March 28, 2024

After months of waiting, Nigeria was finally confirmed on Sunday as sub-Saharan Africa’s largest economy, leapfrogging South Africa as it jumped by 89 percent overnight after a long-overdue rebasing of the country’s GDP.

However, the rebasing also serves to highlight the vast contrasts in opportunity and wealth that have resulted from its hydrocarbon-focused, rentier economy. More than 100 million people are due to enter the workforce over the next two decades, and unemployment amongst under-25s is estimated at more than 75 percent. Wealth has been generated—Nigeria’s pool of millionaires increased by 44 percent between 2007 and 2013, according to New World Wealth—but it has remained at the top end, with much of the country remaining grindingly poor. It is a gulf in opportunity writ large across the landscape. In the commercial capital, Lagos, a gleaming new Porsche dealership is a long stone’s throw from creeks jammed with tumble-down shacks on stilts.

Nigeria's consumer markets are booming and it is undergoing an agricultural transformation. Photo Credit: OlamNigeria’s consumer markets are booming and it is undergoing an agricultural transformation. Photo Credit: Olam

It might now be the 26th biggest economy in the world, but Nigeria is 121st in terms of GDP per capita. In parts of the north, up to 80 percent of people live below the $1.25 per day poverty line.

As one former senior government official says, this is the story of Nigeria. “The economy can grow by hundreds of billions [of dollars], but nobody gets a dollar richer.”

The rebasing, which updates the contribution of telecoms, technology and media, in particular, to the economy, shows that there has been some diversification over the past two decades. However, government revenues are still 75 percent derived from sales of hydrocarbons, and billions are wasted each year on subsidizing the import and consumption of refined petroleum products. The naked pursuit of easy oil money from the 1960s hollowed out what little manufacturing the country had, and mismanagement of refineries and powerful vested interests in the import business finished the job. Nearly every sector suffered. Agriculture, once the lifeblood of the economy, atrophied, leaving the country dependent on imports. By 2011, the food import bill was close to $11 billion.

The concentration of revenues in a few sectors also prevented wealth from being spread more broadly through society. This, in turn, fed into a political system that inherited colonial-era imbalances and formalized them, creating webs of patronage. For decades, the quickest route to wealth was to have political power. On the Legatum Institute’s Prosperity Index, Nigeria ranks as the fifth most corrupt country in Africa.

Attacking these structures still leads to casualties. In February, the reformist central bank governor, Sanusi Lamido Sanusi, was suspended with three months of his term remaining for questioning where $20 billion of revenues from the Nigerian National Petroleum Corporation had gone. His accusation, leveled at the influential Minister of Petroleum Resources, Diezuke Alison-Madueke, threw up too many questions for a ruling party that is struggling to hold itself together ahead of elections, according to people with knowledge of the situation.

Sanusi—along with the current head of the Securities Exchange Commission, Arunma Oteh—had long been held up as proof that individuals could change the system. The pair swept through the criminality and corruption of the banking sector and the financial markets, uncovering billions of dollars in fraud and ending years of dire mismanagement. Sanusi’s removal, several current and former officials say, is calculated to humiliate him, preventing him from pursuing his calls for an enquiry.

 

Amid the grinding traffic and crumbling infrastructure, the chugging diesel generators and the constant expectation of bribery, there are times when Nigeria, for all its promise, seems totally hopeless. And yet, Nigerians themselves are not. Counterintuitively, the country routinely scores highly on surveys of its citizens’ hope and confidence in their future prosperity.

Increasingly, too, Nigeria is seeing the power of individuals and institutions to break down the calcified structures of patronage and corruption in the country.

Oteh, who survived vicious attacks on her character and accusations of misappropriating state resources after pursuing vested interests in the stock markets, remains at the helm of the SEC. A formidable, fiercely articulate former vice president at the African Development Bank, she has continued to fight to maintain the integrity of the markets despite the “demons”—her word—that tried to ruin her. The intensity of the attacks have fallen off, she says, in part because politicians are maneuvering ahead of the election, in part because public sympathy is behind her, and other reformers.

“Sometimes people do cross a boundary,” she says, referring to the officials in the House of Representatives who, at one point tried to insert a clause into the budget limiting her power. “I think that was a big turning point. People realized this is crazy… You’ve gone too far.”

