Nigeria on track for global Top 20 status
A new report by the McKinsey Global Institute (MGI) on Nigeria, has indicated that the nation could potentially become a major global economic super power in less than two decades from now. Frederick Mordi has the details.
In the report, MGI notes that despite the internal security challenges that Nigeria is currently grappling with, the nation is making progress on the economic front. The gloomy stories that have been making the headlines in the country seem to have eclipsed this positive development.
According to the report, foreign investors are increasingly shifting their focus to Nigeria due to the investment opportunities that abound. The economy, the report adds, appears more diverse than previously thought. It predicts that with the right reforms and investments, Nigeria could, in fact, emerge as one of the 20 leading economies in the World by 2030. The report says: “We believe that Nigeria can build on the momentum of the past decade and, if all goes well, achieve 7.1% annual GDP growth through 2030. The country is well positioned to benefit from trends such as rising demand from emerging economies, growing global demand for resources, and the spread of the digital economy.
“Should Nigeria reach its full potential, annual GDP could exceed $1.6trn in 2030 and the country could be a top-20 economy.”
Nigeria’s youthful and rapidly growing population and access to markets within and outside the continent are other factors working in the country’s favour, the report found out.
The MGI report identifies five major sectors of Nigeria’s economy that hold the ace for further growth. They include trade, agriculture, infrastructure, manufacturing and oil and gas, which is the mainstay of the economy.
Critical sectors for investment
It projects that due to the rapid expansion of the increasingly sophisticated consumer class in Nigeria, annual consumption could increase from the current $388bn to almost $1.4 trillion a year, in 2030, representing an annual increase of about 8%.
The report adds: “This would make trade the largest sector of the economy and provide a particularly good opportunity for makers of packaged foods and fast-moving consumer items such as paper goods, categories that could grow by more than 10% a year.”
The swift expansion of South African retailer, Shoprite, across several Nigerian cities, for instance, lends credence to the growth in the trade sector. Shoprite, which opened its first branch in Nigeria in Lekki, Lagos, in 2005, currently has nine outlets in the country. The company is looking to open three more outlets before the end of the year, taking advantage of the growing middle class and rising demand. It aims to eventually open 44 branches in Nigeria within the next few years.
The report also predicts that given the current reforms in agriculture, the sector, which accounts for 22% of the GDP, making it the largest in the economy, could rise to $263bn a year by 2030, up from $112bn in 2013, in terms of economic value. This could make investments in agriculture a gold mine for discerning investors.
Similarly, the report projects that total infrastructure investments in Nigeria could reach $1.5 trillion from 2014 to 2030, and would make building infrastructure not only a major contributor to GDP but also an enabler of growth across the economy.
For the rapidly growing manufacturing sector that contributed $35bn to the economy in 2013, or about 7% of GDP, the report said there is potential for further growth.
Noting also that the oil and gas sector is the lifeblood of the Nigerian economy, the report says with the right reforms, liquids production could potentially increase from an estimated 2.35m barrels a day, in 2013, to a new high of 3.13m by 2030.
“Oil and gas would then contribute $108bn annually to the economy, compared with $73bn in 2013. However, this estimate of potential output assumes renewed investment to reverse the production declines of recent years.”
Proposed new investments in greenfield local petroleum refineries by indigenous companies such as the Dangote Group, and other foreign investors, could ramp up this volume in the medium to long term.
If Nigeria can achieve this positive economic-growth scenario, the report says, it could potentially lift 70m people out of poverty. However, the government must create more jobs, lower the cost of basic services, improve electricity supply and review tariffs on imported food items, to make this scenario a reality, it advises.
The report adds: “The most important step that government can take, in our analysis, is to improve its delivery of programmes and services. A critical initiative for Nigeria, then, will be to adopt the best practices that have been well established around the World for doing just that.”
Noting that the results of Nigeria’s progress has not trickled down to the grassroots, as more than 40% of Nigerians live below the poverty line, the report identifies low farm productivity due to limited access to fertiliser and mechanised tools, and inefficient markets, as the main culprits.
Summing up these perspectives, Reinaldo Fiorini, a director in McKinsey’s Lagos office, acknowledged that Nigeria has high potential for future growth, in spite of these drawbacks.
Fiorini said: “What people overlook are Nigeria’s extraordinary advantages for future growth, including a large consumer market, a strategic geographic location, and a young and highly entrepreneurial population.”
This view also finds accommodation with Acha Leke, another director in McKinsey’s Lagos office, who advised Nigeria not to let the opportunity slip by.
Leke said: “By capitalising on its strengths and positioning itself to take advantage of emerging global trends, Nigeria could potentially triple its GDP by 2030. This adds up to a huge opportunity for inclusive growth that should not be missed.”
Nigeria FDI top three in Africa
Meanwhile, Nigeria maintained her position as one of the top three destinations for foreign direct investment (FDI) in Africa, the United Nations Conference on Trade and Development (Unctad), announced in a report issued in June. According to the report, FDI inflows into the continent increased by 4% to $57bn, with Nigeria’s inflow estimated at $5.6bn in 2013. The report said only seven African countries recorded FDI inflow above $3bn. They are Nigeria, South Africa, Mozambique, Egypt, Morocco, Ghana and Sudan.
Nigeria received a major boost in April when the result of the rebased GDP estimated at $510bn in 2013, showed that the West African nation had overtaken South Africa, which once held the position as the largest economy on the continent. South Africa’s GDP stood at $351bn in 2013.
Analysts say Nigeria must sustain the momentum by ensuring that the current reforms in the economy reach a logical conclusion. They also want the government to address obstacles to doing business in the country, particularly the issue of epileptic power supply and double-digit interest rate, to encourage more manufacturing activities.
Above all, they want the government to tackle the insecurity situation in the country to reassure investors. This, indeed, is Nigeria’s moment. If Nigeria takes advantage of this opportunity, it will go a long way in consolidating the gains recorded so far in the economy.
Source: African Business Magazine