Examining Nigeria’s Quest for $1tn Economy

Sakeholders and financial experts that gathered at the Finance Correspondents Association of Nigeria 2024 annual conference held recently in Lagos, agreed that the vision to take the Nigerian economy to $1 trillion is bold, but achievable, writes Dike Onwuamaeze

On May 29, 2023, President Bola Tinubu declared that his administration’s is aiming to grow the size of the Nigeria’s economy to $1 trillion by 2030. 

Since Tinubu made this declaration, the Nigerian economy has faced a lot of challenges following the introduction of a market-determined exchange rate by the Central Bank of Nigeria (CBN0 in June 2023, which has seen the value of Naira depreciate from N450 per dollar in May 2023 to N1658.114 per dollar on October 3, 2024.

The impact of this massive depreciation of the Naira is a huge decline in the size of Nigeria’s Gross Domestic Product (GDP) from $362.81 billion in 2023 to $252.74 billion presently. This has caused Nigeria to drop from its first position as the largest economy in Africa to a fourth position.

Currently, Nigeria’s economy is ranked behind South Africa, Egypt and Algeria with GDPs of $373 billion, $347.6 billion and $266.8 billion respectively. 

Yet, financial experts that participated in the 2024 Annual Conference of the Finance Correspondents Association of Nigeria (FICAN), affirmed that Nigeria’s aspiration for a $1 trillion is achievable. The conference was held in Lagos from September 28th to 29th, 2024, with the theme “Nigeria’s Journey Towards a $1 trillion Economy: Impact of Banks’ Recapitalisation, Opportunities for Fintechs and Real Sector,”

The Group Managing Director of the United Bank of Africa Plc (UBA), Mr. Mr. Oliver Alawuba, who was represented by the Executive Director, Finance and Risk Management at the UBA, Mr. Ugo Nwaghodoh, as the conference’s guest speaker, said: “The $1 trillion economy vision is bold, yet achievable. However, it requires not just incremental growth, but structural shifts in how we approach banking, financial innovation, and sectoral development. 

“As we embark on this journey together, let us recognise that the future of Nigeria’s economy rests on the strategic alignment of policy, investment, technology, and, most importantly, our collective will to innovate and grow.”

Alawuba said that the ongoing banking recapitalisation initiative is not just about compliance with regulatory requirements, but about equipping the banking sector with the financial strength to be a reliable engine for economic transformation.

According to him, the recapitalisation policy must lead to a significant expansion in the provision of credit to the real sector, particularly in agriculture, manufacturing, and infrastructure.

Currently, Nigeria’s economy faces a productivity gap. According to the Nigerian Bureau of Statistics (NBS), the manufacturing sector contributed about 12.68 per cent to the nominal GDP as of Q2 2024 (down from 14.55 per cent in Q2 2023 and lower than the 14.79 per cent recorded in Q1 2024 and 16.04 per cent recorded in Q4 2023).  

This was far below the level required to drive industrialisation and economic diversification. But with larger capital bases, “Nigerian banks should be well-positioned to finance long-term infrastructure projects and provide low-cost credit facilities to businesses that will drive industrial growth,” he said.

He advised that the Nigerian banking sector must remain attuned to global trends such as digitisation, application of artificial intelligence, Environmental, Social, and Governance (ESG) criteria, and sustainable finance.

He pointed out that international banks are already capitalising for these trends, and Nigerian banks should position themselves to take advantage of these emerging opportunities by offering products and services that align with global best practices.

He added that fintechs are already revolutionising the Nigerian banking system. Currently, Nigeria has the largest fintech market in Africa, with a rapidly growing number of start-ups offering solutions that address the inefficiencies of the traditional banking sector.

According to him, fintech has already transformed how Nigerians access financial services – from mobile payments to lending platforms, the scope is vast.

“As we march towards a $1 trillion economy, the fintech sector is poised to play a crucial role in expanding financial access, driving innovation, and stimulating competition within the broader financial system,” Alawuba said.

Speaking in the same vein, the Managing Director/Chief Executive of the Nigeria Deposit Insurance Corporation (NDIC), Mr. Bello Hassan, said there is no nation that grew without vision and aspirations. According to Hassan, the vision of growing Nigeria’s economy to an ambitious target GDP level of $1 trillion by Mr. President would mark the starting point for the national policy rethink, stakeholder engagement and realignments of efforts and policies toward achieving the objective.

