By Oluyemi Adeosun

Copyright businessday

Nigeria’s economy delivered its most impressive quarterly performance in four years during the second quarter of 2025, recording a robust 4.23 percent real GDP growth rate that marks the highest expansion since Q2 2021. This headline figure signals potential momentum for Africa’s largest economy, yet beneath this encouraging statistic lies a complex narrative that exemplifies Nigeria’s enduring economic challenge: growth that is broad in measurement but shallow in productivity and inclusiveness. The numbers tell a story of an economy at a critical crossroads. While the 4.23 percent growth outpaces mature economies like the Eurozone and aligns respectably with global emerging markets, it reveals structural imbalances that have defined Nigeria’s development challenge for decades. The growth represents recovery, not transformation, and understanding this distinction is crucial for both policymakers and investors seeking to navigate Nigeria’s economic landscape.

The non-oil sector’s dominance and revenue disconnect

At the heart of Nigeria’s economic architecture lies a fundamental contradiction that the Q2 data brings into sharp relief. The non-oil sector expanded by 0.97 percentage points to contribute an overwhelming 95.95 percent of total GDP, up from 94.43 percent in the corresponding quarter of 2024. This dominance underscores an undeniable reality: Nigeria’s economic future is inextricably linked to the performance of its non-oil sectors, representing a successful diversification in output terms. Yet this statistical triumph masks a profound fiscal disconnect. Despite accounting for nearly 96 percent of economic output, the non-oil sector contributes relatively little to government revenue and foreign exchange earnings. This gap stems from the sector’s largely informal, under-taxed, and fragmented nature, creating an economy that is diversified in production but not in revenue generation. The implications are profound: limited fiscal space constrains the government’s ability to finance the infrastructure and human capital investments necessary for sustained development. The 3.64 percent year-on-year growth in the non-oil economy represents significant momentum, but it must be viewed within Nigeria’s broader development imperatives. Given the sector’s size and influence, improvements in non-oil productivity will ultimately determine whether Nigeria can achieve inclusive growth and move beyond the current pattern of jobless expansion.

Read also: NEPZA woos U.S. businesses to explore investment opportunities in Special Economic Zones

Sectoral performance: Growth without depth

The composition of Q2’s growth reveals the familiar pattern of Nigerian economic expansion: impressive headline numbers driven by sectors that contribute relatively little to employment or long-term productivity enhancement. The oil sector’s dramatic rebound, with crude petroleum and natural gas growing at 20.46 percent, provided much-needed cyclical support after quarters of production instability. This resurgence, coupled with gains in mining and quarrying that expanded by 20.86 percent, propelled the broader industrial sector to a stellar 7.45 percent growth rate. However, the industrial sector’s contribution remains disappointingly low at just 17.31 percent of GDP, highlighting both its potential and current underperformance. More concerning is the manufacturing sector’s muted performance, growing by merely 1.6 percent with its GDP contribution declining to approximately 6.87 percent. The manufacturing growth that did occur was concentrated in oil refining and cement production rather than broad-based industrial upgrading, suggesting that Nigeria’s industrial development remains narrow and vulnerable to external shocks.

The services sector maintained its position as the economy’s backbone, contributing 57 percent to total GDP while recording 3.94 percent growth. Trade remains the dominant subsector at 25.93 percent of GDP, followed by agriculture at 21.04 percent and information and communication technology at 10 percent. However, the sector faces inherent limitations in driving broad-based economic transformation. Many service subsectors are non-tradable and informally organised, limiting productivity spillovers and export earnings potential. Agriculture showed improvement, with its GDP contribution rising from 23.33 percent in Q1 to 26.17 percent in Q2, while growth accelerated from 0.07 percent to 2.82 percent. Despite this progress, agricultural growth continues to lag population growth, posing negative consequences for rural incomes and food security resilience. The sector remains constrained by systemic challenges, including low mechanisation, limited irrigation, fragmented value chains, high post-harvest losses, inadequate rural finance, and security challenges in key producing regions.

