Nigeria: Nigeria Economy Profile

Nigeria has had sluggish economic increase since the end of 2015 with the rate dropping to an estimated 3.0% in December 2015, leading the authorities to adopt an expansionary 2016 budget that aims to stimulate the economy.
Security, fighting corruption, and improving the social welfare of Nigerians are at the heart of the development policy of the new government that was inaugurated on 29 May 2015.

Nigeria has been rapidly urbanising and fast-growing cities such as Lagos and Kano face increasing unemployment and gain inequality because of poor urban planning and weak links between structural transformation and urbanisation.

The Nigerian economy has been adversely affected by external shocks, in particular a fall in the world price of crude oil. Increase slowed sharply from 6.2% in 2014 to an estimated 3.0% in 2015. Inflation increased from 7.8% to an estimated 9.0%. The sluggish increase is mainly attributed to a slowdown in economic activity which has been adversely impacted by the inadequate supply of foreign exchange and aggravated by the foreign exchange restrictions targeted at a inventory of 41 imports, some of which are inputs for manufacturing and agro-industry. This has resulted in cuts in production and shedding of labour in some sectors. However, with the increasing policy concern over the decline in increase, the central bank has moved to reduce the cost of borrowing for government and the private sector to stimulate the economy.

The 2016 outlook is for slow economic recovery as some of the reforms begin to take result and measures to boost the economy, such as increased spending on infrastructure, are implemented. Some specific reforms pursued by the new government to lay a foundation for renewed increase are commendable. The key reforms include the rationalisation of the public sector in order to cut the cost of governance; enforcement of the single treasury account to block financial leakages; renewed efforts at enforcement of tax compliance; preparation for zero-budgeting starting in 2016; and increasing the ratio of capital to recurrent spending to 30:70.

Security remains a major challenge, in the northeast in particular. While the military has stepped up the fight against the Boko Haram insurgency the humanitarian situation has continued to deteriorate. The number of internally displaced persons is estimated at over 2 million, located mainly in the cities where conditions are safer. Both the government and development partners continue to explore additional ways of improving the situation.

Sustainable cities can only be driven by structural transformation if there is an integrated approach to urban planning. It is expected that the Federal Ministry of Power, Works and Housing will review the urban development policy and work with other line ministries to improve service delivery and chart a way forward for tapping into the opportunities provided by the increase of cities in Nigeria. Lagos is one of the seven mega-cities in Africa and has a high potential for innovation and job creation opportunities in sectors such as construction, data communications and technology (ICT) and retail trade.

Recent developments and prospects

Real gross domestic product (GDP) increase for 2015 is estimated at 3.0%, down from 6.2% in 2014. The GDP increase was sluggish because of the continued fall in oil prices and the slowdown in production in some sectors. Increase in the non-oil sector was largely driven by agriculture, financial services, telecommunications and trade. The non-oil increase rate stood at 3.05% in the third quarter of 2015, which was 4.45% lower than in the corresponding period in 2014. The slowdown in the real sector is attributable to lower government spending (because of lower oil receipts), disruptions to fuel supply and tighter monetary policy conditions stemming from managing the pressures of foreign exchange request. This has undermined economic activities in the real sector with implications for employment, productivity, tax yield for the government inclunding spillovers to the financial sector. Oil production remained low at the end of 2015 and real increase of the oil sector increased by 1.06% year-on-year. Inflation, although still in single digits, crept up to 9.04% in December 2015 compared with 8.14% in December 2014.

The federal government under the Buhari government has responded to the ongoing challenges by implementing some corrective measures since it came into office in May 2015. The immediate broadening of the coverage of the treasury single account (TSA) to all ministries, departments and agencies (MDAs) has been done in order to enable easier tracking and monitoring of government revenues and cash flows.

