Managing Director & Senior Partner
Nigeria boasts abundant assets—most notably, vast natural resources, arable land, and a young, entrepreneurial population. After a decade of steady growth, promarket reforms, and increased political stability—as demonstrated by a successful democratic change in leadership—the country could be poised to enter a period of sustainable inclusive growth.
But major challenges stand in the way of such progress. Low oil prices have sent the naira plummeting and could lead to a serious economic slowdown. And the country has yet to make meaningful advances against some long-standing problems, including poor governance, corruption, widespread poverty, and inadequate infrastructure.
To understand the actions that could effect real change in Nigeria, we studied the country using The Boston Consulting Group’s Sustainable Economic Development Assessment (SEDA)1. SEDA is a powerful diagnostic tool designed to provide insight into the well-being of a country's citizens and how effectively a country converts wealth, as measured by income levels, into well-being.
On the basis of our SEDA analysis and interviews with Nigerian executives in all key sectors of the economy, including energy, banking, consumer goods, and telecommunications, we propose focused, market-oriented interventions in five critical areas: civil society, governance, infrastructure, education, and health. Infrastructure should be the top priority—weakness there limits progress in a number of other areas, including health and education.
Nigeria, the largest economy in Africa, grew at a compound annual rate of 7.5% from 2000 through 2015. However, Nigerians overall are still very poor—82% of the population lives on less than $2 per day, compared with 26% in South Africa. One factor is the dearth of value-added manufacturing. As a result, there has been little job creation or poverty reduction despite a decade of strong GDP growth.
Today, the country's reliance on the oil and gas sector is creating major economic headwinds. Certainly, the domestic economy is quite diversified, with energy representing only 13% of GDP. (See Exhibit 1.) But energy is the only significant export, making it the country's primary source of foreign exchange, and it accounts for 70% of total government income. And falling oil prices are contributing to an economic slump—GDP growth in 2015 slowed to an estimated 2.8%.
BCG's SEDA allows us to understand how Nigeria's economic performance affects the lives of the country's citizens. SEDA defines well-being through ten dimensions: income, economic stability, employment, health, education, infrastructure, income equality, civil society, governance, and environment. SEDA examines each dimension along two time frames:
SEDA also examines the connection between wealth and well-being through two coefficients:
In addition to looking at Nigeria's overall performance relative to all the other countries in our data set, we compared Nigeria to three groups:
Overall, Nigeria ranks 142nd of the 149 countries in our data set in the ability to convert wealth into well being, just ahead of Libya and Angola and behind Swaziland and Pakistan. The country also trails those in the sub-Saharan peer group—which have many of the same challenges—in this measure.
Comparing Nigeria's performance on the ten SEDA dimensions with that of the comparison groups reveals gaps in five areas: governance, civil society, infrastructure, education, and health. (See Exhibit 2.) Certainly, the root causes of Nigeria's challenges in these areas are complex and varied. But in the areas of infrastructure, education, and health, in particular, fragmented governance, poor coordination, and a lack of accountability are major factors.
Our SEDA work shows a strong correlation between governance and civil society. That is hardly surprising: strength in civil society—which includes factors such as civic activism and personal safety—is likely to have a positive impact on some elements of governance, such as political stability and the rule of law.
Improvements in both areas can be challenging to achieve and take years to become evident, but two powerful levers can drive near-term progress:
1. Improve government regulations. The impact of well-crafted and enforceable regulations, particularly those that harness market forces, can be powerful. One potential area for reform is Nigeria's oil subsidy scheme. Currently, the Nigerian government is not making oil subsidy payments, because low oil prices have driven the price Nigerians pay for petrol below the subsidy price. The government should take advantage of this period of low prices to formally end the subsidy system.
2. Deploy digital technologies in government. Digital tools reduce the number of points at which government employees provide services personally or make decisions, cutting down on leakage (the inappropriate diversion of funds through gaps in the system) and enhancing citizens' trust in and engagement with government. The transformation of Nigeria's national pension fund system highlights the power of digital government. Under the old system, it often took years for retired employees to receive their pensions—if they received them at all. The new digital system gives Nigerians increased visibility into and control of their pensions.
Nigeria's anemic infrastructure is in many ways the country's greatest challenge. Only 56% of Nigerians have access to electricity, well below the average of 80% for all three comparison groups. Power outages are widespread, and three-quarters of companies report that the lack of reliable energy is a major constraint. The country's road network is also weak, with 0.21 kilometers of roads per square kilometer, compared with an average of 0.33 for the three comparison groups. And only about 30% of the population has access to "improved sanitation facilities" (those that meet certain hygiene standards), and just 64% has access to drinkable water (compared with an average of 88% for the three groups). These major infrastructure gaps create health challenges and limit job creation and economic diversification.
Studies show that Nigeria will need to invest about $3 trillion in infrastructure over the next 30 years, or roughly $100 billion a year. That is equal to nearly 20% of current GDP annually. The upshot: it will be critical to attract substantial outside investment in the form of public-private partnerships. We recommend five actions for addressing Nigeria's infrastructure crisis:
Nigeria trails both the oil and gas peer group and the aspirational countries comparison group in its SEDA education score. Its quality of education score, as measured by the World Economic Forum, has fallen or remained the same for the past four years for which data is available and is below the average for the sub-Saharan peer group. In addition, enrollment rates are low, and armed conflicts in some parts of the country prevent many children from attending school.
Nigeria's education challenges call for smart, well-designed policies. We recommend three critical actions:
Nigeria has made progress in health in recent years: from 2000 to 2015, life expectancy increased by eight years, child mortality decreased by 40%, and DTP immunization rates jumped 30 percentage points. But because efforts to improve health issues have tended to be reactive rather than proactive, the country faces serious challenges in a number of critical areas. For example, child and infant mortality rates are still among the highest in the world: 5% of births globally are in Nigeria, but 10% of infant deaths occur there. And life expectancy in Nigeria is just 52 years, compared with 75 years in the group of aspirational countries. In addition, health inequity is a deep-rooted problem, with access and outcomes varying widely in different parts of the country.
Health spending is 5% of the federal budget, far short of the 15% target set by members of the African Union in their 2001 Abuja Declaration. But the bigger issue is the impact—or lack thereof—of the money that is spent. Nigeria can improve its health system through two sets of actions:
Nigeria must also expand health insurance coverage, potentially through a vibrant health insurance market. This will help alleviate health inequities and lower the often catastrophic out-of-pocket costs for patients, making them more likely to seek preventive or early treatment.
Making meaningful progress can be particularly daunting in developing countries like Nigeria, where there are constraints such as a lack of expertise in project implementation, patchy or ambiguous laws and weak enforcement, and a lack of accountability among ministries and agencies. In Nigeria, the challenges are compounded by the federal system, in which policies and plans are developed at the federal level but need to be implemented at the state level.
With those issues in mind, we have identified eight actions that are critical to ensuring maximum impact.
Addressing the current economic challenges in Nigeria and unleashing the energy and drive of its people will require action by the government—most notably in infrastructure, health, and education. Improvements in those areas will create sizable, positive ripple effects throughout the economy, including possibly a surge in foreign direct investment. Focused and sustained effort can yield real progress—and raise the well-being of all Nigerians.