Nigeria country profile - Growth and Development | tutor2u Economics
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Nigeria country profile - Growth and Development

Nigeria is Africa’s second largest economy and has the highest production of oil and gas in Africa. More than 62% of Nigeria’s population are under 25 and it’s growing middle class makes up 23% of the population.

Population: 178,517,000

Currency: Naira (NGN)

Region: Western Africa

Primary product dependency: 90% oil production

Over the last 5 years, Nigeria’s Gross Domestic Product (GDP) growth averaged 6.8%. In the fourth quarter of 2013 the GDPin Nigeria increased to 7.67%. Nigeria will be recalculating its GDPin 2014 to reflect structural changes in the economy. It is expected to increase by 40-60% and will then become the largest economy In Africa.

Nigeria has the ninth largest gas reserves in the world and the largest in Africa.

Domestic and industrial consumption of gas in Nigeria is below 20%. Because of this, there is a lot of excess gas that needs to be burnt off for safety reasons (gas flaring). The reason for such a low use of gas is mainly because of a poor distribution and storage infrastructure. A flawed pricing system is also to blame.

Nigeria's dependency on oil exports

Economic indicators

GDP per capita (current US$)

2013

2966.1

Gross Fixed Capital formation

2013

14.5 % of GDP

Exchange rates (national currency per US$)

2013

155.2

Balance of payments, current account (million US$)

2013

20353

Unemployment (% of labour force)

2013

7.5

Labour force participation, adult female pop. (%)

2013

48.2

Labour force participation, adult male pop. (%)

2013

63.7

Mobile-cellular subscriptions (per 100 inhabitants)

2013

73.3

Individuals using the Internet (%)

2013

38

Major trading partners (% of exports)

2013

India (12.6), Netherlands (10.5), Brazil (9.5)

Major trading partners (% of imports)

2013

China(21.7)

United States (8.7), Areas nes (5.5)

Population growth rate (average annual %)

2010-2015

2.8

Urban population (%)

2014

46.9

Life expectancy at birth (females and males, years)

2010-2015

52.6/52.0

Infant mortality rate (per 1 000 live births)

2010-2015

76.3

Population using improved drinking water sources (%)

2012

64

Population using improved sanitation facilities (%)

2012

28

CO2 emission estimates (000 metric tons and metric tons per capita)

2011

88026/0.6

Energy supply per capita (Gigajoules)

2012

33

Strengths of the Nigerian market include:

  • average GDP growth of 6.9% over the past 10 years
  • large consumer base with a growing middle class
  • young and educated population
  • biggest beneficiary of Foreign Direct Investment (FDI) in Africa
  • abundant natural resources
  • many Public and Private Partnerships (PPPs) in the developing infrastructure

While there are many opportunities for companies looking to do business in Nigeria, there are some challenges to be aware of. These include:

  • poor power supply nationwide
  • weak infrastructures across many sectors
  • some security challenges
  • government bureaucracy when awarding and paying for contracts
  • high level of corruption
  • high unemployment and poverty

Fiscal policy

Fiscal policy for 2015 focuses on a macro-fiscal contingency plan containing prudent fiscal measures to ensure macroeconomic stability. The fiscal stance was further tightened because of the 3.4% fall in revenues from the decline in the crude-oil price. The macroeconomic challenges facing the economy emanating from the fall in global oil prices has resulted in dwindling total fiscal revenues, however, this provides an opportunity to deepen structural reforms for economic diversification. In the short to medium term this will entail improving tax administration; reviewing the implementation of tax waivers and exemptions; introducing surcharges on luxury items; and, in the longer term, revisiting elements of tax policy, such as VAT rates and structure.

Monetary policy

The monetary authorities maintained a tight policy stance throughout 2014, with a focus on maintaining single-digit inflation. This objective was achieved and inflation averaged 8.1%, within the CBN’s target band of 6-9%. A further tightening of monetary policy was undertaken towards the end of the year in response to emerging macroeconomic challenges from pressure on the exchange rate, excess bank liquidity and a weaker external-reserve position. This further contributed to the stable and single digit inflation achieved during the year.

Economic co-operation, regional integration and trade

The Economic Community of West African States (ECOWAS) implemented the Common External Tariff (CET) on 1 January 2015.

The CET will enhance economic integration in the sub-region by reducing the most-favoured nation import tariff (MFN) from 12.0% to 11.5%.

Total external trade stood at 24.4 trillion at the end of 2014 compared to 21.3 trillion in 2013. Exports accounted for 70% of total trade compared to 67% in 2013. Imports reduced and this is attributed to several import-substituting policies of the government in key consumables such as rice and sugar. The contribution of crude oil to total exports shrank by almost 9% from 82.9% in 2013 to 74.4% in 2014. This is explained by the twin challenge of lower than expected oil exports and declining oil prices.

Debt policy

Nigeria’s public debt has been rising. As of the end of December 2014, total public debt amounted to about USD 67.7 billion, a 5% increase from end-2013. This rise was driven largely by the 10% rise in the domestic debts of the Federal and State governments. The rising domestic debt emanated from the challenging fiscal position resulting from dwindling oil revenue coupled with need to implement several reform initiatives at both national and sub-national levels of government.

An unchecked rise in public debt, especially domestic debt, could have negative effects on the economy. Increased domestic public debt has a tendency to raise interest rates, resulting in crowding out of the private sector from the local credit market.

Global Competitiveness Rankings

The ranking in the 2014-15 Global Competitiveness Index (GCI) showed that Nigeria has slipped in the last two successive assessments. The country fell from 115th out of 144 countries to 120th out of 148 countries between the 2012-13 and 2013-14 GCI; and further dipped to 127th out of 144 countries in the 2014-15 GCI.

