By Elijah Oyeyinka

Awakening the slumbering giant

Nigeria stands at a crossroads. Demographic projections indicate that by 2050, the country’s population could surge to between 400 and 500 million people. This rapid growth worsens existing economic problems, including high youth unemployment rates, the unenviable status as the world’s “poverty capital,” a mounting debt crisis that threatens long-term fiscal stability, ongoing issues related to the removal of fuel subsidies which have compounded the cost-of-living crisis, and substantial gaps in critical infrastructure.

To avert impending demographic disaster, Nigeria must implement data-driven, people-centered, and free-market friendly reforms. The nation’s careful choice of policy direction can and should leverage its youthful population as an asset, by fostering innovation through qualitative education and skill development programs, encouraging entrepreneurship with micro-credit schemes, and creating a politically stable and conducive environment to secure additional foreign direct investment. By adopting these approaches, Nigeria can transform its economy, significantly improve GDP per capita, and enhance the overall quality of life for its citizens. To successfully achieve these dexterous outcomes, the nation must draw valuable lessons from similar strategies implemented in Europe and America, keeping Nigeria’s unique context and needs in mind.

Macroeconomic challenges

Inflation, Monetary Policy and Growth

In June 2024, Nigeria’s inflation rate reached a staggering 34.2%, according to the Nigerian Bureau of Statistics. This increase was primarily driven by significant increases in food prices, disruptions in supply chains, and currency instability. High inflation rates over a sustained period lead to a decline in purchasing power for all Nigerians and widening income inequality, with disproportionate impact on low-income households. To stabilize inflation, Nigeria needs a balanced approach, combining prudent fiscal policies and monetary tightening. For instance, targeted subsidies for essential goods will help protect vulnerable populations.

However, Central Bank of Nigeria (CBN) policies aimed at reducing inflation, such as raising interest rates, can lead to a crowding-out effect. This phenomenon occurs when high interest rates make borrowing more expensive for businesses, reducing their ability to invest and expand, which in turn hampers job creation and economic growth. Alhaji Aliko Dangote, Africa’s richest man and prominent Nigerian industrialist, has voiced concerns about the CBN’s approach, warning that high interest rates could stifle the private sector’s capacity to generate employment. This emphasizes the economic dilemma that Nigeria faces where efforts to address one problem (inflation) may inadvertently exacerbate another (unemployment and slow economic growth), underscoring the urgent need for creative policies that balance inflation control with economic growth.

Population growth

 

Nigeria’s population is on track to reach 400 million by 2050, growing at an annual rate of 2.6% (United Nations, 2023). Such rapid growth demands significant investments in infrastructure, healthcare, and education to ensure the population can contribute productively to the economy. A World Bank report from 2022 highlighted that improving education and health outcomes could substantially increase Nigeria’s human capital index, which is currently one of the lowest globally.

Unemployment and underemployment

The unemployment rate in Nigeria reached 37.1% in Q3 2023, with youth unemployment at a staggering 53.4% (National Bureau of Statistics, 2023). Underemployment adds to this economic strain, with many workers stuck in low-paying, unstable jobs. To address this, Nigeria must create millions of jobs in high-growth sectors such as technology and agriculture. Currently, agriculture employs 70% of Nigeria’s workforce but contributes only 21% to GDP. Modernizing this sector could significantly increase productivity and create numerous job opportunities.

Poverty

Over 42% of Nigerians live below the poverty line, making the country the world’s poverty capital (World Bank, 2023). Many lack access to basic services like clean water, healthcare, and education. Reducing poverty requires comprehensive social safety nets. Brazil’s ‘Bolsa Família’ program, which lifted millions out of poverty, provides a successful model that Nigeria could emulate.

Debt crisis

Nigeria’s public debt has reached alarming levels, with total debt stock hitting $120 billion in 2024 (Debt Management Office, 2024). Servicing this debt consumes a significant portion of the national budget, limiting the government’s ability to invest in crucial sectors like infrastructure and social services. Addressing the debt crisis requires stringent fiscal discipline, restructuring debt, and increasing revenue through diversified economic activities.

Subsidy removal

In 2023, Nigeria removed fuel subsidies, a move aimed at reducing government expenditure and redirecting funds to critical infrastructure projects. While necessary, this policy has led to short-term economic pain, including higher transportation and living costs. Effective communication and phased implementation of subsidy removal, coupled with targeted social programs, can help mitigate the adverse effects on the bottom of the (population) pyramid. The government must also tackle the corruption that has bedevilled the subsidy regime.

