Economy of Nigeria

Overview

In 2014, Nigeria changed its economic analysis to account for rapidly growing contributors to its GDP, such as telecommunications, banking, and its film industry.

In 2005, Nigeria achieved a milestone agreement with the Paris Club of lending nations to eliminate all of its bilateral external debt. Under the agreement, the lenders will forgive most of the debt, and Nigeria will pay off the remainder with a portion of its energy revenues. Outside of the energy sector, Nigeria's economy is highly inefficient. Moreover, human capital is underdeveloped—Nigeria ranked 151 out of countries in the United Nations Development Index in 2004—and non-energy-related infrastructure is inadequate.

From 2003 to 2007, Nigeria attempted to implement an economic reform program called the National Economic Empowerment Development Strategy (NEEDS). The purpose of the NEEDS was to raise the country's standard of living through a variety of reforms, including macroeconomic stability, deregulation, liberalization, privatization, transparency, and accountability.

The NEEDS addressed basic deficiencies, such as the lack of freshwater for household use and irrigation, unreliable power supplies, decaying infrastructure, impediments to private enterprise, and corruption. The government hoped that the NEEDS would create 7 million new jobs, diversify the economy, boost non-energy exports, increase industrial capacity utilization, and improve agricultural productivity. A related initiative on the state level is the State Economic Empowerment Development Strategy (SEEDS).

A longer-term economic development program is the United Nations (UN)-sponsored National Millennium Goals for Nigeria. Under the program, which covers the years from 2000 to 2015, Nigeria is committed to achieving a wide range of ambitious objectives involving poverty reduction, education, gender equality, health, the environment, and international development cooperation. In an update released in 2004, the UN found that Nigeria was making progress toward achieving several goals but was falling short on others.

Specifically, Nigeria had advanced efforts to provide universal primary education, protect the environment, and develop a global development partnership.

A prerequisite for achieving many of these worthwhile objectives is curtailing endemic corruption, which stymies development and taints Nigeria's business environment. President Olusegun Obasanjo's campaign against corruption, which includes the arrest of officials accused of misdeeds and recovering stolen funds, has won praise from the World Bank. In September 2005, Nigeria, with the assistance of the World Bank, began to recover US$458 million of illicit funds that had been deposited in Swiss banks by the late military dictator Sani Abacha, who ruled Nigeria from 1993 to 1998. However, while broad-based progress has been slow, these efforts have begun to become evident in international surveys of corruption. In fact, Nigeria's ranking has consistently improved since 2001 ranking 147 out of 180 countries in Transparency International's 2007 Corruption Perceptions Index.

Economic history

This is a chart of trend of gross domestic product of Nigeria at market prices estimated by the International Monetary Fund with figures in $USD Billions. Figures before 2000 are backwards projections from the 2000 - 2012 numbers, based on historical growth rates, and should be replaced when data becomes available. The figure for 2014 is derived from a rebasing of economical activity earlier in the year.

This is a chart of trend of the global ranking of the Nigerian economy, in comparison with other countries of the world, derived from the historical List of countries by GDP (PPP).

Current GDP per capita] of Nigeria expanded 132% in the Sixties reaching a peak growth of 283% in the Seventies. But this proved unsustainable and it consequently shrank by 66% in the Eighties. In the Nineties, diversification initiatives finally took effect and decadal growth was restored to 10%.

Due to inflation, per capita GDP today remains lower than in 1960 when Nigeria declared independence. About 33% of the population lives on less than US$2 per day. [Editor's note: This number is highly questionable, as the cost of meals alone exceed $1 a day, per person. See NOI-polls (http://www.noi-polls.com/index.php?s_id=3&p_id=242&p_pt=1&parent=11#.VINNxnNDsal) for a more qualified assessment.

