Recent Developments & Prospects
Economic Cooperation, Regional Integration & Trade
Economic & Political Governance
Public Sector Management, Institutions & Reform
Natural Resource Management & Environment
Thematic analysis: Structural transformation and natural resources
Author: Barbara Barungi
- There are prospects in Nigeria for sustained growth driven by an improved performance of the key non-oil sectors – agriculture, information and communication technology, trade and services – but decline in the contribution of the oil sector may dampen the positive outlook.
- Social indicators are beginning to improve as efforts to achieve the Millennium Development Goals are intensified through the implementation of social-sector reforms, but the northeast region still faces conflict-related challenges.
- Adding value to exports of primary products, which is the cornerstone of the Agricultural Transformation Agenda, could help Nigeria climb up the value chain towards industrialisation and provide opportunities to bring the large informal sector progressively into the formal economy, thereby making growth more inclusive and offering a high potential for job creation, increased income and poverty reduction.
Nigeria rebased its GDP from 1990 to 2010, resulting in an 89% increase in the estimated size of the economy. As a result, the country now boasts of having the largest economy in Africa with an estimated nominal GDP of USD 510 billion, surpassing South Africa’s USD 352 billion. The exercise also reveals a more diversified economy than previously thought. Nigeria has maintained its impressive growth over the past decade with a record estimated 7.4% growth of real gross domestic product (GDP) in 2013, up from 6.7% in 2012. This growth rate is higher than the West African sub regional level and far higher than the sub-Saharan Africa level. The performance of the economy continues to be underpinned by favourable improvements in the non-oil sector, with real GDP growth of 5.4%, 8.3% and 7.8% in 2011, 2012 and 2013, respectively. Agriculture – particularly crop production – trade and services continue to be the main drivers of non-oil sector growth. The oil sector growth performance was not as impressive with 3.4%, -2.3% and 5.3% estimated growth rates in 2011, 2012 and 2013, correspondingly. Growth of the oil sector was hampered throughout 2013 by supply disruptions arising from oil theft and pipeline vandalism, and by weak investment in upstream activities with no new oil finds.
Going forward, there are prospects of strong economic growth although downside risks remain entrenched. Such prospects are expected to hinge on continued recovery of the global economy, favourable agricultural harvests and a possible boost in energy supply arising from the power-sector reform, as well as on expected positive outcomes from the Agricultural Transformation Agenda. Comprehensive economic and structural reforms are also expected to improve economic growth. Nevertheless, the country’s ongoing GDP rebasing may influence the growth figures, possibly making them lower going forward since the expected result is a larger economy.
Risks to Nigeria’s economic growth are the sluggish recovery of the global economy, security challenges in the northeastern part of the country, continued agitation for resource control in the Niger Delta and possible distraction from the ongoing reforms as a result of the upcoming 2015 general elections. Negative growth of the oil sector may also continue to drag down overall growth until a lasting solution is found to the challenge of oil theft and weak investment in exploration due to the uncertain state of play in the sector as a result of non-passage of the Petroleum Industry Bill.
Nigeria faces an ongoing challenge of making its decade-long sustained growth more inclusive. Poverty and unemployment remain prominent among the major challenges facing the economy. One reason for this is that the benefits of economic growth have not sufficiently trickled down to the poor. The national authorities are not oblivious of this reality. Thus, poverty reduction, mass job creation and protection of the most vulnerable and those in the large informal sector are the focus of current policy dialogue and initiatives. In fact, the 2014 national budget that has just been passed into law by the national assembly focuses mainly on creating more jobs and making growth more inclusive.
Increased integration of the poor into global value chains is essential for poverty reduction. Agriculture, which is largely informal, employs about 70% of the labour force, a large portion of which is poor. Adding value to agriculture tradables will create more jobs through its upstream and downstream integration with other sectors of the economy, increase export revenues, boost income of the poor and reduce poverty incidence.
Table 1: Macroeconomic indicators
|Real GDP growth||6.7||7.4||7.2||7.1|
|Real GDP per capita growth||3.9||3.6||4.4||4.7|
|Budget balance % GDP||-1.4||-1.8||-1.2||-2|
|Current account balance % GDP||2.8||4.4||5.8||5.1|
Source: Data from domestic authorities; estimates (e) and projections (p) based on authors’ calculations.