“What people overlook is Nigeria’s extraordinary advantages for future growth, including a large consumer market, a strategic geographic location, and a young and highly entrepreneurial population,” says Reinaldo Fiorini, director and location manager of McKinsey in Lagos, Nigeria.
McKinsey & Company, which released its report entitled “Nigeria’s renewal: Delivering inclusive growth in Africa’s largest economy” on Thursday, explained that resources only accounted for 14 per cent of the country’s GDP, with retail and wholesale trade being biggest drivers of GDP growth.
“Strengthening government capabilities will be essential to capturing the growth opportunity and making growth more inclusive. On health and literacy metrics, Nigeria lags behind other developing economies that spend a similar proportion of GDP in these areas,” the report explained.
(READ MORE: Nigeria leads the African growth story)
According to the World Bank, Nigeria’s health expenditure as a percentage of GDP in 2012 was 6.1 per cent, significantly lower than that of other African economies such as Tanzania, which is of similar size, and Zambia, which allocated 6.5 per cent. Market volatility in Nigeria is however low, and has been improving since early 2000.
“Nigeria is often thought to have an erratic economic engine, with GDP bouncing around from year to year, according to movements in the price of oil. Historically, this was an accurate assessment,” said McKinsey.
“Before the fiscal reforms of the past decade, government spending was determined by the price of oil. If the price was high, budgets swelled; if it fell, spending was cut dramatically and the effects were felt across the economy.”
While oil is a major GDP contributor, 86 per cent of its GDP is outside the resources sector. Agriculture is the economy’s largest GDP contributor at 22 per cent, followed by the services industry.
Despite its diverse industries, Nigeria is still largely dependent on oil. According to McKinsey, rougly 75 per cent of federal revenue comes from taxes within the oil and gas sector, and oil and gas make up more than 90 percent of exports.
(READ MORE: Nigeria should tap into its gas reserves)
Declining production and the rise of new technologies and new sources of supply around the world are changing the global energy landscape in ways that may threaten the long-term viability of Nigeria’s oil sector,” said McKinsey.
“A downturn in oil production or a decline in oil prices caused by new and cheaper sources of supply or falling global demand could have far-reaching economic and political ramifications.”