Nigeria’s services sector has emerged as a dominant force in the country’s economic landscape, contributing over 53.6% of GDP in the third quarter of 2024. This mirrors global trends where, as economies mature, services become a key driver of growth. Countries such as India and Brazil have harnessed the dynamism of their services industries to stimulate economic expansion while maintaining strong linkages with manufacturing and technology. However, Nigeria’s reliance on a services-led growth model raises concerns about its ability to sustain broad-based development.
Theoretical Perspectives on Services-Led Growth
Classical economic theories, as espoused by Adam Smith and David Ricardo, emphasise the central role of manufacturing and agriculture in economic development. More recent models, including those advanced by Paul Krugman and Dani Rodrik, acknowledge the potential of services-led growth, particularly in knowledge-intensive economies. The endogenous growth theory highlights the role of innovation and knowledge-driven activities, often concentrated in the services sector, as key drivers of long-term economic progress.
Services-led growth is based on the premise that industries such as finance, telecommunications, and information technology can generate significant value through innovation and efficiency gains. India exemplifies this model, with its services sector contributing over 55% of GDP and playing a crucial role in the country’s economic transformation. Brazil, too, has leveraged its services sector, which accounts for approximately 70% of GDP, to drive economic development while maintaining a diversified industrial base.
A closer examination of India and Brazil provides instructive lessons. India’s evolution over recent decades illustrates that services-led growth can yield positive outcomes when supported by proactive industrial and agricultural policies. The country’s robust IT and telecommunications industries have been complemented by sustained improvements in manufacturing capacity, resulting in the creation of millions of high-quality jobs and notable gains in labour productivity.
Brazil’s experience, by contrast, demonstrates the risks inherent in an over-reliance on services when manufacturing and agriculture are less developed. Despite high urbanisation and consumer spending, Brazil’s limited industrial base has contributed to structural imbalances. In addition, comparisons with China reveal that a balanced transition – wherein rapid industrialisation is followed by a growing services sector – may offer a more resilient path to sustainable growth. These global benchmarks underscore the necessity for Nigeria to adopt a diversified strategy that integrates services with manufacturing and agriculture.
The Current Landscape in Nigeria
Nigeria’s economic development has been largely driven by the expansion of its services sector, particularly telecommunications and financial services. The telecommunications industry has enhanced connectivity and innovation, while the financial sector has experienced significant growth, fuelled by mobile banking and digital financial services. However, critical limitations persist.
One major challenge is the sector’s limited capacity to generate widespread, high-quality employment. The majority of jobs in telecommunications and finance are concentrated in urban areas and require specialised skills, leaving a large segment of the population with limited opportunities. In contrast, manufacturing and agriculture have the potential to absorb a broader share of the workforce, particularly in rural regions.
Additionally, while the services sector contributes significantly to GDP, its impact on industrial productivity remains weak. For example, despite the financial sector’s expansion, its capacity to spur large-scale industrial development is questionable. Without strong interlinkages between services and other sectors, the broader economy struggles to reap the full benefits of services-led growth.
Despite the dominance of services in GDP composition, Nigeria remains heavily reliant on oil revenues, which account for over 75% of export earnings and a significant portion of government income. This dependence exposes the economy to volatility, as fluctuations in global oil prices can have immediate and severe consequences for public finances.
The absence of strong linkages between the services sector and other productive industries exacerbates economic fragility. For instance, when oil prices decline, government spending is constrained, reducing demand for services. This vulnerability became evident following the removal of fuel subsidies, which triggered fiscal tightening. A more diversified economic model is essential to buffer external shocks and ensure long-term stability.
Empirical Data and Structural Weaknesses
Recent data from the Nigerian Bureau of Statistics and the International Monetary Fund (IMF) present a mixed picture of Nigeria’s economic prospects. While the services sector contributed over 53.6% to GDP in 2024, GDP per capita declined to $835 in 2025. In contrast, India’s services sector not only drives GDP growth but also supports a strong manufacturing base that has generated extensive employment. Brazil similarly maintains a diversified economic structure, balancing services with manufacturing and agriculture.
Statistical insights reveal that while Nigeria’s services sector has experienced robust growth in urban centres such as Lagos and Abuja, employment in the sector has not kept pace with GDP expansion. The unemployment rate remains high, and many jobs created are in the informal economy with limited social protection. This imbalance underscores structural weaknesses that could undermine long-term economic stability.
Policy Recommendations
To build a more resilient and inclusive economy, Nigeria must adopt a multi-pronged approach that extends beyond a reliance on the services sector. The following policy measures are recommended:
1.Diversify Growth Drivers:
Strengthen the inter-linkages between services, manufacturing and agriculture. Investment in critical infrastructure – such as reliable electricity and modern transportation networks – is essential to support industrial expansion. Promoting public-private partnerships in sectors that integrate services with manufacturing can help boost productivity and employment.
2.Enhance Skills and Education:
Expand investment in education and vocational training programmes to equip the workforce with skills relevant to both the services and industrial sectors. Such programmes should be designed to meet the evolving demands of a knowledge-based economy and facilitate the transition of workers from informal to formal employment.
3.Improve Regulatory Frameworks:
Simplify business regulations and reduce bureaucratic obstacles to attract investment in manufacturing and agriculture. Streamlined administrative procedures will lower entry barriers for small and medium-sized enterprises and support the development of a more balanced economic structure.
4.Strengthen Governance and Anti-Corruption Measures:
Enhance the efficiency of public resource utilisation by reinforcing anti-corruption initiatives and ensuring that revenues from oil and other sectors are channelled into economic diversification. Robust governance structures are vital to sustaining investor confidence and fiscal stability.
5.Develop Robust Social Safety Nets:
Implement comprehensive social protection programmes to safeguard vulnerable segments of the workforce. Targeted cash transfers and employment guarantee schemes can mitigate the adverse effects of structural shifts and ensure that the benefits of growth are more widely distributed.
Conclusion
Nigeria’s economic trajectory underscores both the potential and limitations of a services-driven growth model. The services sector’s contribution of over half of GDP is commendable, but without a complementary expansion in manufacturing and agriculture, the overall economic structure remains fragile. Comparative evidence from India and Brazil highlights the necessity of diversified growth for sustainable employment generation and economic resilience.
Despite impressive figures in the services sector, Nigeria’s GDP per capita remains stagnant, and employment opportunities are largely informal. Additionally, heavy reliance on oil revenues heightens fiscal vulnerability. These challenges call for comprehensive structural reforms to support long-term development.
Policymakers must embrace a diversified growth strategy that leverages the services sector while strengthening manufacturing and agriculture. By enhancing skills, streamlining regulations, and building robust social safety nets, Nigeria can secure long-term prosperity and stability for its rapidly growing population. The IMF and other international institutions remain available to support these endeavours. Ultimately, only a balanced and diversified growth model can guarantee Nigeria’s economic resilience in the years ahead.
