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Last Published: 11/29/2018


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Nigeria has the largest market in Africa with a population of more than 180 million people.  In March 2016, PwC published a report, “Nigeria: Looking beyond Oil,” that raises the Nigerian economy to the top 10 in the world in 2050 with a projected GDP of $6.4 trillion.  Examples of such extrapolations are numerous and wide-ranging.  A 2018 World Bank report on Business Reforms in Nigeria noted improvements in starting a business, dealing with construction permits, registering property, getting credit and paying taxes.  Consequently, Nigeria’s Ease of Doing Business has started to show signs of improvement. Nigeria’s potential has remained largely untapped as the country’s previous growth was fueled by consumption and high oil prices. Because Nigeria is heavily dependent on oil which accounts for about 90% of export earnings and over 70% of total government revenues, Nigeria’s commercial activities were adversely affected by declining oil prices with its economy contracting by 0.67% and 2.06% in the first and second quarters of 2016 respectively. Successive quarterly contractions in 2016 and an annual growth rate of 1.5%, the first full year contraction since 1991, meant Nigeria officially entered a recession in 2016 which lasted till Q2 of 2017. The slowdown in economic activity was compounded by inadequate supply of foreign exchange, worsening inflation (peaking at 18.72% in January 2017 from 9.62% in January 2016) and inability to access foreign exchange at the official window for certain items which form inputs into the agriculture and manufacturing sectors. 
 
As of Q3 of 2017, Nigeria officially exited the recession and commenced implementation of the government’s Economic Recovery and Growth Plan (ERGP) which focuses on diversifying the country’s economy. The ERGP articulates the Government of Nigeria’s (GoN’s) vision for the country and lays the foundation for long term growth with an underlying philosophy to optimize local content and empower local business using driving factors such as increase in agricultural output, increase in the country’s oil production, recent gains in manufacturing, telecommunications and real estate, and the expansionary budget of the Nigerian government. Inflation has gradually declined, having reached 11.23% in June 2018; some analysts predict that the rate of inflation will begin to rise again in the second half of 2018, as the 2019 elections approach. The country continues to experience some development challenges such as non-inclusive growth, poverty, poor maternal and infant mortality indices, an underachieving education sector and poor distribution of wealth amongst its citizens.

Nigeria has an abundance of labor at rates well below high-income and some middle-income countries. Nigeria also has an abundance of natural resources including oil, other commercial minerals and precious stones. However, major impediments to development and trade include inadequate power supply, deficient transportation infrastructure, a slow and ineffective judicial system, and widespread corruption especially in the public sector. 

 The United States is the second largest foreign investor in Nigeria with total capital imported in 2017 at $1.3 billion. In 2016, the U.S. was Nigeria’s third largest import partner with 8.01% of Nigeria’s total imports emanating from the U.S. Nigerian imports from the U.S. include wheat, vehicles, machinery, refined petroleum products etc. Nigeria exports to the U.S. in the same year consisted of oil, cocoa, rubber, antiques and food wastes and accounted for 12.08% of its exports making the U.S. Nigeria’s second largest export destination. The U.S. and Nigeria have a bilateral Trade and Investment Framework Agreement (TIFA) and Nigeria is eligible for preferential trade benefits under the African Growth and Opportunity Act (AGOA). Development assistance from the U.S. through its Agency for International Development is estimated at roughly $800 million for 2017.

Nigeria plays an important leadership role in both West Africa and on the African continent.  The headquarters of the Economic Community of West African States (ECOWAS) is in Abuja.  Nigeria, which represents roughly 70% of the 15-country ECOWAS GDP and over half of the ECOWAS region’s population, plays an outsized role in ECOWAS.  It was Nigeria, for instance, that was largely responsible for the decades-long delays in developing the ECOWAS Common External Tariff (CET) and for the protections and flexibilities that remain a part of that tariff system.  In 2014, U.S. exports to ECOWAS totaled $9.9 billion, which represented nearly 40% of all U.S. exports to Sub-Saharan Africa.  Imports to the U.S. from ECOWAS totaled $5.6 billion in the same year.  U.S.-ECOWAS trade represents almost 30% of total U.S. trade with all Sub-Saharan Africa. 

Nigeria can be a lucrative market for companies that can learn to navigate a complex and evolving business environment.  Established multinationals that have mastered operating in this chaotic regulatory environment make substantial profits despite the country’s low-income levels and logistical difficulties.  The Nigerian Government continues to promote Nigeria as a rewarding target for Foreign Direct Investment (FDI).  Foreign capital flows into all major sectors of the economy with the United Kingdom, United States, Canada, France, and China being the main sources.  China has re-emerged as a major development, trade and investment partner of the Nigerian government especially considering Western skittishness in investing in Nigeria due to the recession and restrictive government controls in foreign exchange and international trade. China is Nigeria’s largest contractor and partner in infrastructure projects with total volume of projects estimated at US$77 billion. These projects cut across infrastructure sectors – road, rail, power, construction – and are largely implemented by Chinese state-owned enterprises and financed by the Export-Import Bank of China.

