Elijah Oyeyinka
Data-Driven Reforms to Transform Nigeria’s Economy
Awakening the slumbering giant
Nigeria stands at a crossroads. Demographic projections
indicate that by 2050, the country’s population could surge to between 400 and
500 million people. This rapid growth worsens existing economic problems,
including high youth unemployment rates, the unenviable status as the world’s
“poverty capital,” a mounting debt crisis that threatens long-term fiscal
stability, ongoing issues related to the removal of fuel subsidies which have
compounded the cost-of-living crisis, and substantial gaps in critical infrastructure.
To avert impending demographic disaster, Nigeria must
implement data-driven, people-centered, and free-market friendly reforms. The
nation’s careful choice of policy direction can and should leverage its
youthful population as an asset, by fostering innovation through qualitative
education and skill development programs, encouraging entrepreneurship with
micro-credit schemes, and creating a politically stable and conducive
environment to secure additional foreign direct investment. By adopting these
approaches, Nigeria can transform its economy, significantly improve GDP per
capita, and enhance the overall quality of life for its citizens. To
successfully achieve these dexterous outcomes, the nation must draw valuable
lessons from similar strategies implemented in Europe and America, keeping
Nigeria’s unique context and needs in mind.
Macroeconomic challenges
Inflation, Monetary Policy and Growth
In June 2024, Nigeria’s inflation rate reached a staggering
34.2%, according to the Nigerian Bureau of Statistics. This increase was
primarily driven by significant increases in food prices, disruptions in supply
chains, and currency instability. High inflation rates over a sustained period
lead to a decline in purchasing power for all Nigerians and widening income
inequality, with disproportionate impact on low-income households. To stabilize
inflation, Nigeria needs a balanced approach, combining prudent fiscal policies
and monetary tightening. For instance, targeted subsidies for essential goods
will help protect vulnerable populations.
However, Central Bank of Nigeria (CBN) policies aimed at
reducing inflation, such as raising interest rates, can lead to a crowding-out
effect. This phenomenon occurs when high interest rates make borrowing more
expensive for businesses, reducing their ability to invest and expand, which in
turn hampers job creation and economic growth. Alhaji Aliko Dangote, Africa’s
richest man and prominent Nigerian industrialist, has voiced concerns about the
CBN’s approach, warning that high interest rates could stifle the private
sector’s capacity to generate employment. This emphasizes the economic dilemma
that Nigeria faces where efforts to address one problem (inflation) may
inadvertently exacerbate another (unemployment and slow economic growth),
underscoring the urgent need for creative policies that balance inflation
control with economic growth.
Population growth
Nigeria’s population is on track to reach 400 million by
2050, growing at an annual rate of 2.6% (United Nations, 2023). Such rapid
growth demands significant investments in infrastructure, healthcare, and
education to ensure the population can contribute productively to the economy.
A World Bank report from 2022 highlighted that improving education and health
outcomes could substantially increase Nigeria’s human capital index, which is
currently one of the lowest globally.
Unemployment and underemployment
The unemployment rate in Nigeria reached 37.1% in Q3 2023,
with youth unemployment at a staggering 53.4% (National Bureau of Statistics,
2023). Underemployment adds to this economic strain, with many workers stuck in
low-paying, unstable jobs. To address this, Nigeria must create millions of
jobs in high-growth sectors such as technology and agriculture. Currently,
agriculture employs 70% of Nigeria’s workforce but contributes only 21% to GDP.
Modernizing this sector could significantly increase productivity and create
numerous job opportunities.
Poverty
Over 42% of Nigerians live below the poverty line, making
the country the world’s poverty capital (World Bank, 2023). Many lack access to
basic services like clean water, healthcare, and education. Reducing poverty
requires comprehensive social safety nets. Brazil’s ‘Bolsa Família’ program,
which lifted millions out of poverty, provides a successful model that Nigeria
could emulate.
Debt crisis
Nigeria’s public debt has reached alarming levels, with
total debt stock hitting $120 billion in 2024 (Debt Management Office, 2024).
Servicing this debt consumes a significant portion of the national budget,
limiting the government’s ability to invest in crucial sectors like
infrastructure and social services. Addressing the debt crisis requires
stringent fiscal discipline, restructuring debt, and increasing revenue through
diversified economic activities.
