The oil sector has an oversized impact on the Nigerian economy, although it accounts for a relatively small share of the gross domestic product: around 9 percent in 2020. But over the same period, crude oil sales accounted for a third of government revenues and about 90 percent of the West African nation’s export revenues.
“That’s bad because it makes Nigeria a very volatile country,” said Tokunbo Afikuyomi, a British economist who writes for Nigerian financial magazine Stears Business.
If the price of crude oil is lower than government forecasts, gaping holes will appear in the federal budget.
While this has been a problem in Nigeria for at least the last decade, the coronavirus pandemic has made it worse. The collapse in global oil prices at the start of the pandemic caused Nigeria’s oil revenues to be around 65 percent lower than expected in the first half of 2020, creating a massive budget gap.
In addition, lower oil sales mean less money circulating in the country, making it difficult for Nigerian manufacturers to import the raw materials or components they need.
Finite fossil fuels
There are other reasons why the 206 million-inhabitant country should reduce its dependence on oil and gas, Taiwo Oyaniran, deputy director of the global consulting firm PwC in Nigeria, told DW.
“What is happening around the world is that many countries are moving away from fossil fuels like crude oil as an energy source and moving towards clean energy,” Oyaniran said. “So it is very important for us as a country to consider other sources of income,” he added.
Also, Oyaniran said, Nigeria’s oil resources will eventually run out, making it “absolutely important” to develop other areas of its economy. Nigeria seeks to advance agriculture, information and communication technology (ICT) and creative industries such as the thriving music and nollywood film industries as potential export alternatives.
Agriculture largely unproductive
Before oil was discovered in Nigeria in the 1950s, agriculture was the backbone of the economy.
Half of the Nigerian workforce currently works in agriculture, Afikuyomi said. “So there is a way of thinking that without agriculture it is almost impossible to grow the economy or to export or produce.” Palm oil, cocoa beans, sesame seeds and cashew nuts are among the crops that have been identified as potential export earners.
Nigeria was once the world’s leading exporter of palm oil, an important global component of many processed foods. The government is investing heavily in the palm oil industry, for example providing an agricultural loan program that helps operators buy high-quality, up-to-date seedlings and build new plantations and mills.
But whether the agricultural sector can boost exports is the question, say analysts, because they are mostly smallholders who are relatively unproductive even compared to other African nations. Nigeria’s farmers can produce around 7,000 kilograms of tomatoes per hectare. Kenya, on the other hand, can produce 20,000 kilograms of tomatoes on a similar piece of land, according to Nigerian economist Afikuyomi.
Oyaniran also used tomatoes to illustrate the challenges facing Nigeria’s agricultural sector.
“Almost 50 percent of tomatoes are destroyed from the farm gate to the market,” he said due to logistical problems resulting from “poor road networks, poor packaging systems and inadequate cooling and cooling systems.” Until Nigeria can resolve these issues, he said, “we are unlikely to see huge investments in agriculture.”
The ICT industry at a glance
Nigeria has long been home to one of the continent’s most dynamic technology centers.
The coronavirus pandemic has given the ICT industry an additional boost. Businesses were desperate for remote working solutions for their employees, and people stuck at home turned to digital communications, online banking, and shopping.
Jumia, Nigeria’s largest online retailer, reported sales growth of around 30 percent for the first quarter of 2020. The ICT sector thus contributed almost 18 percent of GDP in the second quarter of 2020, compared to 10 percent in 2018. Much of this increase came from financial technology (fintech), as the need for cashless payments, mobile transactions and simple credit during the Pandemic exploded.
Nigeria attracted just over $ 134 million in fintech venture capital in 2020, raising more fintech funding than anywhere else in Africa. An estimated two in five Nigerians are financially excluded. Together with the country’s young population and increasing smartphone penetration, this creates “the perfect recipe for a flourishing fintech sector”, according to the international consulting firm KPMG.
“We’re seeing more and more unicorn companies, companies valued at more than $ 1 billion [€ 860 million]that is popping up in Nigeria’s technology innovation ecosystem, so it will only grow and grow, “Afikuyomi said.
The ICT sector, including fintech, still faces myriad hurdles, such as Nigeria’s patchy and erratic power supply, a fragmented fiber optic internet network and a lack of trained software engineers.
Infrastructure not enough
The country’s crumbling infrastructure is a major obstacle to Nigeria’s efforts to break free from oil.
In 2020, the government of President Muhammadu Buhari announced a new infrastructure offensive with multi-billion dollar plans to modernize roads, railways, bridges, airports and power supply. Oyaniran said Nigeria’s growing insecurity is one of the biggest threats to economic diversification efforts.
Boko Haram insurgents are still striking in northeastern Nigeria. The north-west is ravaged by banditry and kidnappings, while the north-central part is ravaged by violent clashes between peasants and nomadic shepherds. The southern part of the country has also seen many attacks and kidnappings. “If we are unable to effectively contain the security problem, the expected results of all infrastructure investments may not be realized,” said Oyaniran.