Nigeria is a multi-ethnic and culturally diverse federation of 36 autonomous states and the Federal Capital Territory. The political landscape is partly dominated by the ruling All Progressives Congress party (APC) which controls the executive arm of government and holds majority seats at both the Senate and House of Representatives in parliament, and majority of the States.
President Bola Ahmed Tinubu was sworn into office on May 29, 2023, having won the February 2023 Presidential election. Nigeria continues to face many social and economic challenges that include insecurity such as banditry and kidnappings especially in the northwest region, continued insurgency by terrorist groups in the north-east, and separatist agitations in the south-east. President Tinubu has continuously pledged to turn around the economy and ensure security across the country. Civil society, the media and other civil groups have committed to sustain advocacy for reforms and actions towards better economic and social outcomes for citizens.
Economic Overview
During 2015-2022, growth rates decreased and GDP per capita flattened, driven by policy missteps compounded by shocks. Monetary and exchange rate policies become increasingly distortive and eroded confidence, fiscal deficits increased due to lower oil production and costly subsidies (for electricity, gasoline, and implicitly to maintain an increasingly overvalued official exchange rate), and trade protectionism increased. The economy was also buffeted by external shocks such as the COVID-19 pandemic, and higher global food and fertilizer prices following Russia’s invasion of Ukraine, and domestic shocks such a destructive demonetization policy in early 2023, and devastating floods in October 2022 and September 2024.
Following a change in administration in May 2023, the country has been pursuing bold reforms to reestablish macroeconomic conditions for stability and growth. The gasoline subsidy has been substantially eliminated, and the exchange rate has been unified and allowed to be market-reflective, eliminating the parallel market premium and generating large fiscal and economic benefits. The Central Bank of Nigeria has appropriately tightened monetary policy and refocused on its price stability mandate, facilitated by the authorities’ commitment to end deficit monetization. Although these measures are helping Nigeria’s economy turn the corner, inflation remains high, increasing hardship and poverty. To support the poorest and more economically at-risk households, the government has been implementing temporary cash transfers to reach 15 million households.
The macroeconomic reforms, if sustained and expanded, create a new platform to ignite growth and poverty reduction, also calling for deep structural reforms. Ongoing reforms boost international competitiveness, increase the attractiveness of Nigeria for domestic and foreign investments, and have started to reduce debt-related fiscal risks and reopen fiscal space. Yet, addressing longstanding and potentially binding constraints to growth are crucial for Nigeria to sustain stronger growth. This requires reducing trade barriers, improving trade facilitation, increasing access to reliable power supply, and improving the business environment. Transport infrastructure investments led by the private sector could integrate the domestic market, allowing businesses to reap economies of scale. Improving creative destruction forces for productivity growth rely on not only lowering import barriers, but also improving competition policy and its enforcement. Reducing insecurity, from banditry to informal checkpoints along trade corridors, is essential to increase production across sectors such as agriculture and the oil sector.
Development Challenges
Despite having the largest economy and population in Africa, Nigeria offers limited opportunities to most of its citizens. Nigerians born in 2020 are expected to be future workers 36% as productive as they could be if they had full access to education and health, the 7th lowest human capital index in the world. Weak job creation and entrepreneurial prospects stifle the absorption of the 3.5 million Nigerians entering the labor force every year, and many workers choose to emigrate in search of better opportunities. The poverty rate is estimated to have reached 38.9% in 2023, with an estimated 87 million Nigerians living below the poverty line — the world’s second-largest poor population after India.
Spatial inequality continues to be large, with the best-performing regions of Nigeria comparing favorably to upper middle-income countries, while the worst performing states fare below the average for low-income. In most areas of Nigeria, state capacity is low, service delivery is limited, and insecurity and violence are widespread. Infrastructure gaps constrain access to electricity and hinder the domestic economic integration that would allow the country to leverage its large market size, which is aggravated by trade protectionism. Emerging problems such as the increased severity and frequency of extreme weather events, especially in the northern parts of the country, add to these long-standing development challenges.
Recent reforms offer a launching pad to a new social compact for Nigeria’s development. Strengthening macroeconomic fundamentals will allow structural reforms to be pursued and economic growth to be restored. The current low social and economic equilibrium could be switched to one marked by a better funded and more effective State that provides efficient public services, public goods, and a conducive economic environment for the private sector to flourish and create more quality jobs for Nigerians.
Last Updated: Oct 14, 2024
