Nigeria is the largest economy and most populous country in Africa with an estimated population of more than 180 million and a gross domestic product of 481 billion USD in 2015 (World Bank data). The Nigerian economy grew briskly for much of the past decade before beginning to slow down in 2014, owing in large part to the decline in the global oil market. Its economy fell into recession in 2016 with the IMF estimating GDP to have contracted 1.7 percent in 2016. Gains from economic growth have also been uneven, as more than 60 percent of the population lives in poverty and unemployment is widespread. A very young country with nearly two-thirds of its population under the age of 25, Nigeria has long been Africa’s largest oil producer, but falling output owing in part to insurgent attacks on production facilities in the Niger River Delta caused Nigeria temporarily to fall behind Angola in 2016. Nigeria offers abundant natural resources and a low-cost labor pool, and enjoys mostly duty-free trade with other member countries of the Economic Community of West African States (ECOWAS). However, much of Nigeria’s market potential remains unrealized because of significant impediments such as pervasive corruption, inadequate power and transportation infrastructure, high energy costs, an inconsistent regulatory and legal environment, insecurity, a slow and ineffective bureaucracy and judicial system, inadequate intellectual property rights protections and enforcement, and an inefficient property registration system.
Nigeria depends on exports of crude oil for the majority of government revenue and over 90 percent of foreign exchange earnings, so lower oil prices and reduced oil production due to militant activities in the Niger Delta region in 2016 have posed foreign exchange challenges for the Central Bank of Nigeria (CBN) and a fiscal challenge for the government. After a year of pegging the naira at 196-199N/$1, which created dollar shortages and gave rise to a parallel market exchange rate ranging from 350-400N/$1, in June 2016 the Central Bank allowed the naira to depreciate. The result was not a floating of the naira but a new peg to the dollar reset in the 310-320N/$1 range. The naira subsequently depreciated even further on the parallel market, falling to 460-480N/$1 by the end of 2016 and squeezing margins for traders and manufacturers, who pay for imports in dollars but earn revenue in Naira (most manufacturers in Nigeria rely heavily on imported inputs). To preserve foreign exchange reserves and promote import substitution, in 2015 the CBN published a list of 41 categories of items for which official foreign exchange would not be provided, effectively restricting access to dollars for many businesses. Many companies and economists believe the CBN’s policy to defend the naira is unsustainable, and concerns about foreign exchange restrictions and about monetary policy in general continued to contribute to economic uncertainty throughout 2016 and early 2017.
Nigeria’s underdeveloped power sector remains a significant bottleneck to broad-based economic development. Current production is around 4,000 megawatts of power, forcing the businesses to generate most of their own electricity. The World Bank currently ranks Nigeria 180th out of 189 countries for ease of obtaining electricity for business. Reform of Nigeria’s power sector is ongoing, but investor confidence has been shaken by tariff and regulatory uncertainty. The privatization of distribution and generation companies in 2013 was based on projected levels of transmission and progress toward a fully cost reflective tariff to sustain operations and investment. However, tariff increases were reversed in 2015, and revenues were severely impacted due to decreased transmission levels as well as high commercial, collections, and technical losses, resulting in a severe liquidity crisis throughout the power sector value chain. The Nigerian Government, in partnership with the World Bank, published a Power Sector Recovery Plan (approved by the Federal Executive Council) in March 2017. It is an ambitious plan that addresses the critical constraints and challenges and will require political will, external investment to address the accumulated deficit, and discipline in implementing plans to mitigate future shortfalls. It is, nevertheless, a step in the right direction, and recognizes explicitly that the Nigerian economy is losing on average approximately$29 billion annually due to lack of adequate power.
Nigeria’s trade regime remains protectionist in key areas. High tariffs, restricted forex availability for 41 categories of imports, and prohibitions on many other import items aim to spur domestic agricultural and manufacturing sector growth. Nigeria’s imports declined in 2016, largely as a result of the country’s economic recession. U.S. goods exports to Nigeria in 2016 were USD 1.9 billion, down 44 percent from the previous year, while U.S. imports from Nigeria were USD 4.2 billion, an increase of 121 percent. U.S. exports to Nigeria are primarily refined petroleum products, used vehicles, cereals, and machinery. Crude oil and petroleum products continued to account for over 95 percent of Nigerian exports to the United States in 2016. The stock of U.S. foreign direct investment (FDI) in Nigeria was USD 5.5 billion in 2015 (latest data available), a slight increase from USD 5.2 billion in 2014. U.S. FDI in Nigeria continues to be led by the oil and gas sector. There is also investment from the United States and other countries in Nigeria’s power, telecommunications, real estate (commercial and residential), and agricultural sectors.
Given the corruption risk associated with the Nigerian business environment, potential investors often develop anti-bribery compliance programs. The United States and other parties to the OECD Anti-Bribery Convention aggressively enforce anti-bribery laws, including the U.S. Foreign Corrupt Practices Act (FCPA). A high-profile FCPA case in Nigeria’s oil and gas sector resulted in 2010 U.S. Securities Exchange Commission (SEC) and U.S. Department of Justice rulings that included record fines for a U.S. multinational and its subsidiaries that had paid bribes to Nigerian officials. Since then, the SEC has charged an additional four international companies with bribing Nigerian government officials to obtain contracts, permits, and resolve customs disputes. See SEC enforcement actions at https://www.sec.gov/spotlight/fcpa/fcpa-cases.shtml.
Security remains a concern to investors in Nigeria due to high rates of violent crime, kidnappings for ransom, and terrorism. The ongoing Boko Haram insurgency has included attacks against civilian and military targets in the northeast of the country, causing general insecurity and a major humanitarian crisis there. Seven bombings of high-profile targets with multiple deaths have occurred in the federal capital Abuja since October 2010. Other bombings and assassinations, the majority linked to Boko Haram, have occurred in the cities of Kaduna, Maiduguri, Damaturu, Bauchi, Jos, Kano, and Suleja. In the Niger Delta region, militant attacks on oil and gas infrastructure in 2016 restricted oil production and export in 2016, but a restored amnesty program and more federal government engagement in the Delta region have brought a reprieve in violence during the second half of the year and allowed limited restoration of shut-in oil and gas production. The longer-term impact of the government’s Delta peace efforts, however, remains unclear and criminal activity in the Delta – in particular, rampant oil theft - remains a serious concern. Maritime criminality in Nigerian waters, including incidents of piracy and crew kidnap for ransom, has increased in recent years and law enforcement efforts have been limited or ineffectual. Onshore, international inspectors have voiced concerns over the adequacy of security measures at some Nigerian port facilities. Businesses report that bribery of customs and port officials remains common and necessary to avoid delays, and smuggled goods routinely enter Nigeria's seaports and cross its land borders.
Freedom of expression and of the press remains broadly observed, with the media often engaging in open, lively discussions of challenges facing Nigeria. Some journalists, however, occasionally practice self-censorship on sensitive issues.