Nigeria Wealth, Natural Resources, Economy and Challenges

The Federal Republic of Nigeria, commonly referred to as Nigeria, is a West African country  that covers 923,768 km² and a population of approximately 210,000,000 people. It is the most populous country in Africa and has the six largest population in the world. Nigeria has four neighbors: Benin in its West, Cameroon in the East, Chad in the North East and Niger in its north. Its capital city is Abuja. As the name suggests, Nigeria is a federation comprising of 36 states. The biggest city and the commercial center of the country is Lagos.

The country traces its origin back to British colonialism in the 19^th century. In 1914, the Northern Nigeria Protectorate was merged with the Southern Nigeria Protectorate to form a united Nigeria. It gained its independence in 1960 with great promise and excitement. Unfortunately, the country plunged into civil war in 1967 and later suffered several military coups. As such, the country was ruled by a succession of military regimes until it implemented democratic reforms under Olusegun Obasanjo’s People’s Democratic Party. Nigeria is a multi-ethnic country comprising of several ethnic groups namely Hausa, Ijaw, Ibibio, Igbo, Kanuri, Tiv, Yoruba and other small tribes.

The country has the biggest economy in Africa after surpassing Egypt in 2013. In 2023, the country had a gross domestic product (GDP) of 362.81 billion. It is classified as a developing lower-middle income economy and is one of the major emerging markets in the world. It is one of two nations from African among the eleven Global Growth Generators countries. As an emerging economy, it has experienced tremendous growth in all sectors including the financial, entertainment, service, technology, agriculture and communication sectors. Although its economy has expanded since independence, it gets 2/3 of its state revenue from oil even though the oil and gas sector only contributes approximately 9% to its national GDP. Most of the people in the country rely on subsistence farming for their livelihood. In spite of this, the country relies heavily on food imports to feed its rapidly growing population because the growth in the agricultural sector has not been able to keep up with the high rate of population growth. Nonetheless,due to increasing mechanization, the agriculture sector has a significant contribution to the country’s manufacturing sector as a source of raw materials.

Natural Resources and the Resource Curse

Nigeria is endowed with enormous natural resources including minerals, oil and forests among others. Its key natural resource is oil as it has the largest oil reserves in sub-Saharan Africa and is among the 10 largest oil produces in the world. In spite of its natural resource wealth, Nigeria has lower living standards than other oil-producing countries such as Chile, Norway, the United States, Canada and Saudi Arabia. Since it started producing oil and joined the Organization of Oil Producing Countries (OPEC), it has never been able to manage its oil revenues by ensuring accountability and investment to grow the economy to keep up with its population. As such, the state is heavily reliant on oil revenues to fund the government and run the country. Only recently, Nigeria created an oil sovereign wealth fund following the examples of other resource-rich countries such as Norway. It is accurate to state that Nigeria suffers from the resource curse because it has not been able to use it enormous resource wealth to diversify its economy and raise the living standards of its citizens. As a result, Nigeria has some of the highest poverty rates in the world.

Scholars and economists have argued that Nigeria represents a classic case of the Dutch disease effect. The Dutch disease is a phenomenon where revenues from natural resources such as oil and minerals crowd out the production as well as export of other commodities due to the impact of resource exports on the exchange rates. The rise in exchange rates is known for making a country’s export more expensive and less competitive in international markets. In addition, the reliance on oil revenues makes Nigeria vulnerable to exchange rate volatility especially when the price of oil fall in the global market. Over the years, the Nigerian government has been reliant on wealth unearned (unearned income) such as oil revenues meaning that the state has lacked incentives to raise its income through tax. The reliance on such revenues gives the political leaders little motivation to be accountable to the Nigerian people as there is little need for the social contract between the government and its people. As such, the country has been unable to emulate the example of other resource rich countries such as diamond-rich Botswana and oil rich Indonesia which have managed to grow their economies and redistribute the wealth to their populations.

It is well known that Nigeria is one of the most corrupt countries in the world. The successive governments in the country have also built up a reputation of being among the least transparent and accountable governments globally. For example, to this day, Nigeria does not make its oil income known to the public and anybody who seeks to get credible information on such revenues often only gets lip service which does not reflect the real situation on the ground. Moreover, the leaders in the country are known for their pursuit of self-enrichment instead of serving and putting the public's interests first. As such, many people believe that one of the ways of getting rich is by joining the government to benefit from the rentier economy that exists in the country. Police and law enforcement officers are also famous for taking bribes to allow the illegal drilling and refining of oil in the oil rich regions leading to enormous environmental pollution. The high level of corruption are a major problem in Nigeria that inhibits the growth of the economy. For example, the infrastructure in the country such as roads is in a poor state even in some of the oil rich regions because of the waste and mismanagement of revenues and resources. In fact, the corruption is so prevalent that it affects all state institutions including the judiciary, executive and legislature. This makes it extremely difficult for civil society organizations to hold any offenders accountable.

