Most things don’t grow forever. If a person grew at the same rate for his whole life, he’d become gigantic and perhaps perish (or else rule the world). Yet most economists agree the economy needs to grow and always.
Gross domestic product, GDP, measures the goods and services produced in an economy every year. The growth of Gross Domestic Product GDP is essential to a country’s stability and prosperity. It is growth that is responsible for each generation being better off than its previous generations.
What Drives GDP growth?
The growth of GDP is a measure of the contribution of three basic factors to the economy. Thus, a country’s growth can be broken down by accounting for what percentage of economic growth comes from capital, labour and technology.
However, the main driver of sustainable and long-run growth in the economy is technological progress. The explanation is actually quite straightforward. Holding other input factors constant, the additional output obtained when adding one extra unit input of capital or labour will eventually decline, according to the law of diminishing returns.
Nigeria is lacking in technological progress as evidence shows the existence of a weak technological base in the country. This obviously plays a significant role in the stunted growth of the economy. The reason is not far-fetched as evidence attributes macroeconomic instability, the level of financial development, and the level of human development as the setback to technological progress in Nigeria.
Although the absence of technological progress cannot be absolutely responsible for the stuttered growth recorded, it sure has its impact on growth. The paucity of policy reforms implemented in the different sectors and the prevalence of corruption in society plays a crucial role in economic growth in Nigeria.
Which industry contributes most to Nigeria’s GDP?
Over the past five years, there have been slight changes in the nature of the economy. The GDP mix of the country has placed Nigerian as an agrarian economy for four years running. Agriculture has been the highest contributor to the GDP from 2015 to 2018, churning up 46.2% of the GDP in 2015, 39.5% in 2016 as well as 25.1% and 39.7% in 2017 and 2018 respectively.
However, the economy is gradually becoming a service-driven sector as Food and Accommodation becomes the largest contributor making up 39.9%. This was followed by the Administrative & Support Service with 21% and Agriculture coming third with 18.5%.
How can Nigeria enhance steady and progressive GDP growth?
To experience steady growth, Nigeria needs to identify the components that drive growth. Four components contribute to GDP growth. Consumer spending on goods and services is one of them. If consumers are buying homes, for example, home builders, contractors, and construction workers will experience economic growth. This growth will transcend to the economy.
Business spending also drives the economy when they hire workers, raise wages, and invest in growing their business. A company that buys a new manufacturing plant or invests in new technologies creates jobs, spending, which leads to growth in the economy.
Infrastructure spending is another stimulus for growth. This occurs when a local, state or federal government spends money to build or repair the physical structures and facilities needed for commerce and society to thrive. Infrastructure includes roads, bridges, ports, and sewer systems. Economists who favour infrastructure spending as an economic catalyst argue that having top-notch infrastructure increases productivity by enabling businesses to operate as efficiently as possible.
The last in the mix is trade (net exports). Thus, the government has to approach these aspects with conscious policy measures to enhance her steady growth. Policy forms the intertwining institution that links the various components together to work independently and harmoniously. Thereby creating an enabling environment and attracting investment into the country.