Nigeria 2015: analysis of election issues and future prospects

Human development

In public discourse around human development in Nigeria, optimism is often in short supply. Whenever the question of the Millennium Development Goals (MDGs) comes up, discussion tends to focus on the many challenges which Nigeria faces, and the perceived lack of progress made.

Nigeria was ranked 152^nd out of 187 countries on the Human Development Index in 2013, an improvement of one place on its 2008 ranking.²⁵²

Progress against MDG indicators: positives

However, there has been considerable progress against a number of the MDG indicators.²⁵³

Those showing the most marked progress are indicators 1.9 (level of undernourishment), 4.1 and 4.2 (under-five mortality rate and infant mortality rate respectively), and 5.1 (maternal mortality ratio). The proportion of the population suffering from undernourishment has fallen from 21.3% in 1991 to 6.4% in 2013 (though progress has levelled off somewhat since 2005).

Over the same period, the under-five mortality rate fell from 212.8 to 117.4 per 1,000 live births, whilst the infant mortality rate fell from 126.1 to 74.3 per 1,000 live births. The maternal mortality ratio has seen particularly dramatic progress, falling from to 1200 to 560 per 100,000 live births between 1990 and 2013.

A number of other indicators have also shown significant, if more limited, progress. The proportion of the population using an improved drinking water source increased from 46% in 1990 to 64% in 2012, whilst the gender parity index in primary level enrolment has increased from 0.79 in 1990 to 0.92 in 2010.

The proportion of 15-49 year olds living with HIV, meanwhile, peaked at 3.7% between 2003 and 2006 and has now begun to decline.

Performance against MDG indicators: negatives

However, the progress made will in many cases not be sufficient for Nigeria to meet the MDGs. The chart below, which appears in DFID’s Annual Report for 2013-14, assesses progress against key MDG indicators (one indicator for each of the first seven MDGs). Nigeria is ‘off-track’ for all of them. In four cases out of seven the rating is the worst – ‘red’ – while three get an ‘amber’ rating.²⁵⁴

In some cases, Nigeria’s performance against MDG indicators has regressed in recent years.

The total net enrolment ratio in primary education fell back from 71.3% to 65.7% between 2007 and 2010.²⁵⁵ The proportion of the population living on less than $1.25 (PPP) per day has increased, from 61.9% in 1992 to 68% in 2010. Levels of poverty have been rising across the whole country.²⁵⁶

The literacy rate amongst 15-24 year olds has decreased, from 71.2% in 1991 to 66.4% in 2008, whilst the percentage of the population using an improved sanitation facility fell from 37% in 1990 to 28% in 2012.²⁵⁷

In a recent report, the international NGO ONE criticised the Government of Nigeria for its insufficient spending on the health sector. If the Government were to meet its commitment under the 2001 Abuja Declaration on HIV/AIDS, Tuberculosis and other Related Infectious Diseases²⁵⁸ – which is to commit 15% of total government expenditure to health -- ONE argued that much greater progress towards meeting health-related goals would be made:

With Nigeria ‘partially on track’ for health-related goals such as child mortality and maternal mortality, fulfilling its health spending commitment through effective and accountable programming is now more strategically important than ever – enabling it to build on gradual progress thus far, accelerate its implementation and sprint towards the MDG finish line in 2015. If current spending levels (budget allocations as a share of total budget) were carried forward, Nigeria is projected to have a cumulative Abuja commitment deficit of $22.5 billion between 2013 and 2015. In other words, if Nigeria met its Abuja commitment to spend 15% of its total budget on health in 2013, 2014 and 2015, there would be an additional $22.5 billion available for key investments in health.²⁵⁹

However, Nigeria’s health system was praised for its effective handling of the Ebola outbreak during the second half of 2014.²⁶⁰

Spatial disparities

It is also important to note that progress has been far from uniform across the country.

While the proportion of the population using an improved drinking water source has grown considerably, closer inspection reveals great disparity between urban and rural areas.

In 1990, the respective proportions were 78% in urban areas and 28% in rural areas, whereas in 2012 the respective percentages were 79% in urban areas and 49% in rural areas. Almost all of the progress achieved since 1990 has been in rural areas (albeit starting from a very low base). The situation in urban areas is essentially unchanged since 1990.

