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Last week, Nigeria announced the results of the rebasing (changing the weights given to different sectors of its economy) of its Gross Domestic Product (GDP). International observers expected the rebasing, which had not taken place since 1990, to add significant value to the nation’s economy, but they did not anticipate that it would add 89% to Nigeria’s existing GDP and make it Africa’s largest economy. The rebasing suggests that the Nigerian economy is worth $510 billion versus $370 billion for South Africa, who had long held the title of Africa’s largest economy. However, although the GDP figures suggest that Nigeria is a nation on the rise, the country confronts a domestic Islamist insurrection, corruption problems, and rampant poverty. Fixing these problems will be important if Nigeria wants to become a leading power on the African continent and an influential international player.
This topic brief will discuss Nigeria’s economic issues, the security challenges that the nation faces, and what steps the Nigerian government can take to fix its problems in these two areas.
Readers are also encouraged to use the links below and in the related R&D to bolster their files about this topic.
The Nigerian Economy
Nigeria is a country that analysts have always expected to break out and achieve great things. It is the most populous country in Africa and the country is lush with oil and is becoming a technology and investment hub on the African continent. The Economist of April 12th notes that the Nigerian economy has grown at an average rate of 7% for the past decade and it is expected to have a population of 440 million people by 2050 (for comparison, the United States is expected to have 400 million people by that time). Additionally, Lagos, Nigeria’s largest city, has the most liquid financial exchange in sub-Saharan Africa that is second only to Johannesburg, South Africa. Nigeria also has close ties with Great Britain, since the country was formerly a British protectorate from 1901 to 1960, and this has helped the country establish a strong international profile. The Brookings Institution on February 3rd points out that the world could on the verge of “Africa’s moment” whereby African nations become hubs of foreign investment and strong economic players that can transform the continent. Nigeria is one of the countries begged to lead this moment due to its oil wealth and growing population.
Still, Nigeria was in desperate need of “rebasing” its economy to account for growing economic sectors and to give a better picture to investors about the true value of its national economy. Humanitarian organizations also wanted a rebasing so they could target their help more effectively. The BBC on April 3rd provides a great overview of Gross Domestic Product (GDP), which typically adds the amount of government investment in an economy, business/private sector investment, consumer spending, and exports (minus imports). Most countries rebase their economies every two to three years. Rebasing sees government officials measure the size of different industries and then assign them weights to calculate GDP. For example, if a mobile telephone industry is growing and employing large numbers of people, a rebased GDP will give it “more” weight by assigning it a stronger share of the national economy (e.g. going from 0% to 8%). These weights and values are then added together to produce the overall value of a nation’s economy. Nigeria had not rebased its economy since 1990 and the problem was that it was overassessing declining sectors like oil and not counting thriving sectors like small businesses, mobile phone companies, and the nation’s growing motion picture industry called Nollywood. The official reason for the lack of rebasing was that Nigeria became a democracy in 1999 after being ruled by a military dictatorship and events were not stable enough to order an immediate rebase. The Christian Science Monitor points out on April 8th that some critics allege Nigeria did not rebase because it wanted to appear poorer than it really was so that it would receive debt relief from the Paris Club (an informal group of financial officials that handle tough debt cases the IMF cannot handle) in 2000. Regardless of the reason taken for the rebase, the end result was that Nigeria’s economy increased its value by 89% (which AllAfrica explained on April 8th means that the Nigerian economy is worth fifty-eight Malawis). The Economist on April 7th notes that this occurred because the government took account for the nation’s 120 million mobile phone users (the mobile phone industry is now 9% of the economy), added more small business activities into economic calculations (previous calculations only included 85,000 small businesses relative to the new figure of 850,000), and assigned the Nollywood film industry a weight of 1.4% of GDP. The Guardian on April 10th reveals that the rebasing also shows that the national service sector has grown by 240% since 1990 as more street vendors, bakers, and cyber cafes have opened across the country.
