The Nigerian Economy: Navigating Through Difficult Circumstances
Embracing prudence, inclusivity, and adaptability is crucial to overcoming these challenges and propelling Nigeria onto the global stage. Experts say that increasing the transparency and predictability of exchange rate management policies will reduce distortions in allocations in the private and public sectors and ensure that agents can access foreign exchange in a timely and orderly manner at an agreed rate. Evidently, by diversifying the economy, investing in infrastructure and human capital, promoting good governance, and embracing regional and international trade, Nigeria can unlock its immense potential for sustainable economic growth. As the country navigates these challenges, the adaptability of the Nigerian citizens in the face of adversity is obvious, but the anticipation for brighter economic prospects remains a shared ambition as a nation.
Nigeria is located on the Gulf of Guinea, and her population is projected to grow from more than 186 million people in 2016 to 392 million in 2050, becoming the world’s fourth-most populous country. The African country is diverse in people and culture. The country has abundant natural resources, notably large deposits of petroleum and natural gas. The Nigerian economy is a mixed economy in that it is fundamentally capitalist in nature but incorporates government regulations. As a dual economy with a modern segment dependent on oil earnings overlaid by a traditional agricultural and trading economy, Nigeria is Africa’s largest economy and possesses immense potential for growth and development.
In the meantime, information, communication, and technology remained the driving forces in the Nigerian economy, and they hold vast opportunities for investors. Experts have indicated that there are several recent events that will open up opportunities for business growth and expansion in the country. Notably, the Africa Continental Free Trade Agreement will create access to a large market for trade and portend profitable opportunities, according to experts. In addition to that, the Nigerian currency, the naira, has recently depreciated drastically, triggered by a series of unfortunate events. Also, Nigeria’s agricultural sector has experienced a substantial increase in the export values of its top commodities. The West African country exported agricultural goods worth N1.23 trillion in 2023, according to the foreign trade reports from the National Bureau of Statistics (NBS). Corresponding to this data, this figure represents an increase of 53% from the N583.3 billion recorded in 2022. The rise is likely due to the significant naira devaluation in 2023, which increased the value of the total exports in naira terms.
In 2022, Nigeria’s gross domestic product (GDP) was worth 477 billion U.S. dollars, while the gross domestic product per capita equaled 2.33 thousand U.S. dollars. In the second quarter of 2023, Nigeria’s gross domestic product stood at 52.1 trillion Nigerian naira (NGN), around 66.84 billion U.S. dollars. The GDP grew by 2.54% (year-on-year) in real terms in the third quarter of 2023. This growth rate is higher than the 2.25% recorded in the third quarter of 2022 and higher than the second quarter 2023 growth of 2.51%. The performance of the GDP in the third quarter of 2023 was driven mainly by the services sector, which recorded a growth of 3.99% and contributed 52.70% to the aggregate GDP. The agriculture sector grew by 1.30%, up from the growth of 1.34% recorded in the third quarter of 2022. The growth of the industry sector was 0.46%, an improvement from -8.00% recorded in the third quarter of 2022. In terms of share of the GDP, agriculture and the industry sectors contributed less to the aggregate GDP in the third quarter of 2023 compared to the third quarter of 2022. As a consequence of the COVID-19 impact, Nigeria’s gross domestic product is estimated to have decreased by nearly 1.8 percent during 2020. However, observers say Nigeria is grappling with socio-economic challenges that have continued to sabotage the country’s development process.
The Challenges
The main economic policies are fiscal policy, monetary policy, and supply-side policy. Fiscal policy involves government spending and taxation; monetary policy deals with the management of interest rates and money supply; and supply-side policy focuses on improving the efficiency of the economy. The economic reform programs include: consolidation of financial institutions; privatization and commercialization; indigenization; nationalization; and deregulation. Other reform programs include the roles performed by some government agencies, such as the Economic and Financial Crimes Commission (EFCC), the National Agency for Food and Drug Administration and Control (NAFDAC), the Independent Corrupt Practices and Other Related Offenses Commission (ICPC), and the Standards Organization of Nigeria (SON), toward the operation and performance of the economy.
In Nigeria, the sudden surge in revenues from the oil boom engendered a policy attitude that regarded resources as not a problem but considered how to spend them a problem. The increased level of foreign exchange receipts was also perceived as a permanent occurrence. This led to an uncontrolled expansion in expenditure. On the other hand, reductions in foreign exchange receipts during lean years (as in 1978) were considered transitory. This inelasticity of expectation resulted in a situation where expenditures were not reduced immediately, and adverse shocks occurred. On the contrary, external borrowing was undertaken to finance government activities. Consequently, fiscal deficits and external payment problems emerged and lingered through various regimes up to the present day.