In addition, the cost of governance has been reduced through merging of ministries and further rationalisation of the public sector is expected. In general the aim is to cut recurrent spending from 84% to 70% of total spending in 2016. New leadership has been installed at the helm of the revenue-generating agencies inclunding the Federal Inland Revenue Services (FIRS), Nigerian National Petroleum Corporation (NNPC), and the Nigerian Customs Service (NCS).

The federal government has as well outlined its medium-term economic policy direction in the “2016 FGN Budget: Budget of Change” presented to the national assembly in December 2015. The in general objective of the 2016 budget is to stimulate the economy, making it additional competitive by focusing on infrastructure development; delivering inclusive increase; and prioritising the welfare of Nigerians. Economic diversification is at the heart of the new development policy with a focus on price chain development in both the agriculture and solid mineral sectors. Innovative job creation and social protection initiatives are as well being designed.

Oil revenues are estimated at 9.3% of GDP in 2015 compared to 10.6% of GDP in 2014. The drop is attributed to a decline in crude-oil exports receipts. This may be linked to the sharp fall in the world price of crude oil since June 2014. Non-oil exports revenue increased marginally by 10.14%, reinforcing the urgency of diversifying the country’s export base. Capital inflows fell from USD 20.8 billion in 2014 to USD 9.6 billion in 2015. In 2014 capital inflows were dominated by portfolio investment that accounted for over 70% of total capital inflows but this declined significantly in 2015. Foreign reserves fell by 15.61% from USD 34.52 billion in December 2014 to USD 29.1 billion in December 2015. The drop in external reserves is largely attributed to the significant reduction in foreign exchange inflows as a result of the sustained low crude oil prices.

The increase outlook for 2016 is reduced to a projected 3.8% as recovery in economic activity is likely to be gradual. This is as well predicated on the current low world oil price trend that is expected to continue over the medium term. Forecasts show that inflation will remain high at 10.1% and 9.4% in 2016 and 2017, respectively. The government will continue to step up efforts to diversify the productive base of the economy inclunding intensifying activities in the non-oil sector of the economy through the rehabilitation and expansion of infrastructure across the country.

Macroeconomic policy

The Buhari government has to maintain a delicate balance between cutting expenditures and placing emphasis on fiscal policies that will engender increase and reduce poverty through increased employment opportunities. Spending cuts have been undertaken across the public sector at both federal and national levels. The implementation of the TSA has as well been effected across all ministries, departments and agencies to block leakages.

The fiscal deficit is expected to widen in 2016. The oil benchmark price has been set at an all-time low of USD 38 per barrel and a lower oil production estimate of 2.2 million barrels per day (bpd) for 2016. Given the low revenues expected from the oil sector there is a heightened focus on non-oil revenues and the federal government is looking at broadening the tax base and improving the effectiveness of revenue-collecting agencies. As well, by enforcing strict compliance with the Fiscal Responsibility Act of 2007 and public spending reforms in all MDAs, non-tax revenues will be increased. The risk is the likelihood of lower than budgeted oil prices and shortfalls in non-oil revenues.

The other areas of fiscal policy that have been outlined by the new government include the following: strict adherence to the fiscal deficit target to support a low-interest rate regime and low inflation; improved tax and customs government; increased fiscal transparency in the provisions of fiscal incentives to encourage the industrial and manufacturing sectors by attracting new domestic and foreign investment ; and establishment of an efficiency unit to reduce overhead expenditures.

To deliver on development objectives, it is envisaged that capital spending will increase from Nigerian naira 557 billion (NGN) in the 2015 budget, or 16% of total spending, to NGN 1.8 trillion, or 30% of total spending, in 2016. Nonetheless, given the current fiscal constraints, the strategy over the short term is to focus spending on the completion and exit from critical ongoing capital projects while limiting the introduction of new capital investments. In next years it is envisaged that the % allocation for capital spending will rise significantly.

