Some countries with resource-dependent economies find it difficult to design and implement public investment and policy reforms that are essential for economic diversification. Some of the challenges these countries face include maximising the benefits from their natural resources and distributing them widely to facilitate national development and improve on the welfare of the people, including poverty reduction, OLUDARE RICHARDS writes.

FROM the 1980s, government policy has been to reduce dependence on oil and gas sector. Well aware of the need to diversify, the policy thrust of succeeding governments in Nigeria is hinged on incentivisation of the non-oil exports, solid minerals development, agriculture development and investments in the ICT sector, however, in over four decades, this has remained a challenge as realization of set goals has been beset with deficits.

Experts have, however, noted that since the turn of the century, policy making by successive Nigerian governments has, despite superficial partisan differences, been oriented towards short-term crisis management of macroeconomic stabilisation, restoring growth and selective public sector reforms.

Regarded as the poster child for the ‘curse’ of oil wealth, as it has not been able to diversify its economy beyond its dependence on oil revenues, Nigeria, according to experts, has generated high economic gains, leading to a focus on oil and a neglect of other sectors. They also point to weak governance as a major obstacle to Nigeria’s economic growth, inadequate infrastructure and insufficient capacity-building initiatives.

A former Director-General of the National Institute of Legislative Studies (NILDS), Professor Ladi Hamalai, told The Guardian that major bottleneck to successful economic diversification might not be the Dutch Disease, as presented by some experts, but poor or weak natural resources governance regime.

Hamalai believes that despite the talk Nigeria has not been able to diversify its economy owing to a combination of factors, among which are lack of continuity in policies, plans and commitment to economic diversification, and disregard for corporate governance ethos.

She listed the basic indicators for effective Natural Resources Governance (NRG) to include an enabling environment, effective legal regime and control, transparency, high value realisation and effective resource management, lamenting that the country is weak in value realisation (56 per cent) and enabling environment at 36 per cent. According to Hamalai, the weak value realisation of 56 per cent and very weak enabling environment are tested by the dwindling oil production capacity of the country, very high gas flaring and huge food imports.

“Though Africa holds 65 per cent of the world’s arable land (Nigeria has 37 million hectares of arable land), yet Africa’s annual food imports could go from $50billion to $110 billion by 2030. Nigeria’s food imports amount to $10 billion or a fifth of Africa’s food imports yearly,” she said.

On the diversification strategies Nigeria can employ to combine new core competencies with new and emerging markets so it can shift the economy away from single income source towards multiple income sources, she said the key critical success factor is to move away from rent economy fueled by the oil sector dominance and develop entrepreneurs skilled and supported to invest in business start-ups.

“The Tony Elumelu Foundation Entrepreneurship Programme has so far impacted over 18,000 Africans starting up businesses. The Nigerian government through the National Skills Council (NSC), Africa Union skills portal and Platform for Employment and Entrepreneurship, and other projects and programmes have been targeting the skilling and reskilling of youths under 30, in tandem with job market needs.

“More private and public universities are providing degree and postgraduate programmes that are sensitive to job market needs and innovation skills. More efforts should be put in place to skill up Nigerian youths and make them successful entrepreneurs. More needs to be invested in Technical and Vocational Education and Training (TVET).

“The Ministry of Education’s current efforts on refurbishing and equipping TVET schools need to be supported further by development partners and the private sector. Again, I emphasise that not much can be attained without the closing of the huge infrastructure deficit the country is facing. The business enabling environment also needs to drastically improve from 36 per cent earlier stated to at least 60 per cent ranking,” Hamalai said.

On economic diversification potential for Nigeria, she noted that ICT and innovation are forward-looking skills for a progressive digital economy.

Hamalai pitched that Nigeria has the capacity and resources to become the major ICT Hub in the region. She explained that infrastructure development is a critical success factor in driving investment from micro businesses to big businesses. It also supports business development and counteracts business closures and migration (de-industrialisation).

“Inadequate electricity alone (50 per cent of population has access to electricity) holds back development significantly. Nigeria produces between 3,000 to 5,000 Megawatts compared to South Africa’s 44,000 Megawatts servicing its 51 million people.

“Manufacturing industry and small businesses are the most hit. ICT infrastructure development would also be stunted and currently, it is the innovation hub globally.

“The East Asian countries’ success in development has been hinged on ‘strong drive in providing good infrastructure, effective accessible education and health services, as well as implementing employment growth policies, which resulted in general uplift in investment and in living conditions.”

To her, another success factor in the diversification of the economy is the presence of effective employment activation policies, especially among youths.

