Nigeria's economy growing despite various challenges

There is no shortage of superlatives to describe Nigeria. It is Africa’s most populous country, the continent’s largest oil producer and a top destination for foreign investment. As of April 2014, Nigeria is now the continent’s largest economy as well, as a result of an overdue revision in its GDP calculation.

The revision added a whopping 89% to GDP, while also revealing the true diversity of the economy, with thriving industries such as agriculture, telecommunications and technology, music and film, retail and trade, and services. However, as the economy continues to grow and diversify away from its reliance on hydrocarbons sector – which accounts for more than two-thirds of government revenues – the country’s complexities have become more pressing.

Following the presidential elections in March 2015, the newly elected government of President Muhammadu Buhari will face a host of challenges, ranging from high levels of rural poverty to concerns over governance and an insurgency in the north. These issues, a result in part of the country’s significant ethnic and religious diversity, will take time to address.

Geography

Spreading 923,768 sq km in size, Nigeria is the world’s 32nd largest country and nearly four times the size of the UK. Situated in West Africa, the country is bordered by Benin to the east, Cameroon to the west, Niger to the north, and shares a small border in the north-east with Chad.

To the south lies Nigeria’s 853-km coastline on the Gulf of Guinea in the Atlantic Ocean. Emptying into the Gulf, the Niger River flows from the north-west and meets its main tributary, the Benue River, in the middle of the country and then heads south, discharging into the Nile Delta and ocean.

Nigeria is home to a diverse topography and ecology, with tropical rainforest and swampland in the south, a mountainous eastern border, and high plateaux and dry savannahs in the north.

Climate

Nigeria has a tropical climate with a wet season from April to November, and a dry season from November to March. These two seasons can vary depending on the region. The south receives the most rain, with annual rainfall amounting to around 3000 mm in the south-east and 1800 mm in the south-west, while there is little variation in seasons and relatively constant temperatures and humidity. The coastal cities of Lagos and Port Harcourt see temperatures range from 22°C to 32°C and 20°C to 33°C, respectively, throughout the year. Moving inland towards the centre of the country, the distinction between seasons becomes more pronounced, with rainfall averaging around 1300 mm. Nigeria’s north experiences the highest temperatures, which can reach up to 45°C, and has an abbreviated wet season with high aridity and rainfall not exceeding 500 mm annually.

Natural Resources

Nigeria has an embarrassment of natural wealth. The hydrocarbons industry is a mainstay within the natural resources sector and the economy at large. According to BP’s “Statistical Review of World Energy 2014”, Nigeria holds 37.1bn barrels of oil reserves, second only to Libya in Africa, and 5.1trn cu metres of natural gas reserves, the largest on the continent. Nigeria is endowed with other substantial natural resources that have yet to fully be exploited. Over 40 different useful minerals can be found in Nigeria, with a number of them potentially commercially viable for extraction, including coal, barites, bitumen, iron, ore, gold and zinc.

Additionally, Nigeria is endowed with a lot of fertile land, 83.7% of which is arable, according to the latest data from the World Bank. Prior to the discovery of oil, Nigeria was largely self-sufficient in agriculture products. As investment was redirected toward the hydrocarbons industry, agriculture stagnated.

In recent years, the government has begun efforts to reinvigorate the agricultural sector through a comprehensive reform plan, which has already brought about substantial improvements. In 2014, the sector represented 22.9% of the economy, according to figures from the National Bureau of Statistics (NBS).

Population & Language

Nigeria is home to the seventh-largest population worldwide and the largest in Africa with 177.2m people, as of July 2014. The population is projected to grow by 2.47% in 2014, among the world’s fastest rates, which by some estimates will see it hit 210m by 2020.

The population, as is the case in many African countries, skews young, with 62.5% under the age of 25 and a median age of 18.2 years. Nigeria has a rich diversity of ethnicities, with more than 250 recognised ethnic groups. The largest of these include Hausa and Fulani (29%), Yoruba (21%), Igbo or Ibo (18%), Ijaw (10%), Kanuri (4%), Ibibio (3.5%) and Tiv (2.5%).

