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Nigeria has the largest market in Africa with a population of more than 180 million people. As recently as 2014, McKinsey and Co. had predicted that Nigeria had the makings to grow 7.1 percent yearly until 2030 and build a $1.6 trillion economy. In March 2016, PwC published a report, “Nigeria: Looking Beyond Oil,” that raises the Nigerian economy to the top 10 in the world in 2050 with a projected GDP of $6.4 trillion. Examples of such extrapolations are numerous and wide-ranging.
Nigeria is a very young country, with nearly two-thirds of its population under the age of 25. More than 110 million Nigerians live below the poverty level. Nigeria’s economic growth slowed to 2.8 percent in 2015, the lowest since 1999, and will continue to slow down to about 2.0 percent in 2016, according to Morgan Stanley. Inflation rose to a three-year high of 13.7 percent in April 2016. A sharp decline in the global price of oil, the traditional source of 90 percent of Nigeria’s export revenues, and artificial capital controls imposed by the Government of Nigeria (GON) have contributed to Nigeria’s economic difficulties. According to recent pronouncements by the IMF, Nigeria faces its worst economic crisis in decades as the global decline in oil prices has drastically reduced government revenues, slowed growth and undermined investor confidence in the country.
Nigeria has abundant natural resources, cheap labor, and a democratically elected government. Its current economic growth depends on the non-oil sector, particularly construction, telecommunications, wholesale/retail trade, hotel and restaurant services, manufacturing, and agriculture. At this time, rising incomes through urbanization and consumer spending, which accounts for 70 percent of GDP, pushing the economy forward. Major impediments to development and trade include an inadequate power supply, deficient transportation infrastructure, a slow and ineffective judicial system, and widespread corruption.
The United States is the largest foreign investor in Nigeria, with U.S. foreign direct investment concentrated largely in the petroleum and wholesale trade sectors. U.S. exports to Nigeria include wheat, vehicles, machinery, refined petroleum products, civilian aircraft and parts, and plastics. Nigeria is eligible for preferential trade benefits under the African Growth and Opportunity Act (AGOA). U.S. imports from Nigeria include cocoa, rubber, returns, antiques, and food waste. The United States and Nigeria have a bilateral trade and investment framework agreement (TIFA). Recently, Secretary of State John Kerry told reporters that the United States government will provide Nigeria at least $600 million in development assistance in 2016.
Nigeria plays an important leadership role in both West Africa and on the African continent. The headquarters of the Economic Community of West African States (ECOWAS) is located in Abuja. Nigeria, which represents roughly 70 percent of the 15-country ECOWAS GDP and over half of the ECOWAS region’s population, plays an outsized role in ECOWAS. It was Nigeria, for instance, that was largely responsible for the decades-long delays in developing the ECOWAS common external tariff and for the protections and flexibilities that remain a part of that tariff system. In 2014, U.S. exports to ECOWAS totaled $9.9 billion, which represented nearly 40 percent of all U.S. exports to Sub-Saharan Africa. Imports to the U.S. from ECOWAS totaled $5.6 billion in the same year. U.S.-ECOWAS trade represents almost 30 percent of total U.S. trade with all of Sub-Saharan Africa.
Nigeria can be a lucrative market for companies that can afford and learn to navigate a complex and evolving business environment. Established multinationals that have mastered operating in this chaotic regulatory environment make substantial profits despite the country’s low-income levels and logistical difficulties. The Nigerian Government continues to promote Nigeria as a rewarding target for Foreign Direct Investment (FDI). Foreign capital flows into all major sectors of the economy with United States, Canada, France, and China being the main sources. China contributes actively to infrastructure and capital projects in the country.
Industries displaying substantial growth prospects include:
- Consumer goods and the retail industry (including online shopping);
- Real estate due to high population, urban migration, and a rising middle class;
- Information and communications technology;
- Food and agriculture; and
- Infrastructure (especially power and transportation).
Oil and Gas
Nigeria is the largest oil producer in Africa, holds the largest natural gas reserves on the continent, and is among the world’s top five exporters of liquefied natural gas (LNG). In 2015, the petroleum sector made up approximately 10-12 percent of Nigeria’s GDP but accounted for 51 percent of Federal Government income and 93 percent of export earnings.
Billions of dollars in arrears currently owed its joint venture partners, lax contract enforcement, a lack of regulatory clarity, and high and costly operational risks have constrained growth and investment in this sector. The regulatory environment for international oil companies in Nigeria is further affected by the Nigerian Oil and Gas Industry Content Development Act of 2010. Under the Act, Nigerian independent operators will be given first consideration in the award of oil projects in Nigeria. In addition, multinational companies working through Nigerian subsidiaries must demonstrate that a minimum of 50 percent of the equipment used is owned by Nigerian subsidiaries.
The dramatic fall in oil prices since mid-2014 has reduced Federal revenue significantly and has also negatively affected the Government’s ability to pay its contractual commitments to joint ventures with foreign participation. Thus, multinationals are hesitant to make the needed investments to maintain or increase production.
Nigeria has some of the largest natural gas deposits in the world with 180 trillion cubic feet of proven reserves, but the country has been unable to mobilize that gas for the domestic market. Political interference, failure to legislate on key issues, and an inconsistent approach to regulating the price of gas collectively deterred the necessary investment to capture and deliver gas to domestic markets.