The highlight of the government’s 2016 budget framework includes NGN 500 billion (USD 2.5 billion) set aside for the implementation of targeted social welfare intervention initiatives inclunding a free school feeding programme, post-National Youth Service Corp grant and the conditional cash transfer to the majority vulnerable as outlined under the social security scheme.

Monetary policy

Throughout the initial half of 2015, economic management rested largely on the use of monetary policy without much support from fiscal policy. The myriad challenges, inclunding exchange rate volatility, declining output, unemployment, high interest rates, and in general sluggish increase, prompted the monetary authorities’ involvement through both policy and administrative interventions.

To stimulate the economy, the central bank lowered the cash reserve ratio from 31% to 25% as part of its strategy to inject additional liquidity into the real sector with a focus on high-employment potential activities in agriculture, infrastructure development, solid minerals and industry. In addition the monetary policy rate was lowered from 13% to 11% to reduce the cost of borrowing by both the public and private sectors.

Maintaining price stability remains one of the core mandates of the monetary authorities.While inflation increased it remained at a borderline single digit rate of 9.4% as compared to 8.1% in 2014. The inflationary pressures are mainly due to increases in food prices caused by intermittent fuel scarcity.

The country’s external position continued to weaken with the current account turning into deficit and external reserves falling from USD 34.5 billion at the beginning of 2015 t USD 29.1 billion by December 2015. The major cause of the decline in external reserves is its use to defend the price of the naira in the foreign exchange market and the decline in oil receipts.

The central bank introduced several measures towards the end of 2015 aimed at halting the erosion of the foreign exchange reserves and ensuring exchange rate stability.

Administrative measures were adopted as part of the request management of foreign exchange leading to a inventory of 41 items being excluded from accessing foreign exchange at the official market. This is seen as a temporary measure but in the medium to long term it is necessary for the country to look to export diversification to increase foreign exchange earnings and minimise the country’s vulnerability to external shocks.

The monetary authorities are exploring options for a additional flexible foreign exchange rate and it is expected that, in general, the monetary policy stance will be additional accommodating as the foreign exchange restrictions are gradually lifted. This should be part of the wider integrated policy package of strong fiscal discipline; a business friendly environment and effective implementation of structural reforms.

Economic co-operation, regional integration and trade

There have been no new trade policy reforms or pronouncements so far under thenew government other than the reiteration that Nigeria does not consider it to be fully beneficial and in its interest to be part of the Economic Partnership Agreement (EPA). There isa strong indication that the strengthening of domestic industry will be a priority. As part of the administrative measures to stabilise the exchange rate, the Central Bank of Nigeria (CBN) has imposed restrictions on eligibility for foreign exchange at the official market for selected imports and this has led to a decline in imports and a stifling of trade. The foreign exchange restrictions have as well sent the wrong signal to foreign investors. The ban on imported rice to encourage local rice production remains in place and in July 2015 the senate moved to probe the alleged abuse of import waivers and passed a resolution asking the federal government to stop waivers on all rice imports and other agricultural products.

Low oil prices and the foreign exchange measures adversely affected exports and the current account is presently in deficit. Export diversification must remain a policy priority for the government at all levels to minimise the country’s vulnerability to external shocks.

Nigeria is a key player in the Economic Community of West African States (ECOWAS) and is part of the ECOWAS Common External Tariff (CET) arrangement which aims to harmonise and strengthen the common market of member states in an effort to work towards a custom union and common trade policy in order to deepen economic co-operation and trade integration. However, exports to the ECOWAS market accounted for only 8% of total exports, revealing weakness in regional integration.

Deficit policy

At the end of December 2015 the total public deficit stock stood at USD 63.74 billion of which 82.98% was accrued by the federal government, while the 36 states and federal capital territory (FCT) accounted for the balance of 17.02%. The total deficit stock is comprised of external deficit stock of USD 10.71 billion and domestic deficit stock is USD 53.03 billion.