Apart from oil, Nigeria is also richly endowed with a variety of mineral resources from industrial minerals such as marble, kaolin, gypsum and barites to precious metals/stones. Most of the minerals in the country are unexploited and the mines are yet to be developed. In addition, Nigeria has enormous gas reserves of over 160 trillion cubic feet. Like the mineral resources, the nation’s gas fields have not been developed due to a variety of factors such as the inability to attract foreign direct investment especially because foreign investors tend to be unwilling to take the risk in the Nigerian market. If developed, gas exports to markets such as the European Union can contribute greatly to the national budget.Nonetheless, the country has been able to exploit some mineral resources such as gold and some gemstones through small scale mines. Kaduna State is now one of the largest producers of gold in the country. Unfortunately, the country does not produce the technology needed to exploit most of the mineral wealth meaning that without FDI, it is almost impossible to develop such resources. Like the oil revenues, the mines in Nigeria tend to be owned by small scale miners or wealthy people who have connections to the political establishment in the country due to the high levels of corruption and political favoritism.

Economic Sectors

Agriculture

The agriculture sector is the largest employer in Nigeria. In spite of this, the agricultural sector has low productivity mainly because it relies on antiquated methods and subsistence farming. As such, it has to import massive quantities of food to meet the demand from the growing population. In the past, Nigeria used to be a large exporter of food products. This has changed mostly due to the local consumer boom. Nonetheless, Nigeria is still one of the largest producer of food in Africa. For example the country produced 118 million tonnes of roots and tubers such as sweet potatoes, yam, potatoes and cassava in 2020. It also produced 28.6 million tonnes of cereals such as pear millet and sorghum in the same year. In addition, it also produces rice, oil crops, cocoa, fruits, vegetables among others.  The country is also known for being a major producer of poultry livestock especially in its north where a lot of people practice  pastoralism. It is estimated that the nation has over 15 million heads of cattle.

Agriculture in Nigeria faces many challenges including the fact that most people are subsistence farmers who own small plots of land. As such, the country is unable to adopt mechanized large scale farming meaning that it loses out on the advantage of economies of scale. In addition, Nigeria is highly reliant on the import of agricultural chemicals and equipment to run the agricultural sector. Until recently, the country could only produce limited amounts of fertilizer but people expect this to change after the construction of the  Dangote fertilizer factories. The reliance on imports is a major challenge because it can lead to the depletion of foreign exchange reserves leading to volatility in the exchange rates which is also problematic for agriculture. The sector also faces stiff competition from cheaper imports from countries such as Brazil and other neighboring countries.Moreover, rampant insecurity has proven to be a major impediment to agriculture especially in Northern Nigeria where farmers are often targeted and killed by terrorists and militias. Unfortunately, the government has not been able to fully respond to this problem meaning that there are farmers who are afraid to return to their homes and farms.

Industry and Manufacturing

The manufacturing industry in Nigeria has experienced tremendous growth boosted by the young and growing population as well as domestic and foreign investment. Interestingly, although the country is a major exporter of crude oil, it has to rely on the import of petroleum productis including plastic, petrol, diesel and kerosene. This is mainly due to a lack of refining capacity which is expected to the solved by the newly inaugurated Dangote Refinery and Industries. Over the past few years, the country has put major emphasis on creating free trade zones such as the Lekki Free Trade Zone where goods such as cleaning detergents and bodycare products are produced. In addition, Nigeria has the largest pharmaceutical production capacity (60%) in Africa which is expected to grow to become a $70 billion industry in the coming years. The largest pharmaceutical producer in the country is Emzor Pharmaceutical Industries Limited. The country also produces vehicles although it only meets 20% of the local demand with the rest having to be imported from countries such as Japan, China and South Korea among others. Moreover, the country is the largest producer of steel in the region. For example,the Ajaokuta Steel Company produces 1.3 million tonnes of steel annually.

The manufacturing sector faces multiple challenges including inadequate power supply. Unfortunately, power black outs are the normal in Nigeria meaning that industries have to rely on alternatives such as solar or diesel generators which increase the cost of production significantly, In addition, although the country has a large population, it lacks well trained workers to work in factories. The nation also faces a shortage of technical skills and business owners often complain of having problems in hiring quality talent. The financing of the manufacturing sector is also a major problem as the country has very high interest rates of up to 25% to 40%. This deters people from taking risks in investing in the sector.Unsurprisingly, the manufacturing sector in Nigeria faces stiff competition from countries such as China which are able to produce processed and manufactured goods at very low costs.  This is made worse by the fact that  a lot of people in the country imported goods to be superior to the local ones.

