The political economy of Nigeria: Challenges and opportunities for reform

With 200 million people and an estimate Gross Domestic Product of $440 billion in 2021, Nigeria is Africa’s most populous country and the continent’s largest economy. despite the country’s potential at its independence from Britain in 1960, when the country seemed destined to achieve qualitative economic development and even structural transformation, it is currently experiencing deep economic distress and its internal cohesion as a nation, always troubled at best, has worsened in recent years. Insecurity from terrorism remains a big challenge to the daily lives of millions, state capacity is weak, and the very legitimacy of Nigeria itself is increasingly challenged.

While it is tempting to focus on the largely negative indicators that dominate the country’s political and economic situation, admiring the problem is not an option. There is a path forward for Nigeria to make transformational progress, we must find and walk that path. But, to solve Nigeria’s problems, we must understand what precisely those obstacles are, and take a political economy approach to confronting them.

Why a political economy approach? This approach is required because, especially for developing post-colonial states and the evolution of their economies, questions of poverty and the possibility of widespread creation of wealth for and by citizens, depends, largely on how a country’s politics and political system, laws and government frame the national economy and how productive the economy can be. There is no shortage of brilliant economists in Nigeria, but 90million of its 200million citizens live in extreme poverty. It is the country’s politics, which is focused on power capture by the elite and the consequent opportunities for corrupt enrichment, patronage, and rent creation, rather than economic productivity and improving the standard of living of citizens broadly, that has framed this outcome and reality.

The foundation

Like many sub-Saharan African states, Nigeria is an artificial creation, rather than an organically developed state. The British colonial enterprise put together several ethnic nations in one state without their real consent, in the Amalgamation of the Northern Nigeria Protectorate and the Southern Nigeria Protectorate of Lagos in 1914. Northern and Southern Nigeria had extremely divergent backgrounds. The North was dominantly Islamic, and religion played a central role in social and political life. The South was mainly Christian, more aligned with capitalism and mostly religious and evolved to be more secular in its political culture. The Southern Protectorate was also economically more advanced than the Northern Protectorate.

The most important reasons for the amalgamation of the two protectorates with two highly divergent worldviews was economic. This reflected the main impulse for colonialism – the Industrial Revolution created a need for new sources of raw materials and new markets for finished products. A research of the historical archives makes clear that Britain merged the two Protectorates to utilize the budget surplus of the Southern Protectorate to subsidize its deficit financing of the Northern Protectorate, and to improve a network of railways between the two protectorates.

And yet, British colonial officials, perhaps out of a sentimental attachment to a shared feudal culture, always had a stronger political, cultural and strategic alignment with Northern Nigeria’s political and religious elite than with the largely Christian Southern Nigeria, home to the most vociferous leaders of the movement for independence from colonial rule such as Nnamdi Azikiwe, Obafemi Awolowo, and Anthony Enahoro.

The tripartite regional structure of Nigeria in the 1950s, combined with the parliamentary system of government instituted by Britain as colonial power, led to the development of ethnicity-based politics, even as federalism resulted in steady economic growth in the various regions of the country.

Nigeria’s strategic challenges

Any poll of Nigerians will throw up a myriad of issues each believes are the country’s biggest challenges. But I believe we must narrow these challenges down to the most strategic few. These issues should be identified based in their systemic influence and consequence on the country’s security and its political and economic progress. In other words, their causative, rather than symptomatic impact – their knock-on effects.

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Based on this criterion, I identify seven critical reasons for Nigeria’s underperformance and current dysfunction. These challenges are:

i. Decline of national security and a sense of nationhood

ii. Weak political order formation.

iii. Decline of State Capacity and the Elite Class

iv. The curse of oil

v. Corruption

vi. Uncontrolled population growth

vii. Loss of global influence

The decline of national security and nationhood

Nigeria’s territorial integrity, as well as the safety and security of the lives of millions of its citizens, is under military threat from an assortment of terrorists. The country’s Northeast zone has been under terrorist attacks from Boko Haram (and more recently in an alliance with the Islamic State West Africa Province, ISWAP) for the past 12 years. In the Northwest, terrorists euphemistically termed “bandits” increasingly hold sway. In addition, terrorist “herdsmen” have spread out across the country, mainly in the Middle Belt and the Southwest and Southeast zones, attacking, killing and maiming civilian populations, appropriating farmlands and sacking communities from ancestral enclaves. Despite the gallant efforts of Nigeria’s Armed Forces, they have not been able to subdue and prevent continuing terrorist attacks in the manner a strong state should.

Without fixing the fundamental challenge of the decline of nationhood, it will be difficult for Nigeria to make real progress on any other front including security. The reality is that perceptions of symbolisms, gestures, fairness and others, including in the distribution of important political and security appointments, often matter highly in nation building.