In 2012, the GDP was composed of the following sectors: agriculture: 40%; services: 30%; manufacturing: 15%; oil: 14%. By 2015, the GDP was composed of the following sectors: agriculture: 18%; services: 55%; manufacturing: 16%; oil: 8%

In 2005 Nigeria's inflation rate was an estimated 15.6%. Nigeria's goal under the National Economic Empowerment Development Strategy (NEEDS) program is to reduce inflation to the single digits. By 2015, Nigeria's inflation stood at 9%. In 2005, Federal government had expenditures of US$13.54 billion but revenues of only US$12.86 billion, resulting in a budget deficit of 5%. By 2012, expenditures stood at $31.61 billion, while revenues was $54.48 billion.

Agriculture

Nigeria ranks sixth worldwide and first in Africa in farm output. The sector accounts for about 18% of GDP and almost one-third of employment. Nigeria has 19 million head of cattle, the largest in Africa. Though Nigeria is no longer a major exporter, due to local consumer boom, it is still a major producer of many agricultural products, including: cocoa, groundnuts (peanuts), rubber, and palm oil. Cocoa production, mostly from obsolete varieties and overage trees has increased from around 180,000 tons annually to 350,000 tons.

Major agricultural products include: cassava (tapioca), corn, cocoa, millet, palm oil, peanuts, rice, rubber, sorghum, and yams. In 2003, livestock production, in order of metric tonnage, featured eggs, milk, beef and veal, poultry, and pork, respectively. In the same year, the total fishing catch was 505.8 metric tons. Roundwood removals totaled slightly less than 70 million cubic meters, and sawnwood production was estimated at 2 million cubic meters. The agricultural sector suffers from extremely low productivity, reflecting reliance on antiquated methods. Agriculture has failed to keep pace with Nigeria's rapid population growth, so that the country, which once exported food, now imports a significant amount of food to sustain itself. However, efforts are being made towards making the country food sufficient again.

Oil

Nigeria's proven oil reserves are estimated to be 35 billion barrels (5.6×10⁹ m³); natural gas reserves are well over 100 trillion cubic feet (2,800 km³). Nigeria is a member of the Organization of Petroleum Exporting Countries (OPEC). The types of crude oil exported by Nigeria are Bonny light oil, Forcados crude oil, Qua Ibo crude oil and Brass River crude oil. Poor corporate relations with indigenous communities, vandalism of oil infrastructure, severe ecological damage, and personal security problems throughout the Niger Delta oil-producing region continue to plague Nigeria's oil sector.

Efforts are underway to reverse these troubles. A new entity, the Niger Delta Development Commission (NDDC), has been created to help catalyze economic and social development in the region. The U.S. remains Nigeria's largest buyer of crude oil, accounting for 40% of the country's total oil exports; Nigeria provides about 10% of overall U.S. oil imports and ranks as the fifth-largest source for U.S. imported oil.

The United Kingdom is Nigeria's largest trading partner followed by the United States. Although the trade balance overwhelmingly favors Nigeria, thanks to oil exports, a large portion of U.S. exports to Nigeria is believed to enter the country outside of the Nigerian government's official statistics, due to importers seeking to avoid Nigeria's excessive tariffs. To counter smuggling and under-invoicing by importers, in May 2001, the Nigerian government instituted a full inspection program for all imports, and enforcement has been sustained.

On the whole, Nigerian high tariffs and non-tariff barriers are gradually being reduced, but much progress remains to be made. The government also has been encouraging the expansion of foreign investment, although the country's investment climate remains daunting to all but the most determined. The stock of U.S. investment is nearly $7 billion, mostly in the energy sector. Exxon Mobil and Chevron are the two largest U.S. corporations in offshore oil and gas production. Significant exports of liquefied natural gas started in late 1999 and are slated to expand as Nigeria seeks to eliminate gas flaring by 2008.

The pump price of P.M.S. currently stands at around ₦145 at fueling stations across Nigeria. An initial increase in the price of Petrol (Premium Motor Spirit) from around ₦65 to ₦140 triggered by the removal of fuel subsidies on January 1, 2012 triggered a total strike and massive protests across the country. Then President Goodluck Ebele Jonathan later reached an agreement with the Nigerian Labour Congress and reduced the pump price to 97 naira. The pump price was further reduced by 10 naira to 87 naira in the run-up to the 2015 general elections. However, after the elections of Muhammadu Buhari, the fuel subsidies was removed again, and the pump price increased again, despite the fall in oil price.

