Nigeria and the nagging growth question
Nigeria’s continuing growth question resurfaced again this week. First, the country’s macroeconomic environment recorded noticeable progress over the past two weeks. Three events that took place within the period have added new impetus to the challenge to achieve a growing economy, perhaps one should say one growing at a sustainable rate. First, inflation continued on […]
Nigeria’s continuing growth question resurfaced again this week. First, the country’s macroeconomic environment recorded noticeable progress over the past two weeks. Three events that took place within the period have added new impetus to the challenge to achieve a growing economy, perhaps one should say one growing at a sustainable rate.
First, inflation continued on its downward trajectory in August, the National Bureau of Statistics (NBS) announced on September 15, falling to 20.12 per cent. That marked the sixth consecutive decline in the inflation rate this year. Indeed, if not for the glitch recorded in March, this would have been the month of constant decline in inflation. After falling in January and February, inflation spiked in March, rising to 24.23 per cent from 23.18 per cent in the previous month. NBS blamed rising food, transportation, and hospitality costs for that glitch.
Then came the report on Monday by the NBS, that Nigeria’s Gross Domestic Product grew by 4.23 per cent year-on-year in real terms in the second quarter of 2025. That marked two consecutive years of growth, the economy having recorded a growth of 3.13 per cent in the first quarter.
Giving details of the growth report, NBS said the economy grew in nominal terms to N100.73 trillion, from N84.48 trillion in the corresponding quarter of 2024. The statistical agency further attributed much of the growth to the oil sector, which it said resulted from a rebound in crude oil production.
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These two developments above prepared the way for the third event, the rate-cut development. Then Central Bank of Nigeria at its September meeting cut its interest rate by 50 basis points to 27 per cent. The decision was taken yesterday, Tuesday, September 23, at the end of the MPC meeting in Abuja. The decision did not surprise many economists and analysts, given the recent trends in the macro-economy. It came after nine months of the high interest rate of 27.5 per cent, to which the CBN pushed the cost of funds as it pursued inflation. Altogether, the central bank hiked the interest rate six times before settling at a 27.5 per cent rate in September last year.
While some analysts had expected cuts as high as six percentage points, members of the committee thought differently.
Could this development mark the arrival of the much-awaited turning point or turnaround in the economy? Perhaps the macroeconomic challenges have bottomed out, setting the economy for an upward movement. However, a question that we must confront is the resurgence of oil as the nation’s major economic growth driver. Oil’s overall contribution to the economy rose to 4.05 per cent, rising from just 3.51 per cent one year ago. Yet our growth is driven by this insignificant component of the economy.
Nigeria cannot continue to run on a lop-sided economy. Think about it. The non-oil economy continues to dominate the economy in size, accounting for 95.95 per cent of output. According to NBS, this dominant sector grew by 3.64 per cent in real terms, up from 3.26 per cent in the corresponding quarter of 2024. In the first quarter of this year, it grew by 3.19 per cent.
Nigeria must now concern itself with growth that counts in terms of its impact on the overall health of the economy. Growth that depends on oil is unstable and cannot guarantee a stable future for the economy. At least, Nigeria’s experience in the decades of oil exploration and production has shown this. Therefore, diversifying this economy away from oil can no longer be taken as lip service.
What happened to agriculture, manufacturing, construction, telecommunications, real estate, finance, and others? These sectors must be enabled to grow. They must be made to grow in ways that can truly drive the economy to where it should be headed.
This perhaps explains the change in the policy stance shown by the decision yesterday by the CBN. The economy must be returned to (or placed) on the path of sustainable growth. It has to be a low-inflation growth so that it can benefit the citizens. For this to happen, domestic production of consumer goods and services must rise in consonance with population growth. The government must therefore intensify the fight against cost-push inflation through investments in infrastructure. It has become evident that the high inflation that Nigeria has grappled with in the past two years is largely cost-push inflation. Surprisingly, most attention has focused on the use of monetary tools to fight it, which explains in part why it lingered for so long.
Growth must be financed or funded, which is why it cannot be guaranteed in a tight monetary policy framework. The march towards a trillion-dollar economy has begun, and five years is just around the corner. The growth momentum must be generated and sustained through policy reviews and consideration of other options that hold bright prospects to achieve that goal. For now, the way Nigeria must grow and the things it must do to really grow are still big questions.