HEAVY HITTER

Nigeria 2015 | DIPLOMACY | YEAR IN REVIEW

The “super eagle" economy of Africa is beginning to spread its wings, and enhanced attention to energy and transport could see economic growth approach double-digit figures in the medium term.

The revelation in April 2014 that Nigeria had officially overtaken South Africa as the largest economy on the continent is proof of what a difference 20 years can make. Following a rebasing of GDP calculations from 1990 to 2010, and increasing the number of reportable categories from 33 to 46, Nigeria's GDP in 2013 came in at $509 billion, almost double the previous estimate. Over 2013, GDP growth came in at 5.5%, with the non-oil GDP growth component coming in at a healthier 8.4% for the year. While initial estimates hoped for 7.4% nominal GDP growth for 2014, a weakening oil price may have put the brakes on the economy.

The oil and gas sector remains a heavy hitter, with any decline in the oil price heavily affecting government spending and the real economy at large. Over 4Q2014, low global oil prices began to put pressure on the local currency, forcing the central bank to step in to devalue the naira (NGN) by nearly 10% while increasing the prime benchmark rate by one percentage point to 13%.

On the politics front, in late 2014 Nigeria entered the national elections cycle, with the main vote expected to take place on February 14, 2015. Incumbent President Goodluck Jonathan and his People's Democratic Party (PDP) are hoping that the administration's efforts on the economic front will convince the public to keep them in power. A number of opposition parties have decided to unite under the All Progressives Congress (APC) banner, with a single presidential candidate, General Muhammadu Buhari, selected to represent the movement. Whoever wins the poll will quickly face some stern decisions on the economic front, especially in terms of government spending priorities.

The banking sector is beginning to show the fruits of reform efforts that have been ongoing for nearly a decade. At end-2013, the total assets of the commercial banks equaled 30.29% of GDP, though the large commercial banks appear to be confined to narrow aspects of the economy, such as the oil and gas, trade, and corporate sectors, leaving much room open at the retail level. After the finance market consolidation process, that saw bank numbers reduced to 21, Nigeria's banks have begun to increasingly look outward, seeing the African continent as their natural market. Also, consolidation is on the horizon for the Nigerian Stock Exchange (NSE), with broker numbers set fall from 307 to less than 100. While Nigeria's economy has leapfrogged that of South Africa's in GDP terms, on the capital markets front the NSE has a way to go before it can push past Johannesburg and take the African crown.

The oil and gas industry remains a mainstay, with the country producing some 2.32 million barrels per day (bbl/d) over 2013, making it the world's sixth largest exporter. Although it has extensive oil reserves of 37.1 billion bbl, Nigeria remains energy poor in electricity terms, with the government looking to enhance private sector involvement in energy generation. Furthermore, in order to reduce the country's reliance on imported refined products, the 2013 announcement by Dangote of a $9 billion refinery investment could see Nigeria better add value to its core natural resource export items.

The industrial sector is beginning to be taken more seriously, with the food, beverage, and tobacco segment representing some two-thirds of manufacturing activity, although work needs to be done to wean the country off basic imports such as iron and steel products, especially as the government wants to kick start a local auto industry. In positive news, Nigeria will soon find itself as one of the world's top 10 cement producers, a remarkable turnaround for a country that was importing around half of its cement needs less than five years ago.

Another economic success has been the growth of the ICT sector, with Nigeria boasting a near 75% mobile penetration rate as of 2013. Internet usage doubled in subscriber number terms to 64.42 million by end-2013, with further growth likely as smartphone use becomes more prevalent. Still, with low average revenue per user (ARPU) numbers, and a tricky taxation and electricity supply situation, telecoms providers remain both stoic and optimistic about Nigeria's potential in the ICT space.

While agriculture represents around one-quarter of GDP, it remains the primary income generator for some 70% of Nigeria's 175 million strong population. Under the rubric of the Agricultural Transformation Agenda (ATA) policy, Nigeria has managed to reduce its import bill for basic foodstuffs from $6.9 billion in 2009 to $4.43 billion by 2013. Still, further efforts to improve cultivation, storage, and distribution methods are needed to wean Nigeria off food imports and help farmers contribute more to the local economy.

Should increasing efforts to resolve transport and electricity supply issues come to pass, Nigeria's economy could well be on its way to seeing near double-digit economic growth in the coming years. However, the government will need to keep on improving the business environment to ensure that the potential Africa's largest economy offers is given the chance it deserves to flourish and diversify.