Since the fall in oil prices in 2015 and 2016, the government exchange rate policy has limited devaluation of the naira due to inflation concerns by the President Muhammadu Buhari.

Services

Nigeria ranks 27th worldwide and first in Africa in services' output.

Since undergoing severe distress in the mid-1990s, Nigeria's banking sector has witnessed significant growth over the last few years as new banks enter the financial market.

Private sector-led economic growth remains stymied by the high cost of doing business in Nigeria, including the need to duplicate essential infrastructure, the lack of effective due process, and nontransparent economic decision making, especially in government contracting. While corrupt practices are endemic, they are generally less flagrant than during military rule, and there are signs of improvement. Meanwhile, since 1999 the Nigerian Stock Exchange has enjoyed strong performance, although equity as a means to foster corporate growth is being more utilized by Nigeria's private sector.

Transport

Nigeria's publicly owned transportation infrastructure is a major constraint to economic development. Principal ports are at Lagos (Apapa and Tin Can Island), Port Harcourt (Onne), and Calabar.

Extensive road repairs and new construction activities are gradually being implemented as state governments, in particular, spend their portions of enhanced government revenue allocations.

Five of Nigeria's airports (Lagos, Kano, Port Harcourt, Enugu and Abuja) currently ply international destinations. Government-owned Nigeria Airways ceased operations in December 2002. Virgin Nigeria Airways started operations in 2005 as a replacement and serves domestic and international routes. However, Virgin Nigeria also stopped operations in 2012. Also, The Nigerian Airforce began a new airline called United Nigeria, with a Boeing 737-500 in 2013. There are several domestic private Nigerian carriers, and air service among Nigeria's cities is generally dependable.

Overseas remittances

A major source of foreign exchange earnings for Nigeria are remittances sent home by Nigerians living abroad. In 2014, 17.5 million Nigerians lived in foreign countries, with the UK and the USA having more than 2 million Nigerians each.

According to the International Organization for Migration, Nigeria witnessed a dramatic increase in remittances sent home from overseas Nigerians, going from USD 2.3 billion in 2004 to 17.9 billion in 2007, representing 6.7% of GDP. The United States accounts for the largest portion of official remittances, followed by the United Kingdom, Italy, Canada, Spain and France. On the African continent, Egypt, Equatorial Guinea, Chad, Libya and South Africa are important source countries of remittance flows to Nigeria, while China is the biggest remittance-sending country in Asia.

Labour force

In 2015, Nigeria had a labour force of 74 million. In 2003, the unemployment rate was 10.8% overall; by 2015, unemployment stood at 6.4%.

Since 1999, the Nigerian Labor Congress (NLC) a union umbrella organization, has called six general strikes to protest domestic fuel price increases. However, in March 2005 the government introduced legislation ending the NLC's monopoly over union organizing. In December 2005, the NLC was lobbying for an increase in the minimum wage for federal workers. The existing minimum wage, which was introduced six years earlier but has not been adjusted since, has been whittled away by inflation to only US$42.80 per month.

According to the International Organization for Migration, the number of immigrants residing in Nigeria has more than doubled in recent decades – from 477,135 in 1991 to 971,450 in 2005. The majority of immigrants in Nigeria (74%) are from neighbouring Economic Community of West African States (ECOWAS), and that this number has increased considerably over the last decade, from 63% in 2001 to 97% in 2005.

Human capital

The Human Development Index (HDI) shows in 2012 that Nigeria is ranked 156 with the value of 0.459 among 187 countries. As of 2015, Nigeria's HDI is ranked 152nd at 0.514. The comparative value for Sub-Saharan Africa is 0.475, 0.910 for the US, and 0.694 for the world average.

