other countries application points Flashcards
focusing on developing countries - Nigeria
nigeria dependence on oil sector
- Oil accounts for about 90% of Nigeria’s export earnings and 60-70% of government revenue
- accounts for 40% of GDP
- Nigeria entered a recession in 2016
- as the oil sector (which drives much of the economy) was severely affected
how did an external shock with oil affect Nigeria
2014 when global oil prices plummeted.
- Oil prices fell from a high of around $115 per barrel in mid-2014 to below $30 per barrel by early 2016.
- Nigeria’s economy, heavily dependent on oil exports, contracted significantly during this period
- The crash in oil prices led to a sharp decline in Nigeria’s foreign exchange earnings, significantly impacting government revenue.
- The drop in oil prices led to a shortage of foreign exchange reserves, causing the naira (Nigeria’s currency) to depreciate against major currencies like the U.S. dollar. The Nigerian Central Bank had to devalue the naira several times, and the black-market exchange rate surged.
- The naira’s depreciation contributed to inflation, particularly in food and fuel prices, which hit the poorest Nigerians hardest.
- With oil prices down, Nigeria faced challenges in meeting its budget, leading to higher borrowing costs and inflationary pressures, especially in the import-dependent economy.
- The Nigerian government faced a revenue shortfall, which made it difficult to fund critical infrastructure, social programs, and public sector salaries.
- With high unemployment and a slowdown in economic growth, Nigeria saw an increase in poverty rates during and after the oil price crash
arguments against Nigeria being dependent on oil
Recent Efforts at Diversification:
- Nigeria has been attempting to diversify its economy through initiatives like the Economic Recovery and Growth Plan (ERGP), aimed at improving the agricultural sector, boosting manufacturing, and developing the non-oil export sectors.
- The non-oil export sector has seen gradual growth, especially in agriculture (e.g., cocoa, rubber, and cashew nuts) and services like telecommunications.
Growth in Non-Oil Sectors:
- The telecommunications industry, for example, has experienced significant growth in recent years, contributing to the country’s GDP.
- Nigeria is also a major player in sectors such as financial services, entertainment (Nollywood), and technology startups.
- These sectors show that the country is making steps toward reducing its reliance on oil.
Oil Still a Long-Term Advantage:
- Despite the overdependence on oil, Nigeria’s oil resources remain a long-term asset that could fuel its economy for decades.
- Oil remains a vital source of revenue and, with global demand expected to continue for the foreseeable future, Nigeria can still use this advantage to fund diversification projects and reduce vulnerability in the long run.
Nigeria’s Regional Influence:
- Nigeria’s oil exports play a crucial role in its regional influence in Africa. Even as it works to diversify, Nigeria’s strategic position as one of Africa’s largest oil producers allows it to leverage its resources in diplomatic and economic relations, as seen in its participation in OPEC
arguments for nigeria being over reliant on oil
Vulnerability to Oil Price Shocks:
- Nigeria is vulnerable to global oil price fluctuations.
- When oil prices fall, like during the 2014-2016 oil price slump, Nigeria suffers from reduced revenue, leading to economic contraction, foreign exchange shortages, inflation, and rising debt. The dependence on oil exports has left the country exposed to external shocks beyond its control.
Underdeveloped Infrastructure:
- The oil sector in Nigeria has historically enjoyed preferential treatment in terms of investment and development, leaving other industries underfunded and underdeveloped.
- This infrastructure imbalance is a direct result of Nigeria’s focus on oil.
examples of corruption in Nigeria
- Diezani Alison-Madueke, who oversaw massive corruption in the petroleum sector, with funds meant for oil development projects being misappropriated. She was accused of diverting billions of dollars in public funds, engaging in money laundering, and mismanaging Nigeria’s oil wealth.
- Snake Swallowing 5 Million Naira - This incident, which many saw as a cover-up for embezzlement, became a symbol of the country’s endemic corruption.
