Challenges to Economic
Growth in Nigeria
Michael Amati
Jose Ardavin
Jeanette Fershtman
14 May 2004
MALAYSIA
NIGERIA
MALAYSIA
What do these
these
countries have in
in
common?
common?
NIGERIA
MALAYSIA
In 1970,
ƒ Both hugely dependent on oil
ƒ Both recently gained independence from
the UK (1957 and 1960)
ƒ Both with comparable GDP per capita
NIGERIA
MALAYSIA
But over time…
NIGERIA
Source: World Penn Tables
Real GDP per Capita
10,000
8,000
6,000
4,000
…a huge divergence
2000
1995
1990
1985
1980
1975
1970
1965
1960
2,000
MALAYSIA
Nigeria
Today
Malaysia
132.8m
Population
24.3m
2.12%
Population growth
1.91%
$43.54bn (2002)
GDP (current US$)
$95.16bn (2002)
$328
GDP per capita
$3,915
$815
GDP per capita on a
purchasing price parity basis
$8,825
37.70%
Exports of goods and
services as % of GDP
113.80%
Source: FdiMagazine.com
NIGERIA
MALAYSIA
The Problem: What factors contributed to
the divergence in economic, political, and
social stability of these two nations?
The Method: Use system dynamics to
gain insights into the problem.
The Client: Experts on the Nigerian situation
NIGERIA
investment
Attractiveness to Foreign
and Local Investors
+
Perceived ROI for
Investors
+
+
+
+
Foreign and Local
Investment in Domestic
Economy
R
+
+
Incentive for Government
to Nationalize Business
GDP Per Capita
+
B
Actual Return for
Investors
Stress in Organizational
Capacity
B
Percent of Economy Privatized
NIGERIA
NIGERIA
2000
1995
1990
1985
1980
1975
1970
1965
1960
Investment as percent of GDP
25
investment
20
15
10
5
0
Source: World Penn Tables
regional development
Percentage of Government
Spending on Employee
Salaries
Population
R
+
+
Oil Money that Fuels
Non-oil
Sector Growth
+
+
Percentage of Labour
+
+
Force Employed by
Non-oil GDP Per
Government
Capita
+
B
+
GDP Per Capita
+
+
Regional GDP
Per Capita
R
Foreign and Local
Investment in Domestic
Economy
+
B
+
Attractiveness of
Region to Investors
+
+
R
+
Accessibility of
Region to Investors
Amount of Investment in
Other Countris in
Region
Transfer of
Technology/Knowledge from
Other Countries in the Region to
Domestic Sectors
-
Relative Significance of
Domestic Economy to
Regional Economy
NIGERIA
B
+
Productivity of
Non-oil Businesses
+
+
Industrial Demand
(Labour/Suppliers)
+
Percentage of
Government Revenue that
Comes from Oil
Percentage of Consumer
Spending on Domestic
Goods
Industrial Demand in
Other Countries in
Region
Non-oil Business +
Opportunities
+
R
+
New Technologies
in the Region
regional development
Sub-Saharan Africa
Region FDI Indicators
South East Asia
35
No.of FDI projects (Jan-Sep 2003)
181
15.00%
Market-share of projects in the
region
20.00%
34.30%
Value of projects relative to GNP
93.30%
Energy, Food &
Drink, Financial
Services
Top 3 destination sectors
Automotive OEM, IT
& Software,
Chemicals
UK, Greece, USA
Top 3 source countries
USA, UK, Japan
Top 3 investors
Tesco, Ford,
Motorola
Frigoglass, Royal
Dutch Shell Group,
Union Bank
Source: FdiMagazine.com
NIGERIA
institutions
'Entrenchment' of
Officials
+
Opportunities to
+ Abuse Powers
Relative Power of
Officials to Politicians
B
+
+
+
Attractiveness to
Foreign and Local
Investors
Stability of
Governmental
System
B
+
Rule of Law
+
Government
Abuse of Power
+
Efforts to Form
Democratic
Government
+Government Spending
on Infrastructure
Amount of Quality
Government Spending
R
+
Discontent with
Government
+
-
R
+
+
+
Foreign and Local
Investment in Domestic
Economy
Crime
Personal Security
of Citizens
+
R
Happiness of
Population+
+
GDP Per Capita
NIGERIA
+
Reliability of
Infrastructure
+
Ease of Conducting
Economic Activity
institutions
Control of corruption
Rule of law
Regulatory quality
Government effectiveness
Political stability
-2
-1.5
-1
-0.5
0
0.5
1
Deviation with respect to world average
NIGERIA
1.5
Source: FdiMagazine.com
education
+ Emmigrating to
People
Seek Employment
Shortage of Appropriate
Employment
Opportunities
+
B
+
Expectations for Income
and Quality of
Employment
+
B
+
People
Underemployed
-
Productivity per
Person
Skill Level of
Population
R
B
+
Effectiveness of
Education
+
+
+
Government Spending
per Person Educated
-
School
Attendance
Students Perception of
the Value of Education
+
Percentage
of People
Expecting Education
+
GDP Per Capita
+
NIGERIA
+
Number of People
Seeking Education
education
Education Expenditure % of GNI
6
5
Malaysia
4
3
2
1
Nigeria
0
1970
1980
NIGERIA
1990
2000
Source: World Development Indicators, World Bank
education
Illiteracy rate, youth total (% of
people ages 15-24)
Nigeria
Malaysia
Illiteracy rate, adult total (% of
people ages 15 and above)
School enrollment, tertiary (%
gross)
School enrollment, secondary (%
gross)
School enrollment, primary (%
gross)
0
NIGERIA
20
40
60
80
100
%
Source: World Development Indicators, World Bank
insights
•Investment
•Investment, GDP growth, and the size of GDP are all strongly
interdependent.
•Regional Development
•A nation’s comparative status in its region of the world will
impact its ability to develop.
•Institutions
•A nation must be perceived as being politically stable before
it can hope to increase investment in its economy
•Education
•Even the best education system will be ultimately worthless
if there are not ample jobs that befit those who are highly
educated.
NIGERIA
Overcoming (some)
Insecurities
• Trust the Standard Method!
• Concentrate on Insights
• Every stage of the process has value
– For large projects, causal loops may be the
biggest the most valuable part
Hines Morale-o-meter ©
...but not all of them
• Difficult to know when analysis is done
• Going slow is hard!
• “But that’s obvious!”
Hines Morale-o-meter ©
System Dynamics
Insights
• Equilibrium can be obtained systematically
• Smooths are everywhere
– Learning how to use the trend molecule