ECO 205: Nigerian Economy Structure

• The course is ECO 205: The Structure of the Nigerian Economy held Wednesdays 11:30-12:30pm and Fridays 12:40 – 1:40pm, lectured by Dr. Umunna Godson Nwagu

Economic Structure History

• The economic structure of Nigeria can be divided into three periods: pre-colonial, colonial, and post-colonial.
• The pre-colonial period is the longest in Nigeria's history.
• The colonial period spanned 60 years from 1900 to 1960.
• The post-colonial period started on October 1, 1960.

Pre-Colonial Period (Pre-1900)

• From 1680 to 1800, the Atlantic slave trade dominated due to the growth of Atlantic plantation systems.
• Economic activities were divided into agriculture, transportation, trade, and manufacturing.
• Agriculture was the mainstay for most people, with trade as a subsidiary activity.
• The Nigerian economy in the pre-colonial period focused on agriculture, non-agricultural production, the distribution of commodities, and services.
• Agriculture was essential for survival, mainly based on subsistence farming in West Africa.
• Traditional Economy is an economy system shaped by traditions, customs, and beliefs which dictates the goods and services an economy produces, and also has rules and ways of distribution, is typical of rural and farm-based societies, also called a subsistence economy, it involves trading and bartering.
• A pre-colonial economy typically relies on agriculture, hunting, fishing, or gathering.
• Bartering was commonly used.
• Little surplus was produced.
• People transitioned from hunting to farming, establishing permanent structures and societies.
• Advantages of Pre-colonial or traditional economic structure in Nigeria: goods were produced for survival, everyone knew their role, it was less destructive, there was harmony, and resource distribution was clear.
• Disadvantages of Pre-colonial or traditional economic structure in Nigeria: It is vulnerable, has a low capacity to change, and resulted in lower living standards.

Colonial Period (1900-1960)

• The British gained influence in West Africa around 1807.
• Nigeria was established by the British Empire in 1900, combining tribes, countries, and companies.
• The British shifted the economy from subsistence farming to wage labor.
• Taxes were imposed on Nigerians to fund a local military presence.
• Exports at the time included palm kernels, palm oil, cocoa, palm produce, and groundnuts.
• Petroleum was discovered in Nigeria around 1906.
• The colonial economy focused on agriculture and trade.
• Locals produced raw materials, while colonial investors exported these materials to Britain, importing finished products.
• Advantages of colonial era in Nigeria: growth in infrastructure and trade, roads and railroads were built, communication improved, cash crops such as rubber, peanuts and palm oil were promoted for export.
• Disadvantages of colonial era in Nigeria: Environmental degradation, economic underdevelopment, racial profiling, systemic racism, and poor social infrastructure.

Post-Colonial Era (October 1, 1960-Present)

• The post-colonial economy is characterized by dependence despite political independence since 1960.
• Economic dependence affects all other sectors.
• Nigeria is politically independent but not economically independent.
• Inability to achieve economic independence caused persistent underdevelopment.
• Issues in the Nigerian Post Colonial Economy: Economic over-dependency and foreign-oriented policies like the Structural Adjustment Programme (SAP).

Modern Nigerian Economy

• The Nigerian economy can be broken down into three major sectors: primary, secondary, and tertiary/services

