Overview of the economies of Nigeria and the United Kingdom

Today’s world of business has become more globalized. Many businesses have realized the value of international trade and have moved a set further to invest in nations across their national boundaries. Investing in an international market calls for a great scrutiny and analysis of various macro and microeconomic indicators of the nation of interest (Kadocsa and Francsovics 2011, p.23). This enables businesses to identify the available opportunities, the level of competition in the market, government stability and the entire economic factors among others considering the nation of interest. Businesses access the risks of entering an international market by considering whether they will make profits or losses in the long run. The topic of interest analyses three key indicators for two nations namely Nigeria and United Kingdom. These indicators include the gross domestic product (GDP) per capita, purchasing power parity (PPP) (constant 2005 international $), internet users per 100 people and the population aged 65 and above as a percentage of the total population.

The economy of Nigeria has been doing well for the past years with the current economic growth which is measured in terms of the gross domestic product annual growth rate being estimated to be 2.7 percent. It has been ranked position 12 out of 47 nations in the Sub-Saharan Africa region in terms of economic growth. It embraces a free economy but its free market reforms plan have been implemented at a very slow rate over the past years due to the scarcity of resources in the nation (Ake 2015, p.85). According to the 2018 Index, Nigeria has been ranked position 104 in terms of economic freedom with a score of 58.5 which is a relatively low score compared to some developed nations like the United Kingdom. The overall economic performance of Nigeria is above the expected average at regional level but it is still below the expected world average performance (Aboyade 2013, p.127).

The United Kingdom is among the richest nations not only in the Europe region but also in the world. It has been doing well in terms of economic performance and still better results are anticipated in future. It has been ranked position 4 out of 44 nations in the Europe region in terms of economic performance. It also embraces free economy with well implemented free trade policies. According to the 2018 index, the United Kingdom is ranked position 8 in terms of economic freedom with a score of 78.0 which is good but still below some of the developed nations like the United States. The overall economic performance of the United Kingdom is well above the expected averages both at the regional and world levels (Tanzi 2010, p.400).

Gross domestic product indicates all the final goods and services market value for a given country over a period of time. It can be used to access the economic performance of a nation over a given period of time (Rajewski 2014, p.71). Gross domestic product per capita indicates the gross domestic product per individual in a given nation. The purchasing power parity indicates the exchange rate adjustments which should be made between the currencies of two nations in order to make them equal considering the consumer’s purchasing power in each nation (Taylor 2013, p.436). It can be used as a tool for comparing consumer levels of income across different nations. The gross domestic product per capita based on the purchasing power parity indicates the gross domestic product per individual which has been converted to international dollars, usually the US dollar by use of the rates of the purchasing power parity (Carvalho, Diniz, Lacerda and Mello 2012, p.407). It indicates the standards of living for individuals across different nations. For our case the GDP per capita, PPP is based on the international dollar for the year 2005. The following data has been obtained for Nigeria and the United Kingdom:

Comparisons

Table 1: Nigeria and the United Kingdom GDP per capita, PPP (constant 2005 international $)

the United Kingdom has higher GDP per capita, PPP (constant 2005 international $) values than Nigeria. The data values for Nigeria range from $2934 to $5334 while those of the United Kingdom range from $34669 to $38384. This indicates that the people of the United Kingdom have higher standards of living compared to Nigerians. Considering the trend of the data or the two nations, the GDP per capita, PPP (constant 2005 international $) for Nigeria has been increasing throughout the period 2002 to 2012. This is an indication that the economy of Nigeria has been increasing in terms of economic growth from the year 2002 to 2012. The trend for the United Kingdom is a bit different. The GDP per capita, PPP (constant 2005 international $) for the United Kingdom, increased from the year 2002 to 2007. However the values decreased drastically due to the world financial crisis that hit hard the economy of the United Kingdom slowing down its economic growth. After the year 2009, the economy recovered from its low performance and continued to grow again. Due to the increase in the economic performance after the economy recovered, the standards of living of the citizens of the nation started to increase again. The difference between the two nations is explained by four factors namely the physical capital, human capital, the level of unemployment and technology.

The physical capital of a country generally refers to its infrastructure. Infrastructure may be in form of roads, factories and machinery among others. The United Kingdom has an improved infrastructure compared to Nigeria. The United Kingdom tends to use capital intensive methods of production which are more productive as compared to the labor intensive methods used by Nigeria. As a result, the GDP of the United Kingdom is higher than that of Nigeria and hence the United Kingdom has a higher GDP per capita, PPP converted.

Human capital generally reflects the quality of labor of a country (Schultz 2011, p.1). Considering the period 2002 to 2012, the United Kingdom had heavily invested in human capital by improving the quality of its education system as compared to Nigeria which had a poor education system. The highly skilled labor force of the United Kingdom contributed much towards improving the nation’s productivity and hence its higher GDP per capita, PPP converted.

The level of unemployment reflects the number of people working in a given country (Mortensen and Pissarides 2014, p.397). Considering the year 2002 to 2012, Nigeria had a higher rate of unemployment averaging 7 percent as compared to the United Kingdom which had unemployment rate averaging 5 percent. This means that the United Kingdom had a higher population working than that of Nigeria and hence it had a higher GDP per capita, PPP converted.

As an international business, a higher GDP per capita, PPP converted indicates higher levels of consumer income. This means that the demand for goods and services will be higher in a nation which has a higher GDP per capita, PPP converted. Based on the data an investment in United States is likely to do much better as compared to that in Nigeria.

Gross Domestic Product (GDP) per capita, purchasing power parity (PPP) (constant 2005 international $)

Also the GDP per capita, PPP converted for both countries has been rising towards the end of the period. This means that both nations are still expanding in terms of economic growth and hence one can choose to invest in either nation. However it will be wise to invest in Nigeria since it has a huge gap of expansion and the level of competition between firms is low.

