BULLISH ABOUT NIGERIA

A new report from the McKinsey Global Institute finds that the right reforms and investments can help Africa’s largest economy realize its potential and lift millions out of poverty.

With about 170 million inhabitants, Nigeria has long been the most populous in Africa, but it is only now being recognized as the continent’s largest economy. In April 2014, the government began to release “rebased” data that showed a gross domestic product of $510 billion in 2013, compared with $354 billion for South Africa. The rebased data also revealed an economy that was far more diverse than previously understood and that, with the right reforms and investments, could become one of the world’s leading economies by 2030.

The country has made solid economic progress since 2000, averaging annual GDP growth of 8.6 percent under civilian rule from 1999 to 2010, according to pre-rebased data. And the new data show Nigeria is no longer just a petro-economy. While oil and gas remain critical sources of government income and of exports, the country’s entire resource sector today accounts for just 14 percent of GDP. Agriculture and trade are larger and faster growing. In addition, it is not generally recognized that Nigeria’s productivity, albeit low, has been growing recently and now contributes more to GDP growth than the country’s expanding population.

McKinsey Global Institute believes that Nigeria can build on the momentum of the past decade and, if all goes well, achieve 7.1 percent 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. Nigeria also has a young and rapidly growing population and an advantageous geographic location in West Africa, which enables trade within the continent, as well as with Europe and North and South America.

Should Nigeria reach its full potential, annual GDP could exceed $1.6 trillion in 2030 and the country could be a top-20 economy.

McKinsey Global Institute’s forecast is based on a bottom-up analysis of the potential for five major sectors of Nigeria’s economy:

• Trade. Given the expansion of the consumer class, consumption could more than triple, rising to almost $1.4 trillion a year in 2030, an annual increase of about 8 percent. 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 percent a year.
• Agriculture. Improvements on several fronts could help raise both the volume and the value of Nigeria’s agricultural production in the next 15 years. The economic value of agriculture, already the largest sector of the economy, at 22 percent of GDP, could more than double, from $112 billion a year in 2013 to $263 billion by 2030.
• Infrastructure. On average, the value of a nation’s core infrastructure: roads, railways, ports, airports, and the electrical system represents about 68 percent of GDP, but in Nigeria it is only about 39 percent. Between core infrastructure and real estate, total infrastructure investments in Nigeria could reach $1.5 trillion from 2014 to 2030. This would make building infrastructure not only a major contributor to GDP but also an enabler of growth across the economy.
• Manufacturing. Though growing rapidly, manufacturing in Nigeria contributed just $35 billion to the economy in 2013, or about 7 percent of GDP. If Nigeria could match the performance of nations such as Malaysia and Thailand when their manufacturing sectors were expanding rapidly, output could reach $144 billion a year in 2030.
• Oil and gas. While the oil-and-gas sector is expected to grow by 2.3 percent a year at best, its success is still vital to Nigeria’s economy. With the right reforms, it is estimated that liquids production could increase from an estimated 2.35 million barrels a day, on average, in 2013 to a new high of 3.13 million by 2030. Oil and gas would then contribute $108 billion annually to the economy, compared with $73 billion in 2013. However, this estimate of potential output assumes renewed investment to reverse the production declines of recent years.