Verraki: Nigeria Needs 5-7% Economic Growth over the Next Decade

The Nigerian economy grew by 2.54 per cent year-on-year (y/y) in Q3 2023, higher than the 2.25% recorded in Q3 2022. Over the last decade (2013 – 2022), Nigeria recorded an average annual real economic growth rate of 2.4 per cent; same as the estimated population growth of 2.4 per cent. A 2.4per cent annual real Gross Domestic Product (GDP) growth rate is clearly below what Nigeria needs to address multidimensional macroeconomic challenges confronting the nation, according to the Managing Partner at Verraki, Mr. Niyi Yusuf.

Slow economic growth can have adverse effects on socio-economic development. Economic growth is crucial for improving living standards, creating job opportunities, and fostering overall societal well- being. President Tinubu’s administration intends to double the size of Nigeria’s GDP from an estimated $535.34 billion as of 2022 to $1 trillion by 2030. Meanwhile, the country’s Mid-Term Expenditure Framework MTEF is based on a 3.76 per cent to 4.78 per cent economic growth assumption for the 2024-2026 fiscal years. Whilst this estimate appears modest in our opinion, this report examines the range of annual GDP growth the country should aim at to achieve meaningful economic progress over the next decade.

What Economic Growth Rate Does Nigeria Need to Attain?

There is no gainsaying that Nigeria needs to achieve a higher growth rate that is inclusive, private sector driven, non-inflationary and non-oil sector led. How the country intends to achieve this will depend on policy priorities of the new administration and the support of all Nigerians. Between 2000 and 2014, Nigeria’s economy experienced an impressive 7 per cent average annual GDP growth that was driven by structural reforms amidst favourable global conditions.

From 2015-2022, however, growth rates decreased and GDP per capita flattened, driven by monetary and exchange rate policy distortions, increasing fiscal deficits, economic losses from trade protectionism, and external shocks from the COVID-19 pandemic. Weakened economic fundamentals pushed inflation to reach a 17-year high of 27.33% in October 2023, which, in combination with sluggish growth, has left 63% of Nigerians in multidimensional poverty.

According to a report by UNCTAD, a yearly growth rate of at least 7 per cent is necessary to eradicate poverty in less developed countries, and put their economies on a path of accelerated growt and sustainable development. This position was reaffirmed in 2011 in the Istanbul Programme of Action (IPoA) and enshrined in the 2030 Agenda for Sustainable Development, under target 8.1 of the Sustainable Development Goals (SDGs). Whilst Nigeria has the potentials to deliver such ambitious annual growth rate over the next decade, the country’s current reality makes such ambition far-fetched in the short-term. We believe that the country needs to at least double the current real GDP growth as a base case. Hence, a minimum of 5% y/y quarterly real GDP growth sustained over the next decade might just be the magic wand that will unlock the country’s path to inclusive economic development.

A look at the economic growth trend of some notable economies that have attained some level of economic development (as measured by UNDP’s Human Development Indicators (HDI) reveals that they were able to sustain between 5% to 10 per cent GDP growth for decades. Consider Vietnam as an example. The country emerged from the rubble of the Second Indochina War (1955-1975) and economic collapse of the 1980s to become a high-HDI economy, recording impressive growth in per capita GDP from $1,675 in 1991 to $7,867 in 2021. Today, Vietnam has bold development aspirations and aims to become a high-income country by 2045 which requires a GDP per capita growth of about 6 per cent annually.

We consider a 5 – 7 per cent annual real GDP growth as the minimum Nigeria should realistically target in the next decade. Our analysis shows that sustaining this growth rate should deliver a $700 – $800 billion economy by 2033. We believe strongly that Nigeria has the potential to achieve this target economic growth given its abundant natural resources, large and youthful population, and diverse economic sectors. To achieve a $1 trillion economy by the year 2033, the country needs to achieve and sustain 6.5 per  ent minimum average GDP growth rate and implement policies to slow the population growth rate sustainably.

Scenario Analysis – Real GDP by the Year 2033

We took a bottom-up approach to see how growth in key economic sectors can drive desired aggregate GDP growth over the next decade under six scenarios. The results from this analysis further buttress our

position that the country needs to achieve and sustain a 5 – 7 per cent GDP to deliver desired economic outcomes. To achieve this performance, the agriculture and manufacturing sectors need to each sustain a 4 – 6 per cent average annual growth, the construction sector must grow at 8- 10 per cent, whilst the ICT sector must grow at 12- 14 per cent on average, over the next decade.

Our base-case scenario assumes that the macroeconomic conditions over the next decade will be like the year 2023. Our analysis shows the Nigerian economy will achieve 2.6 per  ent average growth over this period and deliver a $694.54 billion dollar economy by 2033. If the country should pursue similar economic policies as we had during 2015- 2023 (federal infrastructure programmes, state-led economic

agenda, etc.), we should see a real GDP of $660.44 billion by 2023. Furthermore, if Nigeria can replicate the double-digit growth across key sectors as we had during 1999-2007 period (driven largely by the private sector, institutional reforms, robust foreign reserves, etc.), then the real GDP could get to $4.3 trillion by 2033.

Base-case plus 3 per cent, 5 per cent and 7 per cent growth should deliver an economy valued at $925.8 billion, $1,116 billion and $1,340.5 respectively by 2033. By implication, to achieve a $1trillion economy by 2033, the country needs to achieve and sustain a real GDP growth of approximately 6.5 per cent at the minimum.

Call to Action – Role of Government and Policy Makers

The Nigerian government and policy makers have a crucial role in driving the desired 5 – 7 per  ent GDP growth over the next decade. The federal government must take the lead, formulate, and implement visionary policies that will guide all economic actors towards achieving sustainable growth. Such policies must address economic, social, and institutional drivers of economic growth, whilst ensuring that the growth outcomes are broad-based, non-inflationary and inclusive. We highlight some short and long-term policy priorities that may help.

In the short-term, the government must stabilize the economy in terms of physical security and safety, address inflation, optimize quick wins, and communicate strong political will to act. The government must immediately address the issue of oil theft which has continued to weaken revenue generation and a threat to the proposed 2024 budget by the current administration which pegged daily crude oil production at 1.78 million bpd. There is a need to expand our tax net and boost efficiency in tax collection through better use of digital technologies to

strengthen revenue administrations in the quest to achieve 18% tax to GDP in the next four years. There is equally a need to urgently address the depreciation of the Naira and volatility in the foreign exchange market amid unabated inflation which has continued to shrink consumer demand and weaken investors’ confidence. Also, the fiscal authority needs to block all revenue leakages, boost trade openness through incentives for local production, reform of the Nigerian customs and ports, and reduce tariffs on certain export-oriented industries to generate foreign exchange and boost economic growth. Government must demonstrate clear and visionary growth path for critical economic sectors, and communicate policy priorities similar to the technology innovation policy priorities we published earlier.

To sustain growth in the long-term, the government needs to continue the roll-out of visionary infrastructure projects that will support economic diversification, broad-based growth, and better quality of life. Collaboration with the private sector through public-private partnerships and strategic de-risking should stimulate the deployment of private capital and expertise to strategic economic sectors, particularly Agriculture, ICT, Manufacturing and Services.

Government must fast-track the privatization of idle and underperforming national assets and promote private sector participation along the value chains of the targeted economic sectors.

The development of human capital is critical for long term growth. Therefore, sustained investment in the health, education, nutrition and social services sectors remains pertinent. The removal of barriers to MSME growth is a necessary condition for sustained pro-jobs growth given that MSMEs contribute 43 per cent to Nigeria’s GDP and employ over 85 per cent of the total workforce.