Nigeria’s economy faces a critical challenge: output is growing, but productivity has failed to keep pace, limiting the extent to which economic expansion translates into higher incomes and improved living standards. CHIMA NWOKOJI writes on why focus must shift from simply creating more economic activity to enabling workers and businesses to produce more value from every hour worked and naira invested.
NIGERIA’S economic story over the past decade has been characterised by a persistent gap between output growth and productivity. Although the economy has expanded in nominal terms, driven by population growth, oil earnings, government spending and activity across services, the increase in output has not been matched by a corresponding improvement in the efficiency with which labour and capital are deployed.
The result is an economy that can record growth on paper, while millions of Nigerians continue to struggle with low incomes, high living costs, inadequate infrastructure and limited economic opportunities. More people are working and more goods and services are being produced, but the value generated per worker remains relatively low.
For Nigeria, closing this productivity gap is critical. Sustainable improvements in living standards will depend less on simply increasing the number of people employed and more on enabling each worker and business to produce significantly more value.
Productivity, broadly measured as the amount of goods and services produced for each hour worked, is therefore becoming one of the most important economic issues facing the country.
Productivity, not just hard work
Business analyst, Chika Mbonu, recently stated that Nigeria’s recent GDP growth figures have not translated into meaningful improvements in the daily lives of ordinary citizens, despite government claims that the economy is recovering. World Bank poverty projections show that more than half of Nigerians could remain below the poverty line, despite economic expansion.
His words: “Nigeria’s economy may be showing signs of macroeconomic recovery through GDP growth, many citizens remain unconvinced because the improvements have not yet translated into lower living costs, stronger household income, affordable services, or widespread economic relief.”
Economists attribute this partly to low productivity.
Nigerians are widely recognised for their entrepreneurial spirit and willingness to work long hours. But hard work alone cannot deliver the level of prosperity required to support a population of more than 200 million people.
The central economic question is not simply how many hours Nigerians work, but how much value they generate during those hours.
Millions of workers operate in agriculture, petty trade, transport, construction, manufacturing and services, often with limited access to machinery, technology, reliable electricity, affordable finance, modern infrastructure and quality skills. Many are therefore trapped in low-income activities despite working extremely hard.
This means Nigeria’s productivity problem is not fundamentally a problem of workers being unwilling to work. It is a problem of inadequate tools, capital, infrastructure, skills and institutions.
Higher productivity allows businesses to produce more with the same amount of labour and capital. It can increase profits, create room for higher wages, expand government revenues and improve living standards.
For government, a more productive economy provides a broader tax base and greater capacity to finance healthcare, education, roads, electricity, water and social protection without excessive reliance on borrowing.
Jobs challenge
The productivity question is particularly urgent because Nigeria’s population continues to grow rapidly, creating the need for millions of new jobs.
According to the Nigerian Economic Summit Group, the informal sector accounted for 92.2 percent of total employment in 2023, while about 85 percent of workers were self-employed. Recent National Bureau of Statistics data also showed that low-productivity services accounted for 46.5 percent of total employment in 2023, compared with agriculture’s 30.1 percent.
These figures demonstrate the scale of the challenge. Creating jobs alone will not be sufficient if most new employment remains concentrated in low-productivity activities.
Nigeria needs an economic structure capable of moving workers from subsistence and informal activities into productive agriculture, manufacturing, technology, modern services and competitive enterprises.
Without such a transformation, the country risks expanding the number of working poor rather than creating a larger middle class.
Chronic underinvestment
Nigeria’s productivity challenge is closely connected to years of inadequate investment.
Businesses operate in an environment characterised by high energy costs, unreliable electricity, poor roads, congested ports, expensive logistics, limited access to long-term finance and changing regulations. These constraints raise production costs and reduce the incentive and capacity of businesses to invest in machinery, technology, research and worker training.
Small and medium-sized enterprises are particularly vulnerable. Many operate with outdated equipment, limited digital capacity and little access to affordable credit. Others remain informal because the cost and complexity of formalisation can be significant.
This creates a vicious cycle: low investment leads to low productivity, which produces low incomes and weak business capacity, further limiting investment.
Breaking this cycle requires sustained investment from both the public and private sectors.
Manufacturing provides a clear illustration. The sector recorded quarterly growth of less than 2 percent throughout 2024 and 2025 before accelerating to 3.3 percent in the first quarter of 2026. Its contribution to real GDP, however, remained below 10 percent, while capacity utilisation stayed below 60 percent.
Productivity growth was estimated at only 0.4 percent in 2024. Manufacturing accounted for 76.5 percent of industrial employment in 2023, demonstrating its importance to job creation, but the sector continues to face unreliable power, dependence on imported inputs, high borrowing costs, skills shortages and limited technology adoption.
