Nigeria - the Next BRIC country holding promise in West Africa

Nigeria shows its true colours

With an average annual GDP growth of more than 5% over the past decade, Nigeria has outperformed the regional benchmark. According to the IMF, Nigeria surpassed Egypt to become the second largest economy in Africa in 2011, second only to South Africa.

Contrary to the global economy, which hit a bottom in 2009, the Nigerian economy shot up at an accelerating pace of 8%, up one percentage point from 2008. This robust economic performance is more than just a coincidence, with its economy continuing to fly high at a pace considerably higher than the average of either Sub-Saharan Africa (SSA) or the Middle East & North Africa (MENA). Over the medium to long term, Nigeria’s economic growth is expected to edge ahead of Africa’s average growth rate.

Nigerian dream in 2020: The world’s 20th top economy

Thanks to the successful transition to democratic civilian government from military rule in 1999, Nigeria’s economy has taken off, with real GDP surging some 160% since then, with the pace of growth faster than the BRICS countries except China.

Although sectional and religious conflicts remain in some parts of the country, Nigeria has made significant progress in maintaining political stability, helped by its strengthening political regime and a sound legal system inherited from its colonial days with the UK. This has laid the groundwork for continuing economic reforms and achieving the challenging goal: becoming one of the 20 largest economies in the world by 2020, as set out by the Nigerian government’s “Nigeria Vision 20: 2020” (Vision 2020).

According to the Vision 2020, Nigeria’s GDP is targeted to reach US$900 billion, an economy size similar to that of the Netherlands or Indonesia in 2011. Per-capita income is aimed to touch the US$4,000 mark, similar to the current level of China’s per-capita income.

To accomplish the mission, the Nigerian government will continue a series of reforms to hasten the structural transformation of its economy, making it more competitive and sustainable, while developing the non-oil sector to reduce the dependence on oil incomes.

With its current ranking of being the 39th largest economy and rapid GDP growth, the goal set out by the Vision is ambitious, yet not unachievable. Jim O’Neill, the creator of the acronym BRIC, introduced the concept of Next Eleven (N-11) two years after the creation of BRIC to identify countries that could potentially have BRIC-like impacts to rival the G7 countries (N-11 countries include South Korea, Mexico, Indonesia, Turkey, Egypt, Nigeria, Bangladesh, Pakistan, Iran, the Philippines and Vietnam). The BRIC creator expects Nigeria, now the largest N-11 country in Africa, to achieve something even bigger by 2050, overtaking three G7 countries, namely Canada, Italy and France, to become the 11th largest economy in the world.

Time to reap the demographic dividend

With 167 million people, Nigeria is the most populous country in Africa and the eighth in the world, accounting for some 20% of Africa’s population, or half of the West Africa sub-region. Nigeria’s population is projected to add another 70 million by 2030, growing at an annual pace of 1.8%.

In addition to its huge population, Nigeria has a preferred demographic structure that looks set to provide enormous impetus to future economic growth. With a bulge of better-educated young people of working age entering the job market, which grows at a fast pace of 2.4% per annum to add 52 million people over the next two decades, Nigeria’s economy will get a boost with an abundant supply of low-cost skilled labour, supporting the development of its manufacturing sector. Having acknowledged its distinct advantage, the Nigerian government has formulated a series of policy measures to support the development of its infant manufacturing sector, hoping to better utilise its demographic advantage to build Nigeria as a world-class production base.

Besides, Nigeria is now reaping the “demographic dividend” as Asia did decades ago, with declining birth rates contributing to a higher ratio of working people to dependents, thus creating a favourable condition for economic growth. Hong Kong companies facing escalating labour costs in the Pearl River Delta (PRD) may take a good look at Nigeria as a viable alternative production base.

Leveraging Nigeria’s natural resources

Nigeria is rich in natural resources, oil in particular. With the 10th largest proven oil reserve in the world, Nigeria produces around 2.5 million barrels of crude oil per day (bpd), making it the world’s 12th largest oil producer and eighth largest exporter.

Naturally, the oil and natural gas sector is a major pillar of the Nigerian economy, accounting for some 15% of GDP in 2011. Booming oil revenues account for about 80% of fiscal income, leading to the significant decline of the fiscal deficit-to-GDP ratio from 7.7% in 2010 to less than 1% in 2011.

In contrast to the oil sector, the mining sector is underdeveloped, contributing to less than 1% of GDP. However, Nigeria has a wide array of underexploited mineral resources, which include coal, bauxite, tantalite, gold, tin, iron ore, limestone, niobium, lead and zinc.

The mineral mining sector will play a more important role in the Nigerian economy under the government’s long-term vision to develop this potential industry by introducing a new investor-friendly policy and opening up the sector for private investments.

Thanks to China’s continued economic growth and its huge demand for imported minerals, Hong Kong has seen the growth in companies engaged in minerals trading. Besides, a rising number of international mineral and energy companies have become interested in seeking a listing in Hong Kong. In this regards, Hong Kong can play a role of bridging Chinese mineral companies and their Nigerian counterparts by providing a well-established business matching platform with strong support of one-stop financial and business services.

Nigeria’s GDP by sector

Source: National Bureau of Statistics, Nigeria

Despite its considerable endowment of crude oil, Nigeria has been striving to reduce its dependence on the oil sector in recent years, shifting the economic growth model in favour of more balanced and broad-based growth, and effectively boosting the expansion of the country’s middle-income class. It’s high time Hong Kong companies took a good look at this promising market.