By Dipo Aliu

Gross Domestic Product (GDP) is one of the most critical economic indicators that reflect a country’s economic health. It determines the total value of goods and services produced within a nation over a specific period. Nigeria, despite its abundant natural resources and large population, struggles with a relatively low GDP compared to other developing economies. This article explores how GDP is calculated, its significance, the reasons behind Nigeria’s economic underperformance, and potential solutions for growth.

GDP can be calculated using three main approaches: Production Approach (Value-Added Method). This approach calculates GDP by summing the value added at each stage of production within the economy. It avoids double counting by including only the final value of goods and services.

Income Approach. This method measures GDP by adding all incomes earned in an economy, including: Wages and salaries (compensation of employees), Profits of businesses, rent from properties, Interest earned on investments, Taxes (minus subsidies)

The most commonly used method, GDP is calculated using the formula: GDP = C + I + G + (X – M) Where: C = Consumer spending; I = Investment spending by businesses; G = Government spending; X = Exports and M = Imports. Each of these methods should, theoretically, result in the same GDP figure when accurately measured.

Why is GDP Important in Nation Building? GDP serves as a fundamental indicator for national development. It is crucial because it measures economic performance: GDP provides a clear picture of how well an economy is performing over time. It Influences Investment Decisions: Investors look at GDP growth rates to decide where to invest, guides government policy: Policymakers use GDP data to craft fiscal and monetary policies. It also determines living standards: A higher GDP generally correlates with improved infrastructure, healthcare, education, and overall well-being and affects creditworthiness and foreign relations: A strong GDP makes a country attractive for foreign loans and trade partnerships.

Despite being Africa’s largest economy, Nigeria’s GDP per capita remains low relative to its population size. Several factors contribute to this issue:  Overreliance on Oil. Nigeria’s economy is highly dependent on crude oil exports, which account for over 80% of its foreign exchange earnings. This makes the GDP vulnerable to oil price fluctuations. Unlike economies such as Malaysia and Indonesia that diversified early, Nigeria remains largely mono-productive.

 Low industrialization and poor manufacturing base. Nigeria imports a large percentage of its essential goods instead of producing them domestically. The manufacturing sector contributes only about 10% to GDP, compared to countries like China or India, where manufacturing plays a dominant role.

Poor infrastructure and energy supply. An erratic power supply, bad roads, and inefficient transportation systems hinder productivity. The lack of stable electricity alone has led many businesses to rely on costly generators, reducing competitiveness.

Inefficient agricultural sector. Despite being an agrarian nation, Nigeria fails to maximize its agricultural potential due to poor mechanization, lack of access to credit, and post-harvest losses. Countries like Brazil and Thailand have leveraged agriculture to boost GDP, while Nigeria still struggles.

High corruption and bureaucracy. Corruption diverts funds from productive sectors into private pockets. Bureaucratic inefficiencies in business registration, land acquisition, and trade further discourage investors.

 Poor human capital development. Nigeria ranks low in education and healthcare, leading to an unskilled workforce. In contrast, emerging economies like Vietnam and South Korea invested heavily in education, ensuring a skilled labor force to drive productivity.

Security challenges and political instability. Insecurity, particularly terrorism, banditry, and kidnappings, discourages local and foreign investment. Regions plagued by violence struggle to contribute meaningfully to GDP.

Weak institutions and lack of policy continuity. Frequent policy reversals and inconsistent economic strategies create uncertainty for businesses and investors.

 Strong institutions in countries like Singapore helped sustain long-term growth.

Economic diversification. Reduce dependence on crude oil by boosting agriculture, technology, manufacturing, and renewable energy. 

Strengthen local industries through targeted incentives and protectionist policies where necessary.

Infrastructure development. Invest in roads, rail, and power generation to boost industrial productivity.  Expand digital infrastructure to support e-commerce and innovation.

Improve human capital development

• Reform education and vocational training to produce a more skilled workforce.  Invest in healthcare to improve life expectancy and productivity.