Moreover, there are great disparities in progress between the north and south of the country.

In terms of average under-five mortality rates across Nigeria’s six geographical zones, the worst performing are the north-east and north-west, where the average under-five mortality rates are 160 and 185 per 1,000 live births respectively. The best performing are the south-west and south-south, with 90 and 91 per 1,000 live births respectively.²⁶¹

But it is not simply a north-south divide: the south-east zone performs much worse (131 per 1,000 live births) than the north-central zone (100 per 1,000 live births), which includes the capital, Abuja.²⁶²

5. Economic profile

Strong growth in recent years has been driven by the non-oil sector, with particularly strong expansions seen in the manufacturing and telecommunications sectors.

The oil and gas sector, however, remains crucially important as it accounts for 95% of the country’s exports and up to 75% of the government’s revenue.

The sharp drop in the price of oil (down by more than half from mid-2014 to the beginning of 2015) has led to growth forecasts for 2015 being lowered, budget cuts implemented and a weakening currency.

Background

Oil was first produced in the 1950s (prior to independence) and became the economy’s dominant industry during the 1970s.

Public spending was closely tied to the oil price and thus rose sharply in the mid- to late-1970s. Fiscal mismanagement and corruption during the boom years led to a fiscal crisis in the 1980s when the price of oil fell.²⁶³ As a result, Nigeria’s development was halted. Debt began to pile up, the currency was devalued and inflation soared.²⁶⁴ GDP per capita, one measure of the standard of living, fell and didn’t recover for a generation – until the 2000s.

Since the return to civilian rule in 1999, Nigeria’s economy has performed better overall, aided by oil and gas exports, improved fiscal stability (for example the creation of the Excess Crude Account, a fund that provides a cushion during oil price volatility) and a debt-relief agreement with the Paris Club group of rich Western creditor nations in 2005.

Annual GDP growth since 1999 has averaged around 9%, compared with an average of 6% for Sub-Saharan Africa.²⁶⁵ Despite the improved economic performance overall, growth has not been inclusive. Poverty levels remain high and have barely changed since the 1980s. The World Bank estimates that 82% of the population in 2010 lived on less than $2 a day, only slightly lower than in 2004 (83%) and higher than in 1986 (77%).²⁶⁶

Largest economy in Africa is more diverse than previously thought

In 2014, the National Bureau of Statistics released new GDP data which revised up estimates of GDP in 2013 by 89% (from $290 billion to $509 billion), making Nigeria Africa’s largest economy (overtaking South Africa). The old data was based on how the economy looked in 1990 and did not take account of its changing structure since then. The new figures are based on the shape of the economy in 2010 and give greater weight to fast-growing sectors such as telecommunications, banks and the Nollywood film industry.²⁶⁷

The new figures present a changed picture of the importance of different industries to the economy. The share of GDP accounted for by the agriculture and oil and gas sectors is now lower than previously estimated, while the manufacturing and services sectors contribute a higher share (see table below). Under the old data, agriculture and oil and gas accounted for 70% of GDP; the new data puts this at 38%. Meanwhile, manufacturing is now estimated to account for over 7% of GDP compared to 2% before and telecommunications is up from less than 1% to over 8% of GDP.

Non-oil sectors behind growth in 2013 and 2014

Growth in recent years has been more diverse than was thought under the old estimates.²⁶⁸ In 2013, growth was 22% in the manufacturing sector, 9% in the services sector but only 3% in agriculture.²⁶⁹ Overall non-oil GDP growth in 2013 was 8.4% but a 13% fall in oil and gas output (due to supply disruptions) reined in GDP growth to 5.5%, though this was still higher than the 4.2% recorded in 2012 and 5.3% in 2011.

In 2014, non-oil GDP continued to drive growth (even before the fall in the oil price).²⁷⁰ Growth in the first three quarters of the year averaged 6.3% compared with the previous year. The non-oil sector averaged growth of 7.5% over this period. In Q3 2014 growth was underpinned by strength in crop production, the textile, apparel and footwear, telecommunications, and real estate sectors.