Nigeria’s large population, resource wealth, and recent gains are reasons why investors are “bullish” about its economic prospects, but the Nigerian economy has several problems as well. One of the biggest problems is corruption. The Economist on March 1st writes that the Nigerian Extractive Industries Transparency Initiative, which seeks to bring more transparency to Nigeria’s state-owned oil sector, argues that the country has lost $9.8 billion of its oil wealth to corruption between 1999 and 2008. The Washington Post on April 6th estimates that Nigeria loses $20 million a day due to oil thefts and that the lack of revenues going to the central government impair infrastructure development. For example, many Nigerian businesses depend on diesel generators for power because many areas of the country lack sufficient electricity supplies (in fact, Quartz , a business news publication of the Atlantic Media Company, points out on April 8th that 25% of Nigeria’s people – 40 million – lack access to electricity). Nigeria’s central bank governor Lamida Sausi called attention to the problems of the state-owned Nigerian National Petroleum Corporation (NNPC) earlier this year and alleged that it failed to deliver millions of dollars to the Nigerian government. However, Sausi was fired by Nigerian President Goodluck Jonathan for his remarks, which has spooked foreign investors, who think that Nigeria is doing very little to rein in corruption. In fact, The Economist of March 1st argues that Sausi’s firing has caused a foreign exodus from the Nigerian bond market and the national currency, the naira, has fallen to an all-time low. A different Economist article from March 1st adds that investors are worried that Sausi’s firing might also cause the new central bank to reduce interest rates, which have been raised to keep national inflation under 10%. It is believed that Jonathan wants the rates to be lowered so as to ensure his re-election in 2015. Nigeria’s corruption also complicates its ties to other African states. The Nigerian government is currently engaged in a diplomatic spat with Zimbabwe after Zimbabwean President Robert Mugabe told the press at a birthday luncheon that the word “corruption” is synonymous with Nigerians and that Zimbabweans were beginning to resemble them by demanding bribes for nearly every activity. The Daily Times of Nigeria on April 11th explained that Nigeria has demanded an apology, but it is hard to see how some of Mugabe’s accusations are incorrect (even though he also heads a country and government that are notoriously corrupt).
Another significant problem extempers need to discuss when they deal with any question on Nigeria is its joblessness and lack of development. The Economist from April 12th writes that Nigeria ranks 153rd out of 187 countries in the United Nation’s Human Development Index and its per capita GDP (which divides a nation’s economic wealth among its population and is therefore a good index of a nation’s personal wealth and status as a developed or developing nation) lags behind South Africa. The South China Morning Post on April 8th explains that although Nigeria is three times the size of South Africa and now has a larger economy, its GDP per capita is only $2,688 versus South Africa’s $7,508. The Christian Science Monitor previously cited from April 8th adds that 61% of Nigerians lived on less than $1 a day in 2010 versus 52% in 2004. The Washington Post article cited above points out that Nigeria has an unemployment rate of 23.9% (which has grown from 12.7% in 2007) and that youth unemployment is as high as 80% in some areas of the country. Slate on April 8th makes a good point when it notes that although the rebasing has given Nigeria a public relations coup, the GDP number means very little to the average person who lives in absolute poverty. The Nigerian government has given lip service to the problem and has promised to increase spending on a social safety net and to cut red tape that stifles small business creation. However, these steps are not happening quickly enough for many Nigerians.
A final problem worth discussing is that the new GDP figures reveal some national weaknesses. The Brookings Institution brief pointed out earlier discusses how African nations, unlike those in East Asia, have yet to successfully move their populations from agriculture to manufacturing and relocate citizens from rural areas to urban ones. The Atlantic on April 7th points out that Nigeria is still too reliant on oil and has not developed a diverse, modern economy like South Africa, who is seeks to displace as Africa’s top political and economic player. The AllAfrica article cited earlier also reveals that the growth of the country’s service sector should not be widely celebrated since other developing countries have illustrated that services are a poor engine for economic growth. Therefore, Nigeria needs to try to encourage more manufacturing growth and work with agricultural workers and farmers to add diversity to its economy, while also seeking to make these sectors more profitable via less government regulation and targeted investments.
