With crude oil no longer able to paper over the cracks of an economy with deep structural deficiencies, Nigeria’s next set of leaders are increasingly going to face more scrutiny, perhaps even more than current President Muhammadu Buhari has faced for their economic policies against the backdrop of deepening poverty.
In 2010, Nigeria had 158 million people and an economy worth $361 billion. By the end of 2021, the World Bank projects the economy would have lost years of robust growth, specifically between 2010 and 2014, and will be back at the same place it was in 2010. Only problem is that the population will be around 206 million, 33 percent higher than 2010 levels. That in itself is a clear picture for anyone who needs convincing about deepening poverty levels in the country: 210 million people must share the same pie that 158 million people shared 10 years ago.
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That pie grew larger in the years up to 2014 until it started to shrink every year since 2015, leaving in its wake higher poverty levels.
The good old days
The economy grew by an average of 6 percent between 2011 and 2014, hitting a peak of $546 billion in 2014, fuelled by high oil prices. Oil prices averaged $98 per barrel between 2010 and 2014.
High oil prices meant increased revenues to the federation, stable foreign reserves and a growing fiscal reserve fund (excess crude account).
Consumer spending was on the rise and private companies were declaring bumper profits while expanding at a record clip.
Nigerian companies caught the eye of foreign direct investors who invested an average of $6.4 billion every year between 2010 and 2014.
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The narrative of Nigeria’s fast rising middle class and the opportunities in investing in Nigeria had also caught on. Mckinsey had spoken glowingly of an emerging retail economy in Nigeria in a 2013 report titled “Africa’s growing giant: Nigeria’s new retail economy.”
The report’s authors – Reinaldo Fiorini, Damian Hattingh, Ally Maclaren, Bill Russo and Ade Sun-Basorun – projected that Nigerian households with incomes of more than $5,000 a year were estimated to increase from 20 percent of the population in 2013 to 27 percent by 2020.
At the root of every good thing that came out of Nigeria was crude oil. The world’s most valuable resource, at the time, greased the wheels of the economy.
Game over
Things however went downhill from there, quite predictably. Right around mid-2014, oil prices began a lengthy collapse that had been forewarned by a motley crew of economists.
The price of oil, which had peaked at $114.60 per barrel in June 2014, declined by over 70 percent to under $30 per barrel by February 2016, owing to excess supply.
By the end of 2016, the economy would contract for the first time in 25 years. Before Nigeria could fully recover, the COVID-19 pandemic, which triggered a dramatic slump in oil prices and led the government to impose a strict lockdown, knocked the wind out of the sails of the economy.
The pandemic brought with it a second recession in five years. The economy has not expanded fast enough to accommodate the population growth rate since 2015, a sign that Nigerians are growing poorer.
Some 87 million Nigerians are living in poverty, according to a 2018 research by Brookings Institution. The World Bank expects an additional 7 million Nigerians to fall into poverty this year on the back of rising inflation.
The International Monetary Fund (IMF) says the economy may not return to pre-pandemic growth levels until 2023, yet that is no respite to rising poverty.
This is because when Nigeria was not contracting, it was growing at around 2 percent before the pandemic, which lagged population growth rate of 2.6 percent. What this means is that simply returning to pre-pandemic growth levels is not enough to fight widespread poverty.
Sadly, the population is not slowing. By 2050, Nigeria will be home to the third largest population in the world (400m), with the bulk between the ages of 18 and 25. What would be a blessing for several countries is increasingly looking like a ticking time bomb for Nigeria.
“Nigeria’s high fertility rate means its savings are low – unless oil prices are high and bring in lots of foreign exchange,” noted Charles Robertson, the global chief economist at investment bank, Renaissance Capital.
High oil prices boosted Nigeria in 2010, and without them, the shortage of savings has hurt investment and therefore growth, according to Roberston.
“The consequence of high fertility is continued poverty as GDP growth struggles to match population growth, which leads to high unemployment. It’s a tough situation that in the short to medium-term can only be resolved by running a current account surplus,” Roberston said in an emailed response to questions.
But the problems have been obvious for a long time now and Nigeria is at a crossroads where it must decide whether it is capable of making the right decisions to lift millions out of poverty, according to Andrew S. Nevin, the chief economist at PriceWaterhouseCoopers (PWC).
“The essential issue here is we haven’t had any meaningful economic growth since 2015, and Nigerians have grown progressively poorer,” Nevin said.
“Nigeria needs to use sound economic policies in the way India and China did to lift millions out of poverty, and that should be a matter of urgency for a country that would be the third most populous country in the world by 2050,” Nevin added.
The president’s economic advisers, which include Doyin Salami and Bismarck Rewane have called for increased private sector role in the economy and higher investment in critical infrastructure that have a direct impact on labour productivity and economic growth.
