Nigeria

Executive Summary

Nigeria’s economy – Africa’s largest – experienced a recession in 2020, largely due to the COVID-19 pandemic and depressed global oil prices. The economy exited recession in the fourth quarter, but gross domestic product contracted 1.9% in 2020. The IMF forecasts a return to low-to-moderate growth rates in 2021 and 2022. President Muhammadu Buhari’s administration has prioritized diversification of Nigeria’s economy beyond oil and gas, with the stated goals of building a competitive manufacturing sector, expanding agricultural output, and capitalizing on Nigeria’s technological and innovative advantages. With the largest population in Africa, Nigeria is an attractive consumer market for investors and traders, offering abundant natural resources and a low-cost labor pool.

The government has undertaken reforms to help improve the business environment, including by facilitating faster business start-up by allowing electronic stamping of registration documents and making it easier to obtain construction permits, register property, obtain credit, and pay taxes. Reforms undertaken since 2017 have helped boost Nigeria’s ranking on the World Bank’s annual Doing Business rankings to 131 out of 190. Foreign direct investment (FDI) inflows have nevertheless remained stagnant, with new FDI totaling $1 billion in 2020 as a number of persistent challenges remain.

Corruption is a serious obstacle to Nigeria’s economic growth and is often cited by domestic and foreign investors as a significant barrier to doing business. Nigeria ranked 149 out of 175 countries in Transparency International’s 2020 Corruption Perception Index. Businesses report that corruption by customs and port officials often leads to extended delays in port clearance processes and to other issues importing goods.

Nigeria’s trade regime is protectionist in key areas. High tariffs, restricted forex availability for 44 categories of imports, and prohibitions on many other import items have the aim of spurring domestic agricultural and manufacturing sector growth. The economic downturn in 2020 put pressure on Nigeria’s foreign reserves. Domestic and foreign businesses frequently cite lack of access to foreign currency as a significant impediment to doing business.

Nigeria’s underdeveloped power sector is a bottleneck to broad-based economic development and forced most businesses to generate a significant portion of their own electricity. The World Bank currently ranks Nigeria 169 out of 190 countries for ease of obtaining electricity for business. Reform of Nigeria’s power sector is ongoing, but investor confidence continues to be weakened by tariff and regulatory uncertainty.

Security remains a concern to investors in Nigeria due to violent crime, kidnappings for ransom, and terrorism in certain parts of the country. The ongoing Boko Haram and Islamic State in West Africa (ISIS-WA) insurgencies have included attacks against civilian and military targets in the northeast of the country. Nigeria has experienced a rise in kidnappings for ransom and attacks on villages by armed gangs in several parts of the country. Militant attacks on oil and gas infrastructure in the Niger Delta region restricted oil production and export in 2016, but a restored amnesty program and more federal government engagement in the Delta region have stabilized the frequency and number of attacks on pipelines and allowed restoration of oil and gas production.