Challenges to Economic Growth in Nigeria · PDF fileChallenges to Economic Growth in Nigeria...
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Challenges to Economic Challenges to Economic Growth in Nigeria Growth in Nigeria Michael Amati Jose Ardavin Jeanette Fershtman 14 May 2004
Transcript of Challenges to Economic Growth in Nigeria · PDF fileChallenges to Economic Growth in Nigeria...
Challenges to Economic Challenges to Economic
Growth in NigeriaGrowth in Nigeria
Michael AmatiJose ArdavinJeanette Fershtman
14 May 2004
NNIGERIAIGERIA
MMALAYSIAALAYSIA
MMALAYSIAALAYSIA
What do theseWhat do these
countries have incountries have in
common?common?
NNIGERIAIGERIA
MMALAYSIAALAYSIA
In 1970,
� Both hugely dependent on oil
� Both recently gained independence from
the UK (1957 and 1960)
� Both with comparable GDP per capita
NNIGERIAIGERIA
MMALAYSIAALAYSIA
But over time…But over time…
NNIGERIAIGERIA
2,000
4,000
6,000
8,000
10,000 Real GDP per Capita
……a huge divergencea huge divergence
Sourc
e: W
orld P
enn T
able
s19
60
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
MMALAYSIAALAYSIA
Nigeria TodayTodayMalaysia
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
GDP per capita on a $815 purchasing price parity basis $8,825
Exports of goods and 37.70% services as % of GDP 113.80%
Source: FdiMagazine.com
NNIGERIAIGERIA
MMALAYSIAALAYSIA
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
NNIGERIAIGERIA
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investmentinvestmentAttractiveness to Foreign
and Local Investors
Foreign and Local
Investment in Domestic
Economy
GDP Per Capita
Perceived ROI for
Investors
Actual Return for
Investors
Percent of Economy
Privatized
Stress in Organizational
Capacity
Incentive for Government
to Nationalize Business
+
+
+
+
+
-
+ +
-
+
R
B
B
NNIGERIAIGERIA
investmentinvestment
0
5
10
15
20
25
1960
1965
1970
1975
1980
1985
1990
1995
2000
Investm
en
t as p
erc
en
t o
f G
DP
Source: World Penn Tables
regional developmentregional development
GDP Per Capita Regional GDP
Per Capita
New Technologies
in the RegionTransfer of
Technology/Knowledge from
Other Countries in the Region to
Domestic Sectors
Productivity of
Non-oil Businesses
Non-oil GDP Per
Capita
+
+
+
+
+
+
R
Population
-
+
B
Attractiveness of
Region to Investors
Foreign and Local
Investment in Domestic
Economy
+
+
+ R
Accessibility of
Region to Investors Amount of Investment in
Other Countris in
Region
+
- ++ B
R
Industrial Demand
(Labour/Suppliers)
Non-oil Business
Opportunities
Industrial Demand in
Other Countries in
Region
+
+
+
+ -
BR
Oil Money that Fuels
Non-oil Sector Growth
Percentage of Government
Spending on Employee
Salaries
Percentage of
Government Revenue that
Comes from Oil
Percentage of Labour
Force Employed by
Government
Percentage of Consumer
Spending on Domestic
Goods
+
+ +
+
+
NNIGERIAIGERIA
Relative Significance of
Domestic Economy to
Regional Economy
-
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
Frigoglass, Royal Dutch Shell Group,
Union Bank Top 3 investors Tesco, Ford,
Motorola
regional developmentregional development
Source: FdiMagazine.com
NNIGERIAIGERIA
NNIGERIAIGERIA
institutionsinstitutions
'Entrenchment' of
Officials
Opportunities to
Abuse Powers
Government
Abuse of Power
Relative Power of
Officials to Politicians
Efforts to Form
Democratic
Government
Stability of
Governmental
System
Discontent with
Government
Rule of Law
Crime
Personal Security
of Citizens
+
+
+
-
+
+
+
+ -
+
-
+
B
RB
Attractiveness to
Foreign and Local
Investors
Foreign and Local
Investment in Domestic
Economy
GDP Per Capita
Happiness of
Population
+
+
+
+
+
R
Amount of Quality
Government Spending
Government Spending
on Infrastructure
Reliability of
Infrastructure
Ease of Conducting
Economic Activity
+
+
+
+
+
R
institutionsinstitutions
-2 -1.5 -1 -0.5 0 0.5 1 1.5
Political stability
Government effectiveness
Regulatory quality
Rule of law
Control of corruption
Deviation with respect to world average
NNIGERIAIGERIASource: FdiMagazine.com
educationeducationShortage of Appropriate
Employment
Opportunities
People Emmigrating to
Seek Employment
Productivity per
Person
GDP Per Capita Percentage of People
Expecting Education
Number of People
Seeking Education
Government Spending
per Person Educated
Skill Level of
Population
Effectiveness of
Education
School
Attendance
Students Perception of
the Value of Education
People
Underemployed
Expectations for Income
and Quality of
Employment
+
-
+
+
+
-
+
+
+
+
+
+
+
+
-
+
B
B
R B
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educationeducation
1
2
3
4
5
6
1970 1980 1990 2000
Ed
ucati
on
Exp
en
dit
ure
% o
f G
NI
Malaysia
Nigeria
Source: World Development Indicators, World Bank
0
NNIGERIAIGERIA
educationeducation
0 20 40 60 80 100
School enrollment, primary (%
gross)
School enrollment, secondary (%
gross)
School enrollment, tertiary (%
gross)
Illiteracy rate, adult total (% of
people ages 15 and above)
Illiteracy rate, youth total (% of
people ages 15-24)
%
Nigeria
Malaysia
Source: World Development Indicators, World Bank
NNIGERIAIGERIA
insightsinsights•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.
Overcoming (some)Overcoming (some)
InsecuritiesInsecurities
• 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...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 DynamicsSystem Dynamics
InsightsInsights
• Equilibrium can be obtained systematically
• Smooths are everywhere
– Learning how to use the trend molecule
