Nigeria is globally recognized as the most populous black country and among the fastest-growing economies, not only in Africa but worldwide. However, despite the sheer size of its population of 232 million, it is plagued by severe economic woes and instability.
So, How bad is Nigeria’s economic situation, and how can Nigeria improve its economy?
Here, we aim to provide insight into the current situation and economic challenge combating Nigeria as of 2024.
What Is the Current Economic Situation in Nigeria?
As of 2024, the Nigerian economy continues to grow, although at a significantly lower rate compared to previous years. According to the African Development Bank, the rate of economic growth in Nigeria decreased from 3.03% in 2022 to 2.9% in 2023. In. 2024, however, Nigeria’s GDP grew by 3.19% YoY in Q2 2024, higher than 2.51% in Q2 2023 and 2.98% in Q1 2024.
A look ahead reveals that the Nigerian economy may experience further decline in its development in 2024, although the economy is expected to grow by 3.2% in 2024 and 3.4% in 2025.
However, several issues weigh on Nigeria’s economic growth, with the most severe issues including a high inflation rate, exchange rate depreciation, and its deficit. These issues directly affect its growth since the real GDP is adjusted to the inflation rate and the depreciation of its currency.
Moreover, a recent World Bank report reveals that over 40.1% of the country’s population will live below the poverty line by the end of 2024, creating an economic inequality in the Nigerian population. When duly interpreted, the data implies that Nigeria is faced with an increasing probability of further economic decline by the end of the current year.
Overall, despite steady growth in the last few years, the current economic situation in Nigeria is quite complex. In fact, many analysts and economists claim Nigeria is about to experience the worst economic crisis in decades.
Key Economic Issues in Nigeria
Nigeria is facing a number of economic issues that threaten its economic growth and stability. Those are:
High Inflation Rate
Perhaps the biggest issue the Nigerian economy is currently facing is the high inflation rate. Nigeria ranks among the nations with the highest inflation rate globally, recording an inflation rate of 34.19% in June – the nation’s highest in the last 28 years. Inflation data released by the Central Bank of Nigeria, CBN, in August pegs the nation’s inflation rate at about 32%.
Lack of continuity in government initiatives, poor monetary policies, and the removal of fuel subsidies are among the key drivers of inflation in Nigeria.
Growing Rate of Youth Unemployment
Job loss is one of the most common consequences of declining economic growth and high inflation rates. In the case of Nigeria, youth unemployment rose to 8.6% in Q3 of 2023, according to data released by the National Bureau of Statistics, NBS. However, this data is not likely to be much higher since Nigeria is one of the leading countries with an unregistered population.
Currency Devaluation
One of the fundamental indicators of Nigeria’s lopsided economic outlook is the continued devaluation of its currency, the Nigerian Naira. Over the past few years, Nigeria has devalued its naira over seven times, which has significantly reduced the purchasing power of the currency against the US dollar. In the past year, the Naira lost 113% versus the US dollar, falling from 780 to its current level of 1640 (as of late September 2024).
Usually, currency devaluation helps minimize investment outflow from a country’s economy. However, Nigeria’s multifaceted economic challenges defeat the upsides derived from currency devaluation. Instead of creating a more discounted economic environment for foreign investments, it’s reduced the attractiveness of the country’s investment landscape. Consequently, there’s been an increase in the exit of multinationals from the country’s market.
Further, Nigeria’s debt continues to be a major concern for policy markets. The nation’s debt burden as of the time of writing has grown to over $108 Billion or approximately ₦97 trillion in the local currency. The pilling debt burden is gradually eroding the capacity of its government to meet its fiscal responsibility.
How Can Nigeria Improve Its Economy?
Despite Nigeria’s economy being plagued with woes, the country’s potential remains one of the brightest in the African continent. The sheer size of its population makes it an attractive trade destination for many countries worldwide and for investors looking to invest in Africa.
Similarly, its geographical landscape and mineral resources make it a most sought-after country when it comes to mineral resources and energy resources.
So, with that in mind, what needs to be done in order for Nigeria to improve its economy?
