Why Economic Growth Has Not Been Enough for Nigeria

Nigeria’s economic trajectory frequently raises an important question. Are we genuinely transforming our economy, or are we simply making it larger? For decades, the narrative of economic diversification has drawn attention to the expansion of modern services such as telecommunications and banking. Real economic growth is undoubtedly valuable because it reflects increases in production and can improve living standards. However, economic expansion and structural transformation are not the same thing.

The difficulty is not the lack of good Nigerian economic policies. Policy choices emerge from political incentives, their implementation depends on administrative capabilities, and their consequences are often inadequately measured. Economic transformation requires progress across all three dimensions. A technically sound policy can fail when political incentives undermine its implementation. Equally, a politically popular programme can consume substantial public resources without developing productive capabilities.

As Zainab Usman establishes in Economic Diversification in Nigeria, diversification must extend beyond changes in the composition of Gross Domestic Product to include exports, public revenue, and productive capabilities. Nigeria has experienced significant growth in modern services without achieving a corresponding diversification of its export base, sufficiently strong industrial capabilities, or enough productive employment. The relevant question is broader than whether sectors such as banking and telecommunications are growing, but whether their expansion generates wider productivity gains and stronger connections across the economy.

If we are interested in truly moving beyond oil, we must stop chasing activities that make us seemingly busy and start building the exact skills needed to create lasting wealth for everyone.

The Rationality of Persistent Policy Distortions

It is tempting to dismiss the persistence of economically inefficient policies as mere political populism. Fuel subsidies provide an important example of why this explanation is insufficient. In an economy characterised by inadequate public transportation and unreliable electricity supply, subsidised petroleum products have historically provided some relief to households and businesses. Yet, this dependence does not mean that fuel subsidies constituted an equitable or efficient system of social protection.

Historical subsidy arrangements disproportionately benefited wealthier households while imposing substantial fiscal costs. These costs reduced the resources available for investment in public infrastructure and essential services. The World Bank’s assessment of Nigeria’s public finances documents the distributional and fiscal consequences of these arrangements.

A policy can be economically distortionary or fiscally costly while remaining politically resilient. Removing it imposes immediate and visible costs on certain groups, whereas the promised benefits of reform may be delayed, uncertain, or dependent on institutions that citizens have little reason to trust.

Usman’s application of political settlements analysis helps explain this difficulty. Economic reforms are shaped by the distribution of political power, while public acceptance depends partly on how their costs and benefits are distributed. When governments lack credible mechanisms to protect vulnerable households and deliver promised improvements, securing durable public support for reform becomes considerably more difficult.

The major problem is therefore not whether a particular reform makes economic sense. It is whether the institutions responsible for implementing that reform can manage its consequences and maintain sufficient public confidence for the policy to endure.

Regional Differences and Local Realities

National economic plans can overlook important differences in subnational economic conditions. My research on Nigerian food price monitoring offers an empirical illustration of this problem.

Using data from the National Bureau of Statistics’ Selected Food Price Watch, I examined 44,547 finite and positive reported price observations covering 43 food items across the 36 states and the Federal Capital Territory between January 2017 and April 2019. The analysis identifies substantial geographic variation in reported food prices and positive month to month persistence in relative price differences. Although the estimated magnitude of persistence is sensitive to the statistical method employed, the evidence establishes that reported price conditions across Nigerian states were not uniform during the study period.

These findings do not independently establish the causes of geographic price differences. Transport costs, production conditions, market structures, differences in product measurement, and the methods used to aggregate reported prices may all contribute to observed variation. The evidence does not directly measure market integration, household purchasing power, or the effectiveness of any particular government intervention.

Nevertheless, it reinforces the importance of understanding local economic conditions before assuming that a national average adequately represents the circumstances confronting households and businesses across the federation.

A national policy may pursue a common objective while confronting substantially different conditions across states. Recognising those differences does not necessarily require abandoning national coordination. It requires governments to understand where local conditions matter, identify the mechanisms producing observed disparities, and determine whether policy instruments should be adapted accordingly.

Political Settlements and Administrative Competence

Geographic differences reveal why economic conditions cannot always be understood through national averages. Political economy raises a related but distinct question. Why are some state governments better positioned than others to respond to their particular development challenges?

Usman’s comparison of Lagos and Kano illustrates how political settlements influence development outcomes. Lagos developed greater revenue mobilisation capabilities through a combination of political incentives, institutional investment, and administrative reform. Kano’s attempts at agroindustrial transformation encountered a different configuration of political and institutional constraints.

These experiences suggest that development strategies depend not only on identifying economic opportunities, but also on whether governing institutions can coordinate and sustain the policies required to realise them.

