Global Business And Strategic Concept: A Study On Nigeria’s Economy

PESTEL Analysis of Nigeria

Discuss about the Global Business and Strategic Concept.

This particular study discusses about the recent development in Nigeria. Further, it elaborates the fact how the change in price of oil affects the economy of Nigeria. Through analyzing the fact, here the study brings out some ways that might help the country to exploit their global potential. In order to deliver certain number of suggestions, the study concentrates on some key areas that the county should prioritize over the next 5 years.

Before analyzing the growth and development of Nigeria, it is essential to discuss about the economy that the country consists. As mentioned by Sklar (2015), mixed economy is present in Nigeria that is defined as emerging market with middle income. In order to be more specific, both the private and public sector play crucial role in this growing economy. In terms of Nominal GDP, the country has acquired the 21^st position in the world economy (Ft.com. 2016). Moreover, it has gained the 20^th position in terms of PPP (Purchasing Power Parity) (Ft.com. 2016). Nigeria contributes the major portion of the GDP (Gross Domestic Product) of Africa due to the rapid growth in telecommunication, banking, and film industry. The manufacturing sector of this country is third largest in the continent (Ft.com. 2016). Nigeria exports large proportion of goods and services to West African sub region.

As per the statement of Mejabi et al. (2015), the PESTEL analysis of Nigeria helps to make a clear understanding about the prime factors which affect the economy of the country. In the following table, these factors are demonstrated:

Factors Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Analysis
Political factor	Since the year 1999, Nigeria has been achieving political stability which was the major strength of their recent development. Due to this, they had the opportunity of growing international recognition. This had a great role in their growth and development.
Economic Factor	Their major economic strength relies on their oil production. Large number of consumers contributes a major portion in the gross domestic product of that country. However, inadequate data creates hitches in the business planning process.
Social factor	The country has high illiteracy rate which majorly affects the economy of the country. However, the opportunity of privatization and deregulation enhanced their economy.
Technological factor	The country has an opportunity to enhance their Information and Computer Technology (ICT). This helps to obtain competitive advantage over other countries.
Environmental factor	The country was agriculturally inclined before the oil boom. In present, 25% of GDP depends on the oil industry.
Legal factor	The government of the country formed ‘mixed legal system’ which strengthens the economy.

Table 1: PESTEL Analysis of Nigeria

(Source: Mejabi et al. 2015)

As per the financial record of 2015, Nigeria is the 24^th largest economy in the world (Ft.com. 2016). The country has been growing their economy since the year 2012 (Refer to Appendix 1). McGrath (2016) explained that Nigeria has overtaken South Africa as the largest economy of the continent due to its increasing GDP growth. In the below table, the economic data of Nigeria of last 5 years is demonstrated:

Years	Population (million)	GDP per capita (USD)	GDP (USD bn)	Economic growth (GDP, annual variation in %)
2011	160	2,606	418	4.9
2012	165	2,708	446	4.3
2013	169	2,944	498	5.4
2014	174	3,182	553	6.3
2015	179	2,677	479	2.7

Table 2: Economic Data of Nigeria of last 5 years

(Source: Satistica.com. 2016)

Graph 1: GDP growth in Nigeria

(Source: Satistica.com. 2016)

Graph 2: Economic growth in Nigeria

(Source: Satistica.com. 2016)

From above table and graphs, it is found that economy of the country has been growing continuously, till the year 2014. However, in the year 2015, it has been dropped down. The prime reason behind this is the fall in oil price. It is elaborated in the later section of this study. In the year 2012, the growth was declined and then grew in a continuous manner till the year 2014. The prime reason behind this is the government of that country decided to pursue a protracted process to rebase the economic growth, in the year 2013 (Okereke and Kurotamunobaraomi 2015). This rebasing exercise pushed the GDP to upward and 89% growth has been experienced in that year (Tradingeconomics.com. 2016). As per the new estimation of 2013, it has been found that the service sector contributed the large portion in GDP comparing with agriculture and industry sector (Refer to Appendix 2). In that particular year, following the service sector, the agriculture sector contributed 21.97% and mining sector contributed 14.50% in the economic growth (Tradingeconomics.com. 2016).

