Finding Nigeria’s missing link between growth and development, By Dipo Baruwa

The challenge facing Nigeria is not simply how to grow the economy, but how to ensure that growth is rooted in productive capacity, generates employment, and improves the welfare of its citizens. Until this shift is made, the gap between economic statistics and everyday realities will persist and increasingly define the limits of Nigeria’s development.

Nigeria’s economic growth trajectory has increasingly been the subject of conflicting interpretations. On the one hand, the government and several international institutions maintain that the economy is growing and holds prospects for sustained expansion under the current administration’s policy direction and professed political will. This position is often supported by official statistical indicators.

On the other hand, the lived realities of ordinary Nigerians tell a different story. Rising costs of living, weak job creation, and the persistent underperformance of domestic value-adding sectors suggest that growth, where it exists, is not translating into broad-based improvements in welfare. This contrast between statistical growth and everyday experience has become too significant to ignore.

One important explanation lies in the direction of economic policy. Over time, Nigeria’s economy has increasingly been managed within a market-driven framework, with greater reliance on liberalisation and private capital. This marks a shift from the more welfare-oriented vision that shaped the country’s early post-independence development approach. While such reforms are often intended to stimulate efficiency and investment, their outcomes depend heavily on how they are implemented and supported domestically.

Economic growth, especially when driven by market-oriented policies, does not automatically translate into improved living standards. Where growth is not anchored on expanding domestic production or supported by effective social protection, it can coexist with rising inequality, weak job creation, and declining welfare. This outcome is not the result of deliberate policy intent, but rather a reflection of a deeper gap between the government’s ability to allocate resources and its capacity to translate those resources into productive and inclusive economic activity.

The Logic of Nigeria’s Growth Model

For much of the past two decades, Nigeria’s economic strategy has rested on a set of assumptions. First, that foreign capital, whether through foreign direct investment, portfolio flows, or borrowing, would compensate for low domestic savings. Second, that current account deficits could be sustained because oil revenues or continued capital inflows would cover external obligations. Third, that borrowing, both external and domestic, would be channelled into investments capable of driving long-term growth.

In theory, this approach is sound. It follows a familiar economic logic: countries with limited capital can accelerate development by accessing resources from capital-rich economies. These inflows are expected to boost investment, improve productivity, raise incomes, and ultimately generate the capacity to repay borrowed funds.

…government finances remained constrained by multiple factors, including oil price volatility, weak revenue mobilisation, and persistent leakages. Public investment consequently remained low, while a significant share of expenditure continued to be absorbed by recurrent costs such as salaries and administrative obligations. This has left limited fiscal space for infrastructure, industrial development, and other productivity-enhancing investments.

In practice, however, outcomes depend on how effectively such capital is used. The model assumes disciplined management, transparency, and, most importantly, the ability to channel resources into sectors that expand productive capacity. Without this, capital inflows may support consumption and short-term stability, but fail to deliver lasting economic transformation. This is not unfamiliar in Nigeria. Many private businesses have struggled under the weight of poorly managed loans and misallocated capital. One might expect the state to perform better, learning from these failures and exercising greater discipline in managing public resources. Yet, the same pattern is often replicated at scale: weak allocation, limited productive outcomes, and rising financial strain. In this sense, the apple does not fall far from the tree.

A retrospective look at Nigeria’s recent experience reflects this gap clearly. The Economic Recovery and Growth Plan (2017–2020), for instance, projected investment needs of about US$245 billion, with the private sector expected to provide about 80 per cent of this, translating to an estimated annual requirement of roughly US$39 billion. While this appeared reasonable for an economy of Nigeria’s size, it raised an important question: Was the domestic economic structure robust enough to absorb and effectively utilise such inflows?

It was therefore not surprising that actual inflows fell far short of expectations. Foreign direct investment averaged only about US$3–4 billion annually during the period, while broader capital inflows remained volatile and highly sensitive to global financial conditions.

Weak Public Allocation and Rising Debt Pressures

At the same time, government finances remained constrained by multiple factors, including oil price volatility, weak revenue mobilisation, and persistent leakages. Public investment consequently remained low, while a significant share of expenditure continued to be absorbed by recurrent costs such as salaries and administrative obligations. This has left limited fiscal space for infrastructure, industrial development, and other productivity-enhancing investments. In this context, the public sector has continued to function as the major employer of labour, even as the capacity of the private sector to absorb labour has weakened amid business closures and the scaling down of operations.

Meanwhile, public borrowing has continued to rise. Nigeria’s debt stock increased significantly over the same period, with a growing share used to finance budget deficits rather than long-term capital formation. As debt servicing absorbs an increasing proportion of government revenue, the capacity to invest in development-critical sectors becomes even more constrained. External borrowing expanded markedly during the ERGP period, rising from about US$10 billion in 2015 to over US$30 billion by 2020. Yet this increase in financing has not been matched by a corresponding expansion in domestic productive capacity, suggesting that the challenge lies not in access to capital, but in how it is allocated and mediated within the economy.