Distorted democratic development

Our democracy, restored in 1999, has overall not served the purpose of the formation of a stable truly democratic order characterized by state-building with strong institutions, respect for the rule of law, and truly accountable governance. It also has not led to economic development and structural economic transformation, although we experienced relatively strong economic growth rates in the 2000s and the early years of this decade, which coincided with the commodity super cycle.

What we have had is civilian rule, a semi-democracy at best. Politics has been a contestation for personalized unaccountable power by factions of a political elite for the purpose of corrupt self-enrichment, control of patronage and the creation of economic rents with instruments of state authority. There exist no real political ideologies, no real capacity for leadership, that can transform Nigeria’s increasingly impoverished society, and little evidence of good governance as a vehicle for the expression of such leadership. Elections have been all too frequently rigged.

The decline of state capacity and the elite class

State capacity in Nigeria has steadily declined over the past 40 years. Development and political economy literature, including works by ShitiKhemani, Mark Dincecco and others, tell us that state capacity is the ability to achieve policy goals. It is measured mainly in three broad ways: (1) The ability of a state to defend its territory and provide internal security for its citizens. (2) The ability to extract taxation efficiently and effectively for fiscal governance in the context of a social contract between the star and its citizens. (3) The ability to deliver administrative services and public goods such as health and education effectively. When a state’s capacity is weak in these contexts, that state is a fragile one, or in extreme cases, a failed state.

The curse of the petro state

Nigeria is a prime example of the resources curse, in which many countries with abundant natural resources end up badly governed and economically backward. Oil contributed only 9% of Nigeria’s GDP in 2020 but retains and outsized importance in Nigeria’s political economy because crude oil sales account for 70% of total government revenues and, even more significantly, 90% of all export earnings. The county has earned $700billion from oil sales in the past 20years.

The dominance of the oil sector as a revenue earner has exposed the Nigerian economy to oil price shocks that have destabilized fiscal management, prevented the diversification of the economy (Nigeria was well on its way to industrialization in the 1960s), and resulted in a current foreign debt burden of $35billon, with 90% of government revenues going to debt servicing. All of this damage does not include the pervasive rent-creation and rent-seeking incentives created by an oil-dependent economy, environmental degradation, ethnic conflicts and poverty created by oil dependence.


Corruption is a systemic challenge for Nigeria, although it is a universal phenomenon in many countries to varying extents. What concerns us here is its impact on Nigeria’s development. That impact is heavy. Nigeria is estimated to have lost $600 billon to corruption in the public sector since independence. I believe this estimate is a conservative one, and that a more accurate figure would be close to $1 trillion. While the resource curse vastly increased the scale of corruption in Nigeria, the impact of inflation over the years has also driven a massive increase in the scale of corruption. With the progressive depreciation of the purchasing power of the naira, corrupt public officers have felt a need to increase the private gains they acquire through corrupt enrichment. This phenomenon has also led to the “dollarisation” of corruption, in particular in the natural resources sector in which international transactions are done in foreign currency and in the political sphere (political corruption).

Population growth

Nigeria faces a systemic challenge from population growth, with implications that will stretch far into the future if not well managed. According to United Nations, our population of 206 million today will double to 400 million in 2050, overtaking the United States as the third most populous country in the world. But our population growth rate, 2.5% in 2020, is outpacing economic growth, which since 2015 has been less than 2% on average (2.65% in 2015, 1.62% in 2016, 0.81% in 2017, 1.92% in 2018, 2.21% in 2019, -1.79% in 2020).

While Nigeria is not overpopulated to the extent that its labor force is inadequate and vastly underperforming in its economic output relative to the country’s resources – and while our large population guarantees Nigeria significant influence in international relations, we must worry about – and take action in – the quality of the mass of our population. Do they have basic literacy?

Nigeria in the World

Nigeria matters in the world. Of this there can be no question. This reality is recognized by the world’s great powers and assured to some extent by the country’s population and economic size in the African country. In recent years, as well, Nigeria has been able to get its nationals elected to the leadership of important multilateral organizations such as the World Trade Organization and the African Development Bank. Talented Nigerians perform great feats in the world.

But, upon a somewhat deeper examination, we will find that our country remains far from achieving its potential as the beacon of the black race in world politics, as China has become for Asia. We have indeed declined from where we once were. Unlike in the early 1960s after independence, or in the 1970s under military rule, foreign policy is today almost completely absent from domestic Nigerian politics.

Path to resolution: How to make Nigeria great

The path to resolving Nigeria’s crisis runs mostly through the character of the country’s politics, the quality of its political of its political processes and institutions, and its constitutional, political and purely economic reforms.

The seven paths to resolution that I propose are: 1. Electoral reforms. 2. Citizen political education and participation. 3. The Emergence of transformational Leadership. 4. Elite consensus. 5. A Third Force as the vehicle for transformational leadership. 6.Constitutional reform. 7. Economic philosophy.

Excerpts of a public lecture delivered by Professor Moghalu, at the University of Oxford

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