Nigerian Economy

Today, we're taking a trip to West Africa to visit a bright young whippersnapper who's making waves in the global economy! Can you guess who it is? Well, the title probably gave it away—it's Nigeria!

Nigerian Economy Nigerian Economy

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    Since gaining independence from the United Kingdom a little over 60 years ago, Nigeria's economy has developed rapidly. How is the Nigerian economy structured, and what has enabled this rapid growth and success? Let's take a look!

    Nigerian economy facts

    The Nigerian economy, first and foremost, has been marked by massive changes over the past several centuries. While modern Nigeria is dominated by agriculture and petroleum, there were periods in history when many West African states were receiving almost all of their income from palm oil and enslavement.

    The pre-colonial economy of Nigeria

    The area that is now Nigeria was once home to numerous different states who were often rivals with each other. These states were usually formed around ethnic groups or traditional tribal associations and included the Oyo Empire, the Edo Kingdom, the Hausa Kingdoms, and Igboland.

    The economies of these states mostly revolved around agricultural subsistence (self-sufficiency) and the exportation of palm tree products. They also served as profitable trade routes for other countries. However, we cannot discuss the economic development of West Africa without mentioning the slave trade. Indeed, the slave trade is the main way that various West African nations participated in the international economy.

    Slavery is when one human owns another human or humans as property.

    In West Africa, Africans sometimes enslaved each other as a consequence of war, or as a result of being perceived as ethnically or spiritually inferior to a ruling group. As a result, West African nations had long used slaves as a commodity. This was accelerated by the Islamic states in North Africa, which established the trans-Saharan slave trade. Under the trans-Saharan slave trade, slaves were sold and transported from West Africa to North Africa, where they could then be further sold throughout the Middle East and the Mediterranean.

    In the 16th century, Europeans enlarged the scope and scale of the West African slave trade. To meet the labour needs of their growing colonies in the Americas, Europeans purchased or captured slaves and transported them across the Atlantic as part of the transatlantic slave trade. The transatlantic slave trade increased the wealth of both European and African empires, while countless human beings were involuntarily forced into turmoil, hard labour, and death.

    The colonial economy of Nigeria

    The financial success and broad scope of the slave trade attracted the attention of the British, ultimately leading to the Nigeria we know today.

    Although they had originally participated in the slave trade, the British ultimately declared slavery to be immoral. The British gained prominent influence in West Africa around 1807, when they banned all British subjects from participating in the slave trade.

    The British also tried to prevent all Europeans and Africans from participating in the slave trade, setting up naval blockades to prevent slave ships from leaving port. The loss of slavery as a viable source of income actually led to the economic collapse of several West African states such as the Edo Kingdom.

    As they say, 'The road to hell is paved with good intentions.' In place of the slave trade, the British began colonising parts of West Africa, incorporating territories into the British Empire and exploiting them for resources and labour.

    Nigeria, as the country we know today, was established by the British Empire in 1900. The British Empire combined several different tribes, countries, and companies to create Nigeria. As the 'Colony and Protectorate of Nigeria,' the British transitioned the economy from revolving around subsistence farming to revolving around wage labour. The British also taxed Nigerians so they could afford to maintain a local military presence.

    Nigerian Economy, Map of Nigeria, StudySmarterFig. 1 - Nigeria (highlighted green) is located in West Africa

    Exports at this time included palm kernels and palm oil. Around 1906, the British also discovered that Nigeria had a supply of petroleum, an important resource in an increasingly industrialising world. This resource was not explored fully during the colonial period but would prove important for Nigeria after it became an independent nation.

    Overview of Nigerian economy

    In 1960, many different ethnic and religious groups came together in the movement to seek independence from the UK, so rather than dividing back into the nations that existed before British colonialism, Nigerians maintained the borders established by the British Empire, creating an independent nation composed of many different West African groups.

    Because of its cultural ties to the United Kingdom, Nigeria is a member of the Commonwealth of Nations, a group of former colonies of the British Empire.