This distinction also matters when considering political inclusion. Power sharing and zoning arrangements can contribute to conflict management, representation, and institutional legitimacy. However, political accommodation does not automatically produce administrative competence. A government can become more politically inclusive without necessarily becoming more effective at implementing policy. Conversely, administrative capability alone cannot guarantee durable governance where important groups remain systematically excluded from political participation.

The challenge is to establish institutional arrangements in which political accommodation supports credible accountability, merit-based administration, and the provision of public goods.

Political stability may create opportunities for development, but the use of those opportunities depends on the incentives and capabilities of the institutions exercising public authority.

Performance and Accountability in Industrial Policy

Another important dimension of economic transformation is the distinction between announcing development programmes and building institutions capable of implementing and evaluating them.

Industrial transformation requires more than financial incentives for selected industries. It depends on public infrastructure, technical skills, reliable electricity, effective standards, functioning logistics systems, and coordination among economic actors. These conditions influence whether enterprises can increase productivity, develop new capabilities, and compete in wider markets.

Effective industrial policy therefore requires performance measurement and institutional discipline. Governments must be able to identify the constraints they intend to address, explain why a particular intervention is justified, and establish credible criteria for evaluating its results.

When state supported interventions fail, this does not automatically indicate political favouritism or administrative incompetence. Productive investments involve uncertainty, and experimentation can be a legitimate part of economic development. Some investments require extended periods before their benefits become visible.

The critical distinction is whether public support remains subject to evidence and accountability.

A capable government should establish transparent conditions for providing support, evaluate performance against stated objectives, and respond when interventions do not deliver the expected results. This may require revising programme design, addressing implementation failures, or withdrawing support when continued expenditure can no longer be justified.

Institutional competence is demonstrated not only by the ability to initiate programmes, but also by the capacity to learn from experience and change course.

Without these mechanisms, industrial policy risks becoming an accumulation of announcements, expenditure commitments, and protected interests rather than a sustained process of developing productive capabilities.

Measuring the Capacity to Transform

Success should ultimately be judged by what public institutions enable people and businesses to accomplish.

What would Nigerian governments have to demonstrate, in measurable terms, before we could reasonably describe their economic programmes as successful?

Five dimensions deserve particular attention.

• Productive transformation: Sustained improvements in labour productivity, productive employment, and the sophistication and diversification of non oil exports. Economic progress should be reflected in the capabilities of workers and enterprises, not simply in the expansion of individual sectors.

• Institutional performance: Demonstrable improvements in public service reliability, budget execution, infrastructure delivery, and the implementation of investment programmes. Public expenditure matters, but the quality and reliability of what it produces matter just as much.

• Household welfare: Measurable improvements in real incomes, poverty reduction, and access to essential services across states and population groups. Economic transformation should eventually be reflected in the material conditions under which people live.

• Policy effectiveness: Credible evaluations showing what interventions achieved relative to their costs, stated objectives, and plausible alternatives. Governments should be able to distinguish between outcomes that followed a policy and outcomes that occurred because of it.

• Administrative learning: Evidence that governments use evaluation findings to improve ineffective programmes, discontinue unjustified support, and adapt successful interventions to appropriate circumstances. The ability to acknowledge and correct failure is itself an important institutional capability.

These indicators must be interpreted alongside prevailing economic conditions and credible alternative explanations. An increase in employment, revenue, or investment does not automatically establish that a particular government programme caused it. Outcomes may reflect wider economic trends, private investment decisions, external shocks, or other influences beyond the intervention being assessed.

This is why measurement must be accompanied by careful evaluation. Governments should establish clear objectives, collect reliable information, examine the results of their interventions, and distinguish plausible policy contributions from changes that would likely have occurred anyway.

The deeper question is whether public institutions are becoming more capable of identifying problems, coordinating responses, implementing decisions, and learning from measurable outcomes.

Are workers becoming more productive? Are firms developing capabilities that allow them to compete beyond protected domestic markets? Are public investments improving essential services? Are households experiencing durable improvements in welfare? When programmes fail, can governments identify the reasons and change course?

Economic transformation becomes a credible national objective when governments can demonstrate progress in productive capabilities, institutional performance, and household welfare, rather than relying primarily on expenditure figures, investment announcements, and aggregate growth statistics.

Building a more productive Nigeria requires institutions that can identify problems accurately, respond to the different conditions confronting communities, implement policies competently, and revise decisions when the evidence demands it.

This is the institutional challenge at the heart of economic transformation. It is the difficult, continuous work of engineering state capacity.

Also published on Substack.