1. Long term global economic trends and implications for Nigeria
pwc.co.uk/economics-policy
Long term global economic trends and implications for Nigeria
John Hawksworth
Chief Economist, PwC
June 2015
Confidential Draft

2. World in 2050 study – motivation and methodology
Agenda
World in 2050 study – motivation and methodology
Key findings from World in 2050
The importance of institutions
Implications for Nigeria: challenges and opportunities for growth
Discussion
Long term global economic trends and implications for Nigeria •

3. World in 2050: motivation and methodology1
Long term global economic trends and implications for Nigeria • 1

4. Section 1 – World in 2050: motivation and methodology
What is the motivation for our World in 2050 study? Some key questions the analysis helps to answer
How fast will global economic power shift to Asia and other emerging markets such as Nigeria?
How much will an ageing population slow down GDP growth?
How important are institutions in enabling long term growth?
How will technological change, investment and education affect economic growth?
Long term global economic trends and implications for Nigeria • 2

5. World in 2050 Country coverage
Section 1 – World in 2050: motivation and methodology
World in 2050 Country coverage
Our original ‘World in 2050’ study in 2006 made long-term GDP projections for the 17 largest economies in the world based on GDP at purchasing power parities (PPPs):
G7 plus Spain, Australia and South Korea
E7 emerging economies:
BRICs (Brazil, Russia, India and China); and
Indonesia, Mexico and Turkey.
Current study: Expanded to cover 32 leading economies including Nigeria, South Africa and Egypt within Africa, covering around 84% of global GDP in 2014.
Long term global economic trends and implications for Nigeria • 3

6. How can we make GDP projections so far into the future?
Section 1 – World in 2050: motivation and methodology
Methodology
How can we make GDP projections so far into the future?
We ignore short-term cyclical variations (very hard to predict) and focus on long-term supply side fundamentals (slightly easier)
Assume no major global catastrophes or political shifts that cut economies off from the flow of new technologies and ideas that drive long-term growth
Growth in the World in 2050 model is driven by four main supply side factors (using a Cobb-Douglas production function):
Investment in physical capital
Working-age population growth
Investment in human capital
Catch-up with US total factor productivity levels
Focus on GDP at PPPs, but include market exchange rate projections
Long term global economic trends and implications for Nigeria • 4

7. Key findings from World in 2050
Long term global economic trends and implications for Nigeria • 5

8. Nigeria (but depends on high rate of population growth)
Section 2 – Key findings from World in 2050
Breakdown of average real GDP growth (in domestic currency/PPPs) Nigeria projected to have highest average annual growth rate (5.3% p.a.) during the period to Chinese growth slows sharply in long run (3.4% average).
Nigeria (but depends on high rate of population growth)
India
China
Euro area
and Japan US
Long term global economic trends and implications for Nigeria • 6

9. Nigeria also expected to see some deceleration in growth from 6-7%
Section 2 – Key findings from World in 2050
GDP growth profile of major economies - reversion to the mean Growth in China will moderate sharply after 2020 – could grow at only 2.5-3% p.a. by the 2040s. Indian growth will also slow after 2020, but much less sharply.
Nigeria also expected to see some
deceleration in growth from 6-7%
in medium term to 5-6% in long run
Long term global economic trends and implications for Nigeria • 7

10. Large gap between Big 3 and rest by 2050.
Section 2 – Key findings from World in 2050
GDP rankings (at PPPs and MERs) in 2050 (USA = 100) By 2050, our model suggests that China, the US and India are likely to be by far the three largest economies in the world
Large gap between Big 3 and rest by 2050.
Nigeria – could move into top 10 by 2050 (15-18% of US GDP)
Source: PwC projections (first bar shows GDP at PPPs, second bar GDP at MERs)
Long term global economic trends and implications for Nigeria • 8

11. Section 2 – Key findings from World in 2050
US, China, India and EU as a % of world GDP at PPPs China and India will become increasingly important as trade and investment partners for economies like Nigeria, while the relative importance of US and EU will decline
China US EU
India
Long term global economic trends and implications for Nigeria • 9

12. Section 2 – Key findings from World in 2050
Population projections for major economies China and India will account for about 3 billion of the world’s total population by 2050
Source: UN projections
Long term global economic trends and implications for Nigeria • 10

