Nigeria: World In 2050 Report
Last Updated: 7 February 2017

Sustained investment and reform critical to realising growth potential in Nigeria and other emerging market economies – PwC report

Latest PwC report projects that for GDP measured at purchasing power parities (PPPs):

  • World economy could double in size by 2042
  • China has already overtaken the US to be largest economy based on GDP in PPP terms, and could be the largest valued at market exchange rates before 2030
  • India could overtake the US by 2050 to go into 2nd place and Indonesia could move into 4th place by 2050, overtaking advanced economies like Japan and Germany
  • By 2050, six of the seven largest economies in the world could be emerging markets
  • Nigeria has potential to rise up the global GDP rankings, but only if it can diversify its economy and improve governance standards and infrastructure
  • Vietnam could be the world's fastest growing large economy over the period to 2050, rising to 20th in the global GDP rankings by that date
  • UK could grow faster than the EU27 average in the long run if it can remain open to trade, investment and talented people after Brexit
  • Turkey could overtake Italy by 2030 if it can overcome current political instability and make progress on economic reforms
  • Colombia and Poland have potential to be the fastest growing large economies in their respective regions – Latin America and the EU.

7th February, 2017 – The long-term global economic power shift away from the established advanced economies is set to continue over the period to 2050, as emerging market countries continue to boost their share of world GDP in the long run despite recent mixed performance in some of these economies.

This is one of the key findings from the latest report from PwC economists on the theme of the World in 2050: The long view: how will the global economic order change by 2050? This presents projections of potential GDP growth up to 2050 for 32 of the largest economies in the world, which together account for around 85% of global GDP. These projections are based on the latest update of a detailed long-term global growth model first developed by PwC in 2006.

The report projects that the world economy could double in size by 2042, growing at an annual average real rate of around 2.5% between 2016 and 2050. This growth will be driven largely by emerging market and developing countries, with the E7 economies of Brazil, China, India, Indonesia, Mexico, Russia and Turkey growing at an annual average rate of around 3.5% over the next 34 years, compared to only around 1.6% for the advanced G7 nations of Canada, France, Germany, Italy, Japan, the UK and the US.

Dr Andrew S. Nevin Ph.D., PwC Nigeria's Chief Economist and co-author of the report, comments:

"We will continue to see the shift in global economic power away from established advanced economies towards emerging economies in Asia and elsewhere. The E7 could comprise almost 50% of world GDP by 2050, while the G7's share declines to only just over 20%"

When looking at GDP measured at market exchange rates (MER), there is not quite such a radical shift in global economic power. But China still emerges as the largest economy in the world before 2030 and India is still clearly the third largest in the world by 2050.

But the spotlight will certainly be on the newer emerging markets as they take centre stage. By 2050, Indonesia and Mexico are projected to be larger than Japan, Germany, the UK or France, while Turkey could overtake Italy. In terms of growth, Vietnam, India and Bangladesh could be the fastest growing economies over the period to 2050, averaging growth of around 5% per year, which also shows how growth breaks down between population and GDP per capita.

Nigeria has the potential to move eight places up the GDP rankings to 14th by 2050, but it will only realise this potential if it can diversify its economy away from oil and strengthen its institutions and infrastructure.

Says Dr. Andrew S. Nevin:

"Growth in many emerging economies will be supported by relatively fast-growing populations, boosting domestic demand and the size of the workforce. This will need, however, to be complemented with investments in education and improvement in macroeconomic fundamentals to ensure there are sufficient jobs for the growing number of young people in these countries."

In contrast to our previous 2015 edition, in which we projected Nigeria to be the fastest growing economy of the countries we modelled, Nigeria is now expected to be only the sixth fastest. This reflects the slowdown of the Nigerian economy over the last two years as a result of a fall in oil prices. In 2016, the economy officially slid into recession for the first time in recent years as key sectors contracted sharply across three quarters. Foreign exchange shortages and high inflation have hampered the growth of manufacturing and services, with administrative controls put in place by the Central Bank resulting in a reduction in foreign direct investment and foreign portfolio flows.

Nigeria will average around 2% annual growth to 2020, with growth then picking up speed in the decades following to average almost 4.5% p.a. between 2041 and 2050. Along with South Africa, Nigeria is one of the few to see a marked acceleration of annual average growth over the next few decades, as opposed to a moderation.

However, to support long-term sustainable growth, Nigeria needs to develop a broader-based economy, diversifying its exports to ensure its growth is not dampened by global price or demand shocks. Alongside this, Nigeria should develop its institutions and infrastructure, supporting long-term productivity growth."

