Challenges to Economic Growth in Nigeria

Challenges to Economic Growth in Nigeria MALAYSIA NIGERIA MALAYSIA What do these countries have in 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