In the list below, we’ll cover some of the strategies and initiatives that would likely help Nigeria reposition its economy. While it’s hard to find a silver bullet when it comes to economic reforms, simple adjustments such as the ones listed below might kick off the long strides towards an improved economic outlook for Nigeria.
Here are the key steps that must be taken in order for Nigeria to improve its economy:
- Increased Security of Life and Properties
- Diversification of the Country’s Economy
- Improved Power Supply
- Education and Vocational Training
- Fostering Public-Private Collaboration
- Good Governance and Corruption Eradication
- Investing in Innovation and Technology
1. Increased Security of Life and Properties
The security situation in Nigeria has declined drastically over the past decade. Over this period, Nigeria has lost valuable properties valued at billions of dollars to the growing insecurity menace. Some of the biggest terror groups worldwide, such as Boko Haram, ISWP, and Bandits, claim responsibility for many of the atrocities committed within the country, which often result in the loss of lives and valuable private and public assets.
Frequently, citizens in the North-Eastern and middle belt regions of the country, such as Borno, Benue, Adamawa, Kogi, Plateau, and Niger, are the most victimized. More importantly, these regions are also among the country’s agricultural nerve centers. The continued attacks on lives and properties in the area have resulted in a dramatic reduction in food security and farming activities.
Consequently, Nigeria has experienced inflation of food prices due to the importation of essential food items. Moreover, the tourism and hospitality sector is one of the sectors that’s been hurt the most by the extreme insecurity situation. The country has been labeled as one of the countries with the highest tourist casualty rates.
Besides providing a more conducive environment for its citizens, resolving Nigeria’s security problems would also enable businesses to excel, particularly in the agricultural value chain. Other sectors of the country’s economy would also enjoy growing investors’ interest as the climate becomes more appealing to global investors. In short, this is a must-do for the Nigerian economy to thrive.
2. Diversification of the Country’s Economy
As the world’s 15 largest oil producer worldwide, Nigeria derives about 95% of its foreign exchange earnings from the oil sector. Likewise, over 80% of the county’s budgetary revenue comes from the oil sector. With so much dependence on a single economic sector, it’s hard to achieve sustainable growth and development. To harness its full potential, there’s a need for a major diversification of the Nigerian economy.
The agricultural sector is one of the sectors that is rightly positioned to contend with the country’s oil sector. Prior to the discovery of oil in Nigeria in 1956, the Nigerian economy was based on agriculture, as it derived its foreign exchange earnings from the exploitation of agriproducts. Rubber, groundnuts, Cocoa, and several other agricultural products are among the key projects that generated earnings for the country in the past. Surprisingly, despite the country’s impressive agrarian potential, Nigeria is still a net importer of agricultural products.
Other sectors with the capability to drive economic growth include the energy sector, particularly the renewable energy sector. The tourism and hospitality sector also has the potential to generate revenues, although this is highly dependent on the security situation.
3. Improved Power Supply
Another key problem the Nigerian government must solve is power supply issues. Small and medium-sized enterprises (SMEs) are mostly at the receiving end of the power supply drawdown in Nigeria, which is holding the Nigerian economy back.
Despite being a country with over 232 million population and 356,668 sq miles (923,7770 sq kilometers) of land mass, Nigeria’s power supply capacity only offers approximately 3000 megawatts and an overall supply of 16,000 megawatts across the country.
Subpar power generation births the erratic power supply experienced throughout the country. Besides impairing the growth of SMEs within the country, Nigeria’s power supply situation has also discouraged investors as the cost of energy is apparently prohibitive.
Clearly, improving the country’s power situation would put the nation on track to reaching its full economic potential.
As mentioned above, investing in renewable energy solutions would also go a long way towards satisfying the country’s energy needs. It would also position the country as one of the leading nations in the race toward cleaner energy sources. If the Nigerian government can solve the disadvantages of solar energy, then this can certainly be a huge step in improving its economy.
4. Education and Vocational Training
A recent article from the United Nations International Children’s Emergency Fund (UNICEF) stated that one in every five of the world’s out-of-school children is in Nigeria. This puts the future of the country at risk as countries with a better-educated population often outperform others. Indeed, a big problem.
