Nigeria Is Diverse, But Not Yet Diversified

Nigeria’s economy is already broad, and its export profile is changing. But being diverse is not the same as being diversified. For anyone deploying capital, that distinction is where both the risk and the opportunity lie.

For five decades, one sentence has dominated Nigeria’s economic debate: the country must diversify away from oil. More recently, a more optimistic argument has emerged — that Nigeria has already diversified because oil now accounts for only about 5% of the economy, while its share of exports and government revenue has also declined.

Both arguments miss an important distinction.

A small oil share does not automatically mean Nigeria has built a strong or diversified economy. And on the measure that matters most for assessing the resilience of an economy, Nigeria has barely begun.

A small oil share does not tell the whole story

Consider the oft-cited 5% figure.

Nigeria’s economy is not relatively small in oil terms because it has developed enough high-productivity industries to make petroleum insignificant. Rather, oil represents a smaller share partly because more than 200 million people have to earn a living, and most do so in the informal economy.

They farm small plots of land, trade in local markets, drive commercial vehicles, provide personal and business services, operate small enterprises and engage in countless other forms of economic activity.

That creates a broad economy in terms of the number of activities taking place. But breadth alone does not amount to diversification.

The more important question is whether Nigeria has developed a sufficiently wide base of productive, competitive and scalable industries capable of generating exports, attracting investment, creating formal employment and earning foreign exchange.

That distinction matters because an economy can contain millions of businesses and millions of economic activities while remaining highly dependent on a relatively narrow set of sectors for productivity growth, export earnings, foreign exchange and international competitiveness.

Nigeria therefore faces a more difficult task than simply reducing the statistical share of oil in GDP.

The challenge is to build productive sectors that can compete beyond the domestic market — manufacturing, agro-processing, technology, services, energy, logistics and other tradable industries — while creating the infrastructure, skills, financing and policy environment required for them to scale.

Until that happens, Nigeria may be diverse in the number of activities that make up its economy without being sufficiently diversified in the sources of its productivity, exports and foreign-exchange earnings.

For investors, that difference is critical. The opportunity lies in the sectors capable of moving from fragmented domestic activity to globally competitive production. The risk lies in assuming that a lower oil share, by itself, means those structural weaknesses have already been resolved.