New data show Nigeria is no longer just an oil-based economy.
Oil and gas are critical sources of government income and exports, but resources account for just 14 percent of GDP. Agriculture and trade are larger and growing faster, according to a new McKinsey report.
While this is not generally recognized, Nigeria’s productivity has been growing and now contributes more to GDP growth than the country’s expanding population. Yet the results of Nigeria’s economic progress have not been spread evenly.
Everyone knows by now that Nigeria’s recently rebased gross domestic revealed an economy far more diverse than previously understood.
The challenge for Nigeria is to make that growth more inclusive and bring more Nigerians out of poverty, according to new report from the McKinsey Global Institute.
With the right reforms and investments, Nigeria could become one of the world’s leading economies by 2030, the report says.
“Nigeria’s renewal: Delivering inclusive growth in Africa’s largest economy,” examines how the country can live up to its economic potential, according to McKinsey&Co.
In April 2014, the Nigerian government began releasing “rebased” data that showed a gross domestic product of $510 billion in 2013 compared with $354 billion for South Africa.
Nigeria’s troubled history and struggles with poverty and terrorism are ongoing, yet the country has made economic progress since 2000. It averaged annual GDP growth of 8.6 percent under civilian rule from 1999 to 2010, according to pre-rebased data, compared with 1.5 percent growth a year under military rule from 1983 to 1999.
New data show Nigeria is no longer just an oil-based economy. While oil and gas are critical sources of government income and exports, resources account for just 14 percent of GDP. Agriculture and trade are larger and growing faster. While this is not generally recognized, Nigeria’s productivity, albeit low, has been growing recently and now contributes more to GDP growth than the country’s expanding population.
Yet the results of Nigeria’s economic progress have not been spread evenly. More than 40 percent of Nigerians live below the official poverty line. Around 130 million people (74 percent) live below the MGI Empowerment Line, a level of consumption considered an “economically empowered” standard of living. For Nigeria, that’s $1,016 per person a year in cities and $758 in rural areas. Main reasons for this persistent poverty include urbanization that has failed to raise incomes and living standards; and low farm productivity.
Nigerian farmers have limited access to technology that improves productivity such as fertilizer and mechanized tools. While crop yields have improved in recent years, they remain far below those of peer nations. Between an inefficient market system and high postharvest losses, farmers benefit minimally from their work.
Urban poverty is driven by low productivity and poor job options. Normally, as economies develop and urbanize, productivity and incomes are supposed to rise as people move off the farm and take up work in the city. In Nigeria, workers in urban-based industries such as manufacturing actually have lower productivity than farm workers. This is the opposite of what is supposed to happen.
The McKinsey report said Nigeria can build on the momentum of the past decade and achieve 7.1 percent annual GDP growth through 2030. It is well positioned to benefit from trends such as the growing digital economy, growing global demand for resources and rising demand from emerging economies. Nigeria also has a fast-growing young population and a geographic location in West Africa that enables trade on the continent, as well as with North and South America and Europe.
At full potential, Nigeria could be a top-20 economy and its annual GDP could exceed $1.6 trillion in 2030, according to McKinsey.