    Although Nigeria's politics have been marred by infighting and corruption, its economy has grown substantially since independence. The Nigerian economy is typically classified as an emerging economy: an economy that is transitioning toward modernisation. Today, Nigeria has the largest economy in Africa. In 2021, Nigeria's gross domestic product was over £400 billion. Based on GDP, Nigeria has the 26th largest economy in the world, putting it nearly on par with nations like Norway and Israel. If this trend continues, Nigeria may breach the top 10 within the next 50-100 years.

    The Nigerian currency is called the naira (₦). £2 is equal to about ₦1,000. Before and briefly during the colonial period, Nigerians used cowrie shells as a currency, in addition to coins.

    Structure of Nigerian economy

    Nigeria has a mixed economy structured around capitalism. In a mixed economy, private businesses may receive government intervention and some sectors may be regulated or entirely controlled by the government. The name of the game is still fundamentally capitalist in nature: private businesses seek revenue in order to generate personal wealth.

    Nigeria is home to over 200 million people, making it one of the most populous countries in the world. This allows it to have a proportionately large labour force, which allows it to maintain numerous different economic sectors.

    Nigeria's economy increasingly revolves around importing and exporting. Today, one of Nigeria's largest exports is, in fact, petroleum. Nigeria is the largest exporter of petroleum in all of Africa. Most of Nigeria's petroleum is purchased by India and the United States. Around 90% of Nigeria's export profits come from petroleum.

    Nigerian Economy, Petrol Tanker, StudySmarterFig. 2 - A petrol tanker in Nigeria

    Nigeria also exports numerous agricultural products, including rubber and bananas. Palm oil, which has played an ever-important role in Nigeria's history, is still a significant export as well.

    Palm oil comes from the fruit of oil palm trees. Palm oil is a very common ingredient in many modern products, including processed foods, soaps, and cosmetics. It is also a very controversial crop as its production often leads to deforestation.

    Nigeria is also a big importer. Nigeria primarily imports food; industrial supplies and machinery; chemicals; minerals; and petroleum-based products. Nigeria's largest import partner is China, but several European countries like Belgium, Luxembourg, and the Netherlands export products to Nigeria as well.

    Major sectors of the Nigerian economy

    We have an idea of who Nigeria is trading with, as well as where they stand globally. How is the Nigerian economy broken down by sector?

    There are four major economic sectors, which are grouped together based on a) types of employment and b) role in society.

    • The primary economic sector is concerned with raw goods, like food production and mineral extraction; associated careers range from hunters to farmers to lumberjacks to miners.
    • The secondary economic sector is concerned with construction and manufacturing.
    • The tertiary economic sector is concerned with services, ranging from banking to tourism to retail.
    • Finally, the quaternary economic sector is concerned with technology, research, and education.

    Most developed countries are dominated by tertiary and quaternary economic sectors. That being said, primary and secondary economic sectors usually never fully disappear.

    The reason that the Nigerian economy is considered an emerging economy, despite being so large and having such a big role in international trade, is because so much of its economy is still concentrated in the primary sector: food production, petroleum extraction, mineral extraction, and so forth. Around 20-25% of the economy revolves specifically around employment in and exportation of agriculture, though ironically, Nigeria also has to import some food to keep up with its expanding population.

    The piechart below presents a breakdown of Nigeria's GDP in the third quarter of 2019.1 Take a look:

    Nigeria Economy, Nigeria Economic Sectors, StudySmarterFig. 3 - A breakdown of Nigerian GDP by sector in Q3, 2019

    As you can see, a substantial amount of GDP is still concentrated in primary and secondary economic sectors. By comparison, agriculture makes up less than 1% of the GDP in the United Kingdom.

    Brain drain and its effects on the Nigerian economy

    Insofar as Nigeria can continue to leverage its petroleum resources, its economy will likely continue to grow.

    Nigeria may, however, face a financial challenge if or when countries seek alternative energy resources, either as a response to the inflation of petroleum prices or out of concern for its role in climate change.

    A more immediate problem is facing Nigeria's labour force: a phenomenon known as brain drain. Highly skilled and/or highly intelligent Nigerians may seek employment outside of the country. Because Nigeria is still developing, it can sometimes lack the means to keep particularly skilled Nigerians in Nigeria, especially when their skills may be in demand for higher pay or more comfortable living conditions elsewhere.

