Nigeria’s trillion dollar economy has a complexity problem

Nigeria's economy is vast and its exports are changing, but being diverse does not equate to being diversified. For decades, the main focus in Nigeria's economic debate has been the need to diversify away from oil. Recently, a new claim suggests that Nigeria has already achieved diversification as oil now only accounts for around five percent of the economy and its share of exports and government revenue is decreasing.

However, both the old concern and the new optimism overlook a crucial fact – a small oil share is not the same as a strong or diversified economy. And when it comes to what truly matters, Nigeria has barely started the process of diversification.

The country's economy is not severely affected by oil because over 200 million people have to make a living, most of whom are engaged in informal activities such as farming, trading, and providing services. This informal sector comprises over half of Nigeria's output, according to the International Monetary Fund's estimates, and the national accounts capture most of it.

This informal economy is a shelter, not a sign of a lack of enterprise or a weak formal economy. Diverse does not mean diversified; a diverse economy means many people engaged in small activities, while a diversified economy refers to producing a wide range of complex, valuable goods and services that others are willing to pay for.

Nigeria ranks among the least complex exporters in the world, according to the economic complexity index, because the majority of its exports are still crude oil. The country has a large informal economy, but this does not translate into a diversified or sophisticated economy. To reach a trillion dollars in economic output, spread across its 200 million people, Nigeria needs to focus on formal firms that can invest, mechanize, specialize, and scale up production.

This will lead to a significant increase in output per person, which requires producing more valuable and sophisticated goods and services, not merely producing more of the same.

The composition of Nigeria's exports has indeed shifted, with crude oil's share declining from around 70 percent in 2024 to about 50 percent by late 2025. However, this change is due to either other exports growing or crude oil's earnings decreasing. The reduction in crude's share is not diversification but rather trouble, especially considering that global oil prices softened in 2025 despite increased production.

A significant portion of what is counted as exports beyond crude oil consists of refined fuel and gas rather than new industries. While some exports are genuine and growing, accounting for around $6 billion yearly, the scale is still small, and the headline oversimplifies the situation.

There is a silver lining in the Nigerian economic landscape. The naira, which had been artificially strong, has finally been allowed to find its natural level, relieving the pressure on diversification. This correction is the most significant step taken toward diversification in recent years. However, this single development does not create a diverse, sophisticated economy.

Nigeria still needs reliable power, decent roads and ports, local inputs instead of imported ones, and financial systems that can support factories. The naira correction opens the door to exporting and import substitution, providing a tailwind for firms that produce tradable goods. Still, the hard constraints of power, logistics, imported inputs, and thin local supply chains remain, determining which firms can compete.

The winners will not be whole sectors that rise on a slogan, but specific businesses that can build competitiveness despite the environment, and eventually, own the power and inputs they lack.