However, there is another side to the Nigeria story that has been overshadowed both by the recent headlines and the persistence of outdated beliefs and assumptions about Nigeria’s economy. A new report from the McKinsey Global Institute, Nigeria’s renewal: Delivering inclusive growth in Africa’s largest economy, examines the country’s economic potential and finds that with the right reforms and investments, it can become one of the world’s leading economies by 2030.
Since 1999, Nigeria has proven to be both politically and economically stable and new data released this year show that it is now the largest economy in Africa, in addition to being the most populous. The new data also show that Nigeria’s economy is far more diverse than previously understood. While the nation’s rich oil reserves remain a critical source of government income and exports, the entire resources sector today is only 14% of GDP. Agriculture and trade are larger and faster-growing. It is also not generally recognised that Nigerian productivity, which remains low, has been growing recently and now contributes more to GDP growth than does the expanding population.
“What people overlook is Nigeria’s extraordinary advantages for future growth, including a large consumer market, a strategic geographic location, and a young and highly entrepreneurial population,” says Reinaldo Fiorini, director and location manager of McKinsey’s Lagos office. The results of Nigeria’s progress, however, have not been spread evenly across its economy. More than 40% of Nigerians live below the nation’s official poverty line and 130m (74%) live below the MGI Empowerment Line – a level of income and access to vital services that provides a decent standard of living.
Chief reasons for Nigeria’s persistent poverty include low farm productivity due to limited access to fertiliser and mechanised tools, and inefficient markets. At the same time, urbanisation has not raised incomes the way it has in other developing economies. This is because formal job creation and skill development in Nigeria’s cities have been weak, making productivity in urban sectors such as manufacturing lower than in agriculture.
Looking ahead, the report finds that Nigeria has the potential to expand its economy by roughly 7.1% per year through 2030, raising GDP to more than US$1.6tr. This could make Nigeria a top-20 global economy – with higher GDP than the Netherlands, Thailand, or Malaysia in 2030. A large consuming class is developing in Nigeria, with potentially as many as 160m members by 2030, more than the current populations of France and Germany combined. This upside scenario is based on a bottom-up analysis of the potential for five major sectors of the Nigerian economy:
Trade. Based on an expanding consumer class in Nigeria, MGI projects that consumption could more than triple, rising from $388bn a year today to $1.4tr a year in 2030, an annual increase of about 8%. This would make trade the largest sector of the economy and provides a particularly good opportunity for makers of packaged foods and fast-moving consumer items such as juices, which could grow by more than 10% per year.