Primary Sector

• Includes agriculture, mining, and other extraction industries; agriculture refers to the cultivation of land for plants and animals.
• Agriculture is a primary economic activity in Nigeria.
• The agricultural sector includes crop production, fishing, livestock rearing, and forestry.
• Agriculture in Nigeria is labor-intensive due to poor farming methods.
• During the pre-colonial time, the Nigerian economy relied on agriculture, handicrafts, trade, and transportation.
• Agriculture relied on shifting cultivation and crop rotation due to land tenure practices and limited mechanization.
• Farmers used tools like hoes, machetes, and sickles.
• Farmers grew Crops varied by region, such as yams and maize in the south versus groundnuts and beans in the north.
• Trade was mainly through bartering.
• Fishing was common in inland and coastal waters and was a key trade item.
• Fishing was especially prominent among the Ilaje, Izon, Itsekiri, Efik, Jukun, Ijebu, and Awori people.
• Men and women depended on game for economic survival.
• Hunting involved trapping birds and small animals, as well as larger animals like crocodiles and elephants.
• Hunting provided materials for skin, meat, shoe and drum making, road construction, settlement development, and held medical and economic value.
• Animal breeding, especially of cattle, goats, and sheep, was another agricultural activity.
• The colonial period introduced money and agricultural incentives with increased sales. Agricultural sector accounted for >70% GDP and ~90% employment until 1973/74.
• Mechanized agriculture was introduced.
• After 1974/75, the focus shifted away from that sector with the discovery of oil, and the annual growth rate declined.
• From mid-1970, policies favored large-scale agricultural enterprises with subsidized investment while marginalizing small farmers.
• The agricultural sector became capital intensive in the 1980s.
• From 1960-1970, agriculture supplied about 90% of the country's food.
• High reliance on agriculture led to low food importation levels of about 9% during those periods.
• By 2000, food importation had grown to about 30%.
• Over 70% of the population lives on less than N100 (US$ 0.70) per day.
• Before 1970, agriculture provided about 80% of employment.
• As of 1960, agriculture contributed about N282.4 million or about 62% of the total exports.
• By 1995, agriculture contributed only about 1.8% of exports, this decreased 1% by y2000.
• In 1929, agriculture constituted about 57% of the total GDP.
• By 1960, oil palm accounted for about 85% of the sector's share of GDP.
• Agriculture accounted for 70% of GDP.
• The sector's GDP contribution fell to 24% in 1975 and 14% in 1983.
• From Jan-March of 2021, agriculture contributed 22.35% of the GDP.
• Agricultural serves as a market for industrial activities, providing raw materials and fertilizer.
• Technical constraints, such as pests, diseases, inadequate infrastructure, unimproved inputs, rudimentary technology, environmental hazards, and an inefficient input supply system impacts sector
• Labor issues include migration of able youths from rural to urban areas, causing seasonal labor shortages.
• Productivity is impacted by declining land quality.
• Socioeconomic constraints include high input costs, inefficient marketing, and lack of land rights.
• There are inadequate extension services, credit facilities, and poor research coordination.
• Low international demand for primary export commodities and a low elasticity of demand also impact the sector.
• There is continued use of rudimentary tools and cultural practices with a low level of mechanization.
• Poor rural infrastructure, especially roads, leads to high farming costs.
• Policy instability hinders agricultural effectiveness.

Efforts to Overhaul Agriculture in Nigeria

• The government implemented agricultural policies and programs, restructuring or abandoning some.
• Pre-1970 agriculture entailed small direct government intervention, with a relaxed attitude.
• The government supported activities, providing agricultural research, extension, export crop marketing, and pricing.
• From 1970–1985, the government became more involved and implemented policies like the National Accelerated Food Production Programme (NAFPP) in 1972 to educate farmers and increase production.
• The government established the Nigeria Agricultural and Cooperative Bank (NACB) in 1972 and launched Operation Feed the Nation (OFN) in 1976.
• The government established the Agricultural Credit Guarantee Fund in 1977.
• The Nigerian enterprises promotion decrees was established in 1972 and reformed in 1977 while the Land Use Decree was promulgated in March 1978.
• A center for Agricultural Mechanization was created in 1977 to conduct farm machinery research to determine its applicability in Nigeria.
• In 1979, the Green Revolution Program was launched in 1980, but it was truncated due to mismanagement and fraud.

Secondary Sector (Manufacturing)

• Is a crucial component of three-sector economic model, which includes finished products and construction industries.
• This sector processes outputs from the primary sector (metals, wood) into finished goods for local sales, exports, and distribution.
• Manufacturing is vital for economic growth.
• Countries exporting manufactured goods tend to have higher GDP growth.
• It leads to increased income and tax revenues, funding essential services like healthcare and infrastructure.
• Manufacturing offers high-paying middle-class jobs and boosting social mobility in developed nations.
• The secondary sector depends on the primary sector for raw materials.
• It contrasts countries focused on agricultural products, where converting raw materials to finished products boosts profitability, driving growth in developed economies.

Roles of Manufacturing Sector in the Nigerian Economy

• Manufacturing broadens the tax base, with both manufacturers and their employees paying taxes, boosting revenue.
• Manufacturing promotes essential infrastructure and systems.
• Manufacturing can enhance agriculture by adding value and creating jobs.
• Manufacturing boosts capacity and GDP.
• Manufacturing balances domestic competition with exports, enhances value, reduces reliance.
• Manufacturing involves production and distribution stages with economy of scale to reduce costs.

Contributions of the Manufacturing/Industrial Sector to Nigerian Economy

• Manufacturing contributed 16.04% to the Nominal GDP in Q4 2023, which is increased from 13.49% in Q4 2022, but slightly decreased from 16.18% in Q3 2023.
• Real GDP growth of manufacturing grew 1.38% year-on-year in Q4 2023.