The Finance Sector

As the biggest financial market in Africa, Nigeria has a relatively well developed financial sector when compared to other African countries. It also has a thriving fintech sector due to the adoption of smartphones and other smart technologies. The financial sector in the country is regulated by the Central Bank of Nigeria. In 2023, the country had 26 licensed commercial banks and a formal financial reach of 64% of the population, which is one of the highest in sub-Saharan Africa. As a key player in the African and global economy, Nigeria is well connected to the international markets that allows it to interact with a majority of banks in the world. In 2020, Access Bank was the largest bank in the nation in terms of total assets that amounted to 22.5 billion dollars. Over the past few years, mobile banking has grown to include 6% of the population. There are now over 150 million transfers of money through mobile money in most quarters of the year. The insurance industry in the country is also developed and many people/industries now have access to car, health and fire insurance.

As expected the financial sector in Nigeria also faces a variety of challenges. One of these is the lack of access to financial services for over 30% of the population. World bank statistics show that 36% of adults in Nigeria do not have a bank account due to various factor including the high cost of banking services, the complex requirements for one to open an account and the lack of bank branches in the rural areas. Additionally, the nation faces the problem of low financial literacy. According to Enhancing Financial Innovation & Access (EFInA), 38 million adults in the country are considered to be financially illiterate meaning that they lack a basic understanding of concepts such as budgeting, inflation and interest rates. This can be attributed to the lack of financial education in the schools. In addition, many people in the country prefer using informal financial institutions such as money lenders and savings clubs. The finance sector in the country also faces the problem of lack of trust in the financial institutions due to the prevalence of fraud and poor customer service. Finally, as stated earlier, the cost of financial services such as interest rates and bank fees are very high compared to other major economies.

The Telecommunication Sector

According to the Nigerian Communications Commissions (NCC), the telecommunication sector contributes 12.45$ to the GDP and is growing at a fast rate. Nigeria has the largest information and communication technology market in Africa contributing to 29% of the internet usage and has over 60% of telecoms subscribers in the continent. It also has a very youthful population that is connected to mobile services and the internet mainly through smartphones. The country also has a very vibrant media scene in Africa. The overwhelming majority of people are connected through radio and television. The laws in the country allow both public and private ownership of the media. This has allowed the proliferation of radio and television networks in the country. Like most countries, the use of social media platforms such as X, Facebook, Tik Tok, Instagram and YouTube is very high. All big cities in Nigeria are connected to 4G and 3G services which facilitate communication in the country.

The problems facing the communication sector in Nigeria include the lack of network coverage in rural areas. People in the sparsely populated rural ares in the country have to struggle to access basic 3G or 2G services. In addition, the taxes levied on the communication sector are high and are always rising as the government seeks to diversify its sources of revenue away from oil. As a result, the internet costs in the country are high, which can limit people’s use of the internet. Like other sectors in the economy, the telecommunication sector is negatively affected by unstable electricity which forces companies to rely on diesel back up generators that are more expensive to operate. Fibre optic cable cuts due to vandalism and road construction are also frequent and the companies also face challenges in the acquisition of rights-of-way. Moreover, telecommunication corporations in the country also complain of exploitative rent-seeking practices which are detrimental to the business climate in the sector.

The Transportation Sector

Nigeria is a major transport hub in the West African region. The transport sector is particularly important because it connects its landlocked neighbors Niger and Chad to the international markets through its ports. During the Buhari administration, the country made major improvements to its roads which had a reputation of being neglected for decades. In addition, the government has laid new railway tracks mainly in cooperation with china. The railway system in Nigeria is run by the state-owned Nigeria Railway Corporation (NRC). It consists of a 669 kilometers of standard gauge and 3,505 kilometers of cape gauge rail network. The standard gauge network is in excellent shape mainly because it is new while the cape gauge network is in a poor state mainly due to a lack of maintenance. The main ports in the country are the Port Harcourt, Lekki, Lagos (Tin Can Island and Apapa) and the Calabar. Additionally, the Nigeria has five airports that fly to international destinations as well as other smaller airports that mainly fly locally and to neighboring countries.

With a growing population of over 200 million people, Nigeria needs to expand its transport infrastructure to transport the large amounts of goods and natural resources needed to support mining, manufacturing, energy as well as agricultural activities. Unfortunately, the country went through a period where the transport infrastructure such as road and rail were neglected meaning that it now has a large shortfall in supply which results in delays and traffic jams. Although major improvements have been made, a lot of the roads in the country remain in a poor state in spite of their economic importance. Over and above that, Nigeria’s public transport system is underdeveloped. This is felt in major cities such as Lagos that have notorious traffic jams. The transport sector is also affected by corruption especially in the contracting process where sometimes, well connected people are given contracts regardless of their competence. Moreover, the traffic police in the country are known to be corrupt as they routinely demand bribes from drivers and other road users.