Nigerian Religious Divisions and the Boko Haram Problem
Like other African states, Nigeria has ethnic and religious divisions that complicate its political and economic stability. In Nigeria’s case, religion tends to trump ethnicity as a major division in society with the Northern part of the country being largely Muslim and the Southern half of the country being largely Christian. Economically, the Southern area is much more economically developed than the North due to the South’s greater interactions with British traders during the colonial period (this is the inverse of Italy’s economy where the Italian North is more rich and prosperous than the Italian South). It is a safe assumption to make when you read about Nigeria that any political or economic problems are more pronounced and worse in the North than they are in the South. For example, youth unemployment is much worse in Northern Nigeria than Southern Nigeria and infrastructure investment is much higher in the South than it is in the North. The Muslim North is very suspicious of the Christian South and vice-versa and Nigeria tried to solve some of these problems by rotating the national presidency between Christians and Muslims. The first three presidents of the Nigerian Fourth Republic have stuck to this arrangement with President Olusegun Obasanjo, a Christian, ruling from 1999 to 2007, Umaru Musa Yar’Adua, a Muslim, ruling from 2007 to 2010 (he died in office), and Goodluck Jonathan, a Christian, ruling from 2010 to present. Still, the North remains suspicious that the South is withholding economic development funds from the region and is engaging in religious discrimination against the North.
The combination of religious tensions, suspicion towards the central government, and a lack of economic development in Northern Nigeria gave birth to the Boko Haram rebellion in Nigeria’s Northeast in 2009. The International Crisis Group provides an excellent analysis of Boko Haram and how the Nigerian government can try to tackle the problem on April 3rd (extempers should cut not only the summary, but the .pdf that goes alone with the summary – there is a link to the .pdf on the right side of the webpage). The term “Boko Haram” is from the Hausa language and means “Western education is a sin.” The goals of the group are to establish an Islamic state governed by Sharia law in Northern Nigeria that will eradicate corruption and “false Muslims” who are working with the Nigerian government. Its current leader, Abubakar Shekau, according to The Christian Science Monitor on March 27th has also said that “infidel” women will be enslaved and auctioned off. The group received startup funding from Osama bin Laden and, like Hezbollah in Lebanon and Hamas in the Gaza Strip, it stepped in to assist people that the central government neglected. Boko Haram provided lines of credit to people that needed it and also provided food, shelter, and a form of social security to Northern Muslims. In 2009, Boko Haram and police in Northern Nigeria began clashing and although Nigeria executed its primary leader Ali Modu Sheriff, the rebellion continued and now targets Christians, Muslim clerics that deviate from its mission, local elders, United Nations workers, bars, and secular schools. The BBC on March 31st writes that the U.S. declared Boko Haram a terrorist group last year. A separate article from the BBC on March 31st notes that 1,500 people have died in violence this year between Nigerian forces and Boko Haram, more than 500,000 have been displaced by the fighting, and more than three million Nigerians now face a humanitarian crisis.
There are also worries that the violence is getting much more bitter and aggressive, which will prolong the conflict and make reconciliation much harder. The Economist on March 29th writes that although the Nigerian government has sought to enroll repentant rebels in vocational schools and provide psychological counseling, there are elements of the Nigerian military that are resisting negotiations with Boko Haram because they are siphoning off the $6 billion state security budget and want there to be a reason for the violence so they can keep their cash flow going. The Christian Science Monitor on March 25th writes that Nigerian governors from Northern states like Kano have criticized Goodluck Jonathan’s government for collaborating with the rebels to keep the region unstable and thereby keep a large number of Northern Nigerians from voting next year (Jonathan is not very popular in the North and it would be to his benefit to have vote numbers stay low in the area). There are also questions about human rights in the conflict as The Christian Science Monitor on March 24th and April 5th explain that government forces stand accused of rounding up innocent people in Northern areas after attacks and then shooting them. This is giving the Nigerian government a bad reputation among locals and also harming its ability to secure international support to fight off Boko Haram. Another worry about the aggressiveness of the fighting is that Boko is becoming more localized and disperse, which makes it hard for the government to negotiate with a central leader to end the violence.
