The oil sector has a disproportionate influence on the Nigerian economy although it represents only a relatively small proportion of gross domestic product: around 9% in 2020. But, during the same period, crude oil sales accounted for a third of the state budget revenue and around 90% of the West African nation’s export earnings.
“It’s bad because it makes Nigeria a very unstable country,” said Tokunbo Afikuyomi, a UK-based economist who writes for the Nigerian financial publication. Stears Company.
Nigeria is Africa’s largest oil and gas producer
When the price of crude oil falls below government projections, gaping holes appear in the federal budget.
Although this has been a problem in Nigeria for at least the past decade, the coronavirus pandemic has made it worse. The slump in global oil prices at the start of the pandemic caused Nigeria’s oil revenue to decline by around 65% compared to forecasts in the first half of 2020, leading to a massive fiscal deficit.
Additionally, declining oil sales mean less money is flowing into the country, making it difficult for Nigerian manufacturers to import the raw materials or components they need.
Finished fossil fuels
There are additional reasons why the nation of 206 million should reduce its reliance on oil and gas, Taiwo Oyaniran, associate director of global consultancy PwC in Nigeria, told DW.
“What’s happening globally is that many countries are moving away from fossil fuels like crude oil as an energy source, and towards clean energy,” Oyaniran said.
“So it is very important for us to consider other sources of revenue generation as a country,” he added.
Moreover, Oyaniran said, Nigeria’s oil resources will eventually run out, making it “absolutely essential” to develop other areas of its economy.
Nigeria seeks to advance agriculture, information and communications technology (ICT) and creative industries, such as the booming Nollywood music and film industries, as potential export alternatives .
Largely unproductive agriculture
Before the discovery of oil in Nigeria in the 1950s, agriculture was the backbone of its economy.
Half of Nigeria’s workforce is currently working in agriculture, Afikuyomi said, so “there is a school of thought that it is almost impossible to grow the economy or to export or produce without Agriculture”.
Palm oil, cocoa beans, sesame seeds and cashew nuts are among the crops identified as potential export sources.
Countries like Indonesia and Malaysia have overtaken Nigeria as global producers of palm oil
Nigeria was once the world’s largest exporter of palm oil, a vital global ingredient in many processed foods.
The government invests heavily in the palm oil industry, providing, for example, an agricultural credit program that helps operators buy quality, up-to-date seedlings and set up new plantations and mills.
But the question is whether the agriculture sector can boost exports, analysts say, because it is mostly small-scale farmers who are relatively unproductive even compared to other African countries.
Nigerian farmers can produce around 7,000 kilograms (15,400 pounds) of tomatoes per hectare (2.47 acres). In contrast, Kenya can produce 20,000 kilograms of tomatoes on similar ground, according to Nigerian economist Afikuyomi.
Oyaniran also used tomatoes to illustrate the challenges in Nigeria’s agricultural sector.
Nigeria must increase the productivity of crops such as tomatoes to develop its agricultural sector
“Nearly 50% of tomatoes are destroyed from farm to market,” he said, due to logistical problems related to “poor road networks, poor packaging systems and cooling and refrigeration systems insufficient”.
Until Nigeria can address these issues, he said, “we are probably not going to see huge investments coming into the agribusiness space.”
Eyeing the ICT industry
Nigeria has long been home to one of the most vibrant tech hubs on the continent.
The coronavirus pandemic has given an extra boost to the ICT industry. Businesses were desperate for remote work solutions for their employees, and people confined to their homes turned to digital communications, online banking and shopping.
Jumia, Nigeria’s largest e-tailer, recorded revenue growth of around 30% for the first quarter of 2020. As a result, the ICT sector contributed almost 18% to GDP in the second quarter. quarter of 2020, compared to 10% in 2018.
Much of this increase comes from financial technology (fintech), as the need for cashless payments, mobile transactions and easy loans has exploded during the pandemic.
Nigeria attracted just over $134 million in fintech venture capital in 2020, capturing more fintech funding than anywhere else in Africa.
It is estimated that two out of five Nigerians are financially excluded. This, combined with the country’s young population and growing smartphone penetration, “creates the perfect recipe for a thriving fintech sector”, according to KPMG, an international consultancy.
“We are seeing more and more unicorn companies, companies valued at more than a billion dollars [€ 860 million]that is emerging in Nigeria’s tech innovation ecosystem, so it will only grow and grow,” Afikuyomi said.
The ICT sector, including fintech, still faces myriad obstacles, such as Nigeria’s uneven and erratic electricity supply, a fragmented fiber optic internet network and a shortage of trained software engineers.
Nigeria is building a new railway line between Lagos and Ibadan as part of its infrastructure push
Infrastructure not enough
The country’s crumbling infrastructure is a major obstacle to Nigeria’s drive to turn away from oil.
In 2020, the administration of President Muhammadu Buhari announced a new infrastructure program, with multi-billion dollar plans to upgrade roads, railways, bridges, airports and power supply.
Oyaniran said growing insecurity in Nigeria was one of the biggest threats to economic diversification efforts.
Boko Haram insurgents are still battering northeast Nigeria. The northwest is ravaged by banditry and kidnappings, while the center-north is plagued by violent disputes between farmers and nomadic herders. The southern part of the country has also seen its fair share of attacks and kidnappings.
“Unless we are able to effectively reduce the security problem, the expected result of all infrastructure investments may not be realized,” Oyaniran said.