Moreover, the country is among the most linguistically diverse in the world, with over 500 different indigenous languages, although more than a third are spoken only by populations of a limited size. Major languages spoken are Hausa, Yoruba, Igbo and Fulani. English, the official language and lingua franca, is widely used in business and politics.

Religion

While exact estimates are difficult to determine – due in part to the fact that the national census has not covered religious affiliation since 1963, as well as a high degree of syncretism – the general consensus regarding Nigeria’s religious breakdown suggests that roughly half of the population is Muslim, just under half is Christian and the remainder follow indigenous religions.

As is the case across West Africa and the Sahel region, religion in Nigeria has proven in the past to be a particularly sensitive issue, regularly intertwined with ethnic, regional and political identity, with Christians primarily located in the south and central regions of the country, while the north of Nigeria is predominantly Muslim. In some of Nigeria’s northern states, for example, sharia law has been adopted in some capacity to run alongside civil courts.

Human Development

The benefits of Nigeria’s rapid economic growth and rebased GDP are somewhat dampened by its high levels of inequality. According to the UN Development Programme’s “Human Development Report 2014”, Nigeria is categorised as “low human development” country, and ranks 152 out of 187 nations in the report. Poverty levels (those living on less than $1.25 per day) have increased over the past decade, from 62.4% in 2005 to 67.98% in 2013, although there have been improvements in some indicators as well: life expectancy has increased from 49 to 52.5 over the same period, for example.

Culture

Nigeria is a wellspring of arts and culture and has received numerous international accolades. On the literary front, Nigeria is home to Chinua Achebe, the author of “Things Fall Apart ”, which is widely seen as a milestone in African literature. Following in Achebe’s footsteps are highly acclaimed contemporary writers like Chimamanda Ngozi Adichi, Ben Okri and Wole Soyinka. The Nigerian film industry, known as Nollywood, is among the most prolific in the world, second only to India’s Bollywood, and has captivated audiences far beyond the country’s borders. The coastal city of Lagos lies at the heart of the art and music scene and is home to a number of local art galleries and music venues.

Economy

According to the Ministry of Finance, Nigeria’s GDP grew at 6.4% in 2013, down from 6.6% the previous year (see Economy chapter). The economy expanded by 6.1% in 2014 and is forecast to grow 4.8% in 2015, according to the International Monetary Fund (IMF). This follows a 7% average annual growth rate over the last decade.

Nigeria’s GDP estimate was upended following the April 2014 rebasing, the first rebasing exercise in over two decades. The revision factored in industries like telecoms and film that were not properly accounted for previously. The more accurate reflection of the economy increased the GDP figure by 89% to $510bn, making it the largest economy in Africa. The jump in GDP reclassifies the country as lower-middle income, according to the World Bank.

The hydrocarbons industry has long been the lynchpin of the economy, and the oil and gas sector accounted for 14.4% of rebased GDP in 2014, according to the NBS. BP’s “Statistical Review of World Energy 2014” ranks Nigeria’s oil production 12th globally and first in Africa. However, oil production had slipped to 2m barrels per day (bpd) by mid-2014, down from 2.3m bpd in 2013 and a high of over 2.5m bpd in 2010.

The non-oil sector has been a key driver of economic expansion, growing by 7.7% in 2013, according to data from the IMF. Major non-oil GDP contributors include trade, IT and agriculture. Meanwhile, foreign direct investment (FDI) in Nigeria dropped 21.2% in 2013 to $5.61bn in the face of the country’s numerous challenges, according to the Central Bank of Nigeria. The country, however, still remains among the top three FDI recipients in Africa, according to the UN Conference on Trade and Development.

For most of 2014 the central bank maintained its peg of +/-3% of the N155:$1 exchange rate; however, in November the bank devalued the naira to N168:$1. The currency continued to weaken in 2015.