Subsidy removal
In 2023, Nigeria removed fuel subsidies, a move aimed at
reducing government expenditure and redirecting funds to critical
infrastructure projects. While necessary, this policy has led to short-term
economic pain, including higher transportation and living costs. Effective
communication and phased implementation of subsidy removal, coupled with
targeted social programs, can help mitigate the adverse effects on the bottom
of the (population) pyramid. The government must also tackle the corruption
that has bedevilled the subsidy regime.
The Crowding-Out Effect and Job Creation
Let’s turn again to Aliko Dangote’s concerns about the
crowding-out effect of increasing Monetary Policy Rate (MPR) to fight
inflation. The CBN’s policy to reduce inflation through high interest rates can
inadvertently suppress economic growth by making borrowing more expensive for
businesses. This situation can lead to reduced investments in capital,
expansion, and job creation.
Current Data: Nigeria’s MPR stands at 26.75% as at
June 2024, increasing average lending rates to 31%, significantly higher than
many emerging markets. These high rates deter businesses from taking loans to
invest in new projects or expand existing operations, limiting their ability to
hire new employees.
Solution: To mitigate the crowding-out effect, the
CBN can adopt a more balanced approach. While controlling inflation is crucial,
it is equally important to maintain a conducive environment for business
growth. Lowering interest rates gradually, alongside targeted support for key
sectors, can help stimulate job creation without compromising inflation
control. Additionally, enhancing access to affordable credit for SMEs through
special financial instruments and programs can further support employment
growth.
People-Centered Reforms
Education and Skill Development: Nigeria’s literacy
rate is 64.5%, with significant disparities between urban and rural areas
(UNESCO, 2023). Increasing investment in education can bridge this gap.
Emphasizing STEM education and entrepreneurial training, as seen in developed
countries, can foster innovation and self-employment. Improving primary and
secondary education is crucial to ensure all children receive quality
education.
Healthcare: Nigeria spends only 3.7% of its GDP on
healthcare, well below the global average of 6.8% (World Health Organization,
2023). Increasing healthcare spending to at least 5% of GDP can improve health
outcomes. The UK’s National Health Service (NHS) model, which provides
universal healthcare access, could serve as a blueprint for Nigeria.
Social Safety Nets: Social safety nets currently
cover only 4% of Nigeria’s population (International Labour Organization,
2023). Expanding coverage to at least 20% of the population by 2030 could
significantly reduce poverty. Conditional cash transfer programs, similar to
Mexico’s Prospera, can provide immediate relief and long-term benefits but this
must be done with some caution.
Functional Free-Market Capitalism
Deregulation and Privatization: Nigeria ranks 131st out of
160 countries in the Ease of Doing Business Index (World Bank, 2024). Reducing
government intervention and promoting private sector participation can enhance
efficiency and stimulate growth. For instance, revitalizing the power sector
and expanding the energy sources could address chronic power shortages and
improve service delivery.
Business Environment: Nigeria’s complex regulatory
environment stifles business growth (World Economic Forum, 2023). Simplifying
business registration processes and reducing costs can enhance competitiveness.
Estonia’s e-residency program, which streamlines business processes, provides a
model Nigeria could adopt.
Infrastructure Development: Nigeria’s infrastructure
deficit is estimated at $100 billion annually (World Bank, 2024).
Public-private partnerships (PPPs) can help bridge this gap. The success of
PPPs in Canada and Australia offers valuable lessons for Nigeria’s
infrastructure development.
Driving Youthful Innovation and Entrepreneurship
Digital Economy: Nigeria has 120 million internet
users, with a penetration rate of 58% (International Telecommunication Union,
2024). Investing in digital infrastructure can foster innovation. The success
of Silicon Valley in the United States demonstrates the transformative power of
a robust digital economy.
Fintech: Nigeria’s fintech sector attracted $800
million in investment in 2023. Supporting fintech innovation can improve
financial inclusion. Policies that encourage fintech startups, as seen in the
UK’s open banking initiative, can expand access to financial services.
Supporting Startups and SMEs
Access to Finance: Only 5% of Nigerian SMEs have
access to credit (World Bank, 2023). Increasing access to finance through
microfinance, venture capital funds, and credit guarantee schemes can support
entrepreneurship. The Small Business Administration (SBA) in the USA provides a
successful model.
Mentorship and Incubation: Nigeria has a growing
number of incubators and accelerators, but they are concentrated in major
cities. Expanding these programs to rural areas can foster nationwide
entrepreneurship. The EU’s Horizon 2020 program, which supports startups across
Europe, offers a template for Nigeria.
