Trust and Economic Recovery, By Dakuku Peterside
Nigeria’s economy is charting a course from the tempestuous waters of the “Red Zone,” a realm of acute instability filled with uncertainty and wavering hope. Now, it navigates the “Amber Zone,” a twilight of cautious recovery, where the faint glow of progress meets the shadows of persistent challenges. Yet, the horizon beckons with the promise of the “Green Zone,” a sanctuary of enduring stability and prosperity. The path forward, however, is a rugged ascent, demanding resolve, innovation, and unity to transform into reality.
While macroeconomic indicators point toward progress, such as a GDP growth rate of 3.19% in Q2 2024, primarily driven by a 3.79% growth in the services sector, contributing 58.76% to the GDP, the lived realities of the average Nigerian tell a different story. Local and foreign investor confidence is dwindling, and living conditions for the majority remain stagnant or deteriorate. The World Bank, in its 2023 publication, estimates that 104 million Nigerians are living below the poverty line. Unemployment remains high, with youth unemployment exceeding 42.5%, reflecting a deep disconnect between economic data and societal realities. Most Nigerians are disillusioned regarding the economy, which is not a good place to be.
Economic statistics churned out by the government through her agencies often seem irrelevant to many Nigerians due to a disconnect between reported improvement of the economy and lived experiences. This glaring disconnect calls for an urgent and deeper analysis of structural challenges and a recalibration of policies to foster inclusive and sustainable growth. Paradoxically, it raises fundamental concerns about the structure and management of the Nigerian economy and calls for a more inclusive, innovative, and transformative approach to economic growth.
The pervasive mistrust of Nigeria’s economic data, policies, and management is a fundamental issue. Citizens increasingly view government-released statistics as detached from reality, more reflective of political posturing than actual economic conditions.
This scepticism is fuelled by persistent inequality and perceived poor leadership. In Nigeria, extreme wealth concentration is evident, according to a 2023 Oxfam international publication, with the wealthiest 0.003% (approximately 6,355 individuals) possessing four times more wealth than 107 million Nigerians combined. Such disparities question the utility of economic policies that ostensibly promote growth but fail to address the systemic exclusion of millions from its benefits. Besides, many Nigerians view government economic policies with suspicion, often associating them with inefficiency, corruption, and a lack of transparency. For instance, reports from the Auditor-General consistently reveal irregularities in public spending, reinforcing public perceptions of mismanagement. This erosion of trust undermines the government’s ability to mobilise support for economic reforms.
Foreign and local investors’ confidence, a critical indicator of economic growth, has been significantly eroded. This decline is symptomatic of deeper issues, including weak property rights, weak enforcement of contracts, policy inconsistencies, judicial inefficiencies and deep-rooted corruption. The absence of a robust local investment climate is evident, and local investor confidence is waning. We cannot look far into why foreign investors are foot-dragging to where local investors do not have faith. In Q1 2024, Nigeria’s foreign direct investment (FDI) inflows, according to NBS, grew to $3.4 billion, an increase from the previous quarter, indicating improved investor confidence. However, FDI contribution to capital importation remains very low, indicating that few investors are ready to bring new funds to the economy, primarily due to economic instability. The World Bank’s 2023 Ease of Doing Business report ranked Nigeria 131 out of 190 countries, highlighting the structural barriers to investment. However, the potential of entrepreneurship, if supported, can be a beacon of hope for Nigeria’s economic future.
Critically, the government’s efforts to improve the ease of doing business have yielded limited results. While initiatives like the Presidential Enabling Business Environment Council (PEBEC) have streamlined some processes, significant bottlenecks persist. These bureaucratic hurdles deter foreign investors and local entrepreneurs, undermining job creation and economic resilience.
Currency instability compounds the challenges of economic mismanagement. The Naira’s value has declined precipitously, losing over 200% against the dollar since the central bank unified exchange rates in 2023. The Naira’s recent depreciation—exceeding ₦1,700 to the dollar in parallel markets—has far-reaching implications, eroding purchasing power and deterring investment. This volatility undermines business planning and household budgets, exacerbating inflation at a staggering 33.88% as of October 2024. Such instability erodes trust not only in the economy but also in the institutions tasked with managing it. The inability of the Central Bank of Nigeria (CBN) to stabilise the Naira raises critical questions about the competence and independence of fundamental economic institutions.
