Fifty-four years after the country gained independence from the UK, the pace at which the Nigerian economy has been evolving has increased exponentially in recent years.
The Nigerian economy has progressed from being primarily agrarian a few years ago into a regional powerhouse. In April 2014, the Bureau of Statistics rebased the country’s economic data for the first time in around 20 years, which saw its GDP pushed up by around 90 percent. Under the newly rebased figures, Nigeria recorded GDP of $509.9bn in 2013. Furthermore, the new figures revealed that the country’s economy grew by 12.7 percent between 2012 and 2013, marking Nigeria as one of the fastest-growing nations in the world.
The Nigerian economy, which is comfortably the largest in Africa, easily outstrips second placed South Africa by around 20 percent. Some observers have suggested that by 2025 the Nigerian economy will be worth around $1 trillion. With the population likely to overtake the US by 2045, Nigeria seems to be on the right trajectory.
Population growth, an expanding middle class and a dearth of available and viable commercial real estate have helped to drive the national economy. The private sector has begun to play a pivotal role in facilitating growth in these areas. Retail shopping malls, business parks and office buildings are springing up in the capital, Lagos, and other large Nigerian cities. Multinationals such as Proctor & Gamble, Nestlé and SABMiller have all built large, state of the art manufacturing facilities in the country, hoping to expand sales across Nigeria and the wider African region.
Undoubtedly Nigeria has become an important and attractive location for investors, and financial development institutions. However, in order to achieve the significant growth that has been projected in the years to come, there is still much work to be done. Despite the recent economic growth, Nigeria is still beset with social, economic and religious problems.
Despite the involvement of some private investors of late, the country’s transport and energy infrastructure networks are still woefully inadequate. Nigeria’s power stations generate only 4GW of electricity, leaving the country vastly underpowered. Recent government statistics have suggested that only 55 percent of the country’s population currently has access to electricity. In order to address this issue, the federal government has stated that the energy sector will require $2.9 trillion of investment over the next 30 years. Much of this funding is likely to be sourced from the private sector. In July, the US and Nigeria entered into a memorandum of understanding (MOU) designed to increase electricity supplies in Nigeria and to coordinate the ongoing privatisation and regulation of the country’s energy sector. US support will see Nigeria’s energy sector receive grants and technical assistance and advice on promoting investment opportunities.
The MOU is part of a US backed scheme – Power Africa – which aims to double the number of people with access to power in sub-Saharan Africa. For the first five year period of the plan, the US government has pledged more than $7bn in financial support and loan guarantees to participating nations. Furthermore, the US Agency for International Development (USAID) has noted that every dollar the US government has committed to Power Africa has already attracted $2 in private sector investment commitments. Additionally, the plan’s financial backers have indicated that they will be providing more than $14bn in project finance through direct loans, guarantee facilities and equity investments.
Although Nigeria’s transport infrastructure network is reasonably advanced compared with other African states, it still presents a number of challenges to the country’s future economic development. The lack of a deep water port, for example, hinders both the import and export of goods into the country. Inner city traffic congestion often grinds Nigeria’s biggest cities to a standstill. If economic strides are to be made in the years ahead, progress must also be made to alleviate these transport issues.
Nigeria’s development has also been held back by a number of other issues. The spreading influence of Islamic extremist group Boko Haram has had a detrimental effect on the country’s economy. According to finance minister Ngozi Okonjo-Iweala, the growth of Boko Haram is eroding Nigeria’s wider growth prospects. “We’re anticipating about 6.5 percent, discounted for the impact of the insurgency in the northeast,” said Ms Okonjo-Iweala. The impact of Boko Haram’s rise is expected to knock around half a percentage point off 2014’s GDP and a similar amount in 2015. The International Monetary Fund had previously predicted that Nigeria’s GDP would expand by 7.1 percent in 2014 and 7 percent in 2015.
Poor domestic governance also poses its own challenges. In the Mo Ibrahim Index of Good Governance, released in late September, Nigeria fell to 37th place. Furthermore, threats to the public arising from security forces and the police have drawn the attention of human rights group Amnesty International. The 2015 presidential elections will provide the country with a genuine test – the fairness of the voting process will be examined by a number of international NGOs and investors alike.
Nigeria has a bright future. For investors, the country’s energy and infrastructure deficiencies will provide a multitude of opportunities in the years ahead. Taking advantage of those opportunities will require patience, capital and some degree of luck.
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