Recent Development in Nigeria

Kadiri, Ojo and Jagboro (2015) opined that infrastructure development has a major role behind the economic growth. The country has the most promising pipelines of infrastructure PPP projects along with large number of population. Due to having large population, the country developed its infrastructure in order to allow developing continuously. Yeeles and Akporiaye (2016) argued in this context that, unreliability of their power infrastructure had affected the economy and thus the growth was slowed down to some extent. However, the country has successfully made their power infrastructure stable and enhanced the exposure of local and international investors along with ECAs (Export Credit Agencies) and DFIs (Development Finance Institutions). Usman, Ikemefuna and Fatimah (2015) stated that the country has outlined some long term objectives in order to make continuous growth. In that year, at the initial stage of growth they aimed to minimize the transport bottlenecks and improve the transport links in new emerging industrial zones.

Following the statement of Okike et al. (2015), government support is the major reason that the economy has experienced high growth. Government policies and undertakings provided additional benefit to the infrastructure projects. In this context, it is important to mention that without the government support it would be difficult to finance the projects. Furthermore, the infrastructure development helped to implement the Greenfield project of Nigeria. Olaniyi (2015) added that the robust their contract structures which positively affected the economy of Nigeria. The robustness of the contract structures such as EPC and O&M contracts enhanced the bankability of the projects.

As discussed by Yusuf (2015), oil is the biggest foreign exchange earner of Nigeria. In late 1960s, it had replaced the place of peanut, cocoa, and palm products. Through developing the oil sector, the country became a member of OPEC (Organization of the Petroleum Exporting Countries) and acquired 17^th position in terms of largest petroleum producer in the year 1971. The rise in oil price caused flood of wealth in the Nigerian economy. However, in the present context, Nigeria belongs in the list of top ten of oil exporters (Forbes.com. 2016). Chambers (2015) added in this context that due to the current sharp drop in the oil price affect the economic growth of the oil exporting countries. It has been found the economic growth of Nigeria heavily relies on the oil business. Over 96% of Nigeria’s export revenue depends on the export of oil (Forbes.com. 2016).

According to Yusuf (2015), the decreasing oil price is addressed as the prime reason of the economic weakness of the country. Long standing accountability and transparency issues are present in all the levels of oil industry. Over the last few years, the NNPC (Nigerian National Petroleum Corporation) is owed to the federal government. The recent decreasing of oil price forced the federal government to adjust the budget for reducing the capital spending plans by 10% (Yusuf 2015). The Nigerian government failed to adjust the budget and thus it adversely affects the Nigerian banking sector. It has been found that the banking sector granted 20% loans to the local oil and gas companies (Ft.com. 2016).  The downturn oil price made the economy confront more challenging times in maintain their growth level.

Effect of Current Oil Price on Nigerian Economy

Through analyzing the present economic situation of Nigeria, the study here evaluates key areas that should be prioritized by the economy. The recommendations are made for the next 5 years. Based on the opinions of the economists of Nigeria, the study suggests that the country should provide more importance to three key areas that include foreign direct investment, globalization, and economic development.

