other countries application points

Question 1

nigeria dependence on oil sector

Answer 1

• Oil accounts for about 90% of Nigeria’s export earnings and 60-70% of government revenue
• accounts for 40% of GDP
• Nigeria entered a recession in 2016
• as the oil sector (which drives much of the economy) was severely affected

Question 2

how did an external shock with oil affect Nigeria

Answer 2

2014 when global oil prices plummeted.
- Oil prices fell from a high of around $115 per barrel in mid-2014 to below $30 per barrel by early 2016.

• Nigeria’s economy, heavily dependent on oil exports, contracted significantly during this period
• The crash in oil prices led to a sharp decline in Nigeria’s foreign exchange earnings, significantly impacting government revenue.
• The drop in oil prices led to a shortage of foreign exchange reserves, causing the naira (Nigeria’s currency) to depreciate against major currencies like the U.S. dollar. The Nigerian Central Bank had to devalue the naira several times, and the black-market exchange rate surged.
• The naira’s depreciation contributed to inflation, particularly in food and fuel prices, which hit the poorest Nigerians hardest.
• With oil prices down, Nigeria faced challenges in meeting its budget, leading to higher borrowing costs and inflationary pressures, especially in the import-dependent economy.
• The Nigerian government faced a revenue shortfall, which made it difficult to fund critical infrastructure, social programs, and public sector salaries.
• With high unemployment and a slowdown in economic growth, Nigeria saw an increase in poverty rates during and after the oil price crash

Question 3

arguments against Nigeria being dependent on oil

Answer 3

Recent Efforts at Diversification:
- Nigeria has been attempting to diversify its economy through initiatives like the Economic Recovery and Growth Plan (ERGP), aimed at improving the agricultural sector, boosting manufacturing, and developing the non-oil export sectors.
- The non-oil export sector has seen gradual growth, especially in agriculture (e.g., cocoa, rubber, and cashew nuts) and services like telecommunications.

Growth in Non-Oil Sectors:
- The telecommunications industry, for example, has experienced significant growth in recent years, contributing to the country’s GDP.
- Nigeria is also a major player in sectors such as financial services, entertainment (Nollywood), and technology startups.
- These sectors show that the country is making steps toward reducing its reliance on oil.

Oil Still a Long-Term Advantage:
- Despite the overdependence on oil, Nigeria’s oil resources remain a long-term asset that could fuel its economy for decades.
- Oil remains a vital source of revenue and, with global demand expected to continue for the foreseeable future, Nigeria can still use this advantage to fund diversification projects and reduce vulnerability in the long run.

Nigeria’s Regional Influence:
- Nigeria’s oil exports play a crucial role in its regional influence in Africa. Even as it works to diversify, Nigeria’s strategic position as one of Africa’s largest oil producers allows it to leverage its resources in diplomatic and economic relations, as seen in its participation in OPEC

Question 4

arguments for nigeria being over reliant on oil

Answer 4

Vulnerability to Oil Price Shocks:

• Nigeria is vulnerable to global oil price fluctuations.
• When oil prices fall, like during the 2014-2016 oil price slump, Nigeria suffers from reduced revenue, leading to economic contraction, foreign exchange shortages, inflation, and rising debt. The dependence on oil exports has left the country exposed to external shocks beyond its control.

Underdeveloped Infrastructure:
- The oil sector in Nigeria has historically enjoyed preferential treatment in terms of investment and development, leaving other industries underfunded and underdeveloped.
- This infrastructure imbalance is a direct result of Nigeria’s focus on oil.

Question 5

examples of corruption in Nigeria

Answer 5

1. Diezani Alison-Madueke, who oversaw massive corruption in the petroleum sector, with funds meant for oil development projects being misappropriated. She was accused of diverting billions of dollars in public funds, engaging in money laundering, and mismanaging Nigeria’s oil wealth.
2. Snake Swallowing 5 Million Naira - This incident, which many saw as a cover-up for embezzlement, became a symbol of the country’s endemic corruption.
   (The corruption scandals involving figures like Alison-Madueke have had a lasting impact on Nigeria’s oil revenue, which is essential for the country’s economy. The mismanagement of oil resources has contributed to income inequality, stunted economic growth, and hindered much-needed development projects.)
3. Mohammed Sanusi Lamido - . His public revelation of the $20 billion missing from NNPC highlighted the systemic corruption within the government. Despite being hailed as a hero by some for exposing the corruption, Sanusi was ultimately removed from office . This undermined efforts to address the root causes of Nigeria’s economic underdevelopment.

4.

Question 6

Nigeria’s general context

Answer 6

📉 Low GDP per capita: around $2,000–$2,500 (World Bank)

• High birth rate and dependency ratio

🛢️ Primary product dependency: reliant on oil (makes up 90% of export revenue)

🇳🇬 Emerging economy, member of OPEC, part of ECOWAS (regional trade group)

🌆 Rapid urbanisation: cities like Lagos growing fast

💰 Dual economy: mix of high-income urban areas and poor rural regions

Question 7

Nigeria economic growth context

Answer 7

• Nigeria experienced growth in the 2000s due to oil exports
• However, growth is unstable – affected by global oil prices
• Recent efforts to diversify into agriculture and fintech (e.g. Flutterwave)

Question 8

nigeria unemployment rate

Answer 8

4.84%

Question 9

Nigeria inflation

Answer 9

24%
Causes: currency depreciation, import dependency, removal of fuel subsidies

Question 10

Nigeria’s monetary and fiscal policy context

Answer 10

• Central Bank raised interest rates to control inflation
• Government spending often hampered by corruption and mismanagement
• Removal of fuel subsidies in 2023 – caused riots but aimed to reduce deficit
• also removal led to a sharp increase in petrol prices, impacting Nigerian households, particularly those with lower income

The removal of fuel subsidies shows the trade-off between fiscal sustainability and inflation control, as the IMF encouraged subsidy cuts but households bore the brunt.