Trade crucially dependent on oil exports

In 2013, Nigeria exported $103 billion worth of goods and imported $56 billion, resulting in a positive trade balance of $47 billion.²⁷¹ Levels of Nigerian goods exports reached an all-time high in 2011 at $125 billion, though export levels fell in 2012 and 2013. Nigerian goods imports also reached an all-time high of $56 billion in 2011, before falling in 2012 and subsequently returning to a similar level in 2013.

In 2013 Nigeria’s five largest export markets were the US, India, Brazil, Spain and the Netherlands; the UK was Nigeria’s eighth largest export market.

The US has been Nigeria’s single largest export market every year since 1995. While the US was Nigeria’s single largest export market in 2013, buying $14 billion worth of Nigeria goods, this has fallen dramatically from a high of $35 billion in 2011. This fall is due a sharp reduction in oil exports, owing to increases in American shale oil production.

94% of Nigeria’s exports were made up of oil and natural gas. Nigeria also exported small amounts of cocoa, rubber and leather.

In 2013, Nigeria’s five largest sources of imports were China, the US, India, France and the UK. Over a quarter of Nigeria’s imports came from China; these were chiefly machinery, transport equipment and manufactured goods. China has been Nigeria’s largest source of imported goods every year since 2006, when it overtook the US.

Nigeria’s largest group of product imports was machinery and transport equipment, including motor vehicles, telecommunications equipment and electric power machinery. Other significant imports included wheat, fish and rice.

Fall in oil price dampens near-term economic outlook

Despite the new data showing the oil and gas sector accounting for a lower proportion of GDP, it still remains crucially important to the economy. Nigeria produces over 2 million barrels of oil per day, making it the largest producer in Africa and 12^th biggest in the world.²⁷² The oil and gas sector make up almost 95% of the country’s exports; it is the source of 90% of foreign exchange earnings and in recent years has contributed up to 75% of the government’s revenue (though this has been on a downward trend). The steep fall of over 50% in oil prices since mid-2014 therefore has large and important ramifications for the country’s economic stability.

As a result of reduced revenues from oil, the government’s 2015 budget plans include an 8% reduction in expenditure.²⁷³ Most of the cuts are planned to come from a sharp reduction in capital expenditure, while “recurrent expenditure” such as personnel costs rises.²⁷⁴ The budget also includes a cut to the GDP growth forecast for 2015 from 6.4% to 5.5%.²⁷⁵ These plans are based on a reference price for oil of $65 – still well above the price as of 9 January 2015 of around $50.

Despite the existence of the Excess Crude Account (ECA), a fund designed to provide a buffer to state finances in times of volatile oil price movements, and the creation of a Sovereign Wealth Fund (SWF) in 2012, fiscal buffers are limited. Even while oil prices remained above $100 per barrel the combined balance of the ECA and SWF fell from $11 billion at the end of 2012 to just $3 billion at the end of 2013 due to lower than expected oil revenue resulting from oil theft and production loses.²⁷⁶ Reserves rose in the first half of 2014 but remain insufficient to cover any substantial or persistent shortfall in the public finances.

The fall in the oil price has also led to pressure on the country’s currency. The central bank devalued the naira’s target rate by 8% against the dollar from N155 to N168 in late November 2014 after losing billions of dollars in foreign exchange reserves defending the currency.²⁷⁷ The market rate is even lower at N184 as of 12 January 2015 and there are serious concerns that further decline may be on the cards unless oil prices recover.

The central bank also raised interest rates in November 2014 for the first time in three years from 12% to 13% in order to defend the currency (by making it more attractive to invest in Nigeria).²⁷⁸ The decline in the value of the naira makes importing goods from abroad more expensive. As Nigeria imports 80% of what it consumes, this is likely to push inflation up from its current rate of around 8%.²⁷⁹

It is clear therefore that the short-term outlook for the Nigerian economy is precarious, with the lower oil price translating into budgetary pressures, rising import costs, and investor uncertainty. In many ways, Nigeria’s longer-term economic prospects look positive – but many challenges, such as poor infrastructure and a weak business environment remain.²⁸⁰

Below is a table setting out key economic statistics and forecasts for Nigeria over the period 2011 to 2019.

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