Learning from Developed Economies
The USA’s investment in education and technology has driven
innovation. Policies that encourage competition and protect intellectual
property have been crucial in technological advancement and economic growth.
Nigeria can adopt similar policies, focusing on protecting intellectual
property and fostering a competitive business environment to drive innovation.
European countries have successfully implemented social
market economies, combining free-market principles with comprehensive social
welfare programs. Germany’s apprenticeship system effectively integrates
education and vocational training. Nigeria can implement a similar system,
focusing on vocational training and education to create a skilled workforce
that drives industrial innovation.
Policy Recommendations
Comprehensive Education Reform:
Aligning educational curricula with labor market needs,
emphasizing STEM education and vocational training and improving teacher
training programs and remuneration to attract and retain quality educators. We
should also invest in building and upgrading schools, especially in rural
areas, to ensure all children have access to quality education.
2. Healthcare
Investment:
Nigeria should reimagine its national health insurance
scheme to provide universal health coverage, similar to the UK’s NHS and
strengthen its primary healthcare systems to ensure widespread access to basic
health services. We should invest in healthcare infrastructure, including
hospitals and clinics, particularly in underserved areas.
3. Economic Diversification:
Develop and implement strategic plans for key sectors such
as agriculture, manufacturing, and technology to reduce dependency on oil,
promoting value addition in agriculture and mining sectors to increase exports
of processed goods rather than raw materials. We should provide incentives and
support for small and medium-sized enterprises (SMEs) to drive innovation and
job creation.
4. Labour Market Policies:
Implement national skills development programs to improve
the employability of the workforce. Focus on apprenticeships, internships, and
vocational training. We should establish robust job placement services to match
job seekers with employment opportunities efficiently and develop comprehensive
labor market information systems to provide real-time data on employment trends
and skill shortages.
5. Anti-Corruption Measures:
Re-tool the anti-corruption agencies to investigate and
prosecute corruption cases effectively and implement transparency initiatives
such as e-government services and open contracting to reduce opportunities for
corruption. A rigorous public awareness campaigns should be introduced to
promote a culture of integrity and ethical behaviour in both the public and
private sectors. We need a new culture of dignity of labour from the top.
6. Debt Management:
Negotiate with creditors to restructure existing debt,
extending repayment periods and reducing interest rates where possible and
enforce strict fiscal discipline to reduce budget deficits and manage public
debt sustainably. While at it, government should increase its revenue through
tax reforms and expanding the tax base, reducing dependency on oil revenues.
7. Infrastructure Development:
Foster public-private partnerships (PPPs) to leverage
private investment in infrastructure projects, particularly in transportation,
energy, and water supply. We should develop innovative funding mechanisms such
as infrastructure bonds and sovereign wealth funds to finance large- scale
infrastructure projects while ensuring regular maintenance and upgrades of
existing infrastructure to improve efficiency and longevity.
Conclusion
Nigeria is at a pivotal moment, where its rapidly growing
population poses both significant challenges (increased pressure on resources)
and immense opportunities (a large, youthful workforce with potential for
economic dynamism). To navigate these complexities, the country must undertake
bold and comprehensive macroeconomic reforms that address its fiscal, monetary
and structural issues.
By prioritizing people-centered policies such as increased
investments in human capital development initiatives, and embracing a
functional free-market approach to reduce bureaucratic barriers to business as
well as encourage fair competition and thus foster an ecosystem that supports
startups and small businesses, Nigeria can harness the energy and creativity of
its youthful demographic. This strategy will drive innovation, diversify the
economy beyond oil dependence, and develop key sectors such as agriculture,
manufacturing and services.
Through these concerted efforts, Nigeria can transform into
a prosperous nation, significantly elevate living standards across the
population, lift millions out of poverty, and become a leading economic force
in Africa and globally. This transformation will however require consistent
implementation of multi-sector reforms, adaptability to global economic trends
and technological advancements, and a long-term commitment from the citizens,
private sector and the Nigerian government.
This approach will not only address current challenges but also lay the foundation for a sustainable and prosperous future for all Nigerians.
Meet Oyeyinka, MBA, ACA, LinkedIn Profile
Elijah Oyeyinka is a seasoned finance executive with over 8
years experience in finance, accounting, and corporate strategy. He is
currently an Investment Banking Associate at TD Securities LLC USA. He holds a
B.Sc. in Economics from Obafemi Awolowo University (First Class Honours) and an
MBA from University of Michigan, Ross Business School. He is also a Chartered
Accountant and associate member of ICAN, with cognate practical experience.