A closer look at Nigeria’s economic reality

Imagine baking a cake whose recipe promises a lovely, fluffy result, but it actually turns out dense and uneven. This scenario reflects the current state of the Nigerian economy, as depicted in the latest GDP figures for the second quarter of 2024. Just as the consistency of a cake can be misleading and appearances often differ from reality, GDP figures can also obscure true economic conditions.

The government’s ambitious goal of growing the economy to $1 trillion sounds like a lofty promise, but a closer look reveals that the economic pie may not be fully ripe. This analysis will take a closer look at the numbers to paint a clearer picture of Nigeria’s economic health and reveal whether the reported growth is substantial or just an illusion.

While the reported GDP growth rate of 3.19% for Q2 2024 exceeds the 2.51% for the same period last year and the 2.98% for the previous quarter, it paints a picture of economic complexity. At first glance, this growth seems to signal recovery and progress. But just like a cake that appears fluffy on the surface but is dense inside, this figure masks deeper problems within Nigeria’s economic sectors.

The services sector, supported by inflationary pressures and currency depreciation, and the oil sector, which benefits from similar factors, both contribute to an inflated sense of economic health. Conversely, weak growth in the agriculture and manufacturing sectors highlights fundamental weaknesses that challenge the bigger picture.

The inflationary mirage: dynamics in the services and oil sectors

The 3.79% growth of the services sector, which contributes a remarkable 58.76% to GDP, may at first seem like a robust sign of economic vitality. But this growth, much like the outward appearance of a well-baked cake, is influenced by factors that do not necessarily reflect real progress. Inflation and currency devaluation have inflated nominal wages in the services sector, creating an illusion of prosperity. Just as too much baking powder can cause a cake to rise artificially, the growth of the services sector is partly the result of external constraints rather than internal improvements.

The oil sector’s 10.15% year-on-year growth in Q2 2024, after a previous decline, also illustrates this inflationary effect. The sector’s contribution to GDP increased from 5.34% in Q2 2023 to 5.70% in Q2 2024, but this growth is not necessarily a sign of a thriving sector. The higher production numbers from 1.22 million barrels per day (mbpd) in Q2 2023 to 1.41 mbpd in Q2 2024 appear promising. However, the decline from 1.57 mbpd in Q1 2024 and the overall dependence on oil, which is highly vulnerable to global price fluctuations and external shocks, show that this growth is not as stable or reliable as it may seem.

This situation can be compared to a sponge soaking up water. The sponge expands and appears larger, but it only absorbs liquid without adding new substance. Similarly, the growth of the oil sector may appear substantial, but it reflects inflation and currency effects rather than real economic stability or diversification.

Agriculture and manufacturing: The weak points

The agriculture sector’s growth of 1.41% in Q2 2024, a slight improvement from 1.50% last year, highlights persistent challenges that undermine its potential. Despite its critical role in creating jobs and ensuring food security, the sector remains mired in problems such as inadequate infrastructure, inefficient production processes, and inadequate investment. These challenges prevent agriculture from achieving the robust growth needed to significantly impact the overall economy. Much like a cake that fails to rise evenly due to poorly mixed ingredients, the agriculture sector’s limited growth reflects systemic issues that hinder its progress.

The manufacturing sector, while also showing significant improvement, registering growth of 3.53% compared to a contraction of -1.94% last year, faces significant hurdles. This growth is primarily concentrated in certain sectors such as food, beverages and tobacco and does not indicate a broad-based recovery. The manufacturing sector as a whole continues to struggle with high production costs, infrastructure deficits and limited access to affordable finance. These issues hamper the sector’s ability to achieve comprehensive and sustainable growth, much like a cake with an uneven texture that does not deliver consistent quality throughout.

These weaknesses in agriculture and manufacturing underscore the structural imbalances within the Nigerian economy. Limited progress in these key sectors reveals a deeper problem: the economy’s over-reliance on sectors that benefit from external factors such as inflation and currency devaluation. For Nigeria to build a more robust and diversified economy, it must address these fundamental issues, invest strategically in key sectors, and implement policies that support long-term growth and stability. Only then can the economic pie reach its full potential and reflect real progress rather than an illusion of growth.

Structural imbalances and long-term impacts

The broader economic picture reveals a number of structural imbalances. While the services and oil sectors are experiencing growth, their performance is heavily influenced by external factors such as inflation and currency devaluation, giving a false picture of economic health. The real challenge lies in the lagging sectors, such as agriculture and manufacturing, which face systemic problems that need to be urgently addressed.

Reliance on inflationary gains and currency effects for short-term growth is not sustainable. Just as a cake that relies on excessive leavening to appear fluffy has no substance, current economic gains driven by inflation and devaluation do not contribute to real economic resilience. For Nigeria to achieve a balanced and sustainable growth trajectory, it must address weaknesses in agriculture and manufacturing, invest in infrastructure and create a more conducive environment for diverse economic activities.

In addition, the heavy dependence on oil and slow progress in diversifying into other sectors makes Nigeria vulnerable to external shocks and price fluctuations. A diversified approach that includes investments in key growth areas such as technology, renewable energy and education is essential to building a more resilient and robust economy.

A deeper insight: More than just numbers

If we step back from a detailed look at the GDP figures, it becomes clear that the economic picture presented resembles a pie that looks appealing on the outside but has no real substance. The sponge comparison is particularly apt here: while growth figures may seem impressive, they often hide deeper, more troubling problems beneath the surface. While the expansion in the services and oil sectors is notable, it is heavily influenced by external factors such as inflation and currency devaluation. This creates an illusion of economic strength that does not necessarily reflect the underlying health of the Nigerian economy.

The broader economic development captured by these GDP numbers resembles a cake that looks fluffy and well-risen on the outside but becomes dense and unattractive when cut. To go beyond these superficial numbers and make meaningful progress, Nigeria must address these structural imbalances head-on. This means investing strategically in critical sectors, improving infrastructure and creating a more conducive environment for diverse economic activities. Only through these efforts can the country make the transition from an economy that merely looks good on paper to one that is truly robust and resilient. The ambitious target of a $1 trillion economic output, while challenging, can only be achieved if the economic cake is not only beautifully decorated but also solidly baked and satisfying.