The government will continue to be prudent and efficient in its deficit management strategy. Thus, in spite of the increased borrowing space arising from the country’s rebased GDP, and the proposed fiscal expansion geared towards stimulating economic activities, a conservative borrowing programme will be maintained. The public deficit to GDP ratio at 14% is well within the prescribed threshold for the country’s peer group. However, the rising deficit service ratio is of particular policy concern, with total deficit service payments for the second quarter of 2015 recorded at NGN 227.35 billion, or 35% of government revenues, and as a result there may need to be a shift from domestic to external borrowing, and less on the capital markets to additional concessionary borrowing.

Economic and political governance

Private sector

The World Bank’s 2016 Doing Business statement shows Nigeria ranked 169th out 189 economies, which was a slight development from its position of 170th out of 189 in 2015. The business regulatory environment remains weak and the new government is looking at ways of improving the situation: initial and foremost by adopting a additional business-friendly monetary policy to improve investment . A lot of of the key indicators (dealing with construction permits, enforcing contracts, resolving insolvency, trading across borders, paying taxes) have remained constant.

There has been development in registering property and protecting investors while a marginal slide in getting electricity and getting credit was observed. The distance-to-frontier average is 44.69 as compared to 43.56 in 2015.
The new government is looking at pushing through justice sector reforms, in particular enforcement of contracts to improve the relieve of doing business, in addition to expediting power sector reform to enable broader access to electricity, which is fundamental to business operations.

The trade and investment policy is currently under review and will provide the framework for further reforms needed to improve the business environment. Early indications are that there is a strong emphasis on engaging the private sector in infrastructure development through publicprivate partnerships (PPPs), promotion of Nigerian products and protection of domestic industry.

Financial sector

The macroeconomic challenges faced by the economy since the end of 2014 has weakened the economy’s stability. Some of the banks were not able to meet the capital adequacy ratio requirements under Basel II and were directed by the central bank to submit their recapitalization plans by mid-2015.

There has been a rise in non-performing loans and a decline in bank lending to the private sector, given the harsh business environment. Credit to the private sector has been largely limited and below the fiscal 2015 target of 26%. The monetary authorities have responded by reducing both the cash reserve ratio (CRR) and the monetary policy rate (MPR) in an attempt to improve the lending environment. However, the transmission mechanism between the monetary and the real sector remains weak and borrowing rates are still high. This has an adverse result on real GDP increase. The All-Share Index (ASI) and market capitalisation fell, relative to the end of December 2014, and the indices decreased by 12.5% and 9.3%, respectively in 2015. The decline in share prices was largely the consequence of subdued activity arising mainly from the weakened external position of the economy as foreign reserves continued to decline as a result of the fall of
the world oil prices. From a record foreign inflow of NGN 48.03 billion in January 2015 and outflow of NGN 51.08 billion foreign investors significantly reduced their investment in equities to NGN 17.04 billion in December 2015.

At the end of October 2015, the Nigerian bond was removed from the JP Morgan’s local currency Bond Index-Emerging Markets as a result of the restrictions on foreign exchange transactions that prompted investor concerns about liquidity shortage. However, the response of investors to the delisting was not as pronounced as initially expected though there has been a slowdown in portfolio inflows and additional pressure on the naira. The perceived investment risk may have been mitigated by the affirmation of the country’s ‘B+/B’ long-term – and short-term – foreign and local currency sovereign credit ratings with a stable outlook by S&P.

Financial infrastructure continues to be improved to permit better financial inclusion. Efforts to enhance the mobile money payments system are under way, financial literacy campaigns continue across the country and support for micro, small and medium-sized enterprises (MSMEs)has been strengthened by the Central Bank of Nigeria.

Public sector management, institutions and reform

The government has moved swiftly to implement some key public sector reforms sinceit was inaugurated in May 2015. An efficiency unit has been established at the Federal Ministry of Finance with a mandate to review the spending profile and pattern of spending by the federal government to introduce additional efficient processes and procedures that will ensure that the government’s revenues are deployed in an efficient manner that translates into price for money and savings to government. A delivery unit has as well been set up at the Office of the Vice President to improve co-ordination across public sector entities.