The report identified five ways in which Nigeria can support inclusive growth and these include:

  1. Improving tax collection: Nigeria is a low-taxed economy compared to its peers with the tax-to-GDP ratio estimated at just 8%, the second lowest in Africa and the fourth lowest in the world. If these could be increased to the Sub-Saharan African economies' average of 18% of GDP, Nigeria could potentially raise its tax revenues to around $104 billion. Higher tax revenues would reduce government borrowing and encourage financial institutions to offer funds at lower interest rates, thereby boosting the real economy.
  2. Economic diversification: Nigeria's potential advantages for future growth include a large consumer market, a strategic geographic location as a hub for Africa, and a young and entrepreneurial population. The first step in harnessing this opportunity requires deliberate efforts to improve value-adding activity in the non-oil economy, particularly in agriculture and the services sectors.
  3. Corruption: If Nigeria reduces corruption, there is a significant opportunity to boost GDP levels. For example, if corruption in Nigeria could be reduced in the long-run to estimated levels in Malaysia, we estimate that annual GDP could rise by over $500 billion by 2030. Deliberate efforts to reduce corruption will complement the Nigerian government's diversification drive.
  4. Easing the constraints to business: A weak business environment is holding back Nigeria's economic growth potential and slowing down the pace of development. Nigeria ranked 169th out of 190 countries in the World Bank's 2017 Ease of Doing Business Index, lower than Niger, Madagascar and Sierra Leone. Other than protecting minority investors and getting credit, Nigeria ranks low on all other indicators and will need to particularly focus on improving electricity supply, simplifying the tax collection process and improving trading across borders so as to leverage its position as the hub of West Africa.
  5. Increasing labour productivity: Nigeria has the advantage of a large workforce of over 70 million, but the majority are under-skilled. It is imperative to equip workers with the skills needed to keep pace with an economy in transition like Nigeria. Average productivity of a worker in Nigeria is very low at US$3.24/hr relative to US$19.68/hr in South Africa and US$29.34/hr in Turkey 14. Improvements in productivity will require investments to ensure a broad availability of good quality education as well as relevant vocational training to improve value-added activity across key sectors such as manufacturing and services.

Average incomes and Working-age populations

The report further noted that today's advanced economies will continue to have higher average incomes – with the possible exception of Italy, all of the G7 continue to sit above the E7 in the rankings of GDP per capita in 2050. Emerging markets are projected to close the income gap gradually over time, but full convergence of income levels across the world is likely to take until well beyond 2050.

In addition, PwC economists project global economic growth to average around 3.5% per annum over the years to 2020, slowing down to around 2.7% in the 2020s, 2.5% in the 2030s, and 2.4% in the 2040s. This will occur as many advanced economies (and eventually also some emerging markets like China) experience a marked decline in their working-age populations. At the same time, emerging market growth rates will moderate as these economies mature and the scope for rapid catch-up growth declines. These effects are projected to outweigh the impact of emerging economies having a progressively higher weight in world GDP, which would otherwise tend to boost average global growth.

All of these portends challenges for policy makers. In order to realise their great potential, emerging economies must undertake sustained and effective investment in education, infrastructure and technology. The fall in oil prices from mid-2014 to early 2016 highlighted the importance of more diversified emerging economies for long-term sustainable growth. Underlying all of this is the need to develop the political, economic, legal and social institutions within emerging economies to generate incentives for innovation and entrepreneurship, creating secure and stable economies in which to do business.

Says Dr. Andrew S. Nevin:

"Policymakers across the world face a number of challenges if they are to achieve sustainable long-term economic growth of the kind we project in this report. Structural developments, such as ageing populations and climate change, require forward-thinking policy which equips the workforce to continue to make societal contributions later on in life and promotes low carbon technologies.

"Falling global trade growth, rising income inequality within many countries and increasing global geopolitical uncertainties are intensifying the need to create diversified economies which create opportunities for everyone in a broad variety of industries."

Great opportunities for business with the right strategic mix of flexibility and patience

Emerging market development will create many opportunities for business. These will arise as these economies progress into new industries, engage with world markets and as their relatively youthful populations get richer. They will become more attractive places to do business and live, attracting investment and talent.

Emerging economies are rapidly evolving and often relatively volatile, however, so companies will need operating strategies that have the right mix of flexibility and patience to succeed in these markets. Case studies in the PwC report illustrate how businesses should be prepared to adjust their brand and market positions to suit differing and often more nuanced local preferences. An in-depth understanding of the local market and consumers will be crucial, which will often involve working with local partners.