13. 2 Key findings from World in 2050
GDP per capita of key economies in 2050 Average income levels of advanced economies in 2050 will still be much higher than emerging economies – Nigeria still lagging well behind at 17% of US level in 2050
Nigeria
Long term global economic trends and implications for Nigeria 11

14. The importance of institutions3
Long term global economic trends and implications for Nigeria • 12

15. PwC ESCAPE Index - Methodology
Section 3 – The importance of institutions
PwC ESCAPE Index - Methodology
20 variables
5% weight each
Normalised
Economic
GDP per capita, PPP
GDP per capita (previous 10 year CAGR %)
Annual inflation
General government gross debt
Adjusted trade openness
Total investment
Unemployment rate
Current account balance (% of GDP)
40%
42 countries
Environmental
Access to an improved water source
CO2 emissions
10%
Social
Life expectancy at birth
Average years of total schooling
GINI Index
Most people can be trusted (%)
20%
ESCAPE Index
Political
Political stability
Control of corruption
Rule of law
Ease of doing business index
20%
Communications
Internet users
Mobile cellular suscriptions
10%
Long term global economic trends and implications for Nigeria • 13

16. 3 The importance of institutions
PwC ESCAPE Index – emerging economies still lag behind in quality of political and economic institutions
Nigeria
Long term global economic trends and implications for Nigeria 14

17. Section 3 – The importance of institutions
The importance of institutions Relative weaknesses of largest emerging markets based on PwC ESCAPE Index components – Nigeria has several key institutional weaknesses to address
Country
Economic growth and stability
Political and social institutions
China
Credit bubble might pose future problems
Ease of doing business, political stability, rule of law, income inequality
India
Inflation, current account deficit
Political stability, corruption, rule of law, income inequality, ease of doing business
Brazil
Inflation, investment to GDP ratio, current account deficit, government debt
Low trust levels
Russia
Low investment to GDP ratio
Corruption, income inequality
Indonesia
Mexico
GDP per capita growth, low investment to GDP ratio
Corruption, rule of law, trust, ease of doing business
Nigeria
Political stability, income inequality, corruption, rule of law, ease of doing business
Long term global economic trends and implications for Nigeria • 15

18. Implications for Nigeria: challenges and opportunities for growth4
Long term global economic trends and implications for Nigeria • 16

19. Challenges for Nigeria
Section 4 – Implications for Nigeria
Challenges for Nigeria
Political stability, corruption and the rule of law – requires great political will and consensus for change to underpin long-term reform (c.f. UK in 19th century, US in early 20th century, SE Asia since 1960s/70s)
Infrastructure investment – energy (particularly power supply to reduce dependence on diesel), transport, communications, water, sanitation
Education – aiming for Asian levels of achievement in maths and science
Poverty and income inequality – broader and more progressive tax system with increased compliance; increased investment in healthcare, education and better public services (which people will expect if taxes rise)
Jobs – critical to avoid the demographic dividend becoming a curse, which also requires more investment in education and skills
Diversification – to reduce reliance on oil for exports and government revenues, reducing exposure to global shocks and rent-seeking behaviour – the fall in oil prices since mid-2014 provides an incentive to move faster on this.
Long term global economic trends and implications for Nigeria • 17

20. Opportunities for growth in Nigerian output and jobs
Section 4 – Implications for Nigeria
Opportunities for growth in Nigerian output and jobs
Retail and consumer: rapidly expanding middle class should drive growth (but need to reduce reliance on imports of consumer goods and address issues on land availability for large modern stores and road quality for logistics)
Agriculture: need to raise yields through mechanisation, greater use of fertilisers, shift to higher value crops and greater economies of scale
Manufacturing: under-developed (c.7% of GDP) but could grow rapidly in areas like food processing, automotive and textiles if supported by investment in power supply, better transport links and a more skilled labour force
Construction: could be a boom area with continued urbanisation and increased infrastructure investment
Financial and professional services: after the post-crisis reforms, financial sector is more stable and professional services could grow on the back of this expansion as Lagos becomes a key finance hub in Africa
Strategies need to be tailored to strengths of individual States
Long term global economic trends and implications for Nigeria • 18

21. Discussion 5
Long term global economic trends and implications for Nigeria • 19

22. Contacts and website
John Hawksworth
Chief Economist, PwC UK
T: +44 (0) E:
The full report and other supporting material are available at:
This forms part of our wider Megatrends research programme:
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