The major focus over the initial six months of the new government was on improving publicsector transparency and accountability. In this regard, the treasury single account (TSA) has been broadened to cover over 80% of federal budgetary spending and most of the MDAs are presently captured on the Government Integrated Financial Management Data System (GIFMIS) platform. The rapid compliance by the MDAs next a presidential directive to adopt the TSA by15 September 2015 has impacted significantly on the federal government’s objective of plugging leakages. There has as well been a change of the leadership and management of the NNPC and its financial management system. The Nigerian National Petroleum Corporation (NNPC) will presently deposit funds in the federation account and has started publishing monthly reports of its operations.

The federal government has as well introduced a zero budgeting system to replace the incremental budgeting that was before used. This has been made necessary at both federal and national level by the drastic decline in revenues as a result of the plummeting of world oil prices. One of thekey shifts in the public sector reforms is the buy-in of the states as the reforms are undertaken:several states have as well adopted the zero budgeting system for the 2016 budget preparation. The implementation of TSA has as well been adopted by some national governments as well.

As part of strengthening tax government the current policy focus is on strengthening the management of the Federal Inland Revenue Services (FIRS) and the new government hasrecently changed the leadership of the revenue agency by appointing a new executive chairman.

The new government is exploring how best to improve tax compliance at all levels and broaden the tax base. Appropriate emphasis is being laid on price-added tax (VAT) collection and ensuring that compliance is strengthened.

The 2015 corruption perception index of Transparency International ranked Nigeria 136th out of 175 nations. There is a new momentum in the fight against corruption and further improvements are expected.

Natural resource management and environment

The new government has made far-reaching changes in the day-to-day management of the oil and gas sector which remains significant to the Nigerian economy by appointing a new group managing director and managers. The change management process is by presently yielding results as the NNPC becomes additional transparent and publicly accountable.

The federal government intends to break up the Petroleum Industry Bill (PIB) that has been stuck in parliament for years, replacing it initial with a law to overhaul the oil and gas sector which aims to plug loopholes that create avenues for rent seeking. Under the draft legislation, the national oil giant, the NNPC, will be split in two – rather than a series of units as envisaged by the stalled 2012 bill – inclunding a National Oil Company that will be run on commercial lines.

Nigeria has reiterated its commitment to the adoption of the legally binding universal agreement to mitigate the adverse effects of climate change. The Federal Ministry of Environment is currently restructuring its operations and one of the immediate concerns is to put in place an effective environmental policy regulatory framework. Environmental protection is a key priority and efforts are underway to intensify actions to address pollution inclunding oil spills in the Niger Delta, solid waste management and afforestation.

Political context

Nigeria held peaceful elections in March 2015 and President Buhari was sworn in on 29 May 2015 followed by a smooth but protracted transition to a fully-fledged government. On 11 November 2015 the new government reached an extra milestone in the evolution of the new government through the swearing in of new ministers and the inauguration of the Federal Executive Council. The number of ministries was reduced to 24 and the total number of ministers cut from 42 to 36 as part of the rationalisation of the public sector with a view to cutting down on the cost of governance. The president outlined the three priorities of the new government: namely, restoring security across the country, fighting corruption, and reducing poverty.

The president has appointed new service chiefs. In addition, the regional co-ordination between Nigeria, Chad, Cameroon and Niger in tackling the insurgency has been strengthenedand has received international support through a regional military alliance known as the Multi-National Joint Task (MNJTF). The USA has as well lifted restrictions on military assistance to Nigeria. While sporadic terrorist attacks continue, the government is making gains in thefight against Boko Haram and rescuing large numbers of civilians who had been held captive.

The humanitarian situation is very dire and the federal government in partnership with the United Nations agencies and other development partners is working to have a additional co-ordinated response. The federal government is as well leading efforts to develop a national development plan to rebuild the northeast.