To pull Nigeria out of recession, the government released an Economic Recovery and Growth Plan (ERGP) in March 2017 which, amongst other objectives, prioritizes the diversification of the Nigerian economy. The Government’s sectoral focus – and by extension, areas ripe for investment – are as follows:

  • Agriculture and food security: Invest in the sector to achieve national self-sufficiency in tomato paste, rice and wheat and become a net exporter of rice, cashew nuts, groundnuts, cassava and vegetable oil by 2020. Grow the sector by about 7% and prime agriculture as a job creator and a foreign exchange earner.
  • Energy (power and petroleum products): Ensure energy sufficiency in petroleum products and become a net exporter by 2020. Optimize at least 10 GW of operational power capacity by 2020. Increase local oil production to 2.5 mbpd by 2020, expand oil sector infrastructure and boost local refining.
  • Transportation infrastructure: Partner with the private sector to strengthen transport infrastructure to aid the achievement of ERGP targets and build a competitive global economy
  • Industrialization: Drive industrialization with emphasis on Small and Medium Scale Enterprises focusing on priority sectors such as agriculture, Fast Moving Consumer Goods, manufacturing etc.

Interventions in these sectors will be undertaken against the backdrop of macroeconomic targets of low inflation, market reflective exchange rates, sustainable fiscal balances, diversified fiscal revenue base through improved tax and customs administration, sub-national fiscal coordination amongst others.
A copy of the ERGP is available at:  Nigeria's Economic Recovery and Growth Plan.

Oil and Gas
Nigeria is the largest oil producer in Africa, holds the largest natural gas reserves on the continent, and is among the world's top five exporters of liquefied natural gas (LNG).  In 2017, the petroleum sector contributed approximately 9% to Nigeria’s GDP but accounted for 80% of Federal Government income and 95% of export earnings. 

Billions of dollars in arrears currently owed its joint venture partners. The govt paid $400 million in May 2017 but still owes about $5 billion in arrears, which combined with lax contract enforcement, a lack of regulatory clarity, and high and costly operational risks has constrained growth and investment in this sector.  The regulatory environment for international oil companies in Nigeria is further affected by the Nigerian Oil and Gas Industry Content Development Act of 2010.  Under the Act, Nigerian independent operators will be given first consideration in the award of oil projects in Nigeria.  In addition, multinational companies working through Nigerian subsidiaries must demonstrate that a minimum of 50% of the equipment used is owned by Nigerian subsidiaries.

Nigeria has some of the largest natural gas deposits in the world with 180 trillion cubic feet of proven reserves, but the country has been unable to mobilize that gas for the domestic market.   Political interference, failure to legislate on key issues, and an inconsistent approach to regulating the price of gas collectively deterred the necessary investment to capture and deliver gas to domestic markets.

In April 2016, the Nigerian National Petroleum Corporation (NNPC) opened bidding to refurbish its refineries.  Nine companies are reported to be participating in this process.  As at December 2017, the NNPC had increased its daily output from about 650,000 barrels in 2016, to approximately 2,000,000 barrels.

Power Sector

The power sector neither meets the existing demand of the country’s population and businesses nor delivers uninterrupted reliable electricity.  Today, 23 grid-connected generating plants are in the country with a total installed capacity of 10,396 megawatts (MW) with a daily operational average near 4,000 MW.   In contrast, South Africa, with a population one-third of Nigeria’s, generates ten times as much power.

The Nigerian electricity industry from power generation to distribution is mostly privatized.  The power sector is not generating enough cash from consumers to cover the cost of generating and delivering power, leaving generation, transmission, and distribution companies with operating deficits.  Additionally, lack of affordable long-term financing is hampering investment in infrastructure upgrades.  

Despite challenges, there have been measured improvements in the last 10 months.  Power production reached an all-time high of 7,000MW on September 2017The Azura-Edo 461MW independent power project became operational in May 2018 and currently delivers up to 10 percent of the country’s on-grid power.

Infrastructure
Nigeria's publicly-owned and operated transportation infrastructure is a major constraint to economic development.  The principal ports are in Lagos (Apapa and Tin Can Island), Port Harcourt, and Calabar.  While the Government of Nigeria has opened the ports sector for the private sector to manage and operate through the concession agreements, the government still manages the rail and roads sector.  A sound legal framework and reforms are needed to allow Public and Private Partnerships (PPPs) to move forward in the rail and roads sector.   Of the 50,000 kilometers of roads, only slightly more than 10,000 kilometers are paved, and many of these paved roads are in poor shape.  Only five of Nigeria's twenty-two airports—Lagos, Kano, Port Harcourt, Enugu, and Abuja—currently receive international commercial flights. Haj flights fly out of Yola to Saudi Arabia, but these are charter flights.  Lagos is working towards establishing itself as a regional hub.  

Nigeria’s railway currently has eight lines that are slightly more than 2,000 miles long collectively.  These railways require major rehabilitation, modernization, and expansion.  In 2010, the Government of Nigeria launched a 25-year strategic plan to revive the country’s railway system and commissioned various railway projects through concession agreements with state-owned Chinese companies.  Many of these projects have never reached financial close due to underlying corruption issues in