Nigeria’s economy by numbers and the elements

This post is a section of a recent report I did " Investing in Nigeria", this article is also available at ssainsights.com.
Please view the full report for more information on the subject and references for this article.

Economy by numbers

Area – 923,768 km2
Coastline – 853 km
Agricultural land – 78%
Arable land – 37.3%

Population – 181,562,056
Population growth rate – 2.45%
Urban – 47.8%
Urbanization rate – 4.66%
Labour force – 54,970,000
Unemployment rate – 23.9%
Population below poverty line – 70%

GDP (nominal) – $573,652 billion
Rebasing exercise – GDP increase by 89% in April 2014
GDP per capita – $6,000
$1 – NGN199.35

Debt – $22.01 billion
October 2015.

Source: The CIA World Factbook

Informal sector

Research has been conducted that indicates that Nigeria might have one of the world biggest informal economies yet to be accounted for in the GDP.

The informal sector is the biggest job creator in Nigeria and Africa generally, with 80% of the labour force in Sub-Saharan Africa being employed by the informal sector and contributing around 55% of the GDP. Informal sector jobs are attractive to the young and women.

The informal sector is considered a growth opportunity for the Nigerian economy, as it can be formalized to gain taxes and be better accounted for in terms of the GDP growth. Formalizing the informal sector also increases available domestic capital, due to 7% contribution to the pension fund.

Decreases in informal market activity are linked to decreases in poverty.

Poverty and unemployment

Poverty levels (people living on 1.25$ and under a day) have increased over the last decade to 70% of the Nigerian population in 2015.

The average 7% a year economy growth of 2001-2010, has been captured by the top 5%-10% of the country, not particularly the masses, they’re left behind.

There is 23.9% unemployment rate and 1.8 million youths enter the labour force every year. The sectors that creates jobs, such as agriculture, education, public and social administration are growing slowly, not at the pace of demand for jobs.

There are plans and programmes by the government to create 17 million jobs by 2020 by increasing supply-chain linkages between SMEs and large firms.

The youth unemployment rate is at 56%, this is resulting in social unrests led by the 16 to 24 age group.

Population

Nigeria has the biggest population in Africa and the 7th in the world at 181.5 million citizens. 62.5% of the population is under the age of 25 and the median age is 18.2.

47.8% of the population live in urban areas, it’s projected that this will increase to 65% by 2020. An urbanization rate of 4.66% is considered to be one of the GDP growth drivers.

The middle class consists of 23% of Nigerians, there are 8 million households in Nigeria earning over $7,500 a year.

Taxes

The tax revenues are 4% of Nigeria’s GDP, this is lower than most peer African economies. The government lacks income streams, most businesses taxed are the big corporates focused on exports. Personal income tax is considered irrelevant to the average Nigerian.

Government officials have made public statements, estimating that 75% of registered businesses do not pay taxes and that taxes won’t be increased but rather the collection of taxes will be improved. The government is looking to increase Government Revenue Generation by using e-payment system services.

Formalizing the informal market is considered an alternative to increasing taxes. It remains to be seen if this can be done successfully, since only a small portion of the population has a bank account – everything is in cash in Nigeria and Africa generally.

If the country is able to tackle corruption, it might be able to spend its budget more efficiently.

Privatization

The country has seen a lot of privatization happen in the power sector – selling successor generation and distribution companies to private investors, while retaining state control of grid transmission. This has been done to finance capacity of the power generators, as there is huge demand and not enough funds for the government to finance it.

The major motivation for privatization in Nigeria is to limit government’s intervention in the management of the economy. This has been seen in a lot of the infrastructure sectors. In railroads a new railway bill has passed through the senate to remove the monopoly privileges of state owned Nigerian Railway Corporation.

Privatization across Africa is one of the biggest opportunities for investors.