The value for the education index is 0.457, compared to the average in the US of 0.939. The expected years of schooling in Nigeria is 9.0 (16.00 in the US), while the mean years of schooling for adults over 25 years is 5.2 years (12.4 years in the US). Additionally, Nigeria is also facing a relatively high inequality, worsening the problem regarding the formation of human capital. The income distribution for the poorest (bottom 10%) is 1.6% while it is 40.8% for the richest (top 10%). Among 114 countries the income distribution places Nigeria respectively in 94th position for the poorest and 17th for the richest.

Inflation

In the light of highly expansionary public sector fiscal policies in 2001, the government sought ways to head off higher inflation, leading to the implementation of stronger monetary policies by the Central Bank of Nigeria (CBN) and underspending of budgeted amounts. As a result of the CBN's efforts, the official exchange rate for the Naira has stabilized at about 112 Naira to the dollar? The combination of CBN's efforts to prop up the value of the Naira and excess liquidity resulting from government spending led the currency to be discounted by around 20% on the parallel (non-official) market.

A key condition of the Stand-by Arrangement has been closure of the gap between the official and parallel market exchange rates. The Inter Bank Foreign Exchange Market (IFEM) is closely tied to the official rate. Under IFEM, banks, oil companies, and the CBN can buy or sell their foreign exchange at government influenced rates. Much of the informal economy, however, can only access foreign exchange through the parallel market. Companies can hold domiciliary accounts in private banks, and account holders have unfettered use of the funds.

Expanded government spending also has led to upward pressure on consumer prices. Inflation which had almost disappeared in April 2000 reached 14.5% by the end of the year and 18.7% in August 2001. In 2000, high oil prices resulted in government revenue of over $16 billion, about double the 1999 level. State and local governments demanded access to this "windfall" revenue, creating a tug-of-war between the federal government, which sought to control spending, and state governments desiring augmented budgets, preventing the government from making provision for periods of lower oil prices.

In 2016, the black market exchange rate of the Naira was about 60% above the official rate. The central bank releases ~$200m each week at the official exchange rate. However, some companies cite that budgets now include a 30% “premium” to be paid to central bank officials to get dollars.

Gradual reform

The Obasanjo government supported "private-sector" led, "market oriented" economic growth and began extensive economic reform efforts. Although the government's anti-corruption campaign was left wanting, progress in injecting transparency and accountability into economic decision-making was notable. The dual exchange rate mechanism formally abolished in the 1999 budget remains in place in actuality.

During 2000 the government's privatization program showed signs of life and real promise with successful turnover to the private sector of state-owned banks, fuel distribution companies, and cement plants. However, the privatization process has slowed somewhat as the government confronts key parastatals such as the state telephone company NITEL and Nigerian Airways. The successful auction of GSM telecommunications licenses in January 2001 has encouraged investment in this vital sector.

Although the government has been stymied so far in its desire to deregulate downstream petroleum prices, state refineries, almost paralyzed in 2000, are producing at much higher capacities. By August 2001, gasoline lines disappeared throughout much of the country. The government still intends to pursue deregulation despite significant internal opposition, particularly from the Nigeria Labour Congress. To meet market demand the government incurs large losses importing gasoline to sell at subsidized prices.

Foreign economic relations

Nigeria's foreign economic relations revolve around its role in supplying the world economy with oil and natural gas, even as the country seeks to diversify its exports, harmonize tariffs in line with a potential customs union sought by the Economic Community of West African States (ECOWAS), and encourage inflows of foreign portfolio and direct investment. In October 2005, Nigeria implemented the ECOWAS common external tariff, which reduced the number of tariff bands.

Prior to this revision, tariffs constituted Nigeria's second largest source of revenue after oil exports. In 2005 Nigeria achieved a major breakthrough when it reached an agreement with the Paris Club to eliminate its bilateral debt through a combination of write-downs and buybacks. Nigeria joined the Organization of the Petroleum Exporting Countries in July 1971 and the World Trade Organization in January 1995.

