It is necessary that nations diversify their economies so as to not be vulnerable in the face of global challenges and crises. Sticking to just one sector can cause a nation's economy to crumble like what is currently happening now to most oil-dependent nations. Crude oil prices is currently experiencing a great drop and it is really affecting the growth of many nations GDP.
Diversification of economy has to do with taking a nation's or state's economy away from a sole source of income while focusing on numerous other sources of generating income from a growing range of markets and sectors. Economic diversification has proven to be a very good strategy to encourage and improve economic growth hence, should be considered by countries. It further entails a strong and deliberate involvement in wide range of economic activities which is key to the growing and developing any nations.
Consider the developed countries and you will discover one similarity they all have and that is diversification of its economy. Thus, for poorer and developing countries to create jobs as well as foster economic and technological development, economic diversification is highly needed and relevant. A nation cannot afford to depend on only one sector forever as it could diminish in value or experience decline output. There are numerous sectors that could be explored to help boost and sustain any nation's economy.
For developing countries, economic diversification remains a very big challenge and it is arguably very useful for countries with low income margins as well as for those with economies that are small, landlocked and/or dominated by primary commodity dependence.
With this kind of nations, economic diversification is directly concerned with structural transformation of their economies as well as the achievement of higher levels of productivity which will result from the movement of economic resources within and/or between economic sectors.
Taking Nigeria as a case study, close to 90% of its economy depends on revenues from crude oil exports and this makes the nation's economy prone to crumbling in any case of prolonged drop in crude oil prices. Similarly, countries like Venezuela who is also dependent on oil economy is currently facing challenges in their economy in light of the crude oil crisis. Assuming this countries have invested and explored in-depthly other sectors like agriculture, construction, food etc, their economies will still remain unshaken and boosted.
The world’s poorest countries remain so in that they tend to have the most concentrated economic structures.Hence, diversifying the economy is key to economic development and a lack of economic diversification is often associated with increased vulnerability to external crises that can undermine prospects for long term economic growth and sustainability.