Social context and human development

Building human resources

Nigeria, classified as a low human development country, has registered steady increase in human development over the completed decade. From a low Human Development Index (HDI) of 0.467 in 2005, the HDI currently stands at 0.514. Efforts to achieve the Millennium Development Goals (MDGs) however, have yielded mixed results across the goals, geographic areas and gender groups. Despite the existence of a favourable policy environment aimed at improving access to education, net enrolment in basic education has been on a downward trend over the completed decade.

From a peak of 84% in 2005, the net enrolment dropped to 54% in 2013 as a result of a combination of socio-cultural factors and the Boko Haram insurgency. Similar trends have been observed in respect of literacy rates which declined from a peak of 80% in 2008 to 66.7% in 2014 with the northeast geo-political zone, the area most affected by the Boko Haram insurgency, recording the highest rates of decline. The northern part of the country as well contributes a disproportionately high number (90% of total) of the estimated 11 million children currently out of school.

At 89 deaths per 1 000 live births, the under-five child mortality rate remains above the 2015 target of 64 deaths per 1 000 live births while the infant mortality rate , which stands at 58 deaths per 1 000 live births, is almost double the 2015 target of 30 deaths per 1 000 live births. Data on maternal mortality ratio (MMR) are particularly problematic in Nigeria as different data sources give different figures ranging from 224 to 576 deaths per 100 000 live births. However, using the official National Bureau of Statistics (NBS) data, which statement a figure of 243 deaths per 100 000 live births, the country has met the MMR target although, paradoxically, only an estimated 59% of the births are attended by skilled personnel. While the policy environment in the health sector is generally favourable and supportive, as exemplified, for instance, by the “Saving One Million Lives” initiative, an incentive-based programme which aims to improve child morbidity and mortality, in general budgetary allocation to the sector remains inexplicably low at less than 6% of the total budget, well below the Abuja target of 15%.

Poverty reduction, social protection and labour

Whereas the country registered impressive economic increase during the 2000s, this increase was not accompanied by a significant reduction in the incidence of poverty. According to the NBS (2010 Revised Poverty Figures), the incidence of poverty declined from 65.6% in 1996 to 45.5% in 2010, albeit with wide regional variations. Two of the six geo-political zones (northeast and northwest) account for additional than half of the total number of poor people. The government has however, formulated a lot of policies and programmes aimed at creating jobs and addressing poverty, inclunding the establishment, in 1996, of the National Directorate of Employment, which has been instrumental in building the capacities and skills of the unemployed, especially
women and the unemployed young; the National Poverty Eradication Programme to train and empower the unemployed young with skills required for the job market, initiated in 2001; and the conditional cash transfer programme which provided households with funds for human capital development. With a relatively high incidence of poverty, the majority recent national unemployment rate of 9.9% in the third quarter of 2015, being the proportion of the labour force people (persons aged 15 to 64) currently available for work, actively seeking for work but without work, would appear to be understating the exact magnitude of unemployment in the country. Unemployment is highest part the young at 17.8% and 10.8% for ages 15 to14 and 25 to 34 years, respectively. Unemployment has distinct gender and spatial dimensions with proportionately additional women being unemployed than men at 11.6% and 8.3%, respectively, while urban areas have a higher concentration of unemployed people at 12.1% than rural areas at 9%. Unemployment is as well highest part those with below primary schooling as the highest level of educational attainment, at 15.7%, and, paradoxically, lowest part those with primary education as the level of educational attainment at 6.9%, while an estimated 11.7% of those with post-secondary education are unemployed.

