The news about Nigeria overtaking South Africa to become Africa’s biggest economy, as the latter slipped into its second recession in as many years, was celebrated like a major achievement by a lot of people.

This would not be the first time that the West African Nation would lay claim to the title of being Africa’s biggest economy. In 2014, Nigeria rebased its Gross Domestic Product (GDP) calculation to become Africa’s biggest economy, but this claim has been subject to a lot of debate in recent times because it was largely dependent on which exchange rate was used in the calculation – the official rate of the Central Bank of Nigeria (CBN), or the “market” rate.

This time, however, the Nigerian economy’s claim is true regardless of the exchange rate that is used. The CBN rate (N306/$) and the market rate (N360/$) both put Nigeria’s GDP ahead of South Africa at $476 billion and $402 billion respectively.

Being Nigerian, I would always cheer to see the Nation win even seemingly little battles such as “who has the best jollof rice – Nigeria or Ghana?”, “which country is less corrupt 🙂 – Nigeria or Zimbabwe?”, “which country has the biggest economy in Africa?”.

I did not feel great about this win this time, especially after I learned that the South African economy was in a recession and that Nigeria’s GDP only grew by 2.3%.

An emerging market economy with a GDP growth of 2.3% is really not an achievement to be proud of, especially when you consider that it’s population is growing faster – at almost 3%. The already-poor country, Nigeria, isn’t growing fast enough to cater for its newborns.

In December 2019, I wrote about how Nigeria‘s GDP per capita (a measure of a country’s economic output that accounts for the number of people in that country) had been on a consistent decline for more than half of the decade. See tweet here.

According to the data, the average Nigerian was poorer by the end of the decade, than they were at the beginning. With 2019 results now in, this downward spiral did not improve. The trend did not just continue because the population is growing faster than the economy, but also because a 2.3% GDP growth rate is not sufficient for any emerging market economy that is serious about development and empowering its people.

Nigeria‘s case is unique. In 2018, the average GDP growth rate for all of West Africa was around 6%, however, Nigeria grew by 2%. In the first five years of the last decade (2010 to 2014), Nigeria’s GDP grew at an average rate of 5.7%.

Emerging economies should, under normal circumstances, grow at much higher rates because, as  developing nations, they tend to have low hanging fruits that could be harvested with relative ease, provided that the right investments are made (in infrastructure, technology, education, welfare & security).

Education here does not necessarily mean formal / university education. I mean technical competence and skills – the type of technical education that propelled the Chinese economy into the powerhouse that it is today- We will get to this and other types of investments needed to drive growth in an emerging economy on another day / another blog post. Right now, Nigeria appears to be leaving its low hanging fruits to rot.

Outlook for 2020 – do I think 2020 will be better? Probably not, and I will explain why:

The Nigerian government (not the entire Nigerian economy, even though government spending is important in every economy) is heavily dependent on revenues from crude oil. With the #COVID19 putting extreme pressure on supply chains across the globe, the following is happening:

• fewer factories are open in China – disrupting production activities in China also disrupts production across Europe, America and the rest of the world (this is both a risk and an opportunity for CEOs and leaders in other emerging market economies, respectively, as explained in this tweet;
• fewer people are traveling for business or for vacation – as seen during the Chinese New Year celebration which is arguably the largest migration event on earth, people are just not traveling;
• fewer people are driving to work / more are working from home;

What do these activities have in common? You guessed right: they all rely heavily on energy, a lot of which is derived from crude oil – the darling of the Nigerian government.

Unless the COVID-19 outbreak is contained soon, which is unlikely, and the global economy goes back to normal, government revenues and spending capacity are about to take a major hit.

Perhaps this is one of the reasons the government is looking to borrow $23 billion to fund investments. The investments (here) seem reasonable, perhaps, with the exception of the $500m planned for the digitization of the Nigerian Television Authority (NTA). This is clearly a misplaced priority.

These investments, if implemented properly, should hopefully help set the economy up for improved outcomes. However, as we all know, implementation has always been a stone-cold killer when it comes to African investments and the actualization of the “Africa Rising” narrative.

Should the government’s plan for the loan fail during implementation, it would ironically mean that the government of the day is borrowing and spending money today which will need to be repaid by the same newborns which the government is already unable to cater for as mentioned above. 

Another concern is that any serious borrower would require a high return on capital because, as demonstrated earlier:

• the Nigerian government struggles with implementation;
• the government‘s chief source of revenue (crude oil) is being seriously threatened by the COVID-19 outbreak and is expected to be made worse as Russia breaks the OPEC alliance, which may result in oil producers flooding the market with “cheap” oil. If the market is flooded with oil as nations battle for market share, the price of crude oil will go down (remember 2014/15 & the recession that followed?);
• Nigeria already has a currency that is considered overvalued and unreliable, regardless of which exchange rate you use; 

Surely, it cannot all be doom for the country. The Government is making a number of moves to help boost consumer spending, such as increasing the minimum wage by 67% and, through the CBN, forcing banks to make loans available to businesses by increasing the loan to deposit ratio for Nigerian banks. At this point, all we can do is hope for the best and for the odds to be in our favor. Nigeria is in dire need of “Goodluck”.