Nigeria in the Global Economy: Nigeria's Integration into the Global Economy Is below Its Potential
Oshikoya, Temitope W., Business Economics
International media attention has focused in recent years on the globalization of the world economy with the integration of national economies through product, capital, and labor markets as well as the development and diffusion of information technology. At the same time, while attention has been focused more on emerging economies in Asia, including China and India, that are reaping the benefits of globalization, there is concern that African countries continue to be marginalized.
Among African countries, Nigeria and South Africa (1) have strong potentials to harness the opportunities and meet the challenges that the global economy could provide. Together, they account for 55 percent of the region's GDP and a quarter of its total population. Their dominance is even more pronounced at the sub-regional levels. South Africa accounts for 80 percent of the total output in Southern Africa (AfDB, 2005). Within its immediate sub-region, Nigeria is one of 15 countries in West Africa that make up the Economic Community of West African States (ECOWAS) and accounts for half of its population and three-quarters of its total GDP.
Nigeria is the world's eighth largest oil producer and has the seventh largest reserves of natural gas. As a major oil exporter, Nigeria and the West African Gulf region are expected to supply a fourth of oil needs in the United States by the end of this decade. As noted by the Financial Times (2006), "the region's oil fields have become an important battle ground of influence between China, India, and the US as they struggle to ensure the motor of their future economic growth does not run out of fuel." While major Western oil companies have historically dominated oil investment in the country, Asian oil companies are beginning to make inroads. Recently, China bought a 45 percent stake in one of Nigeria's oil fields for $2.3 billion. (2) Nigeria has provided priority rights on several oil blocks for state-owned Asian oil companies in exchange for infrastructure investment in power plants, refineries, and railways. However, concerns have been raised about the transparency of such large oil deals.
In the past four years, the pace of economic liberalization and financial sector reforms in Nigeria has accelerated. With the liberalization of the telecom sector, the country has one of the fastest growing cellular telecommunication sectors in the world; and financial sector reforms have increased bank capitalization ten-fold in two years. While Nigeria successfully concluded a debt forgiveness agreement with the Paris Club, the country has also been rated by leading credit rating agencies. In 2005, the International Monetary Fund (IMF) also approved a two-year Policy Support Instrument (PSI) for Nigeria under the IMF's newly created PSI framework, which is intended to support the nation's economic reform efforts (IMF, 2005). The satisfactory review of the benchmarks for the PSI has paved the way for the clearance of the debt to the Paris Club in April 2006 (IMF, 2006a).
Yet, in spite of these positive developments, key challenges lie ahead for Nigeria. As a nascent and fledgling democracy, it occupies a strategic position in Africa and the key to stability in the region. Violence in the oil-rich Niger Delta has affected oil production and exports. Despite oil wealth, Nigeria ranks among the twenty-five poorest countries in the world in terms of social indicators. Investments in social, human and physical infrastructure are also crucial to sustained long-term development.
This paper provides a perspective on Nigeria's global economic position. It provides a comparative analysis of Nigeria's economic standing with other emerging economies. While Nigeria is often referred to as the giant of Africa, the country's competitiveness can be bench-marked against large countries on the continent and large emerging economies outside Africa. The paper examines the country's linkages to the global economy through trade, labor, and capital. …