The major obstacles to Nigeria’s sustainable development include endemic corruption, inadequate infrastructure, poor economic diversification, over-reliance on oil revenues, and high levels of poverty and inequality. While the factors affecting economic growth and development in Nigeria include terrorism, internal and external conflict, government expenditure, and domestic investment, the factors that are needed for sustainable economic growth and development are mainly political stability, investment, and a mixture of public and private initiatives. Also, Nigeria has experienced a significant increase in the cost of living in the last few years. Core necessities such as food, housing, education, and healthcare have become more and more expensive, leaving many Nigerians struggling to maintain their day-to-day expenditures.
Currently, the African country of Nigeria is experiencing profound economic turmoil, resulting in diminished purchasing power, hyperinflation, the devaluation of the naira currency, and disruptions in the food supply chain. An analyst says Nigeria has enormous and unquantifiable potential agricultural resources to feed the whole of the African continent and even export to other continents. Nigeria has a huge population of 210 million people, with about 55% of the population being active, and 91 million hectares of arable land, with merely 50% utilization despite the quantum of water resources, soil fertility, favorable topography, and climates. This has made Nigeria the most endowed country, with unlimited water resources available for agricultural development. However, Nigeria’s leadership pays appalling lip service to the agricultural sector at different levels of governance, from local government to federal. Over the years, agriculture has received low investment from both state and federal governments.
Economic Policies and Reforms
Nevertheless, President Bola Ahmed Tinubu was sworn into office on May 29, 2023, having won the February 2023 presidential election. Nigeria continues to face many social and economic challenges that include insecurity such as banditry and kidnappings, especially in the northwest region, continued insurgency by terrorist groups in the north-east, and separatist agitations in the south-east. President Tinubu has continuously pledged to turn around the economy and ensure security across the country. Civil society, the media, and other civil groups have committed to sustain advocacy for reforms and actions towards better economic and social outcomes for citizens.
Nigeria is currently grappling with a severe foreign exchange crisis and is seeking ways to control arbitrage and speculation within the financial ecosystem. A media report said his administration promptly launched a raft of economic reforms aimed at liberalizing the economy, such as the removal of fuel subsidies and the relaxation of currency controls. Inflation hit an annual 29.9% in January, driven by soaring food prices that have triggered a cost-of-living crisis in Africa’s largest economy. The naira currency, meanwhile, plunged to an all-time low of around 1,600 against the U.S. dollar in late February. Since assuming office on October 5, 2023, the Governor of the Central Bank of Nigeria, Olayemi Cardoso, has been making various efforts to stabilize the economy and tame accelerating inflation.
The Signs of Progress and Opportunity
After all, the ability to attract foreign investment plays a pivotal role in shaping Nigeria’s economic path and ascertaining its strength in the face of global instability. Critical sectoral reforms are urgently needed to support broad-based economic growth and Nigeria’s global competitiveness. In the meantime, Nigeria has secured $30 billion worth of foreign direct investments (FDIs) to support the country’s economy since May 2023, especially in the real sectors of the economy, including manufacturing, telecoms, healthcare, oil and gas, and others. Authorities have indicated that the Nigerian economy saw a better than anticipated performance in the last quarter of 2023, growing by 3.46 percent, compared with 2.54 percent in the preceding quarter. While capital importation into Nigeria was up by 66 percent in Q4 2023, reversing a 36 percent decline in the previous quarter, Also in January 2024, the Nigerian Stock Exchange All Share Index (ASI) crossed the 100,000-point mark, its highest ever.
The World Bank has indicated that recent reforms offer a launching pad for a new social compact for Nigeria’s development. Strengthening macroeconomic fundamentals will allow structural reforms to be pursued and economic growth to be restored. The current low social and economic equilibrium could be switched to one marked by a better funded and more effective state that provides efficient public services, public goods, and a conducive economic environment for the private sector to flourish and create more quality jobs for Nigerians. Still, experts argue that there is nothing that is happening today—hyperinflation, the crisis of the value of the naira, debt distress and the revenue challenge, unemployment, extreme poverty, etc.—that should surprise any thinking citizen or professional observer of how our country’s economy has been mismanaged for a long time. Choices have consequences. There is hunger and anger in the land. The past 10 years have been particularly ruinous. They were the years of the locust, marked by unprecedented mismanagement of fiscal policy, unproductive external borrowing, unnecessary budget deficits, illegal Ways and Means lending by the Central Bank of Nigeria to the federal government to the tune of N30 trillion, and unprecedented corruption.
In conclusion, embracing prudence, inclusivity, and adaptability is crucial to overcoming these challenges and propelling Nigeria onto the global stage. Experts say that increasing the transparency and predictability of exchange rate management policies will reduce distortions in allocations in the private and public sectors and ensure that agents can access foreign exchange in a timely and orderly manner at an agreed rate. Evidently, by diversifying the economy, investing in infrastructure and human capital, promoting good governance, and embracing regional and international trade, Nigeria can unlock its immense potential for sustainable economic growth. As the country navigates these challenges, the adaptability of the Nigerian citizens in the face of adversity is obvious, but the anticipation for brighter economic prospects remains a shared ambition as a nation.
Writer and researcher at Alafarika for Studies and Consultancy.