(The corruption scandals involving figures like Alison-Madueke have had a lasting impact on Nigeria’s oil revenue, which is essential for the country’s economy. The mismanagement of oil resources has contributed to income inequality, stunted economic growth, and hindered much-needed development projects.) - Mohammed Sanusi Lamido - . His public revelation of the $20 billion missing from NNPC highlighted the systemic corruption within the government. Despite being hailed as a hero by some for exposing the corruption, Sanusi was ultimately removed from office . This undermined efforts to address the root causes of Nigeria’s economic underdevelopment.
4.
Nigeria’s general context
📉 Low GDP per capita: around $2,000–$2,500 (World Bank)
- High birth rate and dependency ratio
🛢️ Primary product dependency: reliant on oil (makes up 90% of export revenue)
🇳🇬 Emerging economy, member of OPEC, part of ECOWAS (regional trade group)
🌆 Rapid urbanisation: cities like Lagos growing fast
💰 Dual economy: mix of high-income urban areas and poor rural regions
Nigeria economic growth context
- Nigeria experienced growth in the 2000s due to oil exports
- However, growth is unstable – affected by global oil prices
- Recent efforts to diversify into agriculture and fintech (e.g. Flutterwave)
nigeria unemployment rate
4.84%
Nigeria inflation
24%
Causes: currency depreciation, import dependency, removal of fuel subsidies
Nigeria’s monetary and fiscal policy context
- Central Bank raised interest rates to control inflation
- Government spending often hampered by corruption and mismanagement
- Removal of fuel subsidies in 2023 – caused riots but aimed to reduce deficit
- also removal led to a sharp increase in petrol prices, impacting Nigerian households, particularly those with lower income
The removal of fuel subsidies shows the trade-off between fiscal sustainability and inflation control, as the IMF encouraged subsidy cuts but households bore the brunt.
Nigeria’s primary product exports
- Over-reliance on oil ➡️ vulnerable to commodity price shocks
- Leads to volatile growth, BOP issues, and Dutch disease
what is dutch disease
Dutch disease is an economic term for the negative consequences that can arise from a spike in the value of a nation’s currency.
Dutch disease is a shorthand way of describing the paradox which occurs when good news, such as the discovery of large oil reserves, harms a country’s broader economy.
Nigeria’s TOT
- Nigeria exports low-value oil but imports high-value machinery & goods
- TOT worsens if oil prices fall or manufactured imports get expensive
eg In 2014–2016, global oil prices crashed from $110 to below $30 per barrel.
- Nigeria’s government lost over 60% of revenue, leading to:
- Massive budget cuts, especially in education and healthcare
- Surge in poverty, with over 4 million falling into extreme poverty by 2016
- Widened current account deficit → had to borrow from IMF and World Bank
Nigeria trade
- Member of AfCFTA (African Continental Free Trade Area)
- Trying to boost intra-African trade and reduce dependency on Europe/China
HOWEVER
- Nigeria closed its land borders in 2019 to reduce rice smuggling and boost local farming.
- However, this went against the AfCFTA (African Continental Free Trade Area) agreement it signed.
- Local rice became more expensive due to inefficiencies and lack of competition.
Nigeria foreign aid and debt
- Nigeria receives foreign aid for health, education, and infrastructure
- The UK, for example, has provided billions in bilateral aid since 2015, focusing on areas like income generation, education, and conflict response in the Northeast. The EU also contributes significantly to humanitarian aid in Nigeria.
- Has high external debt (~$115bn in 2023) → debt interest crowds out investment
- expected to rise to USD5.2 billion
Nigeria infrastructure gap
- Frequent power outages, poor roads & internet
Limits FDI, business growth and productivity
Nigeria diversification context
Since the 2016 oil crisis, Nigeria launched the “Economic Recovery and Growth Plan” (ERGP) to diversify into agriculture, manufacturing, and tech.#
- Fintech startups like Flutterwave and Paystack have grown rapidly, with Paystack being acquired by Stripe for $200 million in 2020.
- Agriculture push led to rice production doubling between 2015–2020 due to import bans and investment in local farmers.
Urbanisation Nigeria context
- In Lagos, 70% of people live in slums, many without access to clean water or electricity.
- Nigeria only produces 4,000–5,000 MW of electricity for over 200 million people
- Poor infrastructure adds 30%+ to logistics costs, reducing business competitiveness.
