The Rise and Fall of Nigeria’s Economic Power: A Study of What Derailed Africa’s Former Giant

As recently as 2014, Nigeria held the prestigious position as Africa’s largest economy, boasting a Gross Domestic Product (GDP) of $568.5 billion. The nation surpassed South Africa that year, symbolizing a promising shift for the continent, with a powerhouse driven by a blend of oil wealth, an ambitious middle class, and significant strides in tech and finance. However, a striking decline has seen Nigeria fall to fourth among Africa’s largest economies by 2024, with an estimated GDP of $252.7 billion. This swift descent raises questions about what happened to Nigeria’s rapid growth and why it now trails behind countries it once outpaced.

A Brief Look at Africa’s Largest Economies (2014 vs. 2024)

2014

2023

2024 (Estimated)

In 2014, Nigeria, South Africa, Egypt, Algeria, and Angola dominated Africa’s economic landscape, with Nigeria firmly at the top. A decade later, however, Egypt has surged ahead as the largest economy, with Ethiopia emerging as a strong contender among Africa’s top five. Meanwhile, Nigeria’s economy has contracted significantly, reflecting an economic malaise that has left much of its population grappling with heightened poverty and limited opportunities. 

This decline, marked by GDP reductions over a decade, highlights the economic challenges that have plagued Nigeria, despite its immense natural resources and burgeoning population.

Nigeria’s Economic Drivers: Boom to Bust

Oil Dependency and Price Volatility

Nigeria’s economy has long been heavily dependent on its oil sector, which accounts for more than 85% of its export earnings and around half of its government revenue. When global oil prices were high, particularly during the early 2010s, Nigeria enjoyed economic windfalls that bolstered GDP growth. However, starting in late 2014, oil prices plunged from over $100 a barrel to below $50. This drastic fall dealt a severe blow to Nigeria’s revenue, causing the economy to contract and exposing the dangers of over-reliance on a single commodity.

Source: World Bank

Compounding this issue is Nigeria’s limited investment in refining capacity, resulting in a heavy reliance on imported fuel, which drives up costs and contributes to inflation. Efforts to diversify the economy have been hampered by governance challenges and inadequate infrastructure.

Currency Devaluation and Inflation

The collapse in oil prices also put pressure on Nigeria’s currency, the naira, leading to a significant devaluation. The Central Bank of Nigeria attempted to stabilize the currency through various interventions, but these measures ultimately proved unsustainable. As a result, Nigeria faced high inflation rates, which have persisted over the years, eroding the purchasing power of citizens and creating a cost-of-living crisis.

In 2023, Nigeria’s inflation rate hovered around 25%, one of the highest in Africa, straining households and businesses alike. Import costs surged, impacting essential goods and placing further stress on the population.

Governance and Policy Challenges

Political instability, corruption, and policy inconsistency have also hindered Nigeria’s economic progress. The country has faced challenges in implementing meaningful reforms that could spur diversification and growth in sectors like agriculture, manufacturing, and technology. For example, while the government introduced policies aimed at boosting local production, these were often stymied by bureaucratic inefficiencies, lack of transparency, and inconsistent execution.

Furthermore, Nigeria’s regulatory environment has posed challenges for investors, particularly in the energy sector. Potential foreign investors often face bureaucratic hurdles and concerns over corruption, which undermine Nigeria’s appeal as a business destination.

Insecurity and Infrastructure Gaps

Ongoing security challenges, especially in the north, have disrupted trade and limited economic activities in affected regions. The insurgency by Boko Haram and other militant groups has strained government resources and diverted attention away from economic reforms and development efforts. Additionally, poor infrastructure—ranging from inadequate roads to unstable power supply—has hampered business operations and increased costs, further deterring investment.

The Impact on Nigerian Lives: A Growing Crisis

Nigeria’s economic decline has had profound social impacts, as growth has failed to keep up with population expansion, leading to a stark increase in poverty levels. Today, Nigeria has one of the world’s highest rates of extreme poverty, with over 40% of its population living on less than $1.90 per day.

Rising Unemployment and Poverty

As economic opportunities have dwindled, unemployment rates have soared. Youth unemployment, in particular, has reached alarming levels, with estimates placing it at over 40%. This has fueled a sense of disillusionment among young Nigerians, many of whom struggle to find employment despite holding qualifications. For many families, the decrease in economic opportunities has translated into decreased living standards and an inability to afford basic needs such as food, healthcare, and education.

Increased Migration and Brain Drain

The economic hardships in Nigeria have spurred an increase in migration, as many Nigerians seek better opportunities abroad. This “brain drain” has seen skilled professionals, especially in the healthcare and tech sectors, leave Nigeria for countries with more stable economies and higher living standards. While remittances from the Nigerian diaspora provide some economic relief, the exodus of talent poses long-term challenges for the nation’s development.

Impact on SMEs and the Informal Sector

Small and Medium-sized Enterprises (SMEs), which make up a large portion of Nigeria’s economy, have been hit hard by currency devaluation, inflation, and high interest rates. Many SMEs operate in the informal sector, where access to credit is limited, and rising costs have squeezed profit margins. These businesses are essential for job creation and economic diversification, but without adequate support, their potential remains untapped.

Lessons from Africa’s Other Leading Economies

The contrast between Nigeria’s economic trajectory and that of countries like Egypt and Ethiopia offers valuable insights. Both countries have pursued diversified growth strategies, with investments in infrastructure, manufacturing, and technology. Egypt, for instance, has become a key player in Africa’s energy sector, leveraging natural gas discoveries and attracting foreign investment through economic reforms and stable governance.

Ethiopia, despite its challenges, has sustained growth by investing in infrastructure projects such as railways, dams, and industrial parks. The Ethiopian government has also emphasized agriculture modernization and manufacturing as key growth drivers. This model of sustained investment in diverse sectors has bolstered resilience against global market fluctuations, a stark contrast to Nigeria’s oil-dependent approach.

CONCLUSION 

Nigeria’s economic challenges serve as a cautionary tale about the dangers of over-reliance on a single commodity and the need for sound governance. While the road to recovery will be complex, Nigeria has the resources, human capital, and market potential to rebuild its economy and regain its status as Africa’s economic leader. However, this requires decisive action from policymakers and a commitment to long-term reforms that prioritize inclusive growth and resilience over short-term gains.

In the competitive landscape of Africa’s economies, Nigeria’s path forward lies in harnessing its diversity and resilience, fostering stability, and nurturing its young population. Only by addressing the root causes of its economic decline can Nigeria hope to build a future that benefits all its citizens.