Kingsley Moghalu

Nigeria stands today at a moment of both promise and peril. The current administration’s macroeconomic reforms—unification of exchange rates, removal of fuel subsidies, and efforts to stabilize the naira and attract foreign direct investment—have created a fragile degree of macroeconomic stability but not (yet), despite the best intentions, transformative outcomes in reality. For all the intellectual firepower of Nigerian economists, the size of our domestic market, our entrepreneurial dynamism, and the abundance of human and natural resources, the country has not achieved the structural transformation that would place it on a sustainable path to shared prosperity. Manufacturing still contributes only about 7-10 percent to GDP. Youth unemployment remains alarmingly high. Debt service obligations consume a crushing proportion of government revenues. Poverty affects over 100 million citizens. Per capita income growth has stagnated even as aggregate GDP figures struggle upward but can’t seem to cross an invisible barrier. Why?

The answer, I submit, lies in a profound intellectual and policy fallacy: the dominance of the concept of “economic man,” or “Homo Economicus”. This idealized figure—a perfectly rational agent who acts purely in self-interest to maximize personal utility, possesses complete information about all options and outcomes, enjoys unlimited cognitive capacity, maintains stable preferences, and always chooses the option yielding the highest net benefit—has been the foundational assumption of classical and neoclassical economics since the 19th century.

This model has been exported to developing countries through Washington Consensus policies of liberalization, privatization, and minimal state intervention promoted by the IMF and World Bank. There certainly is a place and context for economic man. So I am not advocating socialism. But, in contexts like Nigeria’s, it has proven not merely incomplete but actively harmful. It assumes strong institutions, perfect information, and rational actors insulated from historical, cultural, and political realities—conditions that do not obtain. Real human beings operate under “bounded rationality”, cognitive biases, and social influences, as demonstrated by the work of the Nobel Laureates Herbert Simon, Daniel Kahneman, and Richard Thaler. In environments marked by institutional fragility, information asymmetries, ethnic diversity, colonial legacies, and elite capture, narrow self-interest frequently manifests as rent-seeking, primitive accumulation, and predatory extraction rather than productive investment and wealth creation.

The result in Nigeria has been policy that sounds theoretically sound but delivers disappointing outcomes: rapid liberalization without institutional adequate levels of industrialization led to deindustrialization and import dependence; an obsession with aggregate GDP growth masked per capita stagnation and deepening inequality; subsidies and welfare interventions in a structurally weak fiscal state exacerbated debt vulnerabilities without building productive capacity; and a rentier political economy, fueled by oil revenues, perpetuated elite bargains over nation-building. Despite periodic reforms and world-class economic minds, transformational outcomes have remained elusive because the underlying model misdiagnoses the problem and prescribes the wrong medicine.

True economic transformation and the wealth of nations in African countries like Nigeria must instead be anchored on three interconnected pillars that directly challenge the assumptions of Homo Economicus.

The first is competent governance and sound institutional foundations that create the enabling environment for genuine prosperity. Markets do not exist in a vacuum; they require security of life and property, an independent central bank and an efficient judiciary that enforces contracts and upholds the rule of law, transparency and accountability mechanisms that curb corruption, and a meritocratic civil service capable of consistent, long-term policy implementation. Without these, even the most elegant economic models collapse under implementation failures, policy reversals, infrastructure deficits, and elite capture.

Resource-rich contrasts illuminate the point. Botswana, at independence in 1966 one of the world’s poorest countries, discovered massive diamond deposits and through prudent management—forming the transparent Debswana 50:50 joint venture, channeling revenues under sustainable budgeting principles, establishing the Pula Fund, and maintaining low corruption and strong democratic institutions rooted in visionary leadership—achieved upper-middle-income status and broad-based progress. Nigeria’s oil experience, by contrast, fueled Dutch Disease, deindustrialization, corruption, volatility, and environmental degradation and poverty because governance and institutional quality lagged. Norway’s Government Pension Fund Global, now exceeding $2 trillion, invests petroleum revenues abroad under strict transparency and ethical guidelines. Its Handlingsregelen fiscal rule limits structural non-oil deficits to the expected real return (~3%), ensuring intergenerational equity and shielding the economy from shocks through meritocratic bureaucracy and broad consensus. Nigeria’s Nigerian Sovereign Investment Authority (NSIA – an acronym I coined at a fiscal-monetary planning meeting on the wealth fund in the boardroom of the Central Bank of Nigeria in 2012 or so) , managing around $3 billion, is a positive step but remains under-scaled. These examples demonstrate decisively that governance determines whether resources become a blessing or curse. Nigeria must build pockets of effectiveness in key agencies, reform the civil service for meritocracy and insulation from politics, strengthen judicial independence, and entrench transparency so that self-interest is channeled toward productive ends.