Education is key to economic success. And Nigeria must improve its education system for sustained economic growth and the prosperity of its people. Creating a better education system and declaring a state of emergency on child education is one of the best decisions at the moment. Also, a critical step to take now would be to drastically reduce the cost of primary and secondary school education within the country.
Similarly, Nigeria may have to consider subsidizing primary and secondary school education if it hopes to reach its economic potential. Some other education initiatives to implement may include vocational studies, which would increase the number of self-employed youths in the country.
Also, informal educational structures within the country, such as the Igbo apprenticeship system, can be optimized and refined to increase the country’s job creation rate. Studies have shown that the Igbo apprenticeship model has been a formidable wealth-creation tool among the tribe and its people. Exploring the structure and harnessing its efficiency could provide a faster path towards capitalizing on the human resources in the country.
5. Fostering Public-Private Collaboration
Privatization is an excellent way to stimulate the economy. Therefore, the Nigerian government and public parastatals need to increase their collaboration with the private sector, especially in infrastructure development and real sectors. Such partnerships would facilitate faster growth and a more inclusive economic environment.
Furthermore, it would help drive medium to large investors’ interest in the country. Yet, before that, to attract foreign direct investment, the FDA in Nigeria would have to resolve the present inflation issues. Generally, inflation risk is one of the major factors that discourage investors from participating in a country’s market.
An improved inflation record and public-private collaboration will certainly help Nigeria attract the much-needed inflow of foreign direct investment into the country. In addition, the government should create initiatives and programs that offer financial and technical support to small and medium-scale enterprises in Nigeria. Such initiatives would help drive job creation and reduce dependence on importation.
Along with SME empowerment, trade policies and taxes should be adjusted to ensure small businesses are not stifled. Creating more flexible tax programs and an economic environment where these groups can thrive would go a long way toward improving the overall economic outlook of the country.
6. Good Governance and Corruption Eradication
Regardless of the efficient economic reforms and development-focused strategies, the rate of economic growth would be determined by the effectiveness of its government. Nigeria and Africa have been victimized by bad governance for several years.
Incessant cases of corruption and negligence have resulted in the apparent backwardness of the country and the continent at large. Furthermore, the cost of governance in Nigeria contributes equally to the country’s sluggish development rate. Analysts speculate that the legislative arm of the country’s government alone may account for up to 25% of the federal government overhead.
Despite the country’s infrastructure and educational decadence, consuming a larger chunk of its allocation and a relatively small segment of governance is counterproductive. An active step towards good governance and eradication of corruption within the country would improve its chance of achieving economic stability and sustainable growth. Additionally, it will be a key step to stopping economic inequality in the country.
7. Investing in Innovation and Technology
At last, the world economy is mostly driven by technology. And Nigeria must move forward and adapt.
Nigeria and most African countries are quite behind in terms of technological development. Despite the advancement of science and technology education in the continent, the rate of technology development has been quite slow. Government and private organizations need to invest more in research and development.
Similarly, there’s a need for the country to increase its intellectual property protection, which would reduce the risk of adulteration. Also, providing adequate funds to novel startups is essential for technology development in Nigeria. Startup clustering and the creation of hubs are some of the initiatives that work in developing nations like Kenya and India.
It’s also worth mentioning the integration of cryptocurrencies into the Nigerian economy. The use of digital assets can be beneficial for many Nigerians, especially when taking into account the high inflation.
Nigeria can also replicate the strategy as a means of improving idea transfer among its upcoming enterprises. Overall, the nation’s ability to create and harness technological development within its board gives it a chance to gain economic superiority over less advanced countries. Technology and innovation are key areas that Nigeria needs to look into for economic development.
Conclusion
In sum, the Nigerian economy is clearly not in a good position. With high inflation rates, currency devaluation, and many policy and security issues – there are reasons for concern.
However, Nigeria’s economy still has a chance of reaching its full potential. Economic reforms must be implemented and put on a fast track in order for Nigeria to improve its economy. There are solutions that can be easily implemented, and the Nigerian government, as well as its citizens must do everything in their power to get things done. And the sooner, the better.
