Nigeria Economy

March 29, 2010Nigeriaby EW World Economy Team

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Nigeria is an African nation and considered an emerging market. It ranks as the 21th largest economy by nominal gross domestic product (GDP). Nigeria is the largest economy in Africa. In 2012, its purchasing power parity (PPP) ranks 124th in the world, reaching $451 billion officially—though actual numbers put it closer to $630 billion—and individual GDP reached $2,800 per person —$3,900 per person actual.

After years of poor government and administrative oversight, the Nigerian economy underwent reforms for the past decade that greatly enhanced its performance. Oil makes up about 11 percent of the nation's total GDP but accounts for only about 2.7 percent of the world's oil supply. Although an important part of the Nigerian economy, oil is no longer as major a portion of the nation's economy, which has become increasingly diversified.

Some estimate that Nigeria may set the pace for GDP growth in Africa over the next few years; it could become the fastest growing world economy. Nigeria is one of two African member states in the 11 Global Growth Generators countries.

Economic History

For most of its history, Nigeria was an unincorporated region comprised primarily of tribal groups with regional economies. Human settlement occurred at least as early as 11,000 B.C., with the Yoruba the primary tribal group in the region. Eventually, the Kingdom of Nri rose to power in the region around 900 A.D., unifying both the culture and much of the economy.

The Kingdom of Nri was a religious and political empire. Many modern rulers claim lineage descending from the rules of the Kingdom of Nri, much as European rulers once claimed descent from Charlemagne. The Kingdom of Nri declined in the 15th century.

A separate culture developed in the northern region of Nigeria. These communities were linked by trade and they became a major passage for trade from Islamic states. With the decline of the Kingdom of Nri in the south, several smaller states emerged. Nigeria became largely a conglomeration of small nations and tribal groups, often linked with military and trade alliances uniting regions in times of need.

Islam moved into the area around the 11th century AD, along trade routes through the region. While some groups adhered to Islam, others remained focused on traditional religions of the area. This often led to cultural differences that subsequently resulted in regional conflicts. This created a succession of kingdoms that dominated areas for a time, only to be replaced by another a few years later. This rapid succession of governments created enormous political and economic instability, stunting economic and technological development and hindering trade outside of the region.

After European powers moved into the African continent, the region became one of the largest sources of African slaves. Following the Napoleonic wars, the British assumed the greatest influence over the region. In 1886, the Royal Niger Company was chartered, and by 1900, the company's territory came under the control of the British Government. In 1901, Nigeria became a British protectorate and part of the British Empire. By 1914, the area was formally converted into the Colony and Protectorate of Nigeria, a move that largely united the disparate groups in the area geographically, if not socially.

With colonization, western education and modern economic principles found their way into the region. Development occurred more rapidly in the south than in the north, which has created significant political consequences ever since. Following World War II, a succession of constitutions brought the nation closer to modern government and independence, while keeping the nation under British rule.

On October 1, 1954, Nigeria became the autonomous Federation of Nigeria and gained its independence from Britain in 1960. By the 1970s, the Nigerian economy had grown largely dependent on its export of petroleum. The nation also experienced a rapid change of political control and economic contribution by the government, creating rapid swings in the nation's economic performance. This stunted the rate of overall growth for much of the latter half of the 20th Century.

By the 1980s, the nation's infrastructure and social services were in full collapse. The situation continued to deteriorate through the 1990s, so that by 2000 per capita incomes had dropped to about one-fourth of their 1970s' high. The nation had become too dependent on oil, which accounted for about 98 percent of exports and 83 percent of government revenues. This also led to the grossly unequal distribution of wealth in the nation.

From 2003 to 2007, Nigeria began its National Economic Empowerment Development Strategy (NEEDS). The purpose of the NEEDS program was to improve the nation's standard of living via a number of reforms aimed at improving stability, deregulating industry, liberalizing and privatizing much of the economy, and providing for greater transparency and accountability in the government. Basic needs like running water and electricity fell under the NEEDS program, as well as social education programs aimed at curtailing the epidemic of AIDS and other contagious diseases.

Current Economic Situation

The United Kingdom remains Nigeria's largest trading partner, followed by the United States. Nigeria tends to command the advantage in these relationships due to its oil exports, but a large portion of US exports to Nigeria may go unreported due to importers seeking to avoid Nigeria's excessive tariffs.

Although Nigeria ranks sixth in the world in agricultural output, and first in Africa, its agricultural techniques have not kept pace with the nation's rapid population growth. As a result, Nigerian food exports have been declining for a number of years, while imports have increased. There has however, been a large resurgence of manufacturing and exporting of processed food products. As a result, agriculture accounts for 28.6 percent of the national GDP and accounts for two-thirds of the nation's employment.

Nigeria experienced an oil boom in the 1970s; this caused it to neglect development of its industrial and agricultural sectors. While they exist, they are largely dwarfed by oil production. However, the oil industry has suffered from a number of setbacks itself: beset by poor corporate relations with local populations that have led to attacks on oil infrastructure, severe environmental damage, and violence directed at oil industry personnel.

Nigeria's services sector is underdeveloped, ranking only 63rd in the world. Lack of adequate energy infrastructure has hampered growth in this sector, and there is little foreign investment. While the services sector dominates the economies of most modern nations, this is not the case in Nigeria. In fact, next to oil, remittances sent home from Nigerians living abroad are the second biggest source of income to the nation.

Economic Forecast

The Nigerian economy has enjoyed sustained economic growth for more than a decade, with annual increases in GDP hovering around 7 percent. Non-oil sectors have led this growth, with services finally reaching 57 percent of the nation's GDP in 2014. Thus, the economy is finally reaching a level of diversity that should continue to spur growth.

While growth has slowed slightly since the global recession, thanks in large part to Nigeria's reliance on exports, analysts still predict a growth rate of 5 percent by the end of 2015 and an increase to 6 percent for 2016.