Earlier this week, Nigeria ascended to the position of Africa’s largest economy following a recalculation of its GDP by the country’s National Bureau of Statistics. The long overdue exercise (the last one was in 1990) nearly doubled the country’s economy pushing GDP up to $510bn from $270bn. There is a general consensus among economic analysts and commentators that the changes are merely cosmetic — they certainly do not affect the daily lives of most average Nigerians, and their timing might be politically motivated given the upcoming 2015 elections which are expected to be highly contested. However, from the perspective of managers and CEOs operating in Nigeria, there are some important implications.
First, there will be some changes in the competitive landscape. Nigeria’s Finance Minister Ngozi Okonjo-Iweala mentioned the “psychological impact” of the announcement on foreign investors. Before the announcement, the stock market capitalization to GDP ratio for Nigeria was 33%, compared to 270% for South Africa. Post announcement, the ratio is 18%. Emerging market investors looking for upside potential in Africa will look at those numbers with interest. At the same time, inbound foreign direct investment into Africa may become more comfortable with basing operations in Nigeria or using the country as an entry point into Africa. The result for managers presently in Nigeria is that they will likely face more competition for assets and human capital. To succeed, they will increasingly need to craft a differentiated strategy based on superior knowledge of the Nigerian market.
In providing a better picture of the Nigerian economy’s constitution, the rebasing calculations also highlight the growing importance the Nigerian (and African) consumer. Before the rebase, oil and gas represented 32% of the economy; under the new set of data it contributed 14%. Much of the balance comes from previously unreported, consumer-driven sectors. For example Nigeria’s Nollywood film, music, and mobile phone industries have experienced rapid growth over the past decade. Managers that can develop disruptive strategies to tap into this booming consumer market will place themselves in a good position for success in Nigeria. They will need to innovate on platforms for marketing and distribution in order to overcome the persistent infrastructural challenges that the country faces.
Finally, Nigeria’s rise to the position of Africa’s largest economy provides the perfect sales pitch for raising foreign capital and recruiting foreign talent. Managers and CEOs launching new ventures should exploit the opportunity market to attract new investors with relatively low familiarity to the Nigerian market. They should also take measures to build their talent pipeline by marketing aggressively to well-educated diaspora members and foreign talent abroad.
Nigeria’s GDP rebasing can indeed be considered an exercise in window dressing. But it also provides the perfect opportunity for companies already operating in the country to pause and rethink their strategy for long-term success in what will be a very important market for Africa and the world.
Bryan Chidubem Mezue is a member of the Forum for Growth and Innovation, a Harvard Business School think tank developing and refining theory around disruptive innovation. Follow him on Twitter at @bcmezue.