External trade

In 2005, Nigeria imported about US$26 billion of goods. In 2004 the leading sources of imports were China (9.4%), the United States (8.4%), the United Kingdom (7.8%), the Netherlands (5.9%), France (5.4%), Germany (4.8%), and Italy (4%). Principal imports were manufactured goods, machinery and transport equipment, chemicals, and food and live animals.

In 2005, Nigeria exported about US$52 billion of goods. In 2004, the leading destinations for exports were the United States (47.4%), Brazil (10.7%), and Spain (7.1%). In 2004 oil accounted for 95% of merchandise exports, and cocoa and rubber accounted for almost 60% of the remainder.

In 2005, Nigeria posted a US$26 billion trade surplus, corresponding to almost 20% of gross domestic product. In 2005, Nigeria achieved a positive current account balance of US$9.6 billion. The Nigerian currency is the naira (NGN). As of mid-June 2006, the exchange rate was about US$1=NGN128.4. In recent years, Nigeria has expanded its trade relations with other developing countries such as India. Nigeria is the largest African crude oil supplier to India — it annually exports 400,000 barrels per day (64,000 m³/d) to India valued at US$10 billion annually.

India is the largest purchaser of Nigeria's oil which fulfills 20% to 25% of India's domestic oil demand. Indian oil companies are also involved in oil drilling operations in Nigeria and have plans to set up refineries there.

The trade volume between Nigeria and the United Kingdom rose by 35% from USD6.3 billion in 2010 to USD8.5 billion in 2011.

External debt

In 2012, Nigeria's external debt was an estimated $5.9 billion and N5.6 trillion domestic - putting total debt at $44 billion.

In April 2006, Nigeria became the first African country to fully pay off its debt owed to the Paris Club. This was structured as a debt writeoff of approximately $18 billion and a cash payment of approximately $12 billion.

Foreign investment

In 2012, Nigeria received a net inflow of US$85.73 billion of foreign direct investment (FDI), much of which came from Nigerians in the diaspora. Most FDI is directed toward the energy and banking sectors. Any public designed to encourage inflow of foreign capital is capable of generating employment opportunities within the domestic economy. The Nigerian Enterprises Promotion (NEP) Decree of 1972 (revised in 1977) was intended to reduce foreign investment in the Nigerian economy. This type of policy is not relevant in an economy with a rapidly growing force like Nigeria.

Although one may accept the rationale for the promulgation of that decree at that time i.e. to promote indigenous entrepreneurship. But the decree or any exchange control policy that has the potential to discourage foreign investment will not be relevant under the present economic dispensations. The abrogation of the NEP decree was therefore a step in the right direction.

Furthermore, another reason for the low level of foreign investment in Nigeria is political instability. The various coups and counter coups since 1966, the discontentment and politically motivated riots following the long-drawn and inconclusive political engineering of the Babaginda Military Administration, all combined to create an environment not conducive to foreign investment.

Foreign direct investment (FDI) is arguably an important source of employment opportunities for developing countries like Nigeria. As a consequence, it is imperative that the federal government promotes a healthy private sector that can earn a reasonable rate of return.

Developing countries that wish to attract FDI flows should consider measures such as establishing a transparent legal framework that does not discriminate between local and foreign investors; adopting liberal foreign exchange regime (e.g., a regime without large gaps between official and market rates); creating simple,investor-friendly regulations and institutions and effectively administering them.

Therefore, the convertibility of naira, the relaxation of the control on remittance of profits and technical fees and the abrogation of the Exchange Control Act of 1962 and the Nigerian Enterprises Promotion Decree of 1989 as spelt out in 1995 Budget are the kind of reforms that can promote the inflow of foreign direct investment a politically stable environment is also of immense importance.

Although Nigeria must grapple with its decaying infrastructure and a poor regulatory environment, the country possesses many positive attributes for carefully targeted investment and will expand as both a regional and international market player. Profitable niche markets outside the energy sector, like specialized telecommunication providers, have developed under the government's reform program. There is a growing Nigerian consensus that foreign investment is essential to realizing Nigeria's vast but squandered potential. European investments are increasing, especially since Belgian consultancy companies such as Genco are exploring the Nigerian market.

