Turbo-charging the Nigerian economy (Part 1)

Why has Nigeria failed to fulfil its huge potential for wealth creation and economic growth?

In a recent presentation to policy-makers at the Nigerian Bar Association’s Annual Conference, I made the case for diversifying the economy away from oil – concentrating instead on the pivotal tasks of ensuring a stable and adequate power supply; addressing the skills gap; developing trade links – not least with Britain post-Brexit; and encouraging an entrepreneurial environment, which means tackling the all-pervading menace of corruption.

In terms of economic growth and sustainability, Nigeria has made much recent progress. After a deep economic recession, the country’s GDP is beginning to revive with the economy forecast to grow by 2.3 per cent in 2019. Reforms under the Government’s Economic Recovery and Growth Plan have resulted in significant strides in strengthening the business environment along with steps to improve corporate governance.

The country’s largest city, Lagos, is now home to a pan-African banking industry as well as a thriving music, fashion and film scene. The city’s road network is much improved due to new toll roads and even its much-delayed rail mass transit system is scheduled to open by 2022.

Four key barriers

First, electric power, or rather the lack of it, underpins the vitality of the economy. Even on a ‘good’ day, Nigeria has only 7,000 MW of generating capacity. Lack of power causes significant damage in terms of foregone economic activity and the need for back-up generators. Nigeria appears to be making heavy weather of righting this omission, in contrast to Ghana, which is steadily adding to its generating capacity, having recently completed a public-private project at Takoradi.

Secondly, Nigeria needs to strengthen its trade links. The export drive is handicapped by inadequate competitive capacity and poor connectivity to markets, made worse by congested ports, neglected roads and slow trains from a bygone era. But these shortfalls are beginning to be corrected – by the Chinese, of course, but with abundant opportunities for specialist companies from across the globe.

Barriers to trade, such as tariffs and regulations, generally limit the gains of free trade and penalise consumers. Two centuries ago, David Ricardo explained how trade through leveraging comparative advantage should benefit all concerned. But, as always with trade agreements, the devil is in the detail.

Nigeria’s President, Muhammadu Buhari, has rejected signing an Economic Partnership Agreement (EPA) between the EU and West Africa, for fear that it would shut out Nigerian exports and damage the country’s industrialisation strategy.

His doubts are understandable: hitherto, EU nations have tended to shut out competition in finished and refined products. In 2016, for example, the EU banned 26 Nigerian food products on health and safety grounds, which proved extremely convenient for EU farmers and processed food manufacturers.

In my view, the key is to negotiate access – China can be accused of flooding Africa with cheap exports while denying access to its own massive domestic market. Yet to industrialise successfully, Nigeria needs export markets. In this context, Brexit offers an opportunity for Nigeria to establish guaranteed access to the world’s fifth largest economy. Correctly packaged and branded, Nigerian produce like tomatoes could prove popular with British consumers.

Nigeria could learn from the experience of other former British colonies and redouble its efforts to boost its commercial agriculture sector, especially with regard to refined value-added products.

Here, Malaysia offers a model approach. It gained independence just before Nigeria but, in contrast to West Africa’s former ‘bread-basket’, deliberately sought to diversify its economy, including agricultural production. The strategy proved a striking success. Together with Indonesia, the country now dominates the global market in palm oil. Half a century ago that laurel was worn by Nigeria.

In its skills gap, Nigeria faces a problem common across Sub Saharan Africa – in many ways a legacy issue dating back to colonial times. The present impasse is the culmination of many years’ underinvestment, particularly in technical, engineering and scientific disciplines. R&D investment in Sub Saharan Africa is the lowest level among all developing regions of the world. Research in science and technical fields, for instance, amounts to 29 per cent of all research in Sub Saharan Africa, compared to 68 per cent in Malaysia and Vietnam.

This gap needs urgent attention. Africa has been described as the ‘teenage continent’ – reflecting the surge in the birth rate over the last two decades and a welcome decline in the infant mortality rate. In Nigeria, the challenge is particularly evident: 60 per cent of the country’s population is under 30 years of age with 44 per cent of the population aged under fifteen.

Unemployment has jumped from 6.4 per cent in 2014 to 18 per cent in 2017. Despite a drop in the rate over the last year the alarmingly high rate of unemployment among the young underlines the need to train and educate youngsters in a range of skills increasingly demanded by the world’s rapidly digitising economy.

Stay tuned for Part 2 tomorrow.

IEA Regulation Fellow

Keith is an IEA Fellow and economist, the author of over one hundred publications on public policy and planning issues, economic development and regulatory policy. Keith has contributed to publications including The Financial Times, The Wall Street Journal, The Times, The Daily Telegraph, City AM, and is the Africa Editor of The Journal of World Economics. An alumnus of the London School of Economic (LSE), Keith is the founder of Keith Boyfield Associates Limited, a consulting firm bringing together specialist Associates based across the globe.

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