18 March 2016, Lagos – Nigeria’s GDP is projected to rise to US$6.4 trillion by 2050, thereby moving the country to the ninth position on the world ranking, surpassing Germany, United Kingdom, France, and Saudi Arabia says PwC report .
To achieve this, however, diversification from the economic overdependence on crude oil is required. Nigeria’s intrinsic potential lies beyond oil and harnessing this potential has become an imperative given the expectations of lower for longer oil prices and heightened competition in the oil market.
Based on recent trends, the report reviews the impact of low oil prices on key economic indicators and the real sector as well as addresses the question of priority sectors that should be targeted for diversification efforts.
The PwC report identifies Agriculture, Petroleum, Retail and ICT as priority sectors with the most dominant transmission links to the overall economy. Forward linkages to Agro-processing and other services such as logistics as well as backward integration to input supply sectors could improve farm incomes, increase employment and improve domestic food security.
Potentially, Nigeria’s global agriculture exports could take-off at a rate similar to Brazil’s, with US$59 billion in export revenues by 2030. Similarly, value added to Oil and Gas output needs to urgently improve by implementing diversification within the sector.
This implies investments across the downstream sector to develop petrochemicals, fertilizers, methanol and refining, industries relevant in both industrial and consumer products which Nigeria currently imports.
Commenting on the findings of the report, Uyi Akpata, Country and Regional Senior Partner for PwC Nigeria and the West Market Area noted; “Consumer spending is the largest driver of the economy, accounting for about 70% of GDP and this is expected to be the boost for the retail sector growth even as population continues to expand.
“Thus, as incomes rise along with rapid urbanisation, it is projected that household consumption expenditure could reach US$1.1 trillion by 2030, from US$317 billion in 2014 – this implies a CAGR of 9% through 2030. With tele-density at 107.87, a large population of urban, young people and massive scope to improve internet broadband penetration, Nigeria is likely to see accelerated growth of its digital economy. More importantly, the opportunity to leverage technology to generate improved social and economic outcomes across other sectors has to be created.”
In detailing what needs to be done, Andrew S Nevin (PhD), PwC Partner and Chief Economist stated; “The transition to a non-oil economy will not be an easy task. Based on a 2016 PwC interview of foreign companies across Nigeria, four concerns stand out as challenges with the business environment: corruption, inadequate infrastructure, low skill levels and macroeconomic uncertainty. In the 2016 Ease of Doing Business ranking, Nigeria improved slightly from 170th in 2015, to the 169th position of the 189 economies surveyed.
“Interestingly, Rwanda jumped through the rankings from being 143rd in 2009 to 62nd in 2016. Over that same period, Nigeria’s ranking worsened from 102nd to 169th. This lays emphasis to the fact that the economic and regulatory environments need to be transparent and conducive for business. This means simplifying complex regulation and processes, and eliminating the hurdles that stand in the way of a bigger and more productive private sector. Significant reforms across the labour market, business environment and fiscal management will be required.
“A skilled workforce is critical to improving Nigeria’s productivity and efficiency. Considering the services sector is projected to be the key driver of the Nigerian economy going forward, measures have to be implemented to improve the value-added of labour in this sector. A comprehensive approach is needed; sound and quality education provides a solid foundation to develop the relevant skills for the workplace. In addition, a collaboration among all stakeholders to design and implement education and training tailored to market needs.”
Furthermore, Taiwo Oyedele, PwC Partner and Head of Tax & Regulatory Services, noted that a well-structured tax system is important in the diversification of the economy; “Nigeria needs to ensure sustainable fiscal management that is resilient to the global oil price cycles. Improving tax collection and administration have become imperatives for achieving national growth objectives.
The framework for tax exemptions should be reviewed and approvals targeted at growth inducing sectors even as the government improves collection. Efficiency in government spending has to improve; there is room for substantial savings in capital outlays and operating expenditure across the three tiers of government.
In addition, the government needs to be deliberate about increasing fiscal savings through a higher accretion to the Sovereign Wealth Fund which has investment objectives of diversification and improving long term economic prospects.”