With the right reforms and investments, Nigeria is poised to become one of the world’s leading economies by 2030, according to a report by McKinsey Global Institute (MGI).
Since 1999, Nigeria has proven to be both politically and economically stable and new MGI research data released this week show that it is now the largest economy in Africa, in addition to being the most populous.
The new findings also show that Nigeria’s economy is far more diverse than previously understood. The nation’s rich oil reserves also remain a critical source of government income and exports, the entire resources sector today is only 14 percent of GDP.
Agriculture and trade are larger and faster-growing. It is also not generally recognized 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,” stated Reinaldo Fiorini, director and location manager of McKinsey’s Lagos office.
More than 40 percent of Nigerians live below the nation’s official poverty line. Additionally, 130 million (74 percent of the population) live below the MGI Empowerment Line.
The key reasons for Nigeria’s persistent poverty include low farm productivity due to limited access to fertilizer and mechanized tools, and inefficient markets. At the same time, urbanization 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.
According to the report, Nigeria has the potential to expand its economy by roughly 7.1 percent annually through 2030, raising GDP to more than $1.6 trillion. This could make Nigeria a top-20 global economy. What’s more, a large consuming class is developing in Nigeria and is expected to reach 160 million by 2030.
The report looked at:
– Trade. Based on an expanding consumer class in Nigeria, MGI projects that consumption could more than triple, rising from $388 billion a year today to $1.4 trillion a year in 2030, an annual increase of about 8 percent.
– Agriculture. The sector, which is now the largest at 22 percent of GDP, could more than double from $112 billion annually in 2013 to $263 billion by 2030.
– Infrastructure. On average, the value of a nation’s core infrastructure is about 70 percent of GDP; in Nigeria, core infrastructure is estimated to be about 35 – 40 percent of GDP. Nigeria could reach $1.5 trillion between 2014 and 2030. This would not only make infrastructure building a major contributor to GDP, but also an enabler of growth across the economy.
– Manufacturing. Manufacturing in Nigeria contributes $35 billion, or about 7 percent of GDP, in 2013. The output has however rose by 13 percent annually from 2010 to 2013. Based on current trends, this could yield a four-fold increase in manufacturing output by 2030, to $144 billion per year (an annual growth rate of 8.7 percent).
– Oil and gas. While the oil and gas sector is expected to grow by 2.3 percent per year at best, its success is still vital to the Nigerian economy. It could increase from 2.35 million barrels a day on average to a new high of 3.13 million barrels a day by 2030, contributing $22 billion to GDP by 2030.
Natural gas output could grow by as much as 6 percent per year, adding $13 billion to GDP by 2030. In total, the oil and gas sector has the potential to contribute $108 billion per year by 2030, up from $73 billion in 2013. However, this assumes that the sector is successful in dealing with current obstacles such as security and can attract fresh investment.