium-sized businesses engaged in the production and distribution of goods in non-crude oil sectors.
Agriculture is an important part of any economy; however, for a country like Nigeria, investment in agriculture should be as significant as that invested in crude oil production and sales: The country’s climate variations as well as its rich soil do not only provide a condition for a bountiful harvest, it also makes way for the production of a variety of crops.
These crops include rubber, cassava, palm produce, yams, rubber, cow-peas, beans, rice, millet, bananas, sugar cane, plantains, potatoes, citrus, cotton, ground nut, oranges, and cocoa.
A majority of these crops were previously Nigeria’s major exports before petroleum took over in the 1970s.
In addition to cash and subsistence crops, the country’s geographic location and landscape also allows for abundant production of seafood and meat due to professional cattle herding and poultry rearing as well as lumbering.
As aforementioned, Nigeria’s neglect of agriculture began in the 1970s; coincidentally, the same period the country began to export huge quantity of crude oil. In the two decades after that, Nigeria began to spend significant amounts of money importing food from foreign countries.
Food that could have easily been produced within its borders.
According to the Nations Encyclopedia:
Among the imports were palm oil (from Malaysia), of which Nigeria had been the world’s largest producer and exporter, and rice (from the United States), which was considered less nutritious than Nigerian brown rice.
Once Africa’s largest poultry producer, Nigeria lost that status because of inefficient corn production and a ban on the importation of corn. Furthermore, [Nigeria] is no longer a major exporter of cocoa, peanuts, and rubber.”
More so, over the past three decades, Nigeria’s farmers have been squeezed out due to reduced government investment in agriculture. Local production food has reduced due to limited access to fertilizer, inability of farmers to raise sufficient funds to purchase the required tools and employ farm-hands, a polluted water supply in the South due to crude oil production, insufficient water supply around the country, poor roads, and inefficient transportation, which has lead to difficulty in transporting goods across the country, along with insufficient electricity supply to operate a farm, poultry, or other agricultural business.
Moreover, due to the lack of structure in the market system and what I call the “colonial mentality,” which causes the average Nigerian to believe that “anything foreign-made is better,” Nigeria’s farmers are often left with very little profit.
Nigeria needs to think deeply about agriculture.
The unpredictability of crude oil prices leaves Nigeria helpless. Aside from the fact that Nigeria cannot regulate crude oil prices, it is always intelligent to have an alternate source of significant income.
In addition to creating opportunities for Nigerians to grow the food they consume with their families, there is no reason why Nigeria cannot create programs to improve the amount of cash crops being produced within the country, provide a structure to assist farmers’ transportation and trade, as well as create a system that invests heavily in and encourages wider distribution of crops produced by small- and- medium-sized farms.
A country like Ireland, for example, has a very poor climate when compared to the weather in Nigeria; yet, the Irish high commissioner to Nigeria, Mr. Sean Hoy, explained that in his home country, “The economic mainstay is agriculture that produces food 10 times more than [Ireland] can consume.”
Still opponents may argue that the “lack-of-investment-in-agriculture” problem was previously addressed and all solutions failed: In the 1970s, the government of Olusegun Obasanjo introduced the program known as “Operation Feed the Nation,” which sought to increase local food production and specifically reduce the need for importation.
Similar to “Operation Feed the Nation,” the Shehu Shagari government also established the “Green Revolution” in the late 1970s and early 1980s. It was a program that promoted the same policies as its predecessor.
In the mid-1980s, the Ibrahim Babangida government continued with the same strategy and instituted the much-criticized Structural Advancement Program (SAP). This program was specifically aimed to reduce Nigeria’s over-dependence on crude oil revenue and to force Nigeria to concentrate on the production of agricultural goods and trade.
While it is true that the establishment of the aforementioned programs show that Nigeria had previously created policies to reduce the country’s over-dependence on crude oil and increase revenue from agriculture, there are specific reasons why those policies failed, proving that the agricultural sector itself isn’t the problem but that the policies and implementation were faulty.
In addition to agriculture, Nigeria should also invest in its manufacturing industry. In July 2014, management consulting firm McKinsey & Company explained that “[t]hough growing rapidly, manufacturing in Nigeria contributed just $35 billion to the economy in 2013, or about 7 percent of GDP.”
This figure is very small for a country that has a significant number of its citizens engaged in businesses in the manufacturing industry. Companies like Nigerite Limited that manufactures building materials and Dunlop Nigeria that manufactures tires have taken advantage of a rapidly growing population of more than 170 million people, along with more open West African borders and customs, to market its product to a wider sphere.
According to McKinsey, “If Nigeria could match the performance of nations, such as Malaysia and Thailand when their manufacturing sectors were expanding rapidly, output could reach $144 billion a year in 2030.”
There is no reason why Nigeria should not aspire to surpass that figure in less time.
Similar to the manufacturing industry, Nigeria’s entertainment industry and the telecommunications industry have grown in leaps and bounds over the preceding decade. In 2014, the Atlantic wrote, “[T]he Nigerian movie industry, Nollywood, generates nearly $600 million a year and employs more than a million people, making it the country’s second-largest employer after agriculture.”
Through the past few years, innovative entrepreneurs have invested significantly in this thriving industry to generate significant profit. From establishment of recording and production studios to online distribution, there is a lot of money to be made and jobs created through significant investments.
Additionally, the telecommunications industry provides connection to more than 100 million subscribers in a country that boasts an ever-growing population.
The Atlantic writes,“Consider that there are now some 120 million mobile-phone subscribers in Nigeria,” which makes Nigeria and South Africa the largest mobile markets in sub-Saharan Africa.
Consequently, the use of mobile phones has almost made the need for landlines obsolete. Yet, often times, the network reception is poor due to connectivity issues. The government needs to invest more in this flourishing industry.
Not only would investment in this industry create a broader market for local telecommunications providers, it would also incidentally improve other industries that rely on telecommunications, including agriculture and manufacturing.
With its large population, advantageous geographic location, agriculturally friendly climate, and the significant amount of intelligent and innovative entrepreneurs within its borders, Nigeria has the capacity to grow its economy through investments in non-crude oil industries.
Foreign investors are coming to Nigeria to invest in the economy hoping to reap a significant reward. In fact, according to the Economist, “After Johannesburg, Lagos has the biggest, most liquid market in the region.”
Now it is time for the government to take advantage of these vast opportunities and diversify the country’s economy. As history has shown, over-dependence on crude oil revenue is unfavorable to a long-lasting stable and flourishing economy.