Nigeria continues to face challenges that tend to complicate and increase the cost of regulatory processes of which physical infrastructure and regulation are foremost. More recent actions aimed at easing these constraints have focused on longer-term judicial reforms to strengthen the legal institutions for contract enforcement. Other issues that are significant constraints on the business environment and are being addressed by the Federal Government include corruption, security and waning investor confidence.

Corruption Indicators

The 2014 corruption perception index of the Transparency International ranked Nigeria 136th out of 175 countries, which is an improvement from the rank of 144th out of 175 countries in the previous year. This tends to show that government efforts to address corruption may have begun to yield some results. More effort, however, is still required to sustain the momentum and further improve results.

Natural resource management and environment

With the oil sector accounting for over 70% of government revenue and over 90% of exports, falling oil prices adversely affected the fiscal and external positions in 2014, in addition to lower levels of domestic production mainly due to oil theft and pipeline vandalism. A number of mitigating measures are being taken to address these issues, including a special naval exercise, working with local leaders in oil-producing communities and participation in international initiatives to discourage the purchase of illegal oil by foreign refineries. In 2015, oil exports are projected to be 1.55% of GDP lower than envisaged and oil revenues will fall by 2.2% of GDP.

Political context

Nigeria, Africa’s most populous nation and largest economy, held peaceful and transparent elections on 28 March 2015, that have been widely commended across the world. The elections were deemed largely free and fair by international and regional observers including the EU, the African Union (AU) and ECOWAS.

While the military has stepped up operations, the insurgency being carried out by the militant group Boko Haram still poses a serious security threat, especially in the north east. The more than 200 girls abducted on 15 April 2014, from the Government Girls College in Chibok, Borno State, have still not been found. There is also a humanitarian crisis in the north-east of Nigeria, which is an additional cause for concern. The National Emergency Management Agency (NEMA) estimates that it involves some 1.5 million Internally Displaced Persons (IDPs). There is also a continued rise in the number of refugees in the neighbouring countries of Cameroon, Chad and Niger. The development partners are doing their best to support the government in addressing this dire situation.

Building human resources

Nigeria’s ranking in the 2013 Human Development Index at 0.504 has slightly improved from 0.471 in 2012 but Nigeria remains a low human-development country. Efforts to achieve the Millennium Development Goals have paid off in some areas but challenges remain. The MDG Survey report for 2014 provides the most recent education indicators. At national level, net attendance (used as a proxy for primary school enrolment) declined to 68.7% in 2014. The net attendance rate stood at 84.3% and 62.2% in the urban and rural areas respectively. At 91.6%, the male primary school completion rate is higher than it is for females (83.2%).

For health, both infant mortality and under-five mortality rates remain poor and show regional and rural-urban disparities. At 61 deaths per 1 000 live births, the infant mortality rate remains above the 2015 target of 30.3 per 1 000 live births. Sectorial expenditures reflect development priorities that are focused mainly on social sectors and infrastructure development. Broadly, the education budget represents 14.12% of the total; health 5.66%; agriculture 14.36%; and water 8.27%. With the recent fiscal adjustment measures the authorities have underscored that social-sector expenditures will be protected from cuts in government spending.

The Federal Government has adopted several policies aimed at improving access to education and health. Female education is at the forefront of government policy, while the securing of schools to ensure safety of students is a key focus in light of the increased kidnapping and destruction of institutions by armed insurgents particularly in the north east. In this regard, the government is developing a “safe-school” initiative in partnership with development partners.

Poverty reduction, social protection and labour

The 2014 re-based GDP figures that showed an increase in the size of the Nigerian economy have drawn attention to official poverty statistics and concern about their accuracy. Data from the last comprehensive household survey (NHLSS) in 2009/2010 indicated that the official poverty rate has not sufficiently fallen and stands at 46% of the population (adult equivalent approach), or 62% in per capita terms. The majority of the poor (66%) are to be found in the north. Poverty is also more prevalent in rural areas.

Robust growth over the past decade has been accompanied by increasing inequality and vulnerability.

Two major patterns manifest themselves in the Nigerian economic space: inequalities between urban and rural areas and between different geopolitical zones.

The urban centres tend to have a disproportionate share of public facilities to the detriment of rural areas. The over concentration of infrastructure induces rural-urban drift. Rural residents leave the relatively neglected rural sector for urban centres in search of better living standards. Available statistics prove the existence of the rural-urban disparity in the level of development. For example, the baseline survey on National Water Supply and Sanitation indicated that 75% of residents in urban areas have access to safe water compared to 45% in the countryside. According to the 2010 Nigerian Education data survey, it was found that 60% of children in urban areas attend secondary schools against only 36% in rural areas.

Conflict is both a result and a driver of regional inequalities. The lack of economic opportunities and poorly performing education and health-care systems lead to widespread dissatisfaction, which is often a precursor to conflict. Likewise, the lack of investment in conflict-affected areas serves to perpetuate regional inequalities.

The Niger Delta is arguably the richest but one of the least-developed regions in the country, suffering from widespread poverty, insecurity and severe environmental degradation. There are efforts currently underway to develop a regional development plan in the North-East region as part of a developmental security response to the insurgency of Boko Haram’s terrorist activities. The wave of terror and its accompanying political instability has held back the region’s economy.

The information used in the blog entry was taken from multiple sites:

www.worldbank.org

www.bbcnews.com

www.gov.uk

www.africaneconomicoutlook.org


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