A significant part of the problem lies in Nigeria’s over-reliance on oil exports, which account for over 90% of foreign exchange earnings. Diversification is not just a buzzword; it is a necessity. Nigeria’s agriculture sector, for instance, employs about 36% of the workforce but contributes less than 5% to exports, compared to Kenya’s 18%. By investing in agro-processing industries and modernising supply chains, Nigeria can increase export revenues, reduce dependency on oil, and stabilise the currency. Furthermore, if implemented well, the current policy to mop up the USD outside the banking sector and bring it into the system will help improve USD liquidity.
Policy inconsistency further compounds these challenges. The government’s perceived poor handling of fuel subsidies typifies the unpredictability of Nigeria’s policy environment. Such shifts create uncertainty that stifles long-term investment and undermines public confidence in governance. Investors and citizens alike are left to navigate a chaotic economic landscape where policies often appear reactive rather than strategic. This underscores the critical need for transparency in economic policies to restore and maintain public trust in governance.
Infrastructure deficits remain one of the most significant obstacles to Nigeria’s economic advancement. Despite being Africa’s largest economy, Nigeria generates and distributes less electricity for a population of over 200 million, forcing businesses and households to rely on expensive and polluting alternatives like diesel generators. This shortfall inflates production costs and renders Nigerian goods less competitive locally and internationally. The World Bank estimates Nigeria loses approximately $29 billion annually due to unreliable electricity supply. Addressing this requires innovative solutions such as decentralised renewable energy systems.
Transportation infrastructure is equally critical, especially rail. Poor transport networks exacerbate these challenges, increasing the cost of moving goods and services and hindering economic diversification. Expanding rail networks like the Lagos-Ibadan railway, which recorded over one million passengers in its first year of operation, could reduce logistical costs and promote regional trade. Furthermore, investing in smart city projects and integrating high-speed internet with efficient transportation systems could position Nigeria as a hub for innovation and commerce, much like Singapore.
Perhaps the most damning indictment of Nigeria’s economic progress is the persistent and widening income inequality. While GDP growth benefits the wealthiest segments of society, most Nigerians see no improvement in their quality of life. Policies such as the Value Added Tax (VAT), which disproportionately impacts low-income households, further entrench this inequity. VAT on all essential goods and services should be reconsidered and recalibrated.
However, economic growth that disproportionately benefits the elite exacerbates income inequality, fuelling social unrest and stifling overall development. The top 1% controls about 25.2% of the national income, while the bottom 50% contributes only 15%. Addressing this disparity requires policies that prioritise inclusive growth. A Universal Basic Income (UBI) pilot programme targeting Nigeria’s most vulnerable populations could provide a safety net, stimulating local economies and reducing poverty. In Kenya, a similar program run by GiveDirectly significantly improved recipients’ financial stability and productivity, demonstrating its potential effectiveness in Nigeria.
Nigeria’s youth population represents a demographic dividend that, if harnessed, could drive economic transformation. With a median age of 18, the nation has a significant opportunity to capitalise on its youthful workforce. However, youth unemployment remains alarmingly high, requiring immediate action. Initiatives like the Andela Fellowship, which trains young Nigerians in software development, have demonstrated the potential for skill development programmes to create pathways to global opportunities. Expanding such initiatives to include vocational training in renewable energy, agribusiness, and manufacturing could equip Nigeria’s youth with the skills to drive growth in high-potential industries.
Entrepreneurship must also be a cornerstone of Nigeria’s economic strategy. The tech ecosystem, already home to globally recognised startups like Flutterwave and Paystack, illustrates the nation’s potential. However, many aspiring entrepreneurs face insurmountable barriers, such as limited access to capital and cumbersome regulatory processes. Simplifying business registration, providing tax incentives for startups, and establishing incubators to nurture innovation could unlock the entrepreneurial potential of Nigeria’s youth.
Savings and investment culture is another area requiring attention. Currency instability discourages Nigerians from saving, undermining domestic investment and economic resilience. The economic hardship most experience means they only struggle for survival and have little or no savings. High inflation has eroded the purchasing power of the Naira, so nothing is left for savings for even most middle-class families. Working class and most rural dwellers cannot save even with the best financial literacy simply because they do not have enough.
Nigeria’s economic challenges are deeply interconnected, requiring a comprehensive and innovative approach. Restoring citizens’ trust in both economic policy and management of the economy is essential for sustainable growth. Policymakers must prioritise transparency, inclusivity, and resilience while embracing bold pro-people economic reforms and leveraging technology. These measures, combined with active engagement from citizens and stakeholders, can transform Nigeria’s economy, ensuring that growth is measurable and meaningful. Through such concerted efforts, Nigeria can move from the “Amber Zone” to the “Green Zone,” realising its potential as an economic powerhouse and a beacon of prosperity for its people.
