Nigeria’s economy and diversification strategy

It is in this regards, therefore, that there is no any consensus on the justification for Nigeria’s centenary celebration. Nigeria has dwelled only on its huge crude oil resources as the major source of revenue, driving a monolithic economy for years in spite of the enormous developmental challenges it faces. Regrettably, the oil resources are […]

It is in this regards, therefore, that there is no any consensus on the justification for Nigeria’s centenary celebration.
Nigeria has dwelled only on its huge crude oil resources as the major source of revenue, driving a monolithic economy for years in spite of the enormous developmental challenges it faces. Regrettably, the oil resources are being mismanaged and a substantial part of it has gone on rent seeking and red-tapism common in Nigerian bureaucracy.
For more than a decade now, Nigeria has been enjoying high levels of economic growth, human development, and relative political stability. As it continues along the path of economic progress, it is imperative that the country finds ways to diversify its economy by boosting non-traditional sectors, expanding its range of products for exports and engaging new economic and trade partners.
Diversification does not occur in a vacuum. And, the need to have in place an enabling environment to make diversification possible remains necessary. A number of key drivers have already been identified. These, for example, include investment, trade and industrial policies; a dynamic growth performance; macroeconomic stability; a competitive exchange rate and expansionary but responsible fiscal policy as well as institutional variables such as good governance and absence of conflict and corruption.
Our discussion will focus mainly on investment, governance and regional dimensions of economic diversification as well as on human and natural resources. The role of infrastructure, with emphasis on transport and energy, will also be taken into account. In addition, the private sector has an important role to play in its own right and in conjunction with the Government. Similarly, regional economic institutions such as Regional Economic Communities (RECs) and other international partners help contribute to Nigeria’s economic prioritiesthrough boosting the public sector’s capacities to implement policies and reforms conducive to diversification.
Of course, many challenges arise when pursuing a diversification strategy. It is often necessary to make significant investments in human resources and infrastructure to support economic sectors and activities such as value-addition in commodities. These are long-term endeavours that need government commitment and political will, not to mention major capital investments. Moreover, in pursuing new sectors, products and partners, Nigerian governments must be careful not to neglect their traditional economic bases. In fact, there are many benefits that could arise from more diversified economies. And, these include less exposure to external shocks, an increase in trade, higher productivity of capital and labour, and better regional economic integration. These benefits, in addition to effective public management, can effectively help reduce poverty and promote human and social development.
Governance:  Good governance is a pre-requisite in building an enabling environment for economic diversification. This involves designing and implementing policies to boost fledgling sectors and ensuring that they can be developed in an environment that allows them to flourish and contribute more to the national economy. At the regional level, there needs to be efficient co-ordination among different decision-makers and stakeholders in the regional and global economic environment. These national and regional, public and private, individual and institutional leaders constitute the “executive drivers” that shape the governance framework for diversification.
Executive drivers are important for diversification in many ways. One is through the prudent economic management of natural resources. Also, Government has an important role to play in establishing the regulatory framework that supports economic activity to ensure a healthy business climate; and this is particularly important in Nigeria. Unlike their counterparts in the developed world, Nigeria’s private sector and industries are generally weak because they often themselves more dependent on government interventions to thrive. Of course, the public service needs increased institutional capacity to implement business-friendly reforms.
Natural Resources: Natural resources are crucially important, and they are among the various factors that have the potential to drive economic diversification. These resources can be exploited to increase exports of goods a country produces, especially through beneficiation, whereby additional value can be created from the resources extracted. However, Nigeria’s great potential is often unrealized because of suboptimal government management of natural resources and the failure to use the gains from resource exploitation to further enhance other economic activities. For example, the profits from exporting minerals can be used to develop manufacturing sector, tourism and other services to broaden the country’s economic base.
Natural resources remain the key factor for economic growth in Africa, a continent that has been traditionally driven by exports of agricultural goods and primary products such as minerals and hydro-carbons. However, Nigeria’s dependence on just a few commodities for its revenue is vulnerable to boom and bust cycles as the prices of commodities are subject to wide fluctuations. Therefore, the need for expanding the beneficiation of such products and seeking sustainable utilization, where possible, can engenderNigeria’s economic growth and diversification. If accompanied by policies that encourage trade and exports, the exploitation of natural resources could provide improved opportunities for African countries to produce and trade a variety of goods within Africa, and in the global market.Subsequent trade and investment flows would, therefore, feed the momentum for further economic diversification as traded goods would increasingly be composed of non-traditional agricultural and industrial products.
Institutional Capacity and Human Resources: In addition to other input factors, human resources and institutional capacity merit special consideration. For example, human and institutional capacities act as enablers – to facilitate supply chains and help unlock potential for diversification from resource-based and other sectors. At a regional level, institutional capacity and co-ordination is key for establishing regulatory frameworks for trans-national infrastructure, customs and coordinating overlapping memberships. Human resources are important for boosting innovation in any economy, especially, for example, through Research and Development as well as management skills that lead to better products and economic processes. Again, the support of government and civil society can unlock the potential of human resources to contribute positively to economic diversification. This includes boosting tertiary education and supporting research and development in high-growth sectors.
Role of the Private Sector: The private sector can also play a role in boosting diversification by driving innovation and economic activity in under-exploited sectors. It can, for example, invest in Research and Development for new activities. Moreover, private companies often stand at the frontier of new sectors and bring innovation to the economy. But many enterprises in Nigeria are informal, small-scale, and lack access to capital, making it difficult for them to fully exploit business opportunities. In this case, Government should find ways to boost entrepreneurship by creating favourable industrial and trade policies and eliminating bureaucratic obstacles to starting businesses. Government should be sensitive to the needs of the private sector by improving the business climate through “outreach” for constructive partnerships with the private sector. Similarly, the private sector should reciprocate by engaging government initiatives and take the lead in driving the agenda for diversifying the economy. There is no shortage of business opportunities in Nigeria; and the private sector remains best placed to exploit such opportunities.
Regional Factors: Regional integration is an important strategy for facilitating trade and commerce. This includes reform of customs administration systems to make it easier for entrepreneurs to transport their goods freely. It also involves ECOWAS, which is usually trans-frontier in format and has transport corridors as its main component. They are largely driven by RECs and national governments with strong support from key regional institutions.Because Nigeria shares certain geographic features such as river basins, mountain ranges and lakes, and also because of the large size of the domestic market, regional integration becomes an important aspect of any economic growth and diversification strategy. Nigeriahas increased its access to multiple regional economic spheres which can serve as markets for their products. This, in turn, could potentially broaden domestic production and fuel diversification.Strengthening regional integration includes harmonizing various technological standards and regulations, and reforming customs and border controls. These measures are critical for strengthening the business climate in Nigeria. RECs can lay the foundations for economic diversification by creating common markets, pooling resources, and providing a framework to coordinate the regional management of infrastructure such as transportation corridors, energy and natural resources. They can also help to strengthen capacities related to regional human resources, health, security and the environment.
Conclusion
Economic diversification entails a lot of things, should be taken into cognizance. For instance, regional integration, which is an important strategy for facilitating trade and commerce, is a thing for consideration in this case. The same with the private sector, which also plays a vital role in boosting diversification by driving innovation and economic activity in under-exploited sectors. Equally, human resources and institutional capacity should also be considered. Again, we cannot shy away from other essential factors such as natural resources and good governance which remain crucially important in this regard.While natural resources can be used to drive economic diversification, good governance remains a pre-requisite in building an enabling environment for such diversification.