Nigeria's economy has stabilised after global dip in oil prices

As one of the drivers of economic growth on the African continent, Nigeria’s economy has range of complexities that introduce uncertainty into its future growth prospects. Deloitte predicts a stabilisation of economic growth for the country in the near future, albeit accompanied by an increase in the trade deficit.

With 190 million people, Nigeria boasts the largest population in Africa. Closely related, the country also boasts the largest GDP on the continent, intermittently falling to second place behind South Africa. Nevertheless, a study of the country’s economy exemplifies the limitations of GDP as a measure of economic growth.

For starters, the country has an ongoing battle with income inequality, given that its last recorded Gini score in 2013 was 48.8. A report released by global management consultancy the Boston Consulting Group in 2016 revealed that Nigeria stands amongst the bottom ten countries in the world when it comes to ensuring that the benefits of economic growth translate into prosperity for all sections of its population.

According to a new report from Big Four accounting and advisory firm Deloitte, a large amount of this income disparity can be attributed to the country’s reliance on oil for the major share of its revenues, and the consequent concentration of wealth amongst stakeholders in the oil economy.

Another factor contributing to income inequality in Nigeria, according to Deloitte, is the difference in status amongst cultural and ethnic groups in the country. As elucidated in the report, “political and economic power is often tied to cultural allegiances” in Nigeria, in addition to religious affiliations.

Income inequality aside, however, the country has had a turbulent few years recently, brought about by a major dip in oil and commodity prices across the globe, which began in 2014. For Nigeria, this dip brought about the first economic recession in over two decades between 2015 and 2016.

The country’s economy suffered a setback of 1.6% over that year, which followed from a 50% drop in its economic growth rate the year before that. Nevertheless, 2017 saw the economy come back to a growth trajectory, at the very least, recording a growth rate of nearly 1% in that year.

According to Deloitte, the economy is expected to grow steadily in the near future as well, stabilising at a growth rate of approximately 2% up until 2023.  This renewed stability can be attributed to concerted government efforts to instigate economic recovery, primarily by reducing the country’s dependence on the oil trade.

The Nigerian government launched the Economic Recovery and Growth Plan in 2017, designed around the specific objective of diversification, in addition to incorporating “an investor and exporter foreign exchange window,” which sought to encourage foreign direct investment in the country.

In addition, the government has also take measures to introduce a more stringent monetary policy to control the mounting pressure from inflation. Overall, the country appears to have moved away from its heavy dependency on oil over the last two years, despite a global recovery in oil prices.

The trade deficit, however, remains considerably high in Nigeria, and is only expected to increase over the next four years. By 2022, Deloitte predicts Nigeria’s imports to exceed its exports by approximately $20 billion, driven by the country’s move away from its heavy oil exports.