The second pillar is a foundational nationhood, political, economic, and social philosophy—a coherent worldview that drives greatness and collective ambition. Nations are not built by technocratic fixes alone, the rotation of power among political elites, or by importing models wholesale. They rise when leaders and citizens share a clear sense of purpose and direction that transcends parochial interests. As I have argued in my books Emerging Africa and the Build, Innovate, Grow (BIG), Nigeria has suffered from an intellectual and philosophical deficit. We have adopted borrowed philosophies—neoliberal prescriptions or GDP-centric planning—without adapting them to our nationhood challenges marked by pseudo-federalism and ethnic pluralism. Policy often prioritizes short-term political survival or elite accommodation over long-term national interest. Democracy in contexts of widespread poverty and weak institutions risks degenerating into plutocracy.

What is needed is a deliberate African economic philosophy integrating nation-building, self-reliance, productive ambition, regional integration via AfCFTA, technological innovation, and export-oriented value addition. Such a philosophy rejects the notion that markets alone, populated by rational maximizers, will deliver development in late-industrializing settings. It recognizes the state’s legitimate role as a developmental actor that shapes markets, corrects failures, and aligns private incentives with national goals—precisely the approach that powered East Asia’s rise.

The third pillar is a deliberate focus on human development and human capital—education and skills, healthcare equity and access, potable water, and reliable electricity—as the indispensable foundation, followed by an emphasis on innovation and manufacturing, with GDP growth pursued as an outcome rather than the primary target. The Homo Economicus model encourages a narrow obsession with GDP figures (the so-called “GDP delusion”) that can mask profound human underdevelopment. Africa’s population boom, often celebrated as a demographic dividend, becomes a liability when millions lack skills, health, or opportunities to be economically productive. Misplaced subsidies and consumption support in structurally weak economies exacerbate fiscal distress without creating sustainable enterprises. And yet, removing these abruptly, without proper planning to absorb the human impact of such policies, can increase poverty rates.

We must invert the conventional sequence. First build the human and physical foundations: world-class education systems blending academic excellence with vocational and technical skills aligned to priority sectors; equitable healthcare that enhances productivity; universal access to clean water and sanitation; and, above all, reliable, affordable electricity powering homes, businesses, and industries. Then improve access to affordable finance. These are investments in economic complexity and competitiveness, not mere welfare. Only on this base can we realistically pursue innovation ecosystems and manufacturing-led growth.

The East Asian developmental states provide the clearest demonstration. Japan, South Korea, Taiwan, and Singapore achieved rapid industrialization and poverty reduction from the 1960s to 1990s not through laissez-faire markets but through strong, autonomous state intervention. They employed targeted industrial planning, selective protectionism for infant industries via time-bound tariffs, directed credit and subsidies tied to performance (export targets, with support withdrawn for failure), exchange rate policies favoring exports, close but disciplined state-business collaboration (embedded autonomy), and massive early investments in education, vocational training, and infrastructure. South Korea’s manufacturing share rose dramatically; Taiwan became a global semiconductor leader. They deliberately “got relative prices wrong” in the short term to build long-term productive capacity, compensating for weak initial private sectors. Pragmatic heterodoxy trumped ideological purity. For this to have happened, of course, the state itself and its functionaries had to be competent, visionary, and disciplined— leadership and governance factors.

Nigeria can and must adapt these lessons. Our federal democracy, diversity, scale, and rentier legacy present distinct challenges, but principles travel. Focus smart industrial policy on priority sectors with linkage potential—agro-processing, textiles, pharmaceuticals, basic metals—using WTO-compliant time-bound protection, performance-linked incentives, and export mandates. Strengthen backward integration initiatives with Asian-style accountability. Prioritize power sector resolution and logistics as foundational enablers. Integrate with AfCFTA for regional access while building local competitiveness. Draw from partial successes like Ethiopia’s industrial parks. Combat rent-seeking through transparent digital tracking of incentives and performance contracts. Andrew Nevin’s concept of “Flourishing” offers a powerful complement: shift public policy from a narrow GDP lens to a broader framework centered on human dignity, well-being, and brain capital. GDP should measure the success of flourishing societies, not drive policies that undermine human capability. Growth that leaves millions in multidimensional poverty or depends on commodity rents rather than broad productivity is not flourishing—it is an illusion.

The path forward requires intellectual honesty and leadership courage. We must reject the fallacy that assumes perfectly rational maximizers will aggregate to national prosperity absent strong institutions, a guiding philosophy, and foundational human capabilities. Instead, embrace a contextual, developmental approach: build competent and accountable governance; articulate and internalize a coherent national economic philosophy rooted in our realities and ambitions; and sequence investments toward human flourishing first, then innovation and manufacturing. Fiscal rules and sovereign wealth management must follow and adapt examples such as Norway’s, Chile’s and Botswana’s. Recent reforms have opened a window; history will judge whether we use it to address root causes or apply new bandages to an old model.

Nigeria possesses the human talent, market scale, and resource base to become a prosperous, diversified, upper-middle-income economy within a generation. Achieving this demands that we move beyond the economic man fallacy and construct the institutional, philosophical, and human foundations of real transformation. The choice is stark but empowering: continue with policies that assume conditions we do not have, or build the conditions—and the worldview—that make prosperity possible. For the sake of our children and the future of our country, we must choose wisely and act decisively.

•Professor Moghalu, a former Deputy Governor of the Central Bank of Nigeria, is the CEO of Sogato Strategies LLC and President of the Institute for Governance and Economic Transformation (IGET Academy).