The Crowding-Out Effect and Job Creation

Let’s turn again to Aliko Dangote’s concerns about the crowding-out effect of increasing Monetary Policy Rate (MPR) to fight inflation. The CBN’s policy to reduce inflation through high interest rates can inadvertently suppress economic growth by making borrowing more expensive for businesses. This situation can lead to reduced investments in capital, expansion, and job creation.

Current Data: Nigeria’s MPR stands at 26.75% as at June 2024, increasing average lending rates to 31%, significantly higher than many emerging markets. These high rates deter businesses from taking loans to invest in new projects or expand existing operations, limiting their ability to hire new employees.

Solution: To mitigate the crowding-out effect, the CBN can adopt a more balanced approach. While controlling inflation is crucial, it is equally important to maintain a conducive environment for business growth. Lowering interest rates gradually, alongside targeted support for key sectors, can help stimulate job creation without compromising inflation control. Additionally, enhancing access to affordable credit for SMEs through special financial instruments and programs can further support employment growth.

People-Centered Reforms

1. Education and Skill Development: Nigeria’s literacy rate is 64.5%, with significant disparities between urban and rural areas (UNESCO, 2023). Increasing investment in education can bridge this gap. Emphasizing STEM education and entrepreneurial training, as seen in developed countries, can foster innovation and self-employment. Improving primary and secondary education is crucial to ensure all children receive quality education.
2. Healthcare: Nigeria spends only 3.7% of its GDP on healthcare, well below the global average of 6.8% (World Health Organization, 2023). Increasing healthcare spending to at least 5% of GDP can improve health outcomes. The UK’s National Health Service (NHS) model, which provides universal healthcare access, could serve as a blueprint for Nigeria.
3. Social Safety Nets: Social safety nets currently cover only 4% of Nigeria’s population (International Labour Organization, 2023). Expanding coverage to at least 20% of the population by 2030 could significantly reduce poverty. Conditional cash transfer programs, similar to Mexico’s Prospera, can provide immediate relief and long-term benefits but this must be done with some caution.

Functional Free-Market Capitalism

1. Deregulation and Privatization: Nigeria ranks 131st out of 160 countries in the Ease of Doing Business Index (World Bank, 2024). Reducing government intervention and promoting private sector participation can enhance efficiency and stimulate growth. For instance, revitalizing the power sector and expanding the energy sources could address chronic power shortages and improve service delivery.
2. Business Environment: Nigeria’s complex regulatory environment stifles business growth (World Economic Forum, 2023). Simplifying business registration processes and reducing costs can enhance competitiveness. Estonia’s e-residency program, which streamlines business processes, provides a model Nigeria could adopt.
3. Infrastructure Development: Nigeria’s infrastructure deficit is estimated at $100 billion annually (World Bank, 2024). Public-private partnerships (PPPs) can help bridge this gap. The success of PPPs in Canada and Australia offers valuable lessons for Nigeria’s infrastructure development.

Driving Youthful Innovation and Entrepreneurship

1. Digital Economy: Nigeria has 120 million internet users, with a penetration rate of 58% (International Telecommunication Union, 2024). Investing in digital infrastructure can foster innovation. The success of Silicon Valley in the United States demonstrates the transformative power of a robust digital economy.
2. Fintech: Nigeria’s fintech sector attracted $800 million in investment in 2023. Supporting fintech innovation can improve financial inclusion. Policies that encourage fintech startups, as seen in the UK’s open banking initiative, can expand access to financial services.

Supporting Startups and SMEs

1. Access to Finance: Only 5% of Nigerian SMEs have access to credit (World Bank, 2023). Increasing access to finance through microfinance, venture capital funds, and credit guarantee schemes can support entrepreneurship. The Small Business Administration (SBA) in the USA provides a successful model.
2. Mentorship and Incubation: Nigeria has a growing number of incubators and accelerators, but they are concentrated in major cities. Expanding these programs to rural areas can foster nationwide entrepreneurship. The EU’s Horizon 2020 program, which supports startups across Europe, offers a template for Nigeria.