“Africa’s population is young. Out of the 1.4 billion people living in Africa, 70 per cent are below the age 30. For Nigeria, the median age is 18.1 years while 70 per cent of the country’s 200 million people are below 30 and 42. About 50 per cent of them are either unemployed or underemployed,” she lamented.

“This may be a consequence of the infrastructure deficit, quality of education and skills acquisition as well as the failure of employment activation policies. With the right targeted skills development, good infrastructure, the youths could become a strong resource base for diverse production and economic growth.”

Citing the Rwandan example, she said the country’s ICT Infrastructure expansion in the last two decades has made it topmost in Africa in ICT promotion success to drive social and economic transformation.

Rwanda’s National Digital Talent Policy aims to reconcile the disparity between the availability and need for ICT skills within the nation. The policy aims to bridge this gap by producing a surplus of ICT professionals with specialised, market-oriented skills, aligning with Rwanda’s goal of becoming an ICT Hub in the region.

The policy emphasises the importance of enhancing digital skills and literacy across all levels of Rwandan society, aiming to create a knowledge-based economy and society.

This strategy is elaborate in the Vision 2020 Umurenge Programme (VUP). The government invested in infrastructure, especially IT, which has caused seamless connectivity between rural and urban areas. Little wonder ICT-based business start-ups, especially among youths, are budding in Rwandan rural and urban areas.

Hamalai noted that though Nigeria’s ICT sector has grown exponentially, especially in Fintech, Internet access and ICT business startups, an effective national policy on digital skills is yet to be well articulated, and poor infrastructure has hampered ICT development in the rural areas.

Professor of Information Systems and Associate Dean (Academics) at the Lagos Business School of the Pan-Atlantic University, Lagos, Olayinka David-West, believes that Nigeria can tap into other natural resources to promote growth, especially in areas such as technology and financial inclusion.

Already, the rise of emerging digital technologies has changed economic models and introduced new sectors with the Tech suffix, like FinTech, AgTech, EdTech, HealthTech, CivicTech, and others.

These new digital businesses are transforming traditional sectors, albeit with varying degrees of success limited by venture funding across sectors.

Using the World Bank’s Global Findex Indicators, the union of digital devices such as mobile phones and digital financial services (DFS) like mobile wallets (accounts) reduced financial exclusion rate from 2.5 billion in 2017 to 1.7 billion in 2021. In Nigeria, the percentage of excluded adult Nigerians reduced to 26 per cent in 2023 from 52.5 per cent in 2008.

“Through the National Startup Act of 2023 (NSA, 2023), Nigeria is fostering strategies to grow and scale these new business models across sectors. Notwithstanding, collaboration and partnership with incumbents or traditional entities in these sectors are essential,” David-West said.

According to her, there isn’t a magic bullet solution for Nigeria in seeking to diversify from oil towards other income sources, strategies will vary across sectors.

“For instance, for the agricultural sector, it is the value addition and industrialisation; for the tech/digital sector, it could be fostering IT-enabled services (ITES) like business process outsourcing; or it could be leveraging the African Continental Free Trade Area (AfCFTA). Notwithstanding the possibilities, strategies require diligent execution,” she said.

Hamalai summed up that once a country has strong infrastructure, effective education and health services, investments will boom and so are employment and economic growth.

In 2020, Nigeria ranked 24th out of 54 African countries in infrastructure development index with 23.6 point compared to Egypt’s 88.3 points. The World Bank estimates that Nigeria requires $3 trillion to close the infrastructure deficit.

David-West underscored the importance of financial inclusion by the Nigerian government to advance economic growth.

“In the 2018 State of the Market Report on Digital Financial Services in Nigeria, we posited that financial inclusion should be a national imperative given its impacts beyond the financial services ecosystem, highlighting linkages with the sustainable development goals (SDGs) and other macroeconomic indicators.

“We stated that financial inclusion is also a stimulant to economic development, enhancing gross domestic product (GDP) and other key economic indicators like job creation and liquidity.

“Though the dynamics of economic growth vary across our micro, small and medium enterprises (MSMEs), a recurring pain point is access to credit, affordability being one of the limiting factors.

“Likewise, financial institutions bemoan the lack of access to long-term deposits. Thus, imagine a financial system capable of driving savings deposits from 80% of adult Nigerians. That deposit holding could address the fund-matching problem and possibly reduce the cost of funds. This is just one example.”

David-West underscored the importance of digital transformation, especially its impact on Nigeria’s economic development and diversification by making globalisation a reality, enhancing productivity and driving scale.

