The declining importance of oil means that Nigeria needs to expand its economy in other ways. Yet 2023 is likely to be a year of sluggish growth
Save time by listening to our audio articles as you multitaskA commodity-price plunge in 2015 was part of the problem. Yet plenty of damage was self-inflicted. In 2019 the government closed Nigeria’s land borders to all goods, purportedly to stop smugglers competing with local producers. The result was higher inflation. Efforts to prop up the exchange rate by restricting access to dollars made it hard for businesses to import basic inputs.
Amid the gloom there are shafts of light. In 2021 and 2022 growth edged up a little, boosted by a post-pandemic rebound and a stronger oil price. Lagos, the commercial capital, throngs with startups. In the first six months of 2022 Nigerian startups raised more than twice as much as in the same period of 2021. Nollywood, the local answer to Hollywood, produces about 2,500 films a year and is the second-largest film industry in the world by output.
Widespread insecurity also hampers growth. In the first six months of 2022, 6,000 Nigerians were killed in conflict. In the north-east the Islamic State West Africa Province, a jihadist group, has expanded towards the capital, Abuja. Militias in the north-west regularly target civilians for extortion and kidnapping.
More mundane economic matters also augur poorly. Inflation reached almost 21% in September, a 17-year high. Reducing it will require higher interest rates. Servicing debt is a worry because the government gathers so little tax. Even a prolonged oil-price boom may not help. It should nudge up growth, but high oil prices hurt the public purse. Nigeria, usually Africa’s biggest oil producer, subsidises fuel.
All this might one day prompt the government to ditch subsidies, freeing money to spend on things with a better chance of boosting growth, such as infrastructure and education. In the long term the declining importance of oil might shift Nigeria away from its current model, in which elites squabble over oil money while ignoring their citizens. Without easy oil cash they would need to expand the rest of the economy. Yet 2023 will witness halting steps, at best, towards all this.
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