A key regional player in West Africa, Nigeria accounts for about half of West Africa’s population with approximately 202 million people and one of the largest populations of youth in the world. Nigeria is a multi-ethnic and culturally diverse federation which consists of 36 autonomous states and the Federal Capital Territory. With an abundance of natural resources, it is Africa’s biggest oil exporter, and has the largest natural gas reserves on the continent. ”).
The country held national elections in 2019, for the sixth consecutive time since its return to democracy in 1999. The incumbent president, Muhammadu Buhari won the elections and was sworn in for a second term on May 29, 2019. He has identified fighting corruption, increasing security, tackling unemployment, diversifying the economy, enhancing climate resilience, and boosting the living standards of Nigerians as main policy priorities his government seeks to continue to pursue in his second term up till 2023. Nigeria’s federated structure gives significant autonomy to states.
Oil price volatility continues to influence Nigeria’s growth performance. Between 2000 and 2014, Nigeria’s gross domestic product (GDP) grew at an average rate of 7% per year. Following the oil price collapse in 2014-2016, combined with negative production shocks, the gross domestic product (GDP) growth rate dropped to 2.7% in 2015. In 2016 during its first recession in 25 years, the economy contracted by 1.6%.
Since 2015, economic growth remains muted. Growth averaged 1.9% in 2018 and remained stable at 2% in the first half of 2019. Domestic demand remains constrained by stagnating private consumption in the context of high inflation (11% in the first half of 2019). On the production side, growth in 2019 was primarily driven by services, particularly telecoms. Agricultural growth remains below potential due to continued insurgency in the Northeast and ongoing farmer-herdsmen conflicts. Industrial performance is mixed. Oil GDP growth is stable, while manufacturing production is expected to slow down in 2019 due to a weaker power sector performance. Food and drink output are expected to increase, likely in response to import restrictions. Construction continues to perform positively, supported by ongoing megaprojects, higher public investment in the first half of the year, and import restrictions.
Growth is too low to lift the bottom half of the population out of poverty. The weakness of the agriculture sector weakens prospects for the rural poor, while high food inflation adversely impacts the livelihoods of the urban poor. Despite expansion in some sectors, employment creation remains weak and insufficient to absorb the fast-growing labor force, resulting in high rate of unemployment (23% in 2018), with another 20% of the labor force underemployed. Furthermore, the instability in the North and the resulting displacement of people contribute to the high incidence of poverty in the North East.
Without significant structural policy reforms, Nigeria’s medium-term growth is projected to remain stable around 2%. Given that the economy is expected to grow more slowly than the population, living standards are expected to worsen. Growth is constrained by a weak macroeconomic framework with high persistent inflation, multiple exchange rate windows and forex restrictions, distortionary activities by the central bank, and a lack of revenue-driven fiscal consolidation results. Rising public debt, and increasingly complex policy interventions by the central bank constrain private sector credit growth. External balances are fragile to hot money movements, and fiscal buffers are exhausted, making Nigeria’s economy vulnerable to external risks.
The new government has the opportunity to accelerate the pace of structural reforms to build an institutional and policy framework capable of managing the volatility of the oil sector and supporting the sustained growth of the non-oil economy. Bold reforms that could have a significant impact on the economy’s trajectory are the removal of subsidies, elimination of forex and trade restrictions, greater transparency and predictability of monetary policy and increased domestic revenue mobilization. Such reforms would help raise living standards of low-income groups while increasing spending on much needed public services. The signing of the Africa Continental Trade Agreement, after extended deliberations, may also provide some positive momentum over the medium-term.
While Nigeria has made some progress in socio-economic terms in recent years, its human capital development remains weak due to under-investment and the country ranked 152 of 157 countries in the World Bank’s 2018 Human Capital Index. Furthermore, the country continues to face massive developmental challenges, which include the need to reduce the dependency on oil and diversify the economy, address insufficient infrastructure, and build strong and effective institutions, as well as governance issues and public financial management systems.
Inequality in terms of income and opportunities has been growing rapidly and has adversely affected poverty reduction. The North-South divide has widened in recent years due to the Boko Haram insurgency and a lack of economic development in the northern part of the country. Large pockets of Nigeria’s population still live in poverty, without adequate access to basic services, and could benefit from more inclusive development policies. The lack of job opportunities is at the core of the high poverty levels, of regional inequality, and of social and political unrest in the country.
Source: World Bank Group