As opined by Felix et al. (2015), Nigeria is considered as one of the preferable destinations for FDI (Foreign Direct Investment) by many of the countries. During the time of growth, FDI in this country was increased $21.3 bn in 2013 from $16.6 bn of 2012 (Tradingeconomics.com. 2016). Nigeria’s National Bureau of Statistics (NNBS) has estimated that the increasing FDI made 28.3% growth. This is the reason that the study suggests that the country should prioritize this factor in order to make growth. In this context, it is important to mention that some major governments’ legislations are there that regulate the FDI of the country. These legislations include Foreign Exchange Monitoring & Miscellaneous Provisions Act and Nigerian Investment Promotion Commission Act (Tradingeconomics.com. 2016). Abosede and Sholeye (2015) added that the largest beneficiary regarding FDI was noticed particularly in the oil and gas sector. However, the present decline in oil price affects its FDI and further its affect the economy of the country. Besides the oil sector, it has been found that near 50% FDI projects are service oriented. Thus, there is a scope to make growth in other services sectors such as financial services, consumer products, and tourism and business services. Growth in these sectors would attract the foreign companies more to invest their capital in this country. This would enhance the growth of Nigerian economy. Felix et al. (2015) added that if a country develops their financial market and enhances their educational level, the positive impact of FDI also increases. As human capital plays the most crucial role in developing the economy of a country, the education level need to be increased. Thus, it is suggested that if Nigeria concentrates on these two factors, the economic growth will be enhanced. Abosede and Sholeye (2015) stated further that the policymakers of this economy should exercise cautions while trying to attract foreign direct investment. In order to keep the growth level stable, the government of the country should keep trying to enhance the benefits of FDI.

As per the discussion of Nwezeaku and Akujuobi (2015), globalization pushed the Nigerian economy with three major forces that includes economic liberalization, technological revolution, and democratic system of governance. Due to these forces, the economy has acquired increasing growth of the economy, but some challenges are still there that the economy should focus on. It has been mentioned that oil has replaced the place of pea nut, cocoa and palm products. The agricultural commodities were the main foreign exchange earner before 1970s. During this particular period, the rise in oil price switched the focus to oil sector. In today’s challenging time, government should focus on the six major agricultural commodities that could play major role as foreign exchange earner. These commodities include cocoa, rubber, palm oil, groundnut, cotton and palm kernel. Besides, recently several automobile makers set up production lines in this country. The government could take several initiatives to make growth in automobile industries. Furthermore, there is a scope to enhance their growth through revitalizing their financial sector within next five years. Nwezeaku and Akujuobi (2015) stated further that the income inequality of the country needs to be diminished to the highest possible level. It has been discussed that globalization and income inequality is strongly related to each other. As the technology has been increasing, some of the people could enhance their skills and others fail to do so. As a result, inequality in terms of income has been increasing. In order to increase the positive level of the economic growth further, the country should focus on the wage rate of the human capital.  

The above discussed scope and opportunities lead the country to experience economic development within next 5 years. Through taking certain initiatives for making growth in the service sectors, the economy could attract more foreign companies. As FDI will increase, the country will experience economic boom. Besides, it would able to deal with the challenges that they face due to downturn of the oil price. The economists of Nigeria have predicted that the economy would able to increase their GDP growth rate by prioritizing these key areas. It has been predicted that percentage of GDP growth will be higher in next 5 years (Refer to Appendix 3). However, it has been found that the growth level would not be same as it was in 2014. In order to enhance the economic growth, the country needs to focus on other factors. The government intervention is strongly needed to make growth further (Nwezeaku and Akujuobi 2015). Their primary focus should be on increasing economic health. Besides, environmental impact is one of the crucial factors of economic growth. The government should increase the awareness and apply strong restriction on the production that harms the environment (Felix et al. 2015). Thus, government intervention is highly suggested to make growth of Nigeria in  the next  years.

Conclusion

The study concludes that Nigeria consist mixed economy where both the public and private sectors contributes growth in the economy. At the same time, these sectors also negatively affect the economy. Here, it is concluded that the GDP of this country has been growing continuously till the year 2014 and dropped down in the year 2015. The growth was occurred due to the development in telecommunication, banking, and film industry. It has been found that the previous growth has been experienced because of the rebasing exercises and government initiatives. Recently the economy has experienced high growth from their service sectors. Further, the study concludes that infrastructure development along with government support played a major role in the economic growth. However, the prime reason of going downward is the sharp rise in oil price. As oil is the biggest foreign exchange earner of the country, the high price is has been affecting the economy. Thus, the economists are suggesting that the economy should prioritize three key areas of foreign direct investment, globalization, and economic development. This would help to drive the growth curve upward in the next 5 years.

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