Gain inequality, measured using the Gini coefficient, stands at 43%, implying that inclusive increase remains elusive. This brings into sharp focus the need to re-examine the source and nature of economic increase and the effectiveness and coverage of the nascent safety net programme any minute at this time to be introduced by the new government. At the same time as Nigeria’s HDI price of 0.514 is discounted for inequality, the HDI falls to 0.320, a loss of 37.8%, well above the average figure for low HDI nations of 32% and 33.3% for sub-Saharan Africa. Social protection, one of the building blocks for the country’s human development plan, ranks high on the new government’s development policy schedule. From fiscal year 2016, the government has undertaken to make available NGN 5 000 per month to an estimated 25 million poorest and most vulnerable people to tackle the twin problems of poverty and inequality.

Gender equality

A combination of historical and contemporary factors, particularly the pervasive patriarchal culture and practices in most parts of the country, continues to hamper gender equality and women’s empowerment. Recent policy and institutional reforms, inclunding the national gender policy which promotes mainstreaming of gender issues in governance and changes in electoral practices inclunding non-payment of nomination fees by women in some political parties, are delivering some positive results, although challenges remain. While the country has almost attained gender parity in basic education (94 girls per 100 boys), the proportion of women in wage employment in the non-agricultural sector stands at a paltry 7.7%. The labour force participation rate for females, estimated at 48.2%, is as well significantly lower than the rate for males, estimated at 63.7%. Furthermore, women hold significantly fewer seats in parliament than men at 7.3% and 5%, in the senate and Home of Representatives, respectively.

Thematic analysis: Sustainable cities and structural transformation

Nigeria is rapidly urbanising rapidly. In 1963, three years next independence, one out of each five Nigerians lived in an urban area while currently just under half (47%) of the people live in urban areas, a figure projected to rise to 65% by 2020. The definition of urban areas has evolved over time. In the immediate post-independence period, the National People Commission, in computing the 1963 census, used the presence of 20 000 inhabitants as the threshold for delineating urban areas. A additional recent definition of urban areas, however, is to be found in the 1999 constitution of the Federal Republic of Nigeria which stipulates that “all local government headquarters and other areas so defined by the states are urban”. Based on the above definition, by 2004, Nigeria had over 843 urban areas with six of them having populations of one million and additional inhabitants. In 1972, there were 38 cities with 100 000 or additional inhabitants, although by 1999 the number of cities with populations of at least 100 000 people had doubled to 76. In 1990, there were 21 national capitals in Nigeria, each with 100 000 or additional inhabitants, with 15 of these, plus a number of other cities, having populations in excess of 200 000. The states’ capitals and other cities have been growing at a rate that doubles their size each 15 years. Currently all the 36 national capitals and a number of several other cities, inclunding the federal capital Abuja, have populations of over 500 000 inhabitants.

Before independence, the commercial activities of European traders attracted people to the coastal cities of Lagos, Brass, Bonny, Calabar and Port Harcourt. The colonial government as well established new administrative centres in other parts of the country inclunding Kaduna (the colonial capital of Northern Nigeria) and Jos (in the Central Highlands). The “oil boom” of the 1970s triggered rapid urbanisation as economic activity increased in a lot of towns, inclunding Lagos, again the political capital, and current commercial hub of the country, inclunding Port Harcourt in the heartland of the oil-rich Delta region. Urbanisation was as well driven by the creation of new states, with the consequent proclamation of new national capitals and local government areas (LGAs) and large scale public projects. Lagos is a classical case study in rapid urbanisation. Its annual increase rate was estimated at 14% during the 1970s. However, during the 1980s the economic downturn which was witnessed as the country began to implement the structural adjustment programmes (SAPs) slowed down rural-urban migration, a situation which however, was any minute at this time reversed in the post-SAP era.

Historically, urbanisation has been associated with economic and structural transformation. Urban centres, with high concentrations of economic activity, government, commerce and transportation serve as significant drivers of the economic transformation process. Evidence from Nigeria, however, suggests that there exists a dualism in causation between urbanization and structural transformation. On the one hand urbanisation has tended to follow rather than drive economic and structural transformation process. In the northern parts of the country, for instance, the Saharan and trans-Saharan trade led to the emergence of the great urban centres of Kano, Katsina, Zaria, Kaduna and Sokoto which as well served as political capitals for the states of the Northern Savannah. Similarly in the south, the activities of European traders attracted people to several coastal cities. On the other hand, as these cities grew, they helped to further broaden and drive the process of structural transformation, the outcome of which is manifest in the urban-rural divide in terms of economic opportunities, incomes and social development.

