IB Economics 3.7 Supply Side Policies Questionbank

Nigeria’s Economic Dynamics

Nigeria is a country in West Africa with an estimated population of $213$ million in $2022$. The nation’s real GDP expanded by about $3.2\%$ in $2022$, an increase from $2.5\%$ in $2021$, while the inflation rate rose from $16.0\%$ to $21.3\%$ over the same period. Faced with high prices, policymakers have resorted to both demand-side management, such as raising interest rates, and supply-side policies, including greater infrastructure spending.

Nigeria’s economy relies heavily on the oil sector, which accounts for roughly $57\%$ of government revenues and $80\%$ of export earnings. Global oil price fluctuations often lead to exchange rate volatility. In $2022$, the naira (NGN) depreciated from $380$ NGN per US dollar in early $2021$ to approximately $440$ NGN per US dollar by the end of . The government has tried using open market operations and capital controls to stabilize currency movements.

Although energy dominates the export profile, agriculture is a large employer in Nigeria. However, the sector faces obstacles like inadequate infrastructure, insufficient access to technology, and local security challenges. Meanwhile, technology and telecommunications are experiencing rapid expansion fueled by the surging number of mobile phone users. The private health-care sector supported by foreign direct investment (FDI) from international hospital groups has also been growing, especially in urban regions.

The country is in talks on a free trade agreement (FTA) with other members of the Economic Community of West African States (ECOWAS). The deal targets removing most tariffs by $2030$ to enhance intra-African trade. Some critics, however, warn of exposing Nigeria’s infant industries—especially in agriculture and manufacturing—to foreign competition. Advocates argue that lower trade barriers could encourage foreign direct investment, boost production, and reduce unemployment.

Market failure concerns arise particularly in oil extraction, where pollution imposes negative externalities on the broader population. According to the Ministry of Environment, there were over $200$ recorded oil spills in $2021$, causing health hazards and damaging local fisheries. Proposed solutions include tradable pollution permits and subsidies for cleaner technology to reduce external costs.

On the microeconomic level, Nigeria’s education sector struggles with quality and access. The growing private education market caters to families seeking improved facilities, but critics note that it may worsen inequality. At the same time, the Central Bank of Nigeria is pursuing contractionary monetary policy to fight inflation, raising the benchmark interest rate from $11.5\%$ to $14\%$ in $2022$. While this can temper inflationary pressures, it may also slow economic growth by discouraging investment and consumption.

Supply-side reforms remain a government priority for long-term growth. By offering tax incentives to domestic firms, improving regulations, and restoring transport networks, officials hope to boost productive capacity and generate broad-based, sustainable economic development.

Table 1: Selected Macroeconomic Indicators for Nigeria

Table 2: Nigeria’s Trade Data (2021–2022)

Lithuania is a small, open economy in Northern Europe with a population of approximately 2.8 million people. After joining the European Union in 2004, Lithuania has seen significant economic restructuring, experiencing notable growth in exports and a steady increase in real GDP over the past decade. However, challenges remain in addressing income inequality, diversifying exports, and maintaining sustainable growth.

Table 1: Kay macroeconomic indicators of Lithuania (2021–2022)

Nigeria, located in West Africa, has Africa’s largest population of over 220 million people. Despite significant natural resource wealth, especially in oil and natural gas, a large proportion of the population lives below the international poverty line. In recent years, diversification into agriculture and manufacturing has gained momentum. However, infrastructure shortfalls and income inequality remain major challenges.

Agriculture accounts for about 23% of Nigeria’s GDP, with cocoa among its leading non‐oil exports. The country’s heavy reliance on crude oil as a major source of export revenue makes it vulnerable to volatile global commodity prices. Meanwhile, an increasing share of government budget is allocated to capital projects—such as roads, electricity grids, and telecommunications—to stimulate long‐term growth.

Despite these initiatives, the government faces pressure to generate higher tax revenue and improve the standard of living. The highest personal income tax rate is 24%, while corporate taxation is set at 30%. Nigeria’s value‐added tax (VAT) rate was recently raised from 5% to 7.5%, although many essential food products remain VAT‐exempt in an effort to protect low‐income households.

Table 1 provides selected macroeconomic and labor market indicators for Nigeria:

Table 1: Selected Macroeconomic and Labour Market Indicators for Nigeria

UZBEKISTAN’S ONGOING ECONOMIC TRANSFORMATION

Over the last decade, Uzbekistan, a doubly landlocked country in Central Asia with a population of approximately 34 million in 2021, has embarked on a series of ambitious reforms aimed at liberalizing its economy. Real GDP growth averaged around 5.8% per year between 2018 and 2021, supported by rising exports of cotton, gold, and natural gas. However, dependence on primary commodities poses risks to external balance, and the government has signaled intentions to diversify into textile manufacturing, tourism, and information technology.

State-led modernization has included partial price liberalization in agriculture, attracting foreign direct investment (FDI). A notable policy change involved easing bureaucratic barriers for foreign investors, enabling the launch of new small and medium-sized enterprises (SMEs). While privatization of state assets in the textile and apparel industries has progressed, concerns remain regarding efficiency gains for local businesses. Anecdotal evidence shows that some domestically owned farms still struggle to access affordable credit, hampering investments in irrigation systems and modern equipment.

The government’s push toward a more open economy coincided with substantial exchange rate reforms. In 2017, the som was devalued, and the central bank began allowing more market-driven fluctuations. This policy aimed to improve exporters’ competitiveness and encourage remittance inflows. By 2021, the exchange rate stood at around UZS 10,600 per US dollar. Although this move pleased some international organizations, it also contributed to temporary spikes in imported inflation, which reached 12.4% in 2021.

Meanwhile, Uzbekistan contends with persistent poverty, especially in rural regions. While official estimates showed a poverty rate of nearly 15% in 2021, independent analyses suggest it could be higher when accounting for underemployment in the informal sector. The government has introduced targeted cash transfers and expanded vocational training to help break the so-called “poverty cycle,” in which low income, limited savings, and lack of education reinforce each other. Development agencies recommend further investments in human capital and infrastructure to tackle income inequality—whose Gini coefficient has hovered around 0.36 in recent years.