The Challenges of Productivity in the Nigerian Economy
Nigeria’s economic landscape has seen significant changes with the recent rebasing of its Gross Domestic Product (GDP), which has led to a substantial increase in the country’s economic size. However, despite this growth, economists have raised concerns about the persistent challenges of productivity that continue to hinder the transformation of the everyday Nigerian’s life.
The new GDP data, released by the Nigerian Bureau of Statistics, places the country’s economy at N372.8tn or $243.7bn. This figure is based on 2019 as the new base year and includes sectors such as e-commerce, mining, pension funds, marine economy, and culture and tourism. The updated GDP for 2024 is N103.51tn, or over $67bn, which is significantly higher than the previous estimate using the 2010 base year. This indicates that Nigeria’s economy is 38% larger than previously thought.
While the rebasing exercise has improved the comparability of economic data across countries, it has not addressed the underlying issues of low productivity. Experts argue that even though the economy is expanding, the gains are not translating into better living standards for the average citizen.
Key Sectors and Their Contributions
The services sector remains the largest contributor to Nigeria’s GDP, accounting for 53.09% in 2024. This was followed by agriculture at 25.83% and industries at 21.08%. The fastest-growing sectors include financial and insurance services, which grew by 15.03%, and transport and storage, which saw a 14.08% increase. Arts and entertainment also showed growth, with a 9.63% increase.
Despite these positive trends, there are concerns about the productivity levels in key sectors. Dr. Joseph Ogebe, Head of Research at the Nigerian Economic Summit Group, highlighted that while agriculture and services have increased, their contribution to export earnings remains low. This lack of competitiveness affects foreign exchange inflows, which are crucial for economic stability.
Structural Issues and the Need for Reform
Professor Adeola Adenikinju, President of the Nigerian Economic Society, pointed out that Nigeria’s transition from an agricultural economy to a service-dominated one without a strong industrial base is causing structural imbalances. He described this as “abnormal growth,” where the manufacturing sector remains underdeveloped, leading to high poverty rates and inequality.
Adenikinju emphasized the importance of a robust industrial base for sustainable economic growth. He argued that without a strong manufacturing sector, Nigeria cannot generate sufficient employment or income to lift people out of poverty. The services and agriculture sectors, while contributing to GDP, are largely informal and do not drive significant economic development.
The Role of the Oil and Gas Sector
The oil and gas sector, which contributes 4% to the GDP, has potential to play a more significant role in driving economic growth. Professor Adenikinju noted that the sector could contribute more if there were greater horizontal integration and investment. This would help in diversifying the economy and reducing reliance on a single sector.
Addressing the Informal Economy
Damilola Akinbami, Chief Economist at Deloitte West Africa, highlighted the need to formalize the informal economy, which currently contributes around 43% of GDP. She pointed out that reducing the informal sector could lead to increased tax revenue and better economic outcomes. However, structural issues and challenges in registration and taxation prevent many businesses from transitioning to the formal sector.
Akinbami suggested that leveraging technology to create simple solutions could help reduce the informal economy’s size. This would not only improve revenue generation but also enhance competition and economic efficiency.
Fiscal Implications of the Rebased GDP
Analysts at Afrinvest noted that the rebased GDP has improved Nigeria’s debt-to-GDP ratio, which fell to 40.0% from 53.8% under the previous base year. This provides the government with more flexibility to borrow without breaching the prudential ceiling set by the Debt Management Office. Additionally, the tax revenue to GDP rate has dropped to 10.0%, highlighting the need for effective tax reforms.
Despite these improvements, several risks could constrain economic performance, including structural issues, insecurity in key regions, and inflation. The investment firm retains its GDP growth forecast of 3.3% for 2025, anchored on resilience in the services sector and a moderate recovery in agriculture.
In conclusion, while the rebased GDP highlights Nigeria’s economic potential, addressing productivity challenges, structural imbalances, and the informal economy remain critical for achieving sustained growth and improving the lives of Nigerians.
