A report released today by McKinsey Global Institute (MGI) indicates that Nigeria has the potential to become a major economic force in coming decades.
According to the report, there is no disguising the challenges that Nigeria is facing but the world is well aware of the concerns around terrorism and Nigeria’s ongoing struggle with poverty.
It however said that there is another side to the Nigerian fact story that has been overshadowed both by the recent headlines and the persistence of outdated beliefs and assumptions about Nigeria’s economy.
The new report from the McKinsey Global Institute and McKinsey’s Nigeria office examines the country’s economic potential and finds that with the right reforms and investments, it can become one of the world’s leading economies by 2030.
It said that since 1999, Nigeria has proven to be both politically and economically stable and new data released this year show that it is now the largest economy in Africa, in addition to being the most populous. The new data also show that Nigeria’s economy is far more diverse than previously understood. While the nation’s rich oil reserves remain a critical source of government income and exports, the entire resources sector today is only 14 percent of GDP.
Agriculture and trade are larger and faster-growing. It is also not generally recognized that Nigerian productivity, which remains low, has been growing recently and now contributes more to GDP growth than does the expanding population.
“What people overlook is Nigeria’s extraordinary advantages for future growth, including a large consumer market, a strategic geographic location, and a young and highly entrepreneurial population,” says Reinaldo Fiorini, director and location manager of McKinsey’s Lagos office.
He observed that the results of Nigeria’s progress, however, have not been spread evenly across its economy. More than 40 percent of Nigerians live below the nation’s official poverty line and 130 million (74 percent of the population) live below the MGI Empowerment Line (2)—a level of income and access to vital services that provides a decent standard of living.
Chief reasons for Nigeria’s persistent poverty include low farm productivity due to limited access to fertilizer and mechanized tools, and inefficient markets. At the same time, urbanization has not raised incomes the way it has in other developing economies. This is because formal job creation and skill development in Nigeria’s cities have been weak, making productivity in urban sectors such as manufacturing lower than in agriculture.
Looking ahead, the report finds that Nigeria has the potential to expand its economy by roughly 7.1 percent per year through 2030, raising GDP to more than $1.6 trillion. This could make Nigeria a top-20 global economy with higher GDP than the Netherlands, Thailand, or Malaysia in 2030.
What’s more a large consuming class is developing in Nigeria, with potentially as many as 160 million members by 2030, more than the current populations of France and Germany combined. This upside scenario is based on a bottom-up analysis of the potential for five major sectors of the Nigerian economy including trade,agriculture, infrastructure, manufacturing and oil.
If Nigeria can better link growth to poverty reduction, 70 million citizens could be lifted out of poverty and 120 million could have the resources to reach the Empowerment Line.
“We estimate that, under the most favorable circumstances, for each percent of GDP growth, poverty would be reduced by 0.20 percent, a rate that is between the ratios of Brazil (0.15) and Ghana (0.25). Tying growth to rising living standards across the economy will depend on raising farm incomes and creating more formal urban jobs. It will also require actions by the government including reconsidering tariffs that raise the cost of imported food and re-prioritizing government spending needed to programs that lead to economic empowerment,” said Fiorini.
