Nigeria’s economy – Africa’s largest – experienced real GDP growth of 3.3% (according to the IMF) in 2022 following a GDP real growth rate of 3.6% the previous year. Sustained higher interest rates and inflation continued, at least partly attributable to Russia’s war on Ukraine. The IMF forecasts a growth rate of about 3% in 2023 while the Nigerian government predicts a more robust 3.8% growth rate in 2023. 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 a potentially attractive consumer market for investors and traders which offers abundant natural resources and a low-cost labor pool.
The government has undertaken reforms to help improve the business environment, including 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. Foreign direct investment (FDI) inflows nevertheless declined to $422 million in the first eleven months of 2022 (the latest data available) from $581 million during the same period in 2021 as persistent economic 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 150 out of 175 countries in Transparency International’s 2022 Corruption Perception Index, compared to its 2021 rank of 154. Among other complaints, 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 foreign exchange availability for 44 categories of imports, and prohibitions on many other import items have the aim (if not the effect) of spurring domestic agricultural and manufacturing sector growth. The government provides tax incentives and customs duty exemptions for pioneer industries including renewable energy. A decline in oil exports, rising prices for imported goods, an overvalued currency, and Nigeria’s expensive gasoline subsidy regime continued to exert pressure on the country’s foreign exchange reserves in 2022. Domestic and foreign businesses frequently cite lack of access to foreign currency as a significant, if not the most significant, impediment to doing business.
Nigeria’s underdeveloped power sector is a bottleneck to broad-based economic development and forces most businesses to generate a significant portion of their own electricity. Reform of Nigeria’s power sector is ongoing, but investor confidence continues to be weakened by regulatory uncertainty and limited domestic natural gas supply.
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 the North West and North Central regions. Criminal attacks on oil and gas infrastructure in the Niger Delta region that restricted oil production in 2016 have eased, but high levels of illegal bunkering and oil theft has left the sector in a similar state of decreased output.
Russia’s war in Ukraine worsened Nigeria’s fiscal strain and exacerbated the country’s double-digit inflation. Inflation, which had declined to 15.6% in January 2022, began to rise in February and ended the year at 21.3%. The cost of importing food and agricultural inputs was disproportionately affected by the war, causing food inflation to increase from 17% to 24% during the same period. The conflict contributed to upward price pressures on staple food items and exacerbated concerns about Nigerian households’ shrinking access to essential food items. The sharp increase in the costs of wheat and other cereals that constitute the essence of Nigerian staple foods, as well as the increased cost of fertilizer, exacerbated food security concerns.
Despite being an oil producer, Nigeria suffered from the increase in global oil prices occasioned by Russia’s war of aggression in Ukraine; the cost of the government’s gasoline subsidy increased by about 17% in 2022, while local diesel prices saw a nearly fourfold increase. Diesel is the primary fuel for transporting agricultural produce and manufactured products throughout the country, and is not subsidized. In addition, most businesses rely on diesel generators to power their operations, further contributing to rising prices.
|TI Corruption Perceptions Index||2022||150 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2022||114 of 132||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2021||$5,920||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2021||$2,080||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|