She explained that platforms like Hello Tractor allow farmers to rent machinery via mobile phones, to boost their productivity. Also in the creative industry, platforms like Netflix take Nollywood content to global audiences, creating new revenue streams. Flutterwave provides a seamless payment solution for African businesses, enabling them to accept payments from customers globally through a single platform.

“This innovation has helped Nigerian businesses expand their reach and boost revenue. These developments demonstrate how digital transformation can modernise industries, making them more efficient and scalable. Embracing technology is critical to harnessing diversification and economic growth.

“According to our NBS data and evidence on the structure of Nigeria’s economy, Nigeria’s economy is diversified. The challenges and alternative viewpoints on diversification stem from the country’s income streams, predominantly from crude oil.

“The abundance of crude deposits and income generated over the last decades reduced the investment and growth capabilities of sectors such as agriculture, limiting their industrialisation and scale pathways. Notwithstanding, sectors like telecommunications and information services, financial institutions, and crop production also contribute to the economy.

“There is no silver bullet to diversifying our income streams, as the nuances of each sector vary. However, some commonalities like infrastructure – energy, roads, digital – and human capital are cross-cutting,” she said.

David-West believes that to address hindrance to economic diversification in Nigeria, there is need for stable, long-term policies that foster investment in non-oil sectors. For example, the society now lives in the Fourth Industrial Revolution (4IR), dominated by digital, physical and biological technologies, “hence, can we leapfrog and adopt digital economy tenets to match our youthful yet unemployed population?’’

“The organic development of our fintech sector exemplifies this principle. Thus, we need quality digital infrastructure. We need significant educational investments to build talent with future work skills in this digital economy. By improving internet access, the country can foster growth in digital business in the Fintech and e-commerce sectors and create remote work opportunities for resident Nigerians,” David-West said.

The Vice Chancellor of Adeleke University, Ede, Osun State, Professor Solomon Adebola, told The Guardian the Nigerian government lacked focus for many reasons, including lack of competence, lack of political will to do the right thing and too many external influences.

He lamented that despite the mass of arable land, the country still cannot feed itself, spending so much on food importation to the point that a government policy became necessary to reduce or remove tariffs on imported food items.

“We have imported yam and imported garri from China. It is unbelievable. With such a stand as one of the largest producers of cassava in the world, we cannot even put in the effort to produce garri.

“We used to have farmers with enviable cash crops production to the extent that Nigeria’s agricultural production reached export capacity. But then, the oil boom came and people forgot their cutlasses and hoes, the tractors and planters.

“People began to carry around portfolios, looking for contracts here and there. Eventually, many multi-millionaires emerged but contributed nothing for a productive economy. It is sad,” Adebola said.

According to him, the country has lost direction and focus to the extent that it will be very difficult to get back on the right trajectory, except for a radical move or intervention.

To the vice-chancellor, the bigger problem is that the necessary move cannot be made because the government has no political will to do it. He noted that it was worse for Ghana years ago when emigration became necessary to the extent that it was felt by neighboring countries. But a leader emerged for Ghanaians in the person of Jerry Rawlings who turned things around completely. “Ghanaians now stay home in their country,” he noted.

Adebola believes Nigeria has the human and natural resources to achieve the critical recovery for the prospect of even a developed nation. ‘’What is needed is the right leadership and political will to do what is necessary.’’

On the mining and natural resources aspect of diversification from oil, he argued that decentralisation of natural resources from powers of government is the way forward in creating a system of healthy enterprise with prospects for viability and economic stability.

“What the government should do is set up a better policy and regulation system for natural resources and mining and these resources should not belong to the government alone.

“The way it should be is that if I find oil or a natural resource such as iron in my backyard, for example, the government takes it over immediately. Considering the bureaucracy and corruption in government, I’ll say it is the wrong direction. The pockets of a few people are filled. On the contrary, if I find something on my land, it should belong to me. I can be charged dividends for it. The natural resource sector should not be centralised. This example can be found in countries such as America.

“Imagine iron ore mined in Aladja, Delta State and Ajaokuta in Kogi State would need to be processed in Katsina. It is not ideal.

“There were licences issued for people to mine at some point, but the licences have been withdrawn again and the whole system re-centralised. I think this is a wrong move by the government.

“The resolution to the whole problem points to the regional resource control being clamoured for that those who own these resources in their region should be able to excavate, mine and process them in the same region, then pay royalties to the government. Like I said, I hope a government will come in future to address these issues,” Prof. Adebola said. (The Guardian)