    Causes of brain drain include local economic recession; lack of local employment opportunities; mediocre salaries; lack of educational systems to support career aspirations; and dissatisfaction with local politics. If Nigerians see opportunities elsewhere, they may find a reason to leave.

    Brain drain reduces the Nigerian labour force and even costs the government money. Additionally, if the most intelligent Nigerians are, in fact, leaving Nigeria, it does not bode well for the future management of the country. This is perhaps most pronounced in Nigerian healthcare. The Nigerian government helps subsidize the education and training of Nigerian doctors, but up to 50% of Nigerian doctors later leave Nigeria, either out of dissatisfaction with practising in Nigeria or in pursuit of better opportunities elsewhere. The Nigerian government is not seeing a return on investment for the money they spent to help fund education for many of their doctors; other countries are reaping the benefits.

    Nigeria Economy, Medical professional, StudySmarterFig. 4 - Some medical professionals may choose to leave Nigeria

    In order to prevent or slow brain drain, the Nigerian government will likely need to address social and educational concerns in proportion to the rapid increase of its economy. Having the largest economy in Africa means little if the internal opportunities are poor.

    Nigerian Economy - Key takeaways

    • Nigeria, as we know it today, was initially created by the British Empire. Its early economy revolved around agriculture and wage labour.
    • Today, Nigeria has the largest economy in Africa and one of the largest economies in the world.
    • While a lot of Nigeria's economy still revolves around agriculture, Nigeria has become a substantial exporter of petroleum.
    • Nigeria is suffering from 'brain drain,' in that many of Nigeria's most skilled and most intelligent workers are seeking employment outside of the country.

    References

    1. Real gross domestic product (million naira). Central Bank of Nigeria:: Real Gross Domestic Product. (n.d.). Retrieved from https://www.cbn.gov.ng/rates/RealGDP.asp
    2. Fig. 1: Nigeria orthographic projection (https://commons.wikimedia.org/wiki/File:Nigeria_(orthographic_projection).svg) by Ukabia (https://commons.wikimedia.org/wiki/User:Ukabia) Licensed by CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0/deed.en)
    3. Fig. 2: A Petrol Tanker on Nigeria Roads (https://commons.wikimedia.org/wiki/File:A_Petrol_Tanker_on_Nigeria_Roads.jpg) by Fachab (https://commons.wikimedia.org/wiki/User:Fachab) Licensed by CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0/deed.en)
    4. Fig. 4: Serum Analysis (https://commons.wikimedia.org/wiki/File:Serum_Analysis_(2017,_Nigeria)_(cropped).jpg) by Hope2018, Licensed by CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0/deed.en)
    Frequently Asked Questions about Nigerian Economy

    What is the nature of the Nigerian economy?

    The Nigerian economy is a mixed economy, in that it is fundamentally capitalist in nature but incorporates government regulations. The Nigerian economy is also an emerging economy, an economy that is in the process of modernising. 

    How does globalisation affect the Nigerian economy?

    Thus far, globalisation has been good for the Nigerian economy. Nigerians do a significant amount of importing and exporting. Exporting petroleum has generated significant income for Nigeria.

    How is Nigeria's economy doing?

    Nigeria's economy is doing very well. It is the largest economy in Africa and one of the largest economies in the entire world. If Nigeria can maintain its current trajectory, it may breach the top 10 world economies in the next 50-100 years.

    How does brain drain affect the Nigerian economy?

    Brain drain is causing Nigeria to lose both money and valuable labour. In particular, the Nigerian government may help financially subsidise the education and training of medical doctors, only for those medical doctors to feel compelled to seek employment outside the country.

    How strong is the Nigerian economy?

    The Nigerian economy is strong and is getting stronger. However, if the global market turns against petroleum, or if brain drain becomes too drastic, the Nigerian economy may stagnate.

    Test your knowledge with multiple choice flashcards

    Which product played a significant role in the economy of West Africa prior to colonialism? 

    What kind of economy does Nigeria have?

    Nigeria's key export partners are...? Select ALL that apply. 

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