Is the giant waking up?
Since the 2000s Nigeria has had overall growth in the range of 6.5–8.0% a year, reaching 7.3% in 2011–12. But that growth has not translated into a strong diversified economy. Oil, gas, and agricultural output continue to dominate GDP, contributing around 70% of total output, with oil alone accounting for more than a third of GDP. Oil rose from 58% of exports in 1970 to more than 90% in the 2000s.
Formal employment in Nigeria remains low. Manufacturing employment has been declining since the mid-1980s. Driven mainly by the liberalization of telecommunications and the banking sector in the late 1990s, employment in services experienced a major boom at the end of the 1990s and continued to rise for most of the 2000s.
Nigeria’s informal sector accounted for about 70% of total employment in 2010. Unemployment has been rising in the 2000s, reaching about 24% in 2011, up from 4% in 1986 and 13% in 2007. Youth unemployment remains a major challenge, more than doubling from 15% in 1986 to about 38% in 2011. Extreme poverty persists, at about 68% of the population in 2010 (share of population living on less than $1.25 a day).
The return to democratic governance in 1999 strengthened the planning for growth and poverty reduction. Governments have since enacted laws and created institutions to strengthen institutional capacity for fighting corruption. The National Planning Commission and its three parastatal agencies— National Institute of Social and Economic Research, National Bureau of Statistics, and Center for Management Development—helped develop the Vision 20:2020.
External reserves rose from $4 billion in 1999 to $46 billion in 2010 after paying $12 billion to liquidate the external debt in 2005. But economic management remains challenged by weak implementation capacity. The business climate has improved somewhat since the early 2000s. Nigeria was cited in the 2012 Doing Business report among the countries that make it easy to enforce contracts, get credit, and trade across borders. But its ranking of 133rd of 183 countries in the overall doing business ranking places it below comparator countries, slightly below Indonesia and Brazil but far below Malaysia, Thailand, Korea, and Chile.
Nigeria ranked favorably on protecting investors, outperforming Vietnam, Brazil, and Korea, but unfavorably on registering property (180th) and getting electricity (176th). Nigeria ranked 127th of 142 countries on the 2011–12 Global Competitiveness Index, 69th on innovation and business sophistication, and 80th on efficiency enhancers. The quantity and quality of health and primary education and infrastructure, as well as the macroeconomic environment, emerged as the primary reasons for Nigeria’s weak overall global competitiveness.
One of the core strategies of Nigeria’s Vision 20:2020 is public-private partnership in investments, especially in core infrastructure (power, roads, ports) to generate employment opportunities. But the challenge is that in general the private sector remains relatively weak, mainly because a large part of it is the oil economy, which has been unable to link up with the rest of the economy and significantly contribute to structural change and transformation.
Nigeria’s prospects for transformation built on the petroleum sector remain undiminished. In 2010 Nigeria ranked as the 10th largest global oil producer. Reserves at the end of 2007 (the latest estimate available) were about 36.2 billion barrels, nearly 3% of the world total. Nigeria’s growing policy focus on downstream forward linkages and local content is beginning to bear fruit. According to UNCTAD estimates, local content rose from 3–5% in the 1970s to 20% in 2004 and 39% in 2010, still below the planned target of 70% for 2010. There is considerable scope for improvements to strengthen links with the nonoil sector, as a source of employment and as a source of energy for both industrial and household uses.
Outside oil and gas, Nigeria’s comparative advantage lies primarily in agriculture, especially cocoa, and in leather products, labor-intensive light manufacturing, and oil-related chemicals and pharmaceuticals. Nigeria is the world’s fourth largest producer and exporter of cocoa. The largest nonoil foreign exchange earner, cocoa generates directly or indirectly more than 2 million jobs. Nigeria can scale up the production and export of cocoa by improving productivity and moving into domestic processing of cocoa beans, as outlined in the Vision 20:2020.
Nigerian firms are expanding the use of improved leather tanning technologies, which should contribute to increasing exports from the sector. Like Ethiopia, Nigeria could gain further in job creation and foreign exchange earnings if it were to move up the value chain by expanding exports of processed leather and leather-based manufactures.
Chemical (refined oil, liquefied natural gas) and pharmaceuticals (over-the-counter drugs for export, mainly to the Economic Community of West African States region) are targeted as export industries in the Vision 20:2020. Nigeria should identify efficient ways to use natural gas for power generation.
Upgrading agricultural value chains and making a strong move into agribusiness would expand the manufacturing sector. So would strengthening local content policy by promoting private investment in backward and forward linkages.
Nigeria’s growth with depth
- Transformation—19th of 21. Nigeria ranked 19th on economic transformation in both 2000 (1999–2001) and 2010 (2009–11).
- Growth. Nigeria’s economy grew sluggishly for 30 years— from 1971 to 2000—with average GDP growth at 2.4% a year and GDP per capita growth of –0.1%. But there has been a dramatic pick-up in growth since 2000. From 2001 to 2010 average GDP and GDP per capita growth jumped to 5.9% a year and to 4.0% a year. GDP growth reached 7.3% in 2010–12, and is projected to stay around that rate in 2013 and 2014.
- Diversification—21st. Nigeria’s rank on diversification did not change from 2000. The share of manufacturing in GDP in 2000 and 2010 was very low at about 3%, well below even the Sub-Saharan average of around 10%. The share of manufacturing and services in exports moved up from 3.6% in 2000 to 6.2% in 2010. Commodity exports are very concentrated, with the top five exports in 2010 (crude petroleum, refined petroleum products, natural and manufactured gas, leather, and cocoa) making up around 94.3%—an improvement from 99.7% in 2000.
- Export competitiveness—18th. Nigeria’s improved its rank on export competitiveness from 20th in 2000 to 18th in 2010. Its competitiveness ratio, or the relative export intensity of production, rose from 0.30 in 2000 to 0.33 in 2010.
- Productivity—19th. Nigeria ranked 18th in 2000 and 19th in 2010. Manufacturing value added per worker was $9,663 in 2010, more than doubling from $4,248 in 2000. Cereal yields were at 1,463 kilograms per hectare in 2010, up from 1,215 in 2000. But other countries achieved greater increases in productivity, thus the deterioration in Nigeria’s rank.
- Technology—4th. Nigeria ranks high in technology— 3rd in 2000 and 4th in 2010. The share of medium and high technology in manufacturing production is around 35%. But the share in exports is rather low—between 4% and 6%.
- Human well-being—16th. Nigeria retained its 16th rank in both periods. GDP per capita (PPP 2005 US$) rose from $1,459 in 2000 to $2,134 in 2010.