Technology and artificial intelligence
Technology offers Nigeria one of its strongest opportunities to accelerate productivity.
The country has developed a vibrant technology ecosystem, particularly in fintech, telecommunications, digital payments, software, and other technology-driven services. Artificial intelligence could further transform agriculture, manufacturing, healthcare, logistics, education and financial services.
However, technology will not automatically translate into higher productivity.
If sophisticated technologies are available only to large corporations, their benefits will remain limited. Nigeria therefore needs policies that enable small and medium-sized enterprises to adopt modern technologies.
This requires stronger broadband infrastructure, affordable digital services, access to technology, research and development incentives and financing for innovation.
Technology adoption must also be accompanied by investment in human capital. Businesses require workers capable of operating new equipment, analysing data, managing digital systems and applying artificial intelligence to productive activities.
Education and skills
Human capital is at the centre of any productivity strategy. A productive economy needs workers with technical, managerial, digital and vocational skills. Yet Nigeria’s education system continues to face challenges ranging from inadequate infrastructure and teacher shortages to weak learning outcomes and limited access to quality technical and vocational education.
Investment must therefore extend beyond universities.
Primary and secondary education require stronger funding and better outcomes, while technical colleges, vocational institutions, apprenticeships and adult education need greater attention.
Nigeria also needs to establish a stronger connection between education and the labour market. Employers frequently complain that graduates lack practical skills, while young people struggle to find jobs that match their education.
A stronger apprenticeship and technical-training system could help close this gap. Government could also introduce incentives for businesses to train workers through tax credits and other support mechanisms.
Housing, transport and infrastructure
Housing and transportation are often excluded from productivity discussions, yet they have a direct impact on how efficiently workers and businesses operate.
In major Nigerian cities, workers can spend several hours commuting between their homes and workplaces. Traffic congestion increases fuel consumption, transportation costs and lost working hours.
Cities such as Lagos, Abuja, Port Harcourt, Kano and Ibadan need better coordination between housing, transportation and urban planning.
Affordable housing should be developed closer to employment centres, while efficient mass-transit systems should connect residential areas to commercial and industrial zones.
Investment in rail, roads, waterways and public transportation would reduce commuting times while improving the movement of goods and workers.
Electricity is perhaps the most important infrastructure constraint. Businesses that generate their own power face high operating costs, while unreliable public electricity limits production.
Improving generation, transmission and distribution would therefore have a direct effect on productivity.
The same applies to roads, ports, railways, broadband, water supply and logistics. Infrastructure should not be viewed simply as government expenditure. It is investment in the productive capacity of the economy.
Policy consistency and institutions
Productivity policy should not be designed exclusively at the federal level.
Nigeria’s states have different economic structures, resources, skills and infrastructure. Lagos has different needs from Kano, while Rivers, Delta, Kaduna, Oyo and Enugu have distinct economic opportunities. State and local governments can support industrial clusters, agricultural value chains, vocational training, infrastructure and business development.
Greater decentralisation of economic development responsibilities, combined with transparency and accountability, could allow states to design policies suited to their local economies.
But decentralisation must be accompanied by stronger institutions.
Policy uncertainty remains one of the biggest obstacles to long-term investment. Businesses making major investments need confidence that tax, foreign-exchange, trade and regulatory policies will remain reasonably predictable.
Factories, technology systems, research programmes and worker-training schemes require years to generate returns. Businesses cannot make such investments when the policy environment is constantly changing.
Nigeria therefore needs a long-term productivity strategy that survives changes in government and has measurable targets and broad institutional support.
Debt, interest rates and economic growth
The relationship between debt, interest rates and economic growth also has important implications for productivity.
Professor of Economics at Kaduna State University, Ibrahim Gerarh Umaru, has highlighted the connection between interest rates, debt servicing and fiscal sustainability.
Using a simple example, he explained that if government owes ?10 trillion and the average interest rate rises from 5 percent to 10 percent, its annual interest bill increases from ?500 billion to ?1 trillion without the government borrowing an additional naira.
The additional N500 billion must then be financed through higher revenue, spending cuts, additional borrowing or a combination of the three.
Umaru noted that 52.4 percent of Nigeria’s Federal Government revenue is projected to be consumed by interest payments in 2026. His argument highlights the importance of the relationship between the interest rate on debt, represented by “r”, and economic growth, represented by “g”.
When the interest rate exceeds economic growth, debt becomes increasingly difficult to manage. When economic growth exceeds the interest rate, debt becomes easier to carry, particularly where government maintains a reasonable primary balance.
The lesson is that borrowing itself is not necessarily harmful. The danger lies in expensive, poorly structured or unproductive borrowing.
Debt invested in productive infrastructure, human capital and industries that expand the economy can support future growth. Borrowing to finance inefficient consumption, however, can worsen fiscal pressures without expanding productive capacity.