In today’s world of business, internet plays a very crucial role towards improving the productivity of businesses and that of their entire economies. Through internet, businesses can access proper methods of production in order to improve their productivity efficiency and hence increase their profits (Maliranta and Rouvinen 2014, p.213). People can also access labor in different nations and secure jobs. The following data has been obtained for Nigeria and the United Kingdom from the year 2002 to 2012:

Table 2: Nigeria and the United Kingdom Internet users (per 100 people)

According to the data from the year 2002 to 2012, the United Kingdom has more internet users than Nigeria. This means that more businesses in the United Kingdom access proper modern methods of production through internet and through this they have been able to increase their efficiency in productivity. This has enabled them to increase their profits and contribute much towards improving the performance of the entire economy. This is one of the major factors which have made the United States to have a better economic growth.  

Considering the trend of the data, both the nations’ use of technology was increasing from the year 2002 to 2008. This is due to advancement of technology especially the introduction of mobile phones during the year 2007. By the year 2012 88 percent of the people of the United Kingdom had access to the internet while Nigeria had only 39 percent. United Kingdom had and still has more internet users than Nigeria due to the following reasons:

The United Kingdom had improved infrastructure in terms of technology by the year 2002 when the government of Nigeria was still trying its best to increase its expenditure in improving its Information Communication Technology sector (ICT) (Nehru and Dhareshwar 2013, p.37). By the year 2002, more than 90 percent of Nigerians had no access to internet when United States had more than 50 percent of its citizens having access to the internet. This brought about a huge gap between the two nations in terms of internet usage.

Comparing the two nations over the period 2002 to 2012, Nigeria had lower minimum wages compared to the United Kingdom. Internet cost was higher than the Nigeria’s minimum wage but lower than that of the United Kingdom. This means that more people could afford to pay internet in the United Kingdom than in Nigeria and hence the United Kingdom had more internet users.

The level of internet usage from the year 2009 to 2012 has been decreasing for the United Kingdom but increasing for Nigeria. This means that investment in information technology in the United Kingdom is likely to fail as the sector is already saturated. On the other hand, there is opportunity of investing in the IT sector of Nigeria as internet usage in the nation continues to improve with the government spending much in improving the sector to attract more investments from foreigners.

Physical capital

The age of the population plays a major role in determining the economic growth of a nation (Blackburn, Hart and Wainwright 2013, p.8). The following data (Table 3) has been obtained for Nigeria and the United Kingdom for the population aged 65 and above as the percentage of the total population. From the data, there is much difference between the percentages of aged persons above 65 years for the two nations. Between the years 2002 to 2012, the percentage averages percentages are 2.76% for Nigeria and 16.7% for the United Kingdom. The difference is brought about by the difference in levels of health care n both nations. The United Kingdom had invested much in the health sector with over 15 percent allocation of its public expenditure while Nigeria had only 6 percent investment in public health. The graph for the data has been plotted in figure 3 below.

Table 3: Nigeria and the United States Population ages 65 and above (% of total)

The meaning of the data to an international business

Nigeria consists mainly of a young growing population while the United Kingdom consists of an aged population. This means that there is a great opportunity for investing in Nigeria as young people have high demand on products especially the modern technology products. Demand is always higher in a young growing population like Nigeria than in an aged population like that of the United Kingdom.

Conclusion and Recommendations

Today’s world of business has become highly globalized and many businesses have entered international trade (Levitt 2013, p.249). Macro and microeconomic analysis for nations targeted for investment by international businesses is important to ascertain the viability of businesses in the targeted nations. Various factors define a nation’s macro and microeconomic environment. They include unemployment rates, population growth and structure, interest and inflation rates, gross domestic product and the political stability of the targeted nation (Handwerker 2016, p.47). In the research two nations Nigeria and the United States have been analyzed based on three factors namely, the GDP per capita, PPP (constant 2005 international $), the population aged 65 years and above as a percentage of the total population and internet usage per 100 people in each nation. The trend for the various data sets obtained has been established and the viability of international business investment in the two nations has been accessed based on the three factors.

Considering the GDP per capita, PPP (constant 2005 international $) from the period 2002 to 2012, the United Kingdom has a higher GDP per capita, PPP (constant 2005 international $) than Nigeria. This means that it would be advisable for an international business to invest in the United Kingdom as consumers have a higher purchasing power which is likely to cause high demand on products. However considering the trend for the data, both nation’s GDP per capita, PPP (constant 2005 international $) has been increasing and Nigeria has a huge gap for improvement since it is a developing nation. Putting this into consideration and also the level of competition in both nations, it would be advisable for a business to invest in Nigeria.

Considering the number of internet users per 100 people in both nations, ICT is well established in the United States than Nigeria. The trend for the data shows that both nations internet usage has been increasing for the period 2002 to 2012. For an international business it would be advisable to invest in Nigeria as it has a huge gap for improvement in the ICT sector and its government is investing much into the sector to attract FDIs.

Considering the population aged 65 years and above, the United States has a higher percentage of the aged people due to its improved health sector. Nigeria on the other hand consists mainly of a young population. For an international business, it would be advisable to invest in Nigeria due to its young growing population. Demand is higher for the youths compared to the aged population and this may contribute much towards the success of businesses in the nation.

In a nutshell, expansion of business operations beyond national boundaries due to globalization is good as it improves business profitability and contributes much towards improving the respective nation’s economic growth. However, extensive research should be done to investigate the macro and microeconomic factors of various nations of interest to access business viability in the nation.

References 

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