By Marie Frati and Emalee Ro
Prior to the discovery of oil, Nigeria depended heavily on agricultural exports to supply its economy. Its major exports were cash crops, groundnut, hide, cocoa, coffee, and palm oil (Okotie, 72). Agriculture provided employment for about 30% of the population, and accounted for around 80% of Nigerian export earnings (Okotie, 72). Now, however, the share of agricultural products in total exports is approximately 5.01%, compared to 70% in 1960. While it was once known for its agricultural contributions to the international market, Nigeria is now a net importer of food. Something else–oil–has taken agriculture’s place.
In 1956, Shell-BP discovered commercially viable oil. Crude oil production began soon after that, resulting in over 847,000 tons of crude oil exported in 1960. Over the last four decades, the oil sector has on average accounted for over 90% of total export earnings and over 30% of Nigeria’s GDP (Aigheyisi, 31). Nigeria is currently Africa’s largest oil producer and a significant global oil exporter, with most of its oil going to Asia, Europe, and South America. The discovery of crude oil has had a substantial impact on the economic structure of Nigeria.
This structural development brings greater risk of instability since crude oil prices are subject to frequent change. As an example, crude oil prices ranged from negative territory in 2020 to $90 per barrel less than two years later. Given that Nigeria’s economy is so focused on a highly volatile sector, we investigate the effects of the oil crisis from 2014 to 2016 on real GDP per capita growth and unemployment rates in Nigeria. During this period, the global economy faced a significant decline in crude oil prices. More specifically, prices plummeted from around $112 per barrel in June 2014 to a low of $31 in January 2016. This exhibits a drop of roughly 70%. This price plunge was caused by a combination of rising efficiency gains in U.S. shale oil, OPEC’s policy stance (not cutting production despite falling prices), and weakening global growth. During this same time, Nigeria’s economy experienced its first recession in over two decades.
Since GDP and unemployment rates are used as indicators of the health of a nation, finding a connection between crude oil prices and these macroeconomic indicators gives insight into how Nigeria’s dependence on oil impacts the nation’s health. Consequently, our research could then inform policy regarding fluctuations in GDP growth and unemployment rates due to oil prices.
Data Analysis
Figure 1 displays the percent change in Nigeria’s real GDP per capita and the global crude oil price from 2009 to 2023 with data from the International Monetary Fund. The 2014-16 oil crisis is highlighted in gray. We observe that the percent change of Nigeria’s real GDP per capita follows fluctuations in the global price of oil quite closely. This holds true especially after global oil prices began to plummet in 2014 due to an increase in supply of American oil, ending in 2016 with one of the last century’s biggest drops in oil prices (Stocker, Baffes, and Vorisek, 2018). From 2014 to 2016, Nigerian real GDP per capita went from growing at a decreasing rate to shrinking by 2015 as the price of oil fell. While the oil prices–measured in nominal US dollars–in our data may be affected by inflation, it is still undeniable that Nigerian real GDP per capita decreased as oil prices fell. This is likely because oil created 62% of government revenue and 94% of profits from exports in 2015 (Nigeria’s Future Workforce Trends, 4). Government expenditure and exports are both components of GDP, and, in fact, government expenditure makes up most of Nigeria’s aggregate spending. One of the main reasons why growth in Nigerian real GDP per capita follows oil price fluctuations, especially during 2014-2016, is because the Nigerian national budget is based on expected price per barrel of crude oil (Aigheyisi, 32). Once the price started falling in 2014, the national budget started shrinking, and continued to do so because of uncertainty in oil prices. Since aggregate spending in Nigeria was mainly government expenditure, the shrunken national budget had a large effect on GDP. Paired with low export revenue, it explains why the growth of real GDP per capita in Nigeria plunged with oil prices.
