Is Non-Oil Sector the New Champion of the Nigerian Economy?

by EOS Intelligence

Is Non-Oil Sector the New Champion of the Nigerian Economy?

by EOS Intelligence

by EOS Intelligence

The 1970s’ oil discovery transformed Nigeria from a largely agro-economy to a more oil-dominated one. Over the last several decades, oil played a significant role in Nigeria’s positive growth story, and its emergence as one of the key economic hubs in Africa. Interestingly, however, the last few years have seen a revival of non-oil sectors, such as agriculture, once the key economic driver of the country. What does this ‘change’ mean for Nigeria and how does oil fit into the bigger picture?

Post Nigeria’s independence in 1960, the country’s economy was primarily agrarian, with mainstay products such as cocoa, rubber, palm oil and kernels, groundnut, and cotton; the agriculture sector accounted for 60% and 75% of the country’s GDP and total employment, respectively. During the 1970s, the Nigerian government undertook various measures to exploit the naturally available oil reserves, such as extending oil exploration rights to foreign companies in Niger Delta’s offshore and onshore areas, to tune the economy to one which is oil-centered (petroleum revenue share of the total federal revenue increased from 26% in 1970 to 70% in 1977). The oil-centered Nigerian economy reached its peak in 2008 when oil accounted for about 83% of the country’s total revenue. In recent years, the oil sector has been experiencing a decline with its share in total revenue falling to 75% in 2012, largely due to a stagnant crude-oil production at 2 million barrels per day (mbpd) (2.3 mbpd in 2012 and 2.2 mbpd in 2013). A steep fall has also been observed in crude-oil exports to the USA (Nigeria’s main oil export market), which contracted by 11 percentage points in a single year, falling from 16% of Nigeria’s total oil exports in 2012 to 5% in 2013.

Upon closer introspection of the reasons for the declining dominance of oil in Nigeria, various factors come to surface. One of the main reasons is the delay in the approval of the Petroleum Industry Bill (PIB), which aims to ensure the management of petroleum resources according to the principles of good governance, transparency, and sustainable development; this delay has been stalling further investments in the oil sector. Perpetual oil thefts, pipeline vandalism, weak investment in upstream activities, and insignificant discoveries of new oil reservoirs have also hampered the growth of this sector. As a result, oil giants have been selling off their stakes in various onshore as well as offshore blocks. For instance, Shell sold 45% of their interest in OML 40 onshore block to Elcrest Nigeria Limited (an independent oil and gas company) and Petrobras (a Brazilian multinational energy corporation) is planning to auction its 8% and 20% stakes in Agbami oil block and offshore Akpo project, respectively.

So, where does this leave the Nigerian economy?

Apart from the unsatisfactory performance of the oil sector, Nigeria’s economic environment faces risks from security challenges prevailing in the northeastern part of the country, conflicts related to resource control in the Niger Delta region, and high levels of corruption (case in point being the suspension of Nigeria’s central bank’s governor over misconduct and irregularities).

Nigeria Government Policies

In the midst of all these challenges, the non-oil sector (described as a sector which is not directly or indirectly linked to oil and gas, and include sectors such as agriculture, telecommunication, tourism, healthcare, and financial services) is emerging as the new champion of the Nigerian economy.

This is mainly due to various policies adopted by the government in the light of the looming oil sector, along with the complementary effect of factors such as increase in private consumption and FDI.


FDI in NigeriaIn addition to government policies, FDI has played a key role in nurturing the non-oil sector. Nigeria has experienced a compounded annual growth of 20% in the number of Greenfield FDI projects from 2007 to 2013; 50% (total number of projects being 306) of these projects were service-oriented. The telecom sector particularly witnessed strong growth by attracting 24% of all FDI projects, while coal, oil, and natural gas received only 8% of foreign direct investment during 2007-2013.

Private consumption (forecast to reach US$231.2 billion in 2014) has also fuelled the growth of the Nigerian non-oil sector. The largest consumer market in Africa, Nigeria’s consumer spending (an indicator of private consumption) has increased from US$94.3 billion in 2007 to US$309.9 billion in 2013.

The cumulative effect of all these factors has proven exceptionally positive for the non-oil sector. This is evident from the increase in percentage share of the sector in the Nigerian GDP. Agriculture remains the largest contributor, among both oil and non-oil sectors, with a share of 22% in GDP, in 2013. Other non-oil sectors such as manufacturing (GDP share increased from 4% in 2010 to 6.8% in 2013), construction (GDP share increased from 1% in 2010 to 3.1% in 2013), wholesale and retail trade (GDP share increased from 13% in 2010 to 17% in 2013), transport and communication (GDP share increased from 3% in 2010 to 12.2% in 2013) have also strengthened their position in Nigeria’s growth story.

Moreover, non-oil sector’s contribution to government revenue has improved from US$154.3 million in 2000 to US$3,018.2 million in 2011, which is a significant increase. A growth has also been observed in non-oil exports, which have increased from 1.28% in 2000 to 3.59% in 2010, in terms of percentage contribution towards total exports.

The Nigerian non-oil sector has also been attracting a number of investments in recent years, for instance:

  • July 2014: Procter & Gamble, a multinational consumer goods company, announced the construction of a new manufacturing plant worth US$250 million, in Nigeria’s Ogun state. The manufacturing plant is expected to employ 750 Nigerians and offer opportunities to 300 SMEs

  • February 2013: Indorama, a global chemical producer, launched a Greenfield urea fertilizer project worth US$1.2 billion, in Nigeria’s Port Harcourt. The project claims to support Nigerian and West African requirements for affordable fertilizers


Apart from giving credit to an increase in private consumption, investments in the non-oil sector must also be attributed to the measures undertaken by the Nigerian government. To showcase the attractiveness of the Nigerian economy, the government undertook a GDP rebasing exercise (GDP calculations are now performed on 2010 year’s figures instead of 1990’s). The exercise led to a better coverage of the informal sector, addition of new industries, and increase in the contribution factor of sectors such as service, manufacturing, and construction.

According to the National Bureau of Statistics, Nigeria’s GDP is valued at US$498.9 billion as compared with US$263.7 billion, prior to rebasing, in 2013. In spite of several criticisms around the authenticity of figures, rebasing of the GDP gave a strong competitive edge to Nigeria, among other emerging and developing economies, by showcasing a high GDP to allure investments. Additionally, implementation of the government’s Industrial Revolution Plan is expected to continue driving the country’s manufacturing sector. Since regular and ample power supply is a critical issue in Nigeria, the plan has implemented reforms in the power sector which aims to facilitate a continuous power supply, thereby, supporting the manufacturing sector by reducing power generation related costs and encouraging further investments.


Final Words

While the oil sector did well to provide Nigeria with a strong foundation and help build basic infrastructure to support a long-term growth potential, the rekindling of the non-oil sector is likely to strengthen Nigeria’s growth story and help it attract much needed foreign investments to create a balanced economy.

The approval of the PIB, post 2015 elections, might improve the oil sector performance, which should go hand-in-hand with non-oil sector development, making Nigeria an attractive market for global investors. It will be important that the Nigerian government undertake continuous reforms in both sectors to ensure the emergence of a strong economy, able to compete with the more established emerging markets of the world.