Learning from Developed Economies

The USA’s investment in education and technology has driven innovation. Policies that encourage competition and protect intellectual property have been crucial in technological advancement and economic growth. Nigeria can adopt similar policies, focusing on protecting intellectual property and fostering a competitive business environment to drive innovation.

European countries have successfully implemented social market economies, combining free-market principles with comprehensive social welfare programs. Germany’s apprenticeship system effectively integrates education and vocational training. Nigeria can implement a similar system, focusing on vocational training and education to create a skilled workforce that drives industrial innovation.

Policy Recommendations

1. Comprehensive Education Reform:

Aligning educational curricula with labor market needs, emphasizing STEM education and vocational training and improving teacher training programs and remuneration to attract and retain quality educators. We should also invest in building and upgrading schools, especially in rural areas, to ensure all children have access to quality education.

2.  Healthcare Investment:

Nigeria should reimagine its national health insurance scheme to provide universal health coverage, similar to the UK’s NHS and strengthen its primary healthcare systems to ensure widespread access to basic health services. We should invest in healthcare infrastructure, including hospitals and clinics, particularly in underserved areas.

3. Economic Diversification:

Develop and implement strategic plans for key sectors such as agriculture, manufacturing, and technology to reduce dependency on oil, promoting value addition in agriculture and mining sectors to increase exports of processed goods rather than raw materials. We should provide incentives and support for small and medium-sized enterprises (SMEs) to drive innovation and job creation.

4. Labour Market Policies:

Implement national skills development programs to improve the employability of the workforce. Focus on apprenticeships, internships, and vocational training. We should establish robust job placement services to match job seekers with employment opportunities efficiently and develop comprehensive labor market information systems to provide real-time data on employment trends and skill shortages.

5. Anti-Corruption Measures:

Re-tool the anti-corruption agencies to investigate and prosecute corruption cases effectively and implement transparency initiatives such as e-government services and open contracting to reduce opportunities for corruption. A rigorous public awareness campaigns should be introduced to promote a culture of integrity and ethical behaviour in both the public and private sectors. We need a new culture of dignity of labour from the top.

6. Debt Management:

Negotiate with creditors to restructure existing debt, extending repayment periods and reducing interest rates where possible and enforce strict fiscal discipline to reduce budget deficits and manage public debt sustainably. While at it, government should increase its revenue through tax reforms and expanding the tax base, reducing dependency on oil revenues.

7. Infrastructure Development:

Foster public-private partnerships (PPPs) to leverage private investment in infrastructure projects, particularly in transportation, energy, and water supply. We should develop innovative funding mechanisms such as infrastructure bonds and sovereign wealth funds to finance large- scale infrastructure projects while ensuring regular maintenance and upgrades of existing infrastructure to improve efficiency and longevity.

Conclusion

Nigeria is at a pivotal moment, where its rapidly growing population poses both significant challenges (increased pressure on resources) and immense opportunities (a large, youthful workforce with potential for economic dynamism). To navigate these complexities, the country must undertake bold and comprehensive macroeconomic reforms that address its fiscal, monetary and structural issues.

By prioritizing people-centered policies such as increased investments in human capital development initiatives, and embracing a functional free-market approach to reduce bureaucratic barriers to business as well as encourage fair competition and thus foster an ecosystem that supports startups and small businesses, Nigeria can harness the energy and creativity of its youthful demographic. This strategy will drive innovation, diversify the economy beyond oil dependence, and develop key sectors such as agriculture, manufacturing and services.

Through these concerted efforts, Nigeria can transform into a prosperous nation, significantly elevate living standards across the population, lift millions out of poverty, and become a leading economic force in Africa and globally. This transformation will however require consistent implementation of multi-sector reforms, adaptability to global economic trends and technological advancements, and a long-term commitment from the citizens, private sector and the Nigerian government.

This approach will not only address current challenges but also lay the foundation for a sustainable and prosperous future for all Nigerians.

Meet Oyeyinka, MBA, ACA, LinkedIn Profile

Elijah Oyeyinka is a seasoned finance executive with over 8 years experience in finance, accounting, and corporate strategy. He is currently an Investment Banking Associate at TD Securities LLC USA. He holds a B.Sc. in Economics from Obafemi Awolowo University (First Class Honours) and an MBA from University of Michigan, Ross Business School. He is also a Chartered Accountant and associate member of ICAN, with cognate practical experience.