This information is derived from the State Department's Office of Investment Affairs’ Investment Climate Statement. Any questions on the ICS can be directed to EB-ICS-DL@state.gov
Last Published: 7/13/2016

With over 177 million citizens, a Gross Domestic Product (GDP) over USD 568 billion, and oil production over 2 million barrels per day, Nigeria has Africa's largest population, economy, and oil production (and export). Consistently strong GDP growth over the past decade has developed a growing consumer class and attracted considerable investor interest. 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 judicial system, inadequate intellectual property rights protections and enforcement, and an inefficient property registration system. Major developments affecting investors’ attitudes toward Nigeria have included the following factors:

  • Declining Naira: The drop in the value of the Naira against the dollar to an official exchange rate of approximately 200 in 2015 squeezes 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). In order to preserve foreign exchange reserves and promote import substitution, in mid-2015 the Central Bank of Nigeria (CBN) published a list of 41 items for which official foreign exchange would not be provided. As oil prices continued to fall, the gap between the official exchange rate and an unofficial parallel exchange rate widened. Many companies and economists believe the official exchange rate overvalues the Naira and that the CBN’s policy to defend this rate in the face of market forces for a lower rate, as reflected in the parallel rate, is unsustainable. Concerns about whether and how the CBN will adapt exchange rate policy have contributed to economic uncertainty in 2015 and early 2016.

  • Foreign exchange and fiscal challenges: Nigeria depends on exports of crude oil for approximately 70 percent of government revenue and 90 percent of foreign exchange earnings. Continuing decline in the price of crude oil throughout 2015 has posed foreign exchange challenges for the CBN and a fiscal challenge for the government. The loss of revenue derived from the sale of crude oil increased the budget deficit. The government is addressing the fiscal challenge with a combination of spending cuts, improved tax collection, and domestic and international borrowing. Reduced oil revenue has also strained state governments and many are struggling to pay civil servant salaries. Reduced government spending, greater tax collection, and low oil prices were factors contributing to the slowdown in economic growth in 2015, with GDP growth falling to 2.79 percent, according to Nigeria’s National Statistics Bureau and with inflation reaching 9.6 percent in December 2015, largely a consequence of the depreciation of the parallel exchange rate.

  • Elections: Following presidential elections on March 28, 2015, deemed largely peaceful and orderly by international observers, the May 2015 inauguration of President Muhammadu Buhari marked the first peaceful transfer of power to an opposition party since Nigeria's independence in 1960. Consistent with his campaign pledges, President Buhari has focused on security matters, particularly the Boko Haram insurgency in Nigeria's northeast. Nonetheless, continuing terrorist attacks by Boko Haram in 2015 contributed to investor uncertainty over security in the country.

Nigeria’s recent economic growth has been concentrated primarily in trade, agriculture, manufacturing, and telecommunications. While the agriculture sector sustains over 80 percent of rural households, the Nigerian economy remains heavily dependent on its oil and gas sector which accounts for 12 percent of GDP but, as noted above, over 90 percent of export earnings and over 70 percent of government revenues. Nigeria is the world’s thirteenth largest oil producer and sixth largest oil exporter. However, investment in Nigeria’s oil sector slowed in 2015 due to regulatory uncertainties, security risks, and low oil prices.

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 vast majority of businesses to generate most of their own electricity. The World Bank currently ranks Nigeria 182th 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 Nigerian Electricity Regulatory Commission’s surprise announcement of the removal of collection losses in the electricity tariff in March 2015 reversed a phased increase policy upon which newly privatized electricity generation and distribution companies had been relying to support profitable operation and investment in infrastructure. Many challenges remain before Nigeria will see a significant, sustainable improvement in power delivery to industrial and consumer end-users.

Nigeria’s trade regime remains protectionist, with high tariffs and prohibitions on many import items with the aim of spurring domestic agricultural and manufacturing sector growth. U.S. goods exports to Nigeria in 2015 were USD 3.4 billion, down 42.9 percent from the previous year, while U.S. imports from Nigeria were USD 1.9 billion, down 50 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 2015. The stock of U.S. foreign direct investment (FDI) in Nigeria was USD 5.2 billion in 2014 (latest data available), down from USD 8.1 billion in 2013. 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. Seven bombings of high-profile targets with multiple deaths have occurred in the federal capital Abuja since October 2010, two of which – one at a bus station and one in a market – happened in 2014. Other bombings and assassinations have occurred in the cities of Kaduna, Maiduguri, Damaturu, Bauchi, Jos, Kano, and Suleja, the majority linked to Boko Haram. An amnesty program for militants in the Niger Delta region and rehabilitation and re-integration training for ex-militants have led to a significant decline in militant violence and 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.

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.

Table 1

Measure

Year

Index or Rank

Website Address

TI Corruption Perceptions index

2015

136 of 174

transparency.org/cpi2015/results

World Bank’s Doing Business Report “Ease of Doing Business”

2016

169 of 189

doingbusiness.org/rankings

Global Innovation Index

2015

128 of 141

globalinnovationindex.org/content/page/data-analysis

U.S. FDI in partner country ($M USD, stock positions)

2014

5713

BEA

World Bank GNI per capita

2014

$2,970

data.worldbank.org/indicator/NY.GNP.PCAP.CD

Millennium Challenge Corporation Country Scorecard

The Millennium Challenge Corporation, a U.S. Government entity charged with delivering development grants to countries that have demonstrated a commitment to reform, produced scorecards for countries with a per capita gross national income (GNI) of $4,125 or less. A list of countries/economies with MCC scorecards and links to those scorecards is available here: http://www.mcc.gov/pages/selection/scorecards. Details on each of the MCC’s indicators and a guide to reading the scorecards are available here: http://www.mcc.gov/pages/docs/doc/report-guide-to-the-indicators-and-the-selection-process-fy-2015.
 

Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.


More Information

Nigeria Economic Development and Investment Law