The reason that curing the Boko Haram problem matters is that Nigeria will never reach its economic potential if the violence continues. The country already faces a significant income gap, something that is to be expected of rapidly developing nations, and it must do something to provide more political and financial security to the population. Boko Haram has found adherents to its ideology because the Nigerian government has failed to provide an economically productive environment in Northern states and corruption has hampered infrastructure projects in the region. Additionally, the rebellion is a test of the Nigerian government as it begins to increase its international profile. If Nigeria wants to become a member of the G20 and possibly a permanent member of the UN Security Council (it would have to be considered on the shortlist of candidates if the number of permanent members is later enlarged on that body) it must show that it can handle internal security problems effectively.
Fixing Nigeria’s Issues
First, to show international investors that Nigeria is becoming a more stable and economically developed land, President Goodluck Jonathan needs to crack down on corruption. Audits should be held of the NNPC to see if Lamido Sausi’s arguments were right and if so, perpetrators must be put on trial and shamed in front of the rest of the nation. Also, the Nigerian government has to ensure that oil theft is not tolerated in any form and must protect its national oil infrastructure. If millions of dollars leak out of the system each day it undermines the ability of the Nigerian government to provide infrastructure like roads, bridges, etc. that the nation desperately needs and to fund development projects in Northern states where some of the country’s biggest problems exist. Tackling corruption will be a monumental task and Jonathan is sure to upset some political supporters by focusing on it, but Nigerians are aware of the corruption problem and it would be in Jonathan’s best long-term interest (and especially for his legacy) to tackle it. After all, corruption is becoming a bigger problem for South Africa and is hampering its economic growth. If Nigeria wants to overtake South Africa and become a reliable hub for business, it must clamp down on corruption sooner rather than later. When you talk about corruption you should also take care to put a number on how much corruption is costing the national economy. Otherwise, your judge will think you are ranting about a corruption problem without giving them any type of data about the scale of the problem.
Second, Nigeria must do a better job reducing government interference in its national economy. This does not mean that the government should not setup healthcare programs, education programs, and social security measures like unemployment insurance for the population. These things should be enacted to restore some semblance of societal stability. What this recommendation does mean is that Nigeria needs to reduce the regulation barriers that small businesses (and even large ones) have to go through to secure licenses and pay their yearly taxes. Too much “red tape” usually chokes off business growth as it raises the cost of doing business for younger entrepreneurs and serves as a deterrent for those Nigerians that have business ideas. The Economist on April 12th writes that the Nigerian government collects taxes from businesses very poorly already, which the GDP rebasing showed, so it also must do a better job streamlining its operations to collect what is required to fund development projects and government operations. Basically, if you have to give a speech about Nigeria you need to emphasize the need for infrastructure, infrastructure, and MORE infrastructure and point out how Nigeria can go about paying for it (e.g. clamping down on corruption can save more than $1 billion a year + better tax collection can produce the same result + better climate for investment = more businesses for the government to tax and then fund these projects).
To deal with Boko Haram, AllAfrica on April 7th recommends that the Nigerian government improve the training of its soldiers and use soldiers that are from Northern ethnic groups. Soldiers are currently trained to handle conventional warfare, but this is not what they are facing with Boko Haram rebels that embed themselves with the civilian population and fight small skirmishes before retreating. It also recommends that the Nigerian government seek out training from American and European officials who have experience with counter insurgency warfare and that the government should prosecute those military officials involved in civilian massacres and other violations of human rights. The International Crisis Group recommends that Nigeria’s regional partners work with it to patrol borders to ensure that Boko Haram is not receiving outside supplies to keep the insurgency going. By learning how to fight Boko Haram effectively, the Nigerian government can gradually work to stabilize the Northeastern part of the country that has seen the heaviest fighting and can build up trust with the local population. The Nigerian government should then follow these operations up with the building of schools, hospitals, roads, and other pieces of vital infrastructure that will, over time, improve the standard of living of Northern Nigerians. If Nigeria’s government can show it cares and becomes a force of good in the area, then it is more likely to turn the population against Boko Haram and reduce future insurgencies.
Nigeria can become Africa’s superpower if it follows a course of responsible and transparent governance. Northern Muslims must feel that they have a stake in the new Nigeria and the national government must work to reduce corruption and provide more benefits to the population. Nigeria’s rebasing shows that it has formidable economic capacity and wealth, but that is meaningless if it fails to build up human capital resources and provide much needed social security.