November 29, 2019 /09:58 AM / By World Bank / Header
Image Credit: World Bank
With a population of approximately 197 million, Nigeria accounts for about 47% of West Africa's population and has one of the largest populations of youth in the world. Nigeria also has Africa's biggest economy, is the biggest oil exporter, and has the largest natural gas reserves on the continent. Nigeria emerged from a recession in 2017, with a growth rate of 0.8%, driven mainly by the oil sector. Non-agricultural growth, which remained negative up to the third quarter of 2017, strengthened through 2018 with services (primarily Information and Communication Technology, ICT) resuming as the key driver. Economic growth is expected to hover just above 2% in 2019 and over the medium term.
For countries like Nigeria, the Digital Economy offers opportunities, but also brings risks of being left behind. Improved digital connectivity can only achieve the desired transformational impact on economic opportunity and inclusive growth if combined with improvements in digital skills and literacy, the coverage of digital identity schemes, and access to digital payments and other financial services, as well as digital support to start-ups and existing businesses. With such capabilities, the Nigerian economy can harness digital data and new technologies, generate new content, link individuals with markets and government services, and roll out new and sustainable business models.
In 2016, the global digital economy was worth about USD 11.5 trillion, equivalent to 15.5% of the world's overall GDP. The digital economy is expected to reach 25% in less than a decade, quickly outpacing the growth of the overall economy. However, as described below, Nigeria is currently capturing only a fraction of this growth and needs to strategically invest in the foundational elements of its digital economy to keep pace. The Digital Economy For Africa (DE4A) Initiative forms part of the World Bank Group's support for the African Union's Digital Transformation Initiative for Africa, which wants to see every African individual, business, and government be digitally enabled by 2030.
Broadband is a key enabler to harness the digital economy transformation. In spite of recent growth in fiber installations in Nigeria, national fixed-line infrastructure is still poor, and mobile systems remain the primary means for carrying retail and enterprise data traffic in Nigeria. Furthermore, fixed broadband penetration in Nigeria is very low, with a household penetration rate of 0.04% at the end of 2018, below the African regional average (0.6%), and well below the world average (13.6%). This is due to backbone investment in Nigeria having focused primarily on major urban areas and inter-city routes, and unlike its West African peers such as Ghana and Senegal, Nigeria does not have a national backbone network through which high-speed Internet connectivity can be extended across the entire country. As a result, mobile broadband has become the most common and popular way through which people in Nigeria access the Internet.
Significant bottlenecks inhibit growth of high-speed Internet in Nigeria. These include a complex institutional setup to govern and promote the development of ICT infrastructure and sector development, and a legacy of operators investing in proprietary network deployments, compounded by poor infrastructure quality. Pushing market bounds further to underserved areas is challenging, given high costs of infrastructure deployment and low revenues, and this has created market failures. High price sensitivity of markets further contributed to lack of innovative service propositions. The affordability of broadband-enabled devices for the bottom of the pyramid is also a major barrier to access in Nigeria, while other demand-side barriers relate to digital illiteracy, lack of local content, and low electrification rates. Therefore, in order for Nigeria to gain the critical number of Internet subscribers needed to build its digital ecosystem and kickstart its digital transformation, innovative solutions and strategic interventions and investments will be required. They will promote the deployment of networks in underserved areas, support the reduction of broadband costs, provide additional complementary public access, and stimulate demand by addressing the digital economy foundations with an ecosystem approach.