Concludes Dr. Andrew S. Nevin:

"Businesses need to be patient enough to ride out the short-term economic and political storms that will inevitably occur from time to time in these emerging markets as they move towards maturity. But the numbers in our report make clear that failure to engage with these emerging markets means missing out on the bulk of the economic growth we expect to see in the world economy between now and 2050.

For Nigeria, although we face some tough choices, the current episode represents a potential tipping point for positive change as the government becomes forced to address the sources of vulnerability in order to achieve inclusive growth and sustainable development."

Notes:

  1. PPPs vs MERs: there is no single correct way to measure the relative size of economies at different stages of development. Depending on the purpose of the exercise, GDP at either market exchange rates (MERs) or purchasing power parity rates (PPPs) may be the most appropriate measure. In general, GDP at PPPs is a better indicator of average living standards or volumes of outputs or inputs because this corrects for relative price differences, while GDP at MERs is a better measure of the relative total size of markets for businesses at a given point in time. However, historical evidence shows that MERs will generally, in the long run, tend to move up towards PPPs for emerging economies as their average income levels gradually narrow the gap with the current advanced economies. An econometric equation within the PwC long-term growth model that reflects this historical relationship forms the basis for the projections of GDP at MERs in the report. This also makes the common simplifying assumption that PPP exchange rates remain constant in real terms over time. Projections of MERs are subject to particularly high margins of uncertainty, however, which is why both the report and this media release focus primarily on projections of GDP at PPPs. But Appendix B in the full report also shows projections for GDP at MERs to 2050 for the 32 economies in the study.
  2. A copy of the full report The long view: how will the global economic order change by 2050? will be published on 7th February 2017 at http://www.pwc.com/world2050
  3. This report is part of PwC's wider research programme on the megatrends shaping global economic and business development. More details can be found here: http://www.pwc.co.uk/issues/megatrends/index.jhtml
  4. More details on business strategies for emerging markets can be found in reports by the PwC Growth Markets Centre, which are available from: http://www.pwc.com/gx/en/growth-markets-centre/index.jhtml

Appendix

Table 1 below sets out how PwC projects global GDP rankings at PPPs (see Note 1) will evolve.

Table 1: Projected global GDP rankings in PPP terms (US$bn at constant 2016 values)

GDP PPP rankings 2016 rankings 2030 rankings 2050 rankings
Country GDP at PPP Country Projected GDP at PPP Country Projected GDP at PPP
1 China 21269 China 38008 China 58499
2 United States 18562 United States 23475 India 44128
3 India 8721 India 19511 United States 34102
4 Japan 4932 Japan 5606 Indonesia 10502
5 Germany 3979 Indonesia 5424 Brazil 7540
6 Russia 3745 Russia 4736 Russia 7131
7 Brazil 3135 Germany 4707 Mexico 6863
8 Indonesia 3028 Brazil 4439 Japan 6779
9 United Kingdom 2788 Mexico 3661 Germany 6138
10 France 2737 United Kingdom 3638 United Kingdom 5369
11 Mexico 2307 France 3377 Turkey 5184
12 Italy 2221 Turkey 2996 France 4705
13 South Korea 1929 Saudi Arabia 2755 Saudi Arabia 4694
14 Turkey 1906 South Korea 2651 Nigeria 4348
15 Saudi Arabia 1731 Italy 2541 Egypt 4333
16 Spain 1690 Iran 2354 Pakistan 4236
17 Canada 1674 Spain 2159 Iran 3900
18 Iran 1459 Canada 2141 South Korea 3539
19 Australia 1189 Egypt 2049 Philippines 3334
20 Thailand 1161 Pakistan 1868 Vietnam 3176
21 Egypt 1105 Nigeria 1794 Italy 3115
22 Nigeria 1089 Thailand 1732 Canada 3100
23 Poland 1052 Australia 1663 Bangladesh 3064
24 Pakistan 988 Philippines 1615 Malaysia 2815
25 Argentina 879 Malaysia 1506 Thailand 2782
26 Netherlands 866 Poland 1505 Spain 2732
27 Malaysia 864 Argentina 1342 South Africa 2570
28 Philippines 802 Bangladesh 1324 Australia 2564
29 South Africa 736 Vietnam 1303 Argentina 2365
30 Colombia 690 South Africa 1148 Poland 2103
31 Bangladesh 628 Colombia 1111 Colombia 2074
32 Vietnam 595 Netherlands 1080 Netherlands 1496

Sources: IMF for 2016 estimates (with an update for Turkey), PwC projections for 2030 and 2050

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