Figure 1
Source: International Monetary Fund
What we do not see, however, is a large impact on youth unemployment rates due to oil prices. Figure 2 shows the Nigerian youth unemployment rate and, again, the global crude oil price from 2011 to 2019 with data from the International Monetary Fund and the World Bank. The youth unemployment rate has steadily increased since 2013, while the price of oil fluctuates from year to year. The oil sector only makes up 0.19% of the workforce, which may explain why we don’t see the price of oil impacting the youth unemployment rate greatly (Nigeria’s Future Workforce Trends, 6). The steadily increasing youth unemployment rate can mostly be attributed not to oil prices, but to Nigeria’s fast growing population, which increases at almost double the average worldwide rate (Nigeria’s Future Workforce Trends, 7). Nigeria’s labor force increases by an average of 2.6 million people per year, but nowhere near that amount of jobs are created annually. In 2016, during the oil crisis, the labor force increased by 3.7 million, but there were only 422,135 new jobs (Nigeria’s Future Workforce Trends, 5). Those aged 15-24 make up most of the unemployed, since there simply isn’t enough job creation, regardless of oil prices, to support such a rapidly growing population.
Figure 2
Sources: International Monetary Fund and World Bank
Oil prices, while not directly related to unemployment rates, can have an indirect impact on job creation. Weak infrastructure across Nigeria, such as poor public transportation and lack of electricity, contribute to the unsustainability of business, which could be sources of employment. As we discussed above, when the price of oil is high, the Nigerian national budget increases. When oil prices are lower, as they were after 2014, the government spends less on things such as infrastructure. Therefore, with higher oil prices, the government could spend more money on things like roads and power grids that could support job-creating businesses, leading to lower unemployment. However, oil crises, like that from 2014 to 2016, don’t allow the government money to spend on infrastructure, stunting the growth of the business sector.
Conclusion
Our analysis reveals that there is a strong correlation between declines in crude oil prices and declines in the growth of real GDP per capita in Nigeria during the 2014-2016 oil crisis. This can be explained by Nigeria’s heavy reliance on the oil industry since it then directly influences export earnings and government spending. The Nigerian economy is highly susceptible to oil price shocks—something that can be seen by GDP contractions when oil prices fall. This connection between crude oil prices and GDP does not, however, extend to unemployment rates. The persistent rise in youth unemployment is primarily driven by Nigeria’s rapidly expanding population and insufficient job opportunities, not job losses during oil price downturns. Looking ahead, future economic policies should aim to diversify Nigeria’s economy such that it becomes less dependent upon the oil sector. In addition, other economic policies should aim to address the structural issues, like weak infrastructure, that contribute to youth unemployment.
References
- Bandura, Romina, and MacKenzie Hammond. “Nigeria’s Future Workforce Trends: Challenges and Drivers.” The Future of Global Stability: The World of Work in Developing Countries. Center for Strategic and International Studies (CSIS), 2018. http://www.jstor.org/stable/resrep22496.5.
- International Monetary Fund, Global price of WTI Crude [POILWTIUSDM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/POILWTIUSDM, March 6, 2025.
- International Monetary Fund, Real GDP Per Capita for Nigeria [NGANGDPRPCPCPPPT], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/NGANGDPRPCPCPPPT, March 6, 2025.
- Okotie, Sylvester. “The Nigerian Economy Before the Discovery of Crude Oil” in The Political Ecology of Oil and Gas Activities in the Nigerian Aquatic Ecosystem, edited by Prince E. Ndimele, Pages 71-81, 2018. https://doi.org/10.1016/B978-0-12-809399-3.00005-7.
- Oziengbe, Scott Aigheyisi. “Oil Price Volatility and Business Cycles in Nigeria.” Studies in Business and Economics 13, no. 2 (2018): 31-40. doi:https://doi.org/10.2478/sbe-2018-0018. https://login.ezproxy.bowdoin.edu/login?url=https://www.proquest.com/scholarly-journals/oil-price-volatility-business-cycles-nigeria/docview/3158325188/se-2.
- Stocker, Marc, John Baffes, and Dana Vorisek. “What Triggered the Oil Price Plunge of 2014-2016 and Why It Failed to Deliver an Economic Impetus in Eight Charts.” World Bank Blogs, January 18, 2018. https://blogs.worldbank.org/en/developmenttalk/what-triggered-oil-price-plunge-2014-2016-and-why-it-failed-deliver-economic-impetus-eight-charts.
- World Bank, Youth Unemployment Rate for Nigeria [SLUEM1524ZSNGA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/SLUEM1524ZSNGA, March 6, 2025.