S&P said the outlook on Nigeria is “stable”, reflecting its view that Nigeria’s non-oil economy will continue to support growth in its gross domestic product.
“A series of reforms, including in agriculture, and the rapid growth of sectors such as telecoms and financial services have contributed to non-oil growth momentum in recent years,” S&P said in a statement.
CBN Governor, Godwin Emefiele, welcomed the credit rating but was also quick to acknowledge that there was still more work to be done and urgently too.
He said, “we are very delighted that S&P has shown that they believe in us and in our story. Our story is that we believe we have come to a point as a nation when we must restructure our economy and diversify its base away from oil.”
He said the work being done by the government and the apex bank to clear legacy debts in the oil sector will lead to improvement in power supply which will help to reduce cost of doing business in Nigeria.
He added, “we are also working with the banks, exploring various options to expand the credit generating capacity of banks to support real sector growth, focusing on SMEs, the agric sector, manufacturing so we can create jobs and expand wealth generation and in the next few weeks some of these steps will become more visible.”
Africa’s largest economy, derives 90 percent of export earnings and 70 percent of government revenue from oil, and is struggling with Brent crude prices, having halved since June.
However Nigeria is predominantly a non-oil economy in terms of economic output, which accounts for 90 percent of total GDP.
Trade, Information and Communication and Agriculture accounted for 17 percent, 12 percent and 20 percent of GDP in 2014.
Cambridge trained economist, Ayo Teriba, who has studied and written extensively about Nigeria’s economic sectors and their strengths, says the potential of the non-oil sector has always been there, even if government did not recognise this.
“Right now the two largest sectors delivering growth in the GDP basket are crop production and trade, with oil coming third. Then after these, you have telecoms, real estate and manufacturing. So the non-oil sector has always been waiting to be harnessed by government,” Teriba said in response to questions.
“These non-oil sectors can grow even more if government will intervene creatively to make them more competitive. There are two main costs that needs to the fixed – transportation cost and high cost of energy. Government can fix transportation by building a modern rail network which can be self financing. They improve on energy supply and these sectors can truly be both activity and revenue generating powerhouses for Nigeria.”
The strength of the non oil economy can be seen in Nigeria’s ability to keep its economy expanding despite the slump in oil prices.
Standard and Poor’s predicts growth of 3.8 percent in 2015 and to average 4.6 percent over 2015-2018.
In the 1980’s when faced with a similar collapse in crude oil prices, Nigeria entered a deep recession that lasted several years.
Bismarck Rewane, economist and CEO of Financial Derivatives Company, called the endorsement of the non-oil sector by S&P as well as the positive outlook rating given Nigeria as steps in the right direction.
He said whereas the economy is getting more diversified, the oil sector still accounts for the bulk of government revenues.
“Nigeria now needs to expand the revenue generating capacity of the non-oil sector for its full potentials to be harnessed. We need to make the investment required to deepen the non-oil sector, so it can generate the revenues and create the jobs Nigeria’s needs,” Rewane said.
The affirmation by S & P will reassure investors and improve perception of the economy, hit by a fall in oil prices, reserves and last week’s ejection from the JPMorgan Emerging Market bond index.
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