Funmi A wants to see… Better data (repost from NISM YPro)
I work for a firm focused on the frontier markets. One of our hottest markets, according to our clients, is Nigeria. This has led me to question the validity of all this interest. Is the idea of “Nigeria rising” a farce? Where is all this economic growth?
Ever since Jim O’Neill unveiled the N11 asset management strategy around 10 years ago, Nigeria has been viewed as the next frontier in Africa. With its enormous population (approximately 170m based on the last census in 2006), and its diaspora (approx. 17–20 mil), it’s no wonder that Nigeria was hailed as one to watch.
Since the consolidation of the Nigerian banking industry from 2004–2006 under Obasanjo, Nigeria has developed a more sophisticated financial system, with much-needed access to domestic liquidity and international financial markets. Nevertheless, the hysteria died down for a while; then the rebase happened, and Nigeria was talk of the town again. Many wondered how to crack this market and what opportunities it held in store.
Yet, this apparent potential is yet to materialise. Foreign direct investment (FDI), which includes acquisitions of companies, debt and equities, is widely seen as a significant driver of economic growth. FDI has been disappointingly low for an economy such as Nigeria, especially one hailed as the go-to place in Africa. With net foreign direct investment at a meagre 2% of GDP according to latest data for 2013 from the World Bank, it would seem the rest of the world isn’t putting its money where its mouth is.
Moreover, although GDP may seem impressive at over £475bn (US$521bn/NGN100,000bn), when population is taken into account it becomes a disappointing figure — only £2,058 (US$3,065/NGN605,000) per head. To put that in context, that ranks us close to the bottom 50 economies in the world, a far cry from the top 20 position expected of us by 2050.
With that being said, nobody can deny there’s wealth in Nigeria. Our cities are booming and industries somehow continue to grow. So where is this economic growth?
The answer is that we don’t really know, because it’s not being officially tracked. Although yet unquantifiable, many estimate Nigeria’s shadow economy to be of equal measure, if not bigger than the formal one which dictates GDP figures and the like.
It’s important that we find a way to measure this shadow economy, and analyse how it works, because it influences the formal economy and should be taken into account when measuring the average Nigerian’s growth in wealth. Most importantly, once it can be measured, analysed and tracked, it can be managed more efficiently by including it in the formal economy. Redistribution of wealth can be achieved more easily through fiscal systems, thus leading to a decrease in inequality.
I’m no expert on economic data collection, but if I were to take a stab at it, I would take the following steps:
- Going to major cities across Nigeria and measuring cash trade at markets over a period of time
- Using that figure to estimate for the regional population
- Summing up the figures for those regions
- Alongside this quantitative exercise, qualifying how goods and services are trading using cash via surveys
This would of course be an extremely capital and time intensive exercise, but hopefully would go towards getting an indication of the size of this cash economy and its potential to be absorbed by the formal one. It would also provide much needed jobs.
So, to conclude, let’s go back to the questions I raised earlier. Is the image of a rising Nigeria a farce? No, I don’t think so. If not, where is all the economic growth? Well, it is simply hidden. It’s now our responsibility to find it.