Digital platforms are at the core of the digital economy. The benefits of digital platforms stem from their ability to virtually connect people and things, facilitating digital transactions/interactions, including the exchange of information, goods, and services. Despite some progress on the implementation of the goals of both the E-government Master Plan and ICT Road Map, much remains to be done in Nigeria, including institutional coordination, developing a Privacy and Data Protection Act, monitoring the quality of digital services, and fully embracing the Open Government Partnership. The Government of Nigeria has recently launched the Central Portal for Government Services (www.services.gov.ng), created to provide a single point of entry to government information and services, enhancing accountability, and improving the delivery and quality of public services. One of the biggest strengths is Nigeria's e-commerce market, which UNCTAD's business to customer (B2C) report for 2018 ranked as the biggest B2C market, both in terms of revenue and shoppers in Africa. In 2018 the e-commerce spending in Nigeria was estimated at USD 12 billion and was projected to increase to USD 75 billion in revenues by 2025. In overall terms, Nigeria was ranked by UNCTAD as second in Africa below Mauritius in 2018. This digital commerce was provided, among others, by 87 Nigerian platforms, employing 2.9 million people in the country. The
Nigerian economy still stands to benefit from the growth in supply and usage of Digital Financial Services (DFS). DFS providers are better positioned to address the needs of the poor. They also create the "rails" that enable digital entrepreneurs from other sectors to market their products at scale. Because of the regional and pan-African footprints of Nigerian financial institutions, the country has an opportunity to export its digital financial ventures beyond its borders, diversifying the economy and fostering the regional integration within the ECOWAS. Better DFS can also mean stronger links with the Nigerian diaspora, boosting the inward remittance streams, encouraging investments, and facilitating the exchange of human capital. At the same time, there are also potential threats. Nigerian law enforcement agencies have waged long-standing battles with online and financial fraud, and the country faces an ongoing struggle with terrorism and armed conflict in its northern states. In the absence of adequate regulation and oversight, both issues can be exacerbated by the advent of DFS and the ease of obtaining instant credit and making real-time domestic and international money transfers. Brand new dangers include data leakages and cybercrime, as well as emergence of new monopolies and systems of political patronage.
Given its large, young, and entrepreneurial population, digital entrepreneurship has the potential to become an engine of economic transformation in Nigeria and set the country on a new growth trajectory. Nigeria is home to several high-growth digital companies that provide hopeful examples of the country's digital potential. Lagos is a mature and active ecosystem with dynamic incubators, venture capital companies, and digital start-ups. Digital entrepreneurship ecosystems are also growing in the cities of Abuja and Port-Harcourt, with a potential for expansion to other cities. Although urban Small and Medium Enterprises (SMEs) are increasingly using digital platforms for trading, digitalization of firms in traditional industries and rural locations remains limited. Larger firms are more actively using digital technology for basic business purposes, such as communication with customers, but more advanced uses of technology also remain limited. Despite these improvements in the entrepreneurship ecosystem, the growth of digital firms in Nigeria is plagued by a difficult business environment, lack of early-stage financing, limited market opportunities outside of Lagos and Abuja, and as discussed in pillar number five, a lack of digital skills.
Last, but critical, is the wide Digital Literacy gap that excludes the poorest from the benefits of the digital world. Digital skills are a prerequisite for benefiting from any technology across all sectors of the economy, and at all levels of the skills spectrum (from user literacy to producer technical skills). Nigeria's general education standards are low, with the quality offered at all levels continuously suffering from poor funding and deteriorating teaching capabilities. According to the World Economic Forum Executive Opinion Survey, the quality of Nigeria's education system ranks low in the continent with 2.8 over 7, and below the world average, which stands at 3.8. Furthermore, Nigeria is reported to have one of the lowest shares of government expenditure in education (7%). This rate goes up to more than double in the Sub-Saharan Africa region according to the World Bank. In addition, Nigeria stands out globally in its number of out-of-school children. In 2013, Nigeria had the largest number of out-of-school children of primary age (8.7 million), followed by Pakistan (5.6 million) and India (2.9 million).
Digital technologies are forecast to be a major driver of productivity, with successful economies depending on greater numbers of digitally skilled workers than has previously been the case. In order for Nigerian youth to successfully perform digital work, they must develop digital skills, which exist on a continuum, ranging from basic to intermediate to advanced. With 46% of work activities in Nigeria susceptible to automation, digital skills will qualify youth for jobs in traditional sectors, while also empowering them to thrive in emerging sectors and even launch their own businesses. Ensuring that every person has the appropriate skills for an ever-growing digital and globalized world is essential to promote inclusive labor markets and to engender innovation, productivity, and growth.