Economist and former head of research at Financial Derivatives Company Limited, Clement Igboanugo, has also drawn attention to Nigeria’s structural constraints.
He argued that Nigeria’s inflation challenge should not automatically be described as stagflation because the economy has continued to record real GDP growth, although at a relatively modest pace.
According to him, Nigeria’s inflation problem is better understood through the concept of inflation hysteresis, while unresolved structural constraints could cause productivity growth to weaken over time.
Igboanugo also defended the broad direction of monetary policy, arguing that the Central Bank of Nigeria faced both supply-side inflation and substantial monetary excesses.
However, he cautioned that injecting large amounts of liquidity into an economy constrained by weak infrastructure and supply bottlenecks would not necessarily produce proportional increases in output. Much of the additional demand could instead feed into prices and the foreign-exchange market.
The argument highlights an important policy dilemma: monetary policy can influence demand, but it cannot by itself build roads, generate electricity, improve skills or increase factory capacity.
The case for stronger output growth
Nick Agule has argued that Nigeria must place much greater emphasis on output and productivity growth.
He contends that growth of around 3.5 percent is too low for an economy with Nigeria’s population, resource base and development needs.
The comparison with smaller economies illustrates the scale of the productivity challenge. Countries with much smaller populations can generate levels of economic output comparable to or significantly higher than Nigeria because their workers and businesses operate with greater capital intensity, stronger infrastructure, better institutions and higher productivity.
Agule therefore argues that Nigeria needs substantially more capital for output expansion and that monetary policy should consider the trade-off between attracting cross-border capital and supporting domestic productive activity.
His position raises an important question: if interest rates become so high that businesses cannot afford to borrow for productive investment, can monetary stability be achieved at the expense of long-term output growth?
The answer requires a balanced policy mix that protects price stability while ensuring that productive businesses have access to affordable, long-term capital.
Lessons from China and South Korea
Industrialisation provides important lessons.
The Nigerian Economic Summit Group has argued that industrialisation cannot be achieved through industrial policy alone. It requires coordinated policies addressing infrastructure, finance, skills, trade, institutions and productive capacity.
China and South Korea demonstrate the value of sequencing and discipline.
China experimented with reforms in Special Economic Zones before expanding successful approaches nationwide. It also linked government support to measurable outcomes while investing heavily in infrastructure, education and institutions.
South Korea combined strong state coordination with export orientation and conditional incentives that rewarded productivity and export performance.
Nigeria can draw from these experiences without attempting to copy them wholesale.
The key lesson is that industrial policy works best when it is connected to measurable performance and supported by complementary policies on infrastructure, finance, skills and trade.
A national productivity framework
Nigeria needs to move beyond short-term interventions and develop a comprehensive national productivity strategy.
Such a strategy should prioritise reliable and affordable electricity; modern roads, railways, ports and logistics; affordable broadband; investment in research and development; artificial intelligence and technology adoption; stronger basic education; expanded vocational training and apprenticeships; affordable housing linked to employment centres; better access to long-term finance; stronger institutions and predictable regulations.
It should also give states and local governments a greater role in economic development while ensuring accountability.
The objective should not be to make Nigerians work longer hours. It should be to give workers and businesses the tools to produce more value from every hour worked and every naira invested.
Nigeria does not suffer from a shortage of economic plans. Its more fundamental challenge is implementation and policy continuity.
Businesses need confidence about the economic environment they will face five, 10 or 20 years from now before committing significant capital to factories, technology, research and worker training.
A national productivity framework should therefore involve government, businesses, labour organisations, universities and other stakeholders. An independent institution dedicated to monitoring productivity and economic growth could help ensure that the issue remains a national priority rather than receiving attention only during periods of economic weakness.
Nigeria must play the long game
Productivity improvements take time.
Building a skilled workforce requires years. Developing industries takes sustained investment. Infrastructure projects require long-term financing and effective maintenance. Research and innovation may take decades before their full economic benefits become visible.
But delaying action carries a greater cost.
Nigeria’s large and youthful population can become one of its greatest economic assets if people are properly educated, trained and employed in productive activities.
The country must therefore transform its large labour force into a highly productive workforce.
The fundamental lesson is simple: Nigeria cannot achieve sustainable prosperity by relying mainly on higher oil revenues, government spending or short-term economic interventions.
It must increase the productivity of its workers, businesses and institutions.
Higher productivity is ultimately the foundation for higher wages, stronger businesses, increased government revenue, greater competitiveness and improved living standards.
Nigeria’s challenge is therefore not simply to get more people working. It is to build an economy in which every worker, enterprise and community has the tools and opportunities to produce more, earn more and contribute more to national development.
The difference between an economy that merely grows and one that delivers prosperity lies in productivity. For Nigeria, closing that gap is no longer an option. It is the central economic task.
