Factors that made Nigeria lose the economy crown

In 2014, Nigeria became the largest economy in Africa, with a GDP of around $509 billion. The country achieved this milestone after a GDP rebasing exercise, which changed its economic base year from 1990 to 2010 and gave more weight to fast-growing sectors like telecommunications, tourism, and entertainment that were previously overlooked.

Ten years later, Nigeria has slipped to fourth place on the list of Africa’s economic powers, trailing behind South Africa, Egypt, and Algeria. But what went wrong for Nigeria, and how did it lose its economic crown? In this article, we will look at the factors responsible for the economic decline of the most populous country on the African continent.

Fall in Global Oil Prices

One of the reasons behind Nigeria’s economic downturn was the fall in crude oil prices. As Africa’s leading oil producer, Nigeria relies heavily on crude oil, with the petroleum sector contributing about 5.5% of its GDP. The country also depends on oil exports for up to 92% of its foreign exchange earnings and 65% of its budgetary revenues. However, in 2015, the global demand for crude oil began decreasing due to excessive supply, causing the prices to fall. A barrel of oil that was being sold for about $100 in 2014 dropped to around $30 by 2016. The drop in crude oil prices reduced Nigeria’s revenue, making it difficult for the country to launch new projects that could boost the economy.

Economic Recession

Nigeria went through a severe recession in 2016. The country’s GDP growth rate dropped from 2.65% in 2015 to -1.62% in mid-2016, causing an economic crisis. There were many reasons for this. In addition to the aforementioned oil prices that fell significantly worldwide, reducing the amount of money the Nigerian government had coming in, the Nigerian currency also got weaker, which forced many manufacturers to close down or lay off their workers. In addition, foreign investment in the country dried up as inflation reached an extremely high level, affecting the Nigerian economy.

COVID-19 Pandemic

The outbreak of COVID-19 in 2020 worsened Nigeria’s economic situation. It started when the country was still recovering from its last recession, and as the disease began to spread, the Nigerian government imposed lockdowns and shut down businesses to control it. While these measures were necessary at that time, they slowed down economic activities in the country. Nigerians living abroad also sent less money home during the pandemic, and poverty levels increased among the people, reducing the country’s economic growth.

Inconsistent Policies

The inconsistency in government policies also contributed to Nigeria’s economic downfall. The government has often reversed its policies on foreign exchange rates, subsidies, and trade. These frequent policy changes discouraged both foreign and local investors, as no one wanted to invest in an unpredictable business environment.

Currency Devaluation

In June 2023, President Bola Ahmed Tinubu floated the Nigerian currency to unify exchange rates in the country. This made the Naira lose its value, dropping from 750 Naira per dollar in 2022 to about 1750 Naira per dollar in 2024. The Naira devaluation drove up the cost of living and reduced the purchasing power of the people. It also made many international companies leave the country, as they could no longer operate profitably. This currency devaluation was done shortly after the removal of the fuel subsidy, making life unbearable for many Nigerians and slowing down economic growth.

Insecurity

Another reason for Nigeria’s economic decline is insecurity. Almost every region faces some kind of security issue. There are Boko Haram terrorists in the northeast, armed bandits in the northwest, and unknown gunmen in the southeast. These criminals have disrupted business activities and scared away investors. Also, the government has not found a lasting solution to the frequent farmer-herder crises in agricultural states like Benue, Plateau, and Nasarawa, which has prevented Nigeria from taking full advantage of agriculture as a critical part of the economy.

Poor Electricity Supply and Infrastructure Issues

Like most developing countries, Nigeria still has infrastructure problems that hinder its economic growth. For example, the transport system is underdeveloped, especially in rural areas, making it hard for manufacturers to move raw materials. Also, despite the huge investment in the power sector over the years, many states don’t have a stable electricity supply, which is needed for industrialization and economic growth.

Corruption

The high levels of corruption in Nigeria also contributed to its economic challenges. Many dishonest politicians have stolen funds meant for critical projects and infrastructure that could boost Nigeria’s economy. Some government officials are also very corrupt and unpatriotic, which prevents them from executing important projects that could benefit the people. This widespread corruption discouraged many foreign companies who might want to invest in Nigeria.

Conclusion 

Nigeria’s economic decline did not just happen. It was due to many factors, including the drop in oil prices, insecurity, recession, inconsistent policies, currency devaluation, and corruption. Today, the harsh economic conditions have raised the cost of living and made many Nigerians rework their budgets for things they do for fun, like playing slots with bonus buy feature. Recently, the Nigerian government has started several reforms to resolve the country’s economic problems. If these efforts pay off, Nigeria could soon reclaim its spot as Africa’s leading economic power.