In April 2016, the Nigerian National Petroleum Corporation (NNPC) opened bidding to refurbish its refineries. Nine companies are reported to be participating in this process. At the same time, the NNPC has vowed to increase daily output from 450,000 to 650,000 barrels.
Power Sector
The power sector neither meets the existing demand of the country’s population and businesses nor delivers uninterrupted reliable electricity. Today, 23 grid-connected generating plants are in the country with a total installed capacity of 10,396 megawatts (MW) with a daily operational average near 4,000 MW. An additional 2,000 MW may come online by the end of 2016. In contrast, South Africa, with a population one-third of Nigeria’s, generates ten times as much power.
The Nigerian electricity industry from power generation to distribution is mostly privatized. The power sector as a whole is not generating enough cash from consumers to cover the cost of generating and delivering power, leaving generation, transmission, and distribution companies with operating deficits. Additionally, lack of affordable long-term financing is hampering investment in infrastructure upgrades.
Despite challenges, there have been measured improvements in the last 10 months. Power production reached an all-time high of 5,074MW on February 2, 2016, and the GON has cut red tape to remove delays in the 500MW Azura-Edo independent power project (IPP). Power production dropped again in the second quarter of 2016 following vandalism of gas transmission infrastructure.
Infrastructure
Nigeria’s publicly-owned and operated transportation infrastructure is a major constraint to economic development. The principal ports are in Lagos (Apapa and Tin Can Island), Port Harcourt, and Calabar. While the Government of Nigeria has opened the ports sector for the private sector to manage and operate through the concession agreements, the government still manages the rail and roads sector. A sound legal framework and reforms are needed to allow Public and Private Partnerships (PPPs) to move forward in the rail and roads sector. Of the 50,000 miles of roads, only slightly more than 10,000 miles are paved, and many of these paved roads are in poor shape. Only five of Nigeria’s twenty-two airports—Lagos, Kano, Port Harcourt, Enugu, and Abuja—currently receive international flights. Lagos is working towards establishing itself as a regional hub.
Nigeria’s railway currently has eight lines that are slightly more than 2,000 miles long collectively. These railways require major rehabilitation, modernization, and expansion. In 2010, the Government of Nigeria launched a 25-year strategic plan to revive the country’s railway system and has since commissioned various railway projects through concession agreements with state-owned Chinese companies. Many rail projects, however, have not progressed due to underlying corruption issues in the procurement process and infrastructure funding shortages. The Lagos-Abuja line is the only operational line currently, and an American company supplied 25 locomotives for this line. Nigeria has plans to participate in the AfricaRail project by upgrading the gauge of the rail lines consistent with neighboring rail systems. AfricaRail is a project to rehabilitate and construct twelve hundred new miles of the railway linking Cote d’Ivoire, Burkina Faso, Niger, Benin, Togo, and Nigeria at an estimated cost of $2 billion.
Services
Nigeria’s services output ranks as the 63rd largest worldwide and fifth largest in Africa. The potential of the Nigerian financial services sector remains enormous, and foreign banks are becoming increasingly attracted to the market. However, the majority of Nigeria’s population has only limited access to financial services – a problem compounded by high levels of bureaucracy required to complete even simple transactions. The Nigerian Government aims to push ahead with reforms of the insurance and pension industries.
Consumer Products
Nigeria is an increasingly important market and manufacturing center for the African consumer product sector. Nigeria is currently home to a growing middle class now estimated to be about 50 million, and it is a clear leader in the regional economic grouping ECOWAS and regionalization efforts. There is a wide range of U.S. products in the Nigerian market from both large and small companies. The promise of this market supported several U.S. companies’ manufacturing plants in Nigeria. Major challenges to companies in the consumer products sector in Nigeria include protectionist policies and lack of adequate intellectual property rights protection.
Information and Communications’ Technology (ICT)
There are four main GSM networks in Nigeria: Airtel, MTN, Globacom, and Etisalat. Other operators providing code division multiple access (CDMA) include Visafone and Multilinks.
Nigeria is Africa’s largest ICT market, accounting for 29 percent of Internet usage in Africa. In 2015, Nigeria had more than 196 million active telecoms lines of GSM and CDMA. Mobile GSM subscribers account for 98.37 percent of the total number of telecom subscribers. As Internet coverage increases, there will be significant opportunities for development of data services.
Agriculture
Nigeria’s agricultural sector employs nearly 70 percent of the population and contributes nearly 22 percent of GDP. Nigeria possesses an abundance of arable land and a favorable climate for the production of nuts, fruits, and grains. The vast majority of farming in Nigeria is subsistence-based, utilizing manual labor and relatively little agricultural machinery.
Nigeria continues to maintain import restrictions (high duties, levies, quotas and import bans) on several agricultural products, including poultry, beef and pork products, and have added new restrictions on others. Absent any organized and concerted public and/or private sector efforts to modernize the sector and access regional and global commodity markets, growth opportunities for U.S. products serving Nigeria’s agribusiness sector are relatively few at present. Land ownership, transport, and lack of infrastructure issues weigh into starting agro-farming businesses in Nigeria. Many multi-national companies have instead engaged in agro-processing business, which is in large demand. GoN’s foreign exchange restrictions on major agricultural items, however, create challenges for importing the needed raw items to process.
Healthcare
The Nigerian healthcare system has few modern facilities. As a result, the country loses millions every year to medical tourism with Nigerians traveling abroad for medical procedures. Prospects exist for investment in hospitals and clinics with treatment capabilities and cutting-edge medical technologies.
