Plenty of reasons to feel optimistic about biggest economy in Africa

What you need to know:

  • The resources sector accounts for only 14 per cent of GDP – meaning that, while oil production remains a critical source of revenue and exports, the Nigerian economy is far more diverse than many assume.
  • Nigeria’s prospects are enhanced further by its strategic location, which will enable it to take advantage of booming demand across Africa and other parts of the developing world.

Nigeria has been getting a lot of bad press lately, owing largely to the militant Islamist group Boko Haram’s abduction of more than 200 schoolgirls in April, part of a brutal campaign of kidnappings, bombings, and murder. But, while these developments certainly merit international concern, they should not be allowed to obscure Nigeria’s recent achievements.

What is lost in most discussions about Nigeria today is the strong economic record that it has established over the last decade. In fact, a recent year-long study of the country by the McKinsey Global Institute (MGI) showed that, over the next 15 years, Nigeria has the potential to become a major global economy.

With roughly 170 million inhabitants, Nigeria has Africa’s largest population. But it has only recently been acknowledged as having the continent’s largest economy – 26th in the world – following the release of “rebased” data putting GDP at $510 billion last year.

MGI estimates that, in 2013-2030, Nigeria could expand its economy by more than six per cent annually, with its GDP exceeding $1.6 trillion — moving it into the global top 20.

The problem is that Nigeria remains subject to outdated assumptions, which are limiting its prospects, especially among foreign companies and investors. For example, many believe that Nigeria is a petro-economy, wholly at the mercy of the world oil market.

But the resources sector accounts for only 14 per cent of GDP – meaning that, while oil production remains a critical source of revenue and exports, the Nigerian economy is far more diverse than many assume.

A related myth is that Nigeria’s economic growth is unstable. In fact, as Nigeria has diversified its economy and detached public-spending plans from current oil prices, it has become increasingly stable. Indeed, in recent years (2010-13, in “re-based” terms), GDP has grown by a steady 6-7 percent.

Finally, there is a general misunderstanding about the Nigerian economy’s evolution. Despite widespread poverty and low productivity in almost all industries outside of the resources sector, Nigeria has a rapidly growing consumer class.

ENDEMIC CORRUPTION

By 2030, more than 34 million households, with about 160 million people, are likely to be earning more than $7,500 annually, making them aspiring consumers. This implies a potential rise in consumption from $388 billion annually to $1.4 trillion – a prospect that is already attracting investments by multinational consumer-goods producers and retailers.

Nigeria’s prospects are enhanced further by its strategic location, which will enable it to take advantage of booming demand across Africa and other parts of the developing world.

In order to unleash this potential and ensure that the next decade of growth brings sharp reductions in poverty, Nigeria’s leaders must pursue reforms aimed at increasing productivity, raising incomes, and delivering essential services like health care and education.

In urban areas, productivity suffers from a high degree of informal employment. This keeps too many Nigerians in low-skill, low-paying jobs.

To make it easier to do business in Nigeria, the government also will need to streamline processes for registering and running a legal business and increase investment in infrastructure. It will also need to intensify its fight against endemic corruption.

Finally, to promote inclusive growth — essential to relieving human suffering and mitigating social and political tensions – Nigeria must improve public-service delivery dramatically. The fact that Nigeria lags behind countries that spend comparable amounts on public services proves that it has scope to improve.

Nigerians do not need sympathy or even outrage from the global community. What they need is support and encouragement. Only with stable and inclusive growth can Nigeria escape the clutches of brutal forces like Boko Haram and give its citizens the security and prosperity that they deserve.

Paul Collier is Professor of Economics and Public Policy at the Blavatnik School of Government, Oxford University, where he is also Professorial Fellow of St. Antony’s College and Co-Director of the Centre for the Study of African Economies. Acha Leke is Director of McKinsey in Africa. Copyright: Project Syndicate, 2014. www.project-syndicate.org