In the agriculture ministry, Akinwumi Adesina—an enthusiastic technocrat prone to wearing a bow tie and thick-rimmed glasses—has, in less than three years, transformed a sector that was moribund and riven with corruption. An agricultural economist with wide international experience, he has focused on injecting commercial sensibilities into Nigeria’s farming sector, with a view to creating jobs and reducing imports.

“If we keep importing from other countries, we are simply de-capitalising our own economy. We are exporting jobs and creating joblessness here at home,” Adesina says in an interview in Lagos. “I don’t believe that poverty is an industry. You can’t grow the poverty sector. You have to create wealth for people. The way you create wealth for people is to use agriculture as that engine. It touches millions and millions of people.”

Of $5.4 billion spent on fertilizer subsidies given out by the government between 1980 and 2010, he says, more than $4.5 billion never reached farmers. One of his first acts was to completely dismantle this extraordinarily corrupt system. It took 90 days. Now, seeds and fertilizers are distributed by the private sector. Since 2011, food imports have fallen by $5 billion, 3.4 million jobs have been created and $4 billion worth of private investments have gone into the sector.

“The machinery of government has ensured that [seed and fertilizer] is going to the right people,” Mukul Mathur of Olam Nigeria, one of the largest agricultural investors in the country, says in an interview in his office on the outskirts of Lagos.

While Mathur is frank about the challenges of operating in the country—the port congestion; the poor infrastructure that makes it more expensive to ship a container from Lagos to the north than it does from Lagos to Japan—he is optimistic about the prospects for growth and about the signals coming out of the government. “We are headed on the right path,” he says.

Olam has invested heavily in increasing rice production, reorienting itself from an export-focused business to one that serves the growing domestic population—a signal of the kind of long-term commitments to domestic services and goods that the country has historically lacked.

Many hope that the same approach—putting the private sector in charge—will work for the power sector. If there is anything that unites Nigerians, it is their perennial complaints about the shoddy state of the grid.

Nigeria only generates 6,000 MW of grid energy for a population of 167 million. By comparison, Brazil generates 100,000 MW for its 201 million people. Power consumption per capita in the Nigeria is 155kWh, around half of the global average, and Nigerians pay over the odds for their energy. According to the Adam Smith Institute, Nigerians pay around 50¢ per kWh burning candles and kerosene; manufacturers pay more than 35¢ per kWh for diesel generation. Around 40 percent of the cost of doing business is power, and the cost to the economy of power shortages is estimated in the tens of billions of dollars per year.

In October 2013, the government handed over 15 state-owned generating companies to their new owners, after an auction that attracted more than 400 interested parties and $2.5 billion in bids. The second phase of the privatisation process is also now underway, with the government selling up to 80 per cent of its stake in 10 generating companies. The hope is that investments in generation will result in transformative changes to the country’s business environment.

“I suspect that in five years’ time, we’ll look back and wonder why we didn’t do this before,” says Andrew Alli, the CEO of the Africa Finance Corporation.

 

These changes are, for long-term investors in Nigeria, very significant—probably far more so than the nominal 89 percent jump in the GDP. Likewise, for average Nigerians the rebasing has no practical impact on their lives, except to bring the inequities in development metrics more sharply into focus.

“While the rebasing makes a number of metrics look very good—the debt [to GDP] ratio comes down, the deficit ratio comes down—it also makes a number of others less impressive,” says David Faulkner, HSBC’s chief economist for sub-Saharan Africa. “Education spending as a share of GDP is going to be much smaller now. Revenues from the non-oil economy are going to be tiny, and it highlights that those are challenges that Nigeria is going to have to address.”

“Favorable demographics” are one of the reasons routinely given by economists for Nigeria’s potential. In a speech in Lagos last month, Jim O’Neil—who coined the acronym “BRIC” and has become the go-to economist for emerging market shorthand—said that no country experiencing such rapid population growth had failed to emerge.

“You’ve seen it in China and India, where the large populations were a factor of the growth in the economy in absolute terms,” Faulkner says. “Obviously it requires improvements in productivity to ensure that you’re also getting rapid increases in GDP per capita and employment. I think it provides a significant opportunity for Nigeria to become a bigger player.”

If the country can sustain its current growth rates of 6-7 percent over the next decade, it could be a $1 trillion economy by 2025, Faulkner adds. The hope is that this leads to job creation and social development.

“We see it as a potential demographic dividend that’s waiting to happen,” he says. “But it’s key that those young people find unemployment, otherwise it could be a demographic disaster.”

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