Nigeria’s Output Gap: Bridging the Productivity Deficit for a $1 Trillion Economy

In 2024, Nigeria’s economy recorded an annual GDP growth rate of 3.40%, an improvement from 2.74% in 2023. However, this modest growth masked a deeper economic challenge—the country’s GDP fell sharply from $363 billion in 2023 to $195 billion in 2024, a staggering $168 billion decline. The culprit? The massive devaluation of the naira, which saw the currency plummet from ₦500/$ to ₦1,600/$ within a year.

The Output Gap Problem

Despite having a population exceeding 200 million, Nigeria’s economy is struggling with stagflation—a toxic combination of slow growth, high inflation, and declining productivity. GDP per capita has plunged to an all-time low, reflecting the widening output gap. According to Adetilewa Adebajo of CFG Advisory, the GDP growth numbers are far below the level required to match the nation’s population growth of 3% annually.

This output gap highlights Nigeria’s failure to achieve its full economic potential, especially in critical sectors such as manufacturing, industry, and agriculture. Closing this gap is essential to reversing the economic downturn and positioning Nigeria for sustainable growth.

Policy Urgency: Trade, Industry & Investment

To address this challenge, the Federal Government must revamp its trade policies, reform the Harmonized System (HS) Codes, and realign industrial policy to stimulate productivity in key sectors. Additionally, investment incentives should be expanded to attract foreign and domestic capital.

The Debt Crisis: Fiscal Burden & Sovereign Risks

Nigeria’s ₦150 trillion debt burden and two-year cumulative deficit of ₦40 trillion present a major fiscal challenge. The 2025 budget earmarks ₦16 trillion for debt servicing, exceeding combined allocations for defense, education, health, and infrastructure (₦14 trillion). While sovereign risk spreads have dropped to a five-year low, the country’s credit rating remains at junk status.

To ease this burden, Nigeria must optimize its capital structure by selling government assets, reducing debt, and working towards an investment-grade credit rating.

Path to Growth: Industrial Policy & Import Substitution

Despite economic instability, Nigeria has made some progress in achieving relative stability. However, to sustain growth, the government must enact deliberate industrial policies that enhance productivity, create employment, and close the output gap.

A proven strategy is import substitution, which has already succeeded in industries like cement, fertilizer, and petroleum refining. A targeted approach is now needed in other key sectors.

One such opportunity lies in Nigeria’s sugar industry. The three major sugar refineries—Dangote, BUA, and FMN—possess sufficient capacity to meet local and regional demand. Yet, they still rely on imported raw sugar. By implementing policies that develop local sugarcane supply chains, Nigeria can:
✅ Boost agricultural productivity
✅ Create employment in rural areas
✅ Reduce forex demand for sugar imports
✅ Leverage the African Continental Free Trade Area (AfCFTA) for exports

The $1 Trillion Economy Vision

To achieve the ambitious goal of a $1 trillion economy, Nigeria must prioritize policies that foster domestic production, industrial growth, and trade expansion. The pathway to prosperity lies in closing the output gap, enhancing productivity, and attracting long-term investments.

Stay informed, Stay ahead with The Ameh News