Recent data from the Nigeria Bureau of Statistics underlines the urgent need for economic diversification, as the contribution of the non-oil sector to GDP experienced a slight decrease, albeit with positive growth.
The non-oil sector contributed approximately 95.30% to Nigeria’s GDP in the last three months of the year. Key industries such as finance, telecommunications, agriculture, trade, construction, manufacturing, and real estate have been instrumental in driving this growth.
The percentage falls below the 95.66% recorded in the fourth quarter of 2022 but exceeds the 94.52% noted in the third quarter of 2023.
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During the quarter in review, the non-oil sector witnessed a growth of 3.07% in real terms. Although this growth rate was 1.37% points lower than that observed in the same quarter of 2022, it was 0.32% points higher than the growth recorded in the third quarter of 2023.
On an annual basis, the growth rate of the non-oil sector for 2023 stood at 3.04%, marking a decrease from the 4.84% growth rate observed in 2022.
Drawing parallel with the economic diversification push of Saudi Arabia
Nigeria, endowed with vast natural resources, has long relied heavily on its oil sector, a dependency that poses significant risks to its economic stability.
Drawing parallels with Saudi Arabia, another oil-dependent nation, provides valuable insights into the imperative for diversification. Saudi Arabia, recognizing the vulnerabilities associated with oil dependency, began the ambitious Vision 2030 initiative to reduce reliance on oil revenues. This initiative aims to foster growth in non-oil sectors such as tourism, entertainment, technology, and renewable energy.
For instance, Saudi Arabia has invested heavily in developing its tourism industry, promoting historical and cultural sites, and hosting international events like the Formula 1 Grand Prix. Additionally, the kingdom has made significant strides in advancing renewable energy projects, aiming to generate 50% of its energy from renewable sources by 2030.
In Nigeria, the informal sector plays a crucial role in employment, with a significant portion of the population engaged in self-employment. However, challenges such as low taxation, weak regulatory frameworks, unfair competition, and disregard for standards hinder its full potential. Despite these challenges, the informal sector remains a vital component of the economy, reflecting the structure dominated by micro, small, and medium-sized enterprises (MSMEs).
Addressing taxation and revenue generation has been advocated as pivotal for Nigeria’s economic diversification efforts. Economists said with a low tax-to-GDP ratio, currently at 10%, there is a pressing need for comprehensive tax reforms to increase revenue streams.
The government constituted a committee for tax reforms last year, signaling its intent to bridge the tax-to-GDP ratio gap. The government’s aim to raise this ratio to 18% within the next three years aligns with broader efforts to reduce dependence on oil revenues.
But economists have also called for diversification beyond taxation, touting technology and agriculture as untapped alternative sources of revenue for Nigeria.
By diversifying its economy with a focus on tech and renewable energy, the oil-rich Saudi kingdom is setting the pace. The kingdom’s diversification endeavors offer valuable lessons for Nigeria.
Economists said that by prioritizing investment in non-oil sectors, enhancing regulatory frameworks, promoting entrepreneurship, and fostering innovation, Nigeria can mitigate the risks associated with oil dependency and stimulate sustainable economic growth. However, they noted that achieving these goals requires decisive action, strong leadership, and collaboration between the public and private sectors.
Nigeria stands at a critical juncture where economic diversification is imperative for long-term prosperity and resilience. It is believed that by learning from Saudi Arabia’s experiences, the African giant can chart a path towards a more diversified and sustainable economy, reducing vulnerability to oil price fluctuations and fostering inclusive growth for its citizens.