In this regard, the CBN and NDIC have collectively through their respective mandates repositioned the banking industry to carry out its intermediation role for the benefits of real sector and in fact all other sectors of the economy.

Hassan stated that the role of strong and well capitalised banks in supporting the current administration’s bold vision of growing Nigeria’s economy to $1 trillion must be appreciated by the relevant players in the financial sector.

The opportunities and potentials for growth of the real sector depend, among others, on the availability and affordability of financing. In addition, to achieve the desired level of financing by the real sector, the window offered by banks in partnership with fintechs, must be adequately harnessed.

According to him, supervisors must understand the interconnection among the various financial services providers and how their policies and actions can affect the efficiency and optimality of the overall financial system.

For sustainable and inclusive growth, policy makers must create an enabling environment that supports innovation, financial inclusion and growth while simultaneously protecting the markets, consumers, and investors.

One of the ways the fintechs would aid the actualisation of the $1 trillion economy is by furthering financial inclusion. Hassan pointed out that recent surveys showed that a number of Nigerians remained outside the formal banking sector due to various reasons, despite efforts towards promoting financial inclusion.

Moreover, many commercial, merchant and non-interest banks have focused almost exclusively on large corporations while underserving small and medium enterprises as well as the financially excluded active poor.

Hassan said: “Fintechs have the potential of closing this gap through deployment of innovative financial services, using new technology and reduction of bottlenecks associated with traditional financial institutions. With increasing use of smartphones and internet penetration, many unserved and underserved customers, can gain access to the formal financial services.

“Notwithstanding the opportunities for growth and the benefit that the system stands to gain through the exploration of Fintechs in the financial services ecosystem, we must however, as stakeholders be conscious of the additional risks and complexities that the system may be further exposed, particularly in the area of privacy, personal information, customer protection, transparency, and cyber-security.

“This no doubt has made regulatory oversight increasingly more complex. Financial regulators must evaluate existing rules and consider adoption of new regulations to better address the opportunities and challenges presented by these new technologies.”

The Chief Financial Officer of Parthian Partners, Mr. Yinka Arewa, said the role of fintechs is to digitise financial transactions that would bring in the agility in reaching out to the underserved segments of the economy.

By doing this the fintechs are actually enhancing and increasing economic activities, especially in the real sectors that are core in the economy, to drive the country’s GDP up. 

“I think that is the nexus between the fintech and the $1 trillion economy.

“Fintechs have largely contributed to the growth of the economy. Now you have fintechs that can advance credit to small scale enterprises to drive up productivity and purchases which scale up the GDP numbers,” Arewa said.

He added that the recapitalisation of banks would enable financial institutions to have more capital for infrastructure development because, “technology is required to reach the under banked and in doing this a lot more people would be included into the economy.

“This goes without saying that it would definitely drive the GDP upward towards the $1 trillion economy.”

Arewa added that the strengthening the exchange rate of the Naira in the FX market would also lift Nigeria’s GDP closer to the $1 trillion target.

He said: “We were at about $500 billion when we rebased in 2014. Imagine a world where the FX improves significantly, it also would mean that that would push up our GDP in Dollar terms. So, I see a combination of these making us get closer to the mark.”

The Deputy Director, Banking Examination Department, NDIC, Mr. Emeka Udechukwu, said that without a vibrant real sector the economy might not grow fast enough to hit the $1 trillion target.

He said: “If there is challenge in the real sector of any economy, that economy is already challenged.

“So we should resuscitate our real sector through policies that encourage more Nigerians to go into the real sector such as the loan to deposit ratio policy of the CBN.”

He argued that Nigeria should eliminate challenges that are being encountered by operators in the real sector in order to realize the $1trillion economy aspiration. 

According to him, the CBN and the NDIC have created policies that would encourage intending participants in the real sector. 

He explained that the intention of regulatory authorities is to use the loan-to-deposit ratio policy to “cage” banks to finance growth in the real sector. 

“For us, the $1 trillion economy is achievable. But we have to go back to the real sector and do what we are supposed to do. Nigeria has a lot of resources. Our problem is how we harnessing these resources.  

“There are fundamental infrastructural deficits that must be addressed for us to achieve this $1 trillion economy. Without addressing the real sector challenges, it will be difficult to attain the target,” he said.