Subsistence agriculture therefore, remains the dominant economic activity in rural areas while urban areas are characterised by a high concentration of manufacturing and service industries.
GDP contribution has not traditionally been disaggregated by geography, either at national level or by the rural-urban divide, although the government intends to compute GDP at national level in 2016. Unemployment is higher in urban areas, at 12.1%, than in rural areas, at 9%, even though urban areas have a bigger concentration of people with higher levels of educational attainment than rural areas. An estimated 25.8% of urban dwellers have completed secondary education while 14.8% have additional than secondary education with the corresponding figures for rural dwellers being 11.1% and 4.5%. Poverty and deprivation are less prevalent in urban areas than rural areas. Urban dwellers as well have better access to basic services inclunding drinking water, sanitation and cooking fuel. Proportionately additional urban dwellers use electricity, natural gas, biogas and kerosene as cooking fuel than rural dwellers who use additional solid fuel (woody biomass). An estimated 72.6% of urban dwellers use improved sources of drinking water while 78.5% use improved sanitation facilities with the corresponding figures for rural dwellers being 51.3% and 37.2%.

There are no major differences in gain inequality, measured by the Gini coefficient,between urban areas and rural areas, both deviating only marginally from the national average of 0.43. Analysis of wealth distribution, by quintiles, over the 2008 -13 period suggests that a large proportion of the urban people is concentrated in the fourth and highest quintiles, a total of 76.8% in 2008 and 74.2% in 2013, while the corresponding figures for rural people are 21.7% in 2008 and 17.4% in 2013. On the other end of the scale, in 2008, 7.9% of the urban people were found in the lowest and second quintiles while by 2013 9.6% were found in this wealth category.

The corresponding figures for rural people however, were 56% in 2008 and 60.2% in 2013. This would therefore, suggest that a better % of the country’s wealth is concentrated in urban areas. There is thus a need for the creation of gain-generating opportunities, particularly agrobased industries in the rural areas to spur agricultural production and productivity to meet the ever-growing request in urban areas and reduce reliance on food imports, create employment opportunities, add price to the country’s agricultural produce and better integrate the local rural economies with urban economies inclunding regional and world price chains. The increase and development of cities has been governed by a number of policy, legal and institutional frameworks. The enactment of the Nigerian Town and Country Planning Ordinance in 1946, marked the beginning of a co-ordinated attempt at controlling the increase and development of urban areas. The act, which largely restricted the activities of a planning authority to estate development and building control, nonetheless empowered the local planning authorities to initiate urban plans, and to co-ordinate and facilitate the construction of public utility services, transport, communications and other public services, inclunding to conserve and develop the resources of the areas under their jurisdiction. Over time, however, urban planning became relegated to the periphery of mainstream policy formulation and planning as it was treated as a mere appendage to economic planning. Though some urban master plans were developed, there was a general lack of commitment to their full implementation. The initial national urban development policy was developed in 1992 by the Federal Ministry of Works and Housing and provided for the establishment of a national urban and regional development commission as the primary urban development organisation in the government. It as well provided for the setting up of urban and regional development boards for states and local governments; the pursuance of cost recovery mechanisms for urban infrastructure; and better participation of the private sector. At around the same time, in an attempt to improve urban development financing, the Urban Development Bank of Nigeria was established to provide loans to states, local governments and private entities for urban infrastructural projects. However, to date the bank has provided very limited loans because of a lack of support from the shareholders, in result limiting the pace, nature and sustainability of urbanisation in Nigeria.