Major Manufacturing Industries in Nigeria

• Cement: A key part of Nigeria's economy where Dangote Cement and Lafarge WAPCO Cement Plc. dominate.
• Textile: Contributes about 2% to GDP, with over 250 factories functioning at over 50% capacity.
• Food Processing: Growing at 3% annually, contributes about 4% to the nation's GDP and employs about 5% of local labor forces.
• Brewing: Nigeria is the second largest beer industry in Africa and is projected to grow about 23% in the coming years.

Challenges of Growing the Manufacturing Sector in Nigeria

• Having to depend extensively on emergency power generators which raises operating expenses.
• Manufacturing firms show little interest in seeking bank credit, with continued loan allocation being short.
• Frequent policy changes and inconsistent regulations create uncertainty for manufacturers.
• Manufacturers require a cohesive market to enhance their operations and improve production processes.

Tertiary Sector (Services)

• The tertiary sector is the third segment in the three-sector economic model, alongside the primary and secondary sectors.
• This sector delivers services rather than producing tangible goods, and includes assistance, guidance, access, experiences, and emotional labor.
• Services includes businesses and consumers, including transportation, distribution, wholesaling, retailing, pest control, and financial services.
• Certain economists classify information generation as a quaternary sector.
• Nigeria's services sector has emerged as the highest contributor to the national output.
• Services now contribute the highest proportion of the overall domestic activities and economic growth from 30% in the 1990s to 50.79% in 2010, to 53% in 2019.
• The Nigerian services economy is among the fastest growing in the African continent.
• Driven mainly by the services sector, growth of 3.99% contributing 52.70% to aggregate GDP in Q3 2023.

Roles of Services Sector to the Nigerian Economy

• The service sector provides transportation, banking, electricity, repair, teaching, or communication in supporting the distribution of manufacturing.
• Service Enterprises organizations that help production and distribution of goods, support other firms in meeting their goals, and add personal lives.
• Nigeria is Africa's largest financial market of banking sector, licensed by the Central Bank of Nigeria with 21 commercial banks as of November 2018 and 26 banks as of 2022.
• Nigeria's banking sector has a penetration rate of 44.2%.
• The country effectively utilizes advanced financial instruments and is well-integrated into international markets.
• Capital importation reached $6.3 billion in Q1 2018, compared to $12.3 billion in 2017 dollars and $5.1 billion in 2016.

Growth of Income (Gross Domestic Product or Economic Growth)

• Economic growth is about increase in a country's economy over a period of time, measured by gross domestic product (GDP).
• Gross Domestic Product (GDP) calculates the final goods and services purchased by the end consumer, produced within a nation.
• Three main sources of economic growth: Accumulation of Capital stock, increases in labour, and technological advancement.
• Determinants of Economic Growth include: Technological Progress, Capital Investments, Quantity and Quality of Labour, Confidences and Expectations, and Natural Resources
• Impact of Economic Growth on Business include: increase in profits, significant rise in the average standards, increased employment opportunities, increased tax revenues for, improved confidence, higher capital investment, and technological innovations.
• Three Components of Gross Domestic Product: Consumption, investment, government spending, and net exports.

Growth of Income since Independent

• In 1960, Nigeria's major source of foreign exchange was agricultural products and oil.
• In the 1980s, Nigeria's economy depended on petroleum.
• Petroleum accounted for 87% of export receipts and 77% of Federal Gov. revenue in 1988.
• From 1980 to 1987, the yearly per capita GNP decreased led to Nigeria's classification by the World Bank, in 1989, as a low-income country.
• National government expenditures rose from 9% in 1962 to 44% in 1979 but fell to 17% in 1988 of the Gross Domestic Product.
• A World Bank report indicated the annual Gross Domestic Product (GDP) growth in Nigeria averaged two point six-six percent from 2011 to 2022.
• Sectors like manufacturing, agriculture, and telecommunications are expanding daily.
• The power sector suffers from an ongoing supply crisis depsite being largest oil, coal, and gas deposits.
• Nigeria's GDP grew by 3.19% in Q2-2024, where the non-oil sector grew by 4.13%, while the oil sector contracted by -3.83%.

Employment, wages, and prices in Nigeria since independent

• Employment in Nigeria refers to the engagement of labor in meaningful and productive activities.
• Meaning of Unemployment: Unemployment may be defined as the condition in which a trained, willing and capable job seeker has no paid work to do to earn a livelihood.
• Causes of Unemployment in Nigeria: Economic recession, Lack of information on where to get a job, over population, economic instability, low investment, and lack of necessary skills by the employer.
• Effects/Problems of Unemployment: Poverty, bad social habits (crime), begging, low morale, wastage of training and education, armed robbery, human trafficking, underdevelopment, and steal by trick e.g. 419.