The COVID-19 pandemic came and went, leaving many countries worldwide suffering severe economic contraction, with recessions and declining GDP. Nigeria, as an emerging economy, was not spared.
The COVID-19 pandemic and the oil price crash that followed exposed the fragility of Nigeria’s economy, highlighting the country’s much-decried over-reliance on crude oil. In the post-pandemic era, with a highly uncertain outlook for global oil demand, Nigeria needs to revisit the imperative of diversifying her economy to achieve sustainable growth and prosperity.
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Decades of Oil Dependency
Although the pandemic underscored vulnerabilities in global economic systems, prompting renewed calls for resilience-building and inclusive growth strategies, the Nigerian economy had been heavily dependent. It is deeply intertwined with crude oil, particularly since the discovery of black gold in the early 1970s when the country transitioned into a significant oil producer.
The surge in oil production and global oil prices led to a substantial increase in government revenue, from 10% of GDP in the 1960s to 30% in the 1980s. Oil exports rose significantly, from 5% to 24% during this period. While these percentages have decreased in recent years, the share of oil in total fiscal and export revenue remained high at 47% and 84%, respectively, in 2019. This contributes heavily to the persistent challenge of diversifying the economy away from oil. It is even generally believed that despite the considerable progress that the President Bola Tinubu administration is making in enlarging the nation’s tax net and significantly boosting the non-oil sector’s contribution to national GDP, crude oil still accounts for the most significant chunk of the country’s foreign exchange earnings.
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Nigeria’s overdependence on oil has made it vulnerable to the “Dutch disease,” an economic phenomenon that negatively impacts non-oil sectors. During oil booms, the appreciating Naira makes non-oil exports less competitive, while cheaper imports discourage domestic production. This was seen in the 1970s when the booming oil sector collapsed Nigeria’s agricultural exports. Today, Nigeria’s economic fate is still intricately linked to the fluctuating fortunes of the global oil market.
Trade Diversification
An obvious solution to Nigeria’s economic woes is trade diversification, with particular emphasis on non-oil exports. Diversification involves expanding the range of goods and services a country exports and the markets it exports to. It is encouraging to note that within the first thirty days of her assumption of office, Nigeria’s new Minister of Industry, Trade and Investment, Jumoke Oduwole, hosted a ministerial export consultation where she emphasised the Government’s priority attention to non-oil exports. At that consultation, stakeholders were unanimous in their acclamation that with the right policy environment and support instruments, Nigeria can realistically and profitably trade her way, not only out of poverty but right into economic prosperity.
How can trade diversification help Nigeria prosper? Here are some of my thoughts:
Reduced Vulnerability to External Shocks:
By expanding its export base beyond oil, Nigeria can reduce its dependence on a single commodity and become less susceptible to global price volatility. This will lead to more stable export earnings and increased government revenue, fostering a more predictable economic environment for businesses and investors.
Nigeria possesses extensive export potential beyond traditional commodities such as cocoa and palm oil.
Encouragingly, market research has identified over 5,000 Nigerian products with huge potential. Additionally, Nigeria ranks as one of the largest producers of numerous agricultural commodities globally. However, a disconnect exists as Nigeria fails to capitalise on its production prowess and secure a significant share in the global market trade for these commodities.
Job Creation and Poverty Reduction: Diversification into labour-intensive sectors like manufacturing and agriculture can create significant employment opportunities, particularly for Nigeria’s large and youthful population. Increased employment leads to higher incomes, which in turn stimulates domestic demand and contributes to poverty reduction.
Enhanced Competitiveness: Expanding into new markets requires Nigerian businesses to improve the quality of their products and services to meet international standards. This can lead to innovation, efficiency gains, and productivity improvements, making Nigerian businesses more competitive domestically and internationally.
Attracting Foreign Direct Investment (FDI): A diversified economy is more attractive to foreign investors as it offers a broader range of investment opportunities and reduces the risk associated with dependence on a single sector. FDI can bring in new technologies, knowledge, and capital, further stimulating economic growth and development.
Examples of countries with successful diversification strategies
Countries like Malaysia, Indonesia, and India have successfully implemented diversification strategies. These countries have transitioned from import substitution to export-oriented industrialisation while sustaining economic growth. They have focused on developing key sectors like agriculture and manufacturing, investing in infrastructure and human capital, and creating more favourable business environments.
Singapore’s Export-Oriented Model
Despite its limited land space, Singapore’s astounding success as a global export powerhouse is a classic example of a country trading its way to economic success. Singapore’s deliberate adoption of an export orientation, as emphasised by the example of ornamental fish exports, showcases the transformative power of strategic economic decisions.
Also, former U.S. President Obama’s deliberate efforts to mitigate recession through the Obama Export Initiative come to mind and further illustrate how intentional measures can reshape economic trajectories. The Obama Export Initiative not only helped America wriggle out of imminent economic collapse but it has also, since then, been adopted as a national economic strategy duly legislated as the National Export Initiative – Next (NEI-NEXT).
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Nigeria can learn from these examples and leverage its strengths, exploring its sizeable domestic market, youthful population, and growing digital economy. Nigeria can unlock its potential and achieve sustainable and inclusive growth through trade diversification by implementing the right policies and focusing on key areas like agriculture, energy, entertainment, transportation, and the digital economy. The opportunities are vast, the resources enormous.
The task before the government (and the players within the sector) is to build a collaboration framework that enables each stakeholder to input into crafting an effective vehicle that leads the country to the desired destination as quickly as possible. While the government needs to provide an enabling environment (with necessary incentives and support instruments), the private sector (exporters) must work to forge a unified front that would actualise the national aspiration for a non-oil export-driven economy.
Over the next few weeks, this column will explore new possibilities for Nigeria’s economic growth and draw insights from other countries navigating their economic journeys and translating their opportunities into better living standards for their people.
Olufemi Boyede, CITP
International Consultant/Member, BoT
Network of Practicing Non-oil Exporters of Nigeria (NPNEN)
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