However, there is another side to the Nigeria story that has been overshadowed both by the recent headlines and the persistence of outdated beliefs and assumptions about Nigeria's economy. A new report from the McKinsey Global Institute (MGI) and McKinsey's Nigeria office, "Nigeria's renewal: Delivering inclusive growth in Africa's largest economy", examines the country's economic potential and finds that with the right reforms and investments, it can become one of the world's leading economies by 2030.
Since 1999, Nigeria has proven to be both politically and economically stable and new data released this year show that it is now the largest economy in Africa, in addition to being the most populous. The new data also show that Nigeria's economy is far more diverse than previously understood.
While the nation's rich oil reserves remain a critical source of government income and exports, the entire resources sector today is only 14% of GDP. Agriculture and trade are larger and faster-growing. It is also not generally recognised that Nigerian productivity, which remains low, has been growing recently and now contributes more to GDP growth than does the expanding population.
"What people overlook is Nigeria's extraordinary advantages for future growth, including a large consumer market, a strategic geographic location, and a young and highly entrepreneurial population," says Reinaldo Fiorini, director and location manager of McKinsey's Lagos office. The results of Nigeria's progress, however, have not been spread evenly across its economy. More than 40% of Nigerians live below the nation's official poverty line and 130 million (74% of the population) live below the MGI Empowerment Line - a level of income and access to vital services that provides a decent standard of living.
Chief reasons for Nigeria's persistent poverty include low farm productivity due to limited access to fertilizer and mechanised tools, and inefficient markets. At the same time, urbanisation has not raised incomes the way it has in other developing economies. This is because formal job creation and skill development in Nigeria's cities have been weak, making productivity in urban sectors such as manufacturing lower than in agriculture.
Looking ahead, the report finds that Nigeria has the potential to expand its economy by roughly 7.1% per year through 2030, raising GDP to more than $1.6 trillion. This could make Nigeria a top 20 global economy - with higher GDP than the Netherlands, Thailand, or Malaysia in 2030. What's more, a large consuming class is developing in Nigeria, with potentially as many as 160 million members by 2030, more than the current populations of France and Germany combined.
If Nigeria can better link growth to poverty reduction, 70 million citizens could be lifted out of poverty and 120 million could have the resources to reach the Empowerment Line. It is estimated that, under the most favorable circumstances, for each percent of GDP growth, poverty would be reduced by 0.20%, a rate that is between the ratios of Brazil (0.15) and Ghana (0.25).
Tying growth to rising living standards across the economy will depend on raising farm incomes and creating more formal urban jobs. It will also require actions by the government - including reconsidering tariffs that raise the cost of imported food and re-prioritising government spending needed to programmes that lead to economic empowerment.
While government has put in place clear strategies and plans for various sectors, the most important step that government can take now is to improve its ability to deliver its programmes and services. These range from 'safety-net' support payments to the poor, to health care, education and infrastructure. Nigeria trails peer economies on metrics such as child mortality and literacy.
A critical initiative for Nigeria, then, will be to adopt the best practices that have been well established around the world for improving delivery of government services.