The employment challenge and productivity gap

Perhaps the most troubling aspect of Nigeria’s growth pattern is its failure to generate meaningful employment opportunities. While 27 sectors recorded quarter-on-quarter growth, the structure of this expansion reveals a dangerous decoupling between size and dynamism. Trade, the largest sectoral contributor at 25.93 percent of GDP, grew by a mere 1.29 percent, while sectors like mining and quarrying delivered exceptional growth of 20.86 percent but accounted for just 2.98 percent of GDP. This pattern exposes a fundamental flaw in Nigeria’s growth model: sectors that grow fastest are often not the largest employers, and those that employ the most people barely grow fast enough to absorb new entrants into the labour force. With over four million youths entering the job market annually, Nigeria cannot afford a recovery that does not generate work. The services-led growth model, while contributing to headline GDP figures, has proven incapable of creating the medium-skill manufacturing jobs necessary for widespread employment absorption.

Infrastructure and productivity constraints

Much of Nigeria’s productivity ceiling lies in its infrastructure deficit, which acts as a binding constraint on business scalability and cost competitiveness. However, some encouraging signs emerged in Q2 data. Rail transport and pipelines grew by an impressive 43.08 percent, while water transport surged 27.90 percent, indicating a logistics rebound that could enhance overall economic efficiency. The utilities sector’s 11.24 percent growth reflects potential opportunities in power generation and distribution, critical components of any industrial development strategy. These improvements suggest that targeted investments in infrastructure could yield significant productivity gains across the economy. Companies operating in off-grid power solutions, gas-to-power projects, and cold chain logistics are particularly well-positioned to benefit if policy reforms deepen and capital constraints are addressed.

Read also: The non-negotiable future of economic inclusion

Global context and regional comparisons

When benchmarked against global peers, Nigeria’s Q2 performance appears respectable but not exceptional. The 4.23 percent growth outpaces South Africa and Egypt but trails African success stories like Kenya and Rwanda, where state-led investment, regional trade integration, and deliberate industrial policy are driving sustained transformations. Compared to export-oriented manufacturing economies or domestic demand-driven markets, Nigeria’s growth drivers reveal a continued dependence on natural resources and services rather than productive manufacturing capacity.

The trillion-dollar economy: Aspiration versus reality

The government’s assessment of Nigeria’s trillion-dollar economic aspiration reflects sobering realism: achieving such ambitious targets is not immediately feasible given current structural constraints. This honest appraisal acknowledges the magnitude of transformation required to move from statistical growth to developmental progress. The path forward requires a dual strategy of market-friendly reforms and catalytic public investments targeted at binding constraints. Critical imperatives include doubling down on manufacturing and value addition for maximum structural impact, closing infrastructure and power gaps, commercialising agriculture through a shift from subsistence to agribusiness, diversifying exports while leveraging the African Continental Free Trade Agreement, ensuring foreign exchange and macroeconomic stability, and implementing comprehensive tax reforms to broaden the revenue base by capturing the large informal economy.

Investment opportunities and strategic sectors

Despite structural challenges, several sectors present compelling investment opportunities informed by the Q2 performance data. The oil and oil-related sectors offer prospects for integrated operations, particularly for firms controlling both upstream production and downstream refining. The utilities sector’s strong growth reflects opportunities in power generation and distribution, while mining and quarrying exceptional performance indicates significant potential in Nigeria’s solid minerals diversification agenda. Transport and logistics sectors, particularly those showing exceptional growth in rail transport, pipelines, and water transport, suggest infrastructure-driven opportunities that could enhance overall economic efficiency. Financial services and insurance sectors, driven by higher economic activity and rising asset values, present opportunities for institutions with strong retail and SME operations.

Conclusion: Beyond headlines to structural change

Nigeria’s Q2 2025 GDP performance offers cautious optimism while highlighting persistent structural challenges that define the country’s development trajectory. The 4.23 percent growth is a positive signal and a recovery that merits acknowledgement, but it is not a victory to be celebrated prematurely. Rather, it represents a starting point for the harder work of structural transformation. The economy’s dependence on the non-oil sector for output but not revenue, the concentration of manufacturing growth in limited subsectors, and the services sector’s constraints in generating widespread employment all point to the need for comprehensive structural change. The current momentum provides a foundation, but realising Nigeria’s economic potential requires moving beyond fixation on headline numbers toward focused execution of policies that address binding constraints. The trillion-dollar economy goal remains achievable, but only through sustained policy commitment and strategic investments in productivity enhancement, particularly in manufacturing, agriculture, and tradable services. The time for strategic, focused, and relentless execution of structural reforms is now. Without such transformation, growth will remain a statistical achievement rather than a developmental triumph, and Nigeria’s economic potential will continue to be constrained by the very structures that have defined its challenges for decades.

Dr. Oluyemi Adeosun, Chief Economist, BusinessDay Media