Lagos has attained a new economic status. It has emerged Africa’s second largest city economy. Lagos economy is second only to that of Cairo, Egypt’s capital city.
Lagos new economic status emanated from its attainment of gross domestic product (GDP) of $259 billion. The new economic status of the state is calculated based on purchasing power parity (PPP).
Announcing the new economic status of the state at a recent launch of the Lagos Economic Development Update (LEDU) 2025, the state commissioner for economic planning and budget, Mr. Ope George, emphasised the state government’s commitment to fiscal sustainability, economic diversification and infrastructure development.
He said that Lagos economy recorded significant growth in the first half of 2024 as it rose from N19.65 trillion in the comparative period of 2023 to N27.38 trillion in 2024.
The commissioner stressed that Lagos GDP growth for 2025 is projected at 6.49 per cent and that the tremendous growth rate would accelerate the GDP from N54.77 trillion to N66.47 trillion in 2025.
Lagos new economic status was enhanced by the coming on stream of Dangote’s $23 billion refinery based in the outskirts of the city.
The refinery, which is designed to process 650,000 barrels of crude oil daily, came on stream on the third quarter of 2024 and currently employs tens of thousands of workers whose salaries beef up the GDP of Lagos state.
Lagos marvelous GDP growth gives a clear picture of the resilience of the state which is actually the commercial capital of Nigeria, Africa’s largest economy.
The growth was largely enhanced by the service sector of the economy with banking and insurance firms playing a leading role.
The commissioner noted that the service sector will continue its expansion as it is being complemented by the agriculture and industrial sectors.
Lagos state government expects the state economic stability to be enhanced by the recent decline in petrol prices and stability of the naira in the foreign exchange market.
Despite the tremendous growth of the state GDP, there are fears that two major factors currently constrain it from leveraging its position as Nigeria’s economic nerve center.
The first is the dominance of economic growth by the service sector which is largely spearheaded by banks and insurance firms.
Economists contend that the state cannot realise its growth potential when economic growth is led by the service sector which has limited capacity to create jobs.
They argue that the state government must take steps to empower industrial and agriculture sectors to led economic growth. These are the sectors that can create jobs and pull millions of Nigerians out of poverty.
In fact, it has been argued that the dominant role of the service sector in the state economic growth is precisely why the agriculture and industrial sectors cannot grow.
The growth spearheaded by the financial services sector is built around outrageous lending rates and atrociously high interest rate spread by banks.
Interest rate spread is the difference between deposit rates paid by banks and lending rates paid by borrowers. There was a time when the Central Bank of Nigeria (CBN) pegged interest rate spread at four per cent, but the current open market economy has crowded out everything.
The World Bank has identified Nigeria as the country with the highest interest rate spread. Interest rate spread rose from six per cent in 2023 to 19 per cent in 2025. That is why banks dominate growth.
Agriculture and industrial productivities are retarded by outlandish lending rates and extortionist interest rate spread which enable banks to smile to their vaults with trillions of naira.
The second factor that retards the growth of Lagos state is low tax revenue.
Even as Lagos excels as the state with the highest internally generated revenue (IGR), its tax-to-GDP ratio is a miserable 2.5 per cent. It is despicable and is lower than the federal government’s tax to GDP ratio which has inched up to 10 per cent.
Lagos state plans to generate N2.7 trillion in 2025 as IGR. However, Taiwo Oyedele, chairman of the Presidential Fiscal Policy and Tax Reforms Committee, contends that Lagos state can generate N5 trillion as IGR if it has every taxable adult in its tax net.
The state relies disproportionately on salary earners for its tax revenue. The sum of N70,000 is deducted monthly as pay as you earn (PAYE) from salaries of civil servants with monthly pay of N600,000. Ironically, those who roast plantain on road sides and go home daily with turnover of N30,000 pay nothing as tax. Nigeria’s unwieldy informal sector is a big constraint to Lagos revenue drive.
Blueprint acclaims Lagos for its new economic status. However, we enjoin the state government to leverage electronic devices to drag the informal sector into its tax net.