Question 11

Nigeria’s primary product exports

Answer 11

• Over-reliance on oil ➡️ vulnerable to commodity price shocks
• Leads to volatile growth, BOP issues, and Dutch disease

Question 12

what is dutch disease

Answer 12

Dutch disease is an economic term for the negative consequences that can arise from a spike in the value of a nation’s currency.

Dutch disease is a shorthand way of describing the paradox which occurs when good news, such as the discovery of large oil reserves, harms a country’s broader economy.

Question 13

Nigeria’s TOT

Answer 13

• Nigeria exports low-value oil but imports high-value machinery & goods
• TOT worsens if oil prices fall or manufactured imports get expensive

eg In 2014–2016, global oil prices crashed from $110 to below $30 per barrel.
- Nigeria’s government lost over 60% of revenue, leading to:

• Massive budget cuts, especially in education and healthcare
• Surge in poverty, with over 4 million falling into extreme poverty by 2016
• Widened current account deficit → had to borrow from IMF and World Bank

Question 14

Nigeria trade

Answer 14

• Member of AfCFTA (African Continental Free Trade Area)
• Trying to boost intra-African trade and reduce dependency on Europe/China

HOWEVER
- Nigeria closed its land borders in 2019 to reduce rice smuggling and boost local farming.
- However, this went against the AfCFTA (African Continental Free Trade Area) agreement it signed.
- Local rice became more expensive due to inefficiencies and lack of competition.

Question 15

Nigeria foreign aid and debt

Answer 15

• Nigeria receives foreign aid for health, education, and infrastructure
• The UK, for example, has provided billions in bilateral aid since 2015, focusing on areas like income generation, education, and conflict response in the Northeast. The EU also contributes significantly to humanitarian aid in Nigeria.
• Has high external debt (~$115bn in 2023) → debt interest crowds out investment
• expected to rise to USD5.2 billion

Question 16

Nigeria infrastructure gap

Answer 16

• Frequent power outages, poor roads & internet
  Limits FDI, business growth and productivity

Question 17

Nigeria diversification context

Answer 17

Since the 2016 oil crisis, Nigeria launched the “Economic Recovery and Growth Plan” (ERGP) to diversify into agriculture, manufacturing, and tech.#

• Fintech startups like Flutterwave and Paystack have grown rapidly, with Paystack being acquired by Stripe for $200 million in 2020.
• Agriculture push led to rice production doubling between 2015–2020 due to import bans and investment in local farmers.

Question 18

Urbanisation Nigeria context

Answer 18

• In Lagos, 70% of people live in slums, many without access to clean water or electricity.
• Nigeria only produces 4,000–5,000 MW of electricity for over 200 million people
• Poor infrastructure adds 30%+ to logistics costs, reducing business competitiveness.

Question 19

How did the oil crash affect Nigeria’s government finances?

Answer 19

Massive drop in oil revenues
➡️ Budget deficits widened
➡️ Spending on health, education, and infrastructure cut
➡️ Rise in public debt

Question 20

Flashcard 3: FX reserves & currency

Answer 20

Oil exports fell ➡️ Dollar inflows dropped

FX reserves depleted

Pressure on the naira
➡️ Multiple devaluations or managed float led to inflation
➡️ Black market for USD emerged

Question 21

What was the effect on Nigeria’s current account?

Answer 21

Oil export revenues fell sharply

Imports remained high initially
➡️ Current account deficit widened
➡️ Balance of payments crisis risk

Question 22

How did inflation respond to the oil crash?

Answer 22

Naira depreciation ➡️ Imported inflation

Fuel & food prices rose
➡️ Double-digit inflation (~18%)
➡️ Fall in real incomes and living standards

Question 23

Did any sectors benefit from the oil crash?

Answer 23

Slight boost to local manufacturing due to weaker naira
➡️ But power cuts, poor infrastructure, and insecurity limited gains
➡️ Overall, economic growth fell below 1%

Question 24

: Did Nigeria enter a recession after the oil crash?

Answer 24

Yes — official recession in 2016

First in over 20 years
➡️ Negative GDP growth, rising unemployment

Question 25

: What long-term problems did the crash reveal?

Answer 25

Overdependence on oil Weak diversification Poor tax base and public sector mismanagement ➡️ Prompted debate on economic reform

Question 26

what happened to poverty and inequality in Nigeria as a result of the 2016 oil price crash

Answer 26

💸 Poverty increased Oil revenues = major source of government income → less money for social spending (education, health, welfare) Inflation rose due to naira devaluation → food and fuel prices soared Many people in informal jobs saw no wage rise but faced higher living costs According to the World Bank, millions fell below the poverty line during this period ➡️ Absolute poverty increased, especially in rural areas and northern states 📈 Inequality widened Richer Nigerians often had dollar-based incomes or foreign savings → less affected by naira depreciation Poorer Nigerians relied on imported goods and were hit hardest by rising prices Elites could access black-market FX, but ordinary people couldn’t ➡️ Gini coefficient (measure of inequality) increased