Companies interested in long-term investment and joint ventures, especially those that use locally available raw materials, will find opportunities in the large national market. However, to improve prospects for success, potential investors must educate themselves extensively on local conditions and business practices, establish a local presence, and choose their partners carefully. The Nigerian Government is keenly aware that sustaining democratic principles, enhancing security for life and property, and rebuilding and maintaining infrastructure are necessary for the country to attract foreign investment.

The stock market capitalisation of listed companies in Nigeria was valued at $97.75 billion on 15 February 2008 by the Nigerian Stock Exchange.

Swiss Banks to return Abacha Funds

The Swiss foreign ministry says it has done all it can to ensure that funds stolen by the late Nigerian dictator Sani Abacha were used properly in his homeland. The authorities were responding to allegations that $200 million (SFr240 million) of $700 million handed back by the Swiss Banks to Nigeria had been misappropriated.

Data

GDP: nominal – $568.5 billion (2015 est.)

GDP – real growth rate: 7% (July 2012 est.)

GDP – per capita: purchasing power parity – $5,600 (2013 est.)

GDP – composition by sector:
agriculture: 30.9%
industry: 43%
services: 26% (2012 est.)

Population below poverty line: 33.1%(2013 est.)

Household income or consumption by percentage share:r
lowest 10%: 2.6%
highest 10%: 35.8% (1996–97)

Inflation rate (consumer prices): 11.4% (2016)

Labor force: 57.21 million

Labor force – by occupation: agriculture 70%, industry 10%, services 20% (1999 est.)

Unemployment rate: 24% NA (2010 est.)

Budget:
revenues: $17 billion
expenditures: $13.54 billion including capital expenditures of $NA (2005 est.)

Industries: crude oil, coal, tin, columbite, palm oil, peanuts, cotton, rubber, wood, hides and skins, textiles, cement and other construction materials, food products, footwear, chemicals, fertilizer, printing, ceramics, steel, small commercial ship construction and repair

Industrial production growth rate: 4.7% (2010 est.)

Electricity – production: 18.89 billion kWh (2009)

Electricity – production by source:
fossil fuel: 61.69%
hydro: 38.31%
nuclear: 0%
other: <.1% (1998)

Electricity - consumption: 17.66 billion kWh (2009)

Electricity - exports: 40 million kWh (2003)

Electricity - imports: 0 kWh (1998)

Oil - production: 2.35 million barrels per day (374×10^³ m³/d) (July 2006 est.)

Oil - consumption: 310,000 bbl/d (49,000 m³/d) (2003 est.)

Agriculture – products: cocoa, peanuts, palm oil, maize, rice, sorghum, millet, cassava (tapioca), yams, rubber; cattle, sheep, goats, pigs; timber; fish

Exports: $72.16 billion f.o.b. (2005 est.)

Exports – commodities: petroleum and petroleum products 95%, cocoa, rubber

Exports – partners: United States 47.4%, Brazil 10.7%, Spain 7.1%(2004)

Imports: $45.95 billion f.o.b. (2005 est.)

Imports – commodities: machinery, chemicals, transport equipment, manufactured goods, food and live animals

Imports – partners: the People's Republic of China 9.4%, United States 8.4%, United Kingdom 7.8%, Netherlands 5.9%, France 5.4%, Germany 4.8%, Italy 4% (2004)

Debt – external: $3.3 billion with London Club(2006 est.)

Economic aid – recipient: IMF $250 million (1998)

Currency: 1 Naira (NGN) = 100 kobo

Exchange rates: Naira (NGN) per US$1 – 157.3 (2012) 149.5 (2009), 120 (2006), 128 (2005), 132.89 (2004), 129.22 (2003), 120.58 (2002), 111.23 (2001)

External Reserves: $50 billion ( 2012)

Fiscal year: calendar year 2009