A couple of years ago Nigerians were in celebration mood: Nigeria had been declared the largest economy in the continent, surpassing South Africa. They love being ahead of South Africa even if in soccer competitions – you can imagine when it comes to economic strength! However, Nigeria’s growth has slowed down. Is there still hope for a growth story?
Last week, I commented on African countries considered as “stable growers” in McKinsey’s recent report on the potential of African economies. Nigeria is not in that list. Instead, it’s been classified as a “vulnerable grower.” Their 2010-2015 average GDP growth rate is still higher than the global average (4.7 % vs. 2.9 %). However, Nigeria’s economy is decelerating from 10 % GDP growth rate in 2010 to 2.7% in 2015. In terms of McKinsey’s African Stability Index, the country ranks 22 out of 53.
This should be no surprise. On the one hand, Nigeria’s high dependence on oil exports explains its deceleration. On the other hand, the country is not characterized by high levels of security and high quality governance.
Yet, there is hope for Nigeria’s growth story. Some data McKinsey provides:
- It will remain the region’s single largest consumer market, accounting for 15 percent of overall growth in consumer spending to 2025.
- Consumer spending increased from $ 237 billion in 2005 to 369 in 2015 – that’s a 56 % hike! — and it’s expected to keep rising up to 454 in 2020.
- The biggest spending categories will be food and beverages, housing, consumer goods, education, and transportation services.
- Cities are the largest consumer markets, and not just in absolute terms: per capita consumption in Abuja, Ibadan, Lagos, and Port Harcourt is more than double the national average
- E-commerce has doubled each year since 2010 and it already reached a total value of 4 billion dollars in 2013.
These data look promising, don’t they? But macro figures may hide very different realities. These figures may mix consumerism by high-income groups with lack of access to basic goods for a large part of the population. I hope that companies tap consumer markets in ways that make these goods affordable to increasingly more people.
Any thoughts?
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I have several friends who live in Nigeria. I live in Canada at the moment, but I used to travel quite a bit over past two decades and I’ve been in around 60 different countries, lived over a month in half that. We all run online business ventures.
Major thing holding Nigeria back is its reputation. If you ask people around the world what is the FIRST thing they think of when they think of Nigeria, it will be that Nigerian Prince scam.
And then, fact that three different friends, living in different parts of Nigeria, all stated numerous times that their electricity outages are high and constant.
I get that in 4 major cities situation might be better. But strength of a country is not measured by its wealthiest, but through lives of average people. And Nigeria has a long way to go, as a nation, in providing decent standard of living to average person living in it.
We are in 2016, everyone should have easy and cheap access to electricity, clean water and uncensored internet.
Thanks for your comment, Viktor Vedmak. I can’t but agree with you. That’s why I end my article expressing my hope “that companies tap consumer markets in ways that make these goods affordable to increasingly more people.”
I have lived in Lagos for 3 months. Even in this large city, electricity is a challenge — both to companies and to the average people. One experiences back outs every day (you may want to read one of the very early articles in the blog which I wrote while living there: “Blackout excitement: power problems in Nigeria“. If you’re unfortunate, you may have a generator at home. But most people don’t, and it may take two months for a breakdown to be fixed. My driver there explained to me that he had to iron his shirts at work because they hadn’t had electricity at home for a long time. And I didn’t visit his home but I visited the home of a taxi driver in Nairobi — I bet it wasn’t too different: you may see a picture and read a description in another article about Kenya’s middle class and economic growth.
I also agree to your comment about country reputation. This hits Nigerian banks the hardest, and aware of this they try to turn around this bad reputation. Interestingly, they have been capable of internationalizing extensively across the continent.
One of my purposes with this blog is to increase awareness of the contient’s realities, and your comment has allowed me to expand a bit on this, so thanks a lot!
Interesting topic! As a non-economist, I do believe the country may recover as long as it invests more on domestic tax revenue collections, e.g. by having a tracking system of tax evasion and ensure that all its citizens pay taxes, and improve transparency at all levels in the country. In its current economic situation, it may seriously need to look inwardly and use its revenues to stand against any sluggish economic trends. My reasoning comes from the fact that the country has one of the largest consumer index in the region plus Nigeria has one of the largest number of entrepreneurs (managing all kinds of small, medium and large/MNEs firms) within and across the continent. If the country comes up with a sophisticated system to collect revenues at all levels, I believe it may overcome its current macro-economic imbalances and get rid of foreign dependence on aid…This is actually a challenge for many (rising) countries in Africa – Re: maintaining GDP growth and ensure to raise domestic revenues to provide public services, serve debt etc… This is my thinking!
Thanks, Africa.
That’s very right, Aloys. The problem is that with easy tax collection from oil hasn’t provided (historically wuite corrupt) governments with incentives to promote other economic activities. This is one reason why creation of basic infrastructures has lagged behind. If interested, you may want to read an article about the impact of the oil industry on the Nigerian economy here.
Wonderful … thanks, Africa!
Aloys