As Nigeria continues on the path of recovery from the oil price shock and the 2016 recession, a survey carried out by the Oxford Business Group (OBG) has shown that more remains to be done to achieve economic diversification adequate enough to safeguard Africa’s largest economy against volatility from its main revenue earner, crude oil.
Enumerating key challenges to transforming the Nigerian economic structure, OBG noted that one of the barriers to economic growth especially in the non-oil sector which grew by a mere 0.8 percent in Q1’18 is access to credit.
OBG said 90 percent of its respondents in a Nigeria CEO survey characterised access to credit as difficult or very difficult.
While the country is expected to grow by about 2 percent this year largely as a result of improved international prices in crude oil and increased domestic output of the product, OBG says the economic recovery is still vulnerable to oil price shocks.
“The very structure of Nigeria’s economy continues to see heavy dependence on receipts generated from its hydrocarbons industry, which accounts for around two-thirds of government revenue, leaving it susceptible to fluctuations in commodity prices, the firm said.
It added, “Respondents to our survey remain particularly wary of the implications a renewed decline in oil prices could have, with 82 percent citing a rise in oil prices as the top external event that could impact the Nigerian economy in the short to medium term”
According to a blog post by the research firm titled “Nigerian growth is back on track, but can it diversify beyond hydrocarbons?” the issue of access to credit is particularly acute for micro, small and medium-sized enterprises (MSMEs), which make up around 60 percent of the economy and are particularly dominant in sectors vital to the country’s plans for economic diversification, such as agriculture.
Despite efforts to address this challenge, such as the creation of the Development Bank of Nigeria (DBN) by the government in 2017 to facilitate lending to small-scale enterprises via local commercial banks and microfinance institutions, access remains difficult.
According to the DBN, only an estimated 5 percent of Nigeria’s 37 million MSMEs are able to access credit from the traditional financial system, even though they contribute more than 50 percent to GDP.
The firm therefore stressed the need to ease up credit to entrepreneurs, highlighting its importance to unlocking the country’s economic fortunes.