Explainer: Why Nigerians don't feel the impact of economic growth

May 25, 2018|Aisha Salaudeen

Gross Domestic Product (GDP) is the most common measure of how well an economy is doing at any point. It is the total value of goods and services produced in a country in a specific period. Usually, GDP growth (or economic growth) is expressed in year-on-year terms, that is, how the economy is doing now compared to the same time last year.

The GDP report released by the National Bureau of Statistics (NBS) on the 21st of May showed that the Nigerian economy grew by 2.0% in the first quarter of 2018 when compared to the same period last year. This was slower than in the last quarter of 2017 when the economy grew 2.1% compared to the last quarter of 2016.

Nigerians complain that even when official statistics suggest the economy is growing, they don't feel it in their everyday lives. Why is this so? To see why we must understand the breakdown of the Nigerian economy.


A two-sector economy

The Nigerian economy can be roughly split into two sectors. The oil sector, which covers upstream oil & gas activities, accounts for 10% of the economy; the non-oil sector, made up of agriculture, industry, and services like banking, make up the remaining 90%.

How did these two sectors grow? The NBS report shows that the non-oil sector, where most economic activity takes place, grew by just 0.8% compared to the corresponding period in 2017. The rest of the growth was driven by the oil sector, which grew 15% as a result of higher oil production compared to last year.

However, the oil sector oil accounts for 0.2% of Nigeria’s working population and most Nigerians have no link to the industry, so are unlikely to feel any progress being made in that industry directly.  

What affects most people directly is growth in the non-oil sector, which is currently not growing fast enough to improve people’s standards of living. If the agriculture sector, for example, grew at the rate of the oil sector, a lot more Nigerians would benefit because that industry employs nearly 50% of the country’s working population. The farmer harvesting pepper, the trader buying vegetables at the end of a harvest and the transporter of these goods would all see the impact of the growth first hand because they are (in)directly associated with the sector.


A hidden third economy

Nigeria has a huge informal economy. These are businesses that are unregistered, as well as individuals that carry out trade and other activities off-the-books. Neither of these groups will be captured in official GDP statistics.

This presents two problems. Firstly, given the informal sector could be as much as 50% of the overall Nigerian economy, excluding it would give a very inaccurate picture of how the economy is doing. And because a lot of people work in the informal sector, official GDP statistics wouldn’t reflect how they are faring either.


When will Nigerians start feeling the impact of GDP growth?

Nigerians will feel the impact of growth when the government makes progress on its diversification efforts, and the non-oil sector starts growing as fast as it was before 2014. Moreover, Nigeria’s economic growth has neither been inclusive nor sustainable in the past as it has been driven by high oil prices and supported by a previously buoyant finance and ICT sector. However, most people are employed in agriculture, manufacturing, and trade yet these industries have previously been ignored.  

Also, when economic policies begin to support social welfare initiatives in education, health, and infrastructure, the average Nigerian should start to feel economic growth.

Finally, the impact of economic growth will be felt by the average Nigerian if the informal sector can be better measured. The growth figures do not give an accurate account of Nigeria's economy because it does not count everybody.

Nigeria has the Economic Recovery and Growth plan (ERGP) which focuses on further economic diversification and macroeconomic stability. It should run from 2017 to 2020, and the current administration hopes it would finally bring inclusive growth.

All of these will only work if there is a strong enough political will to carry them out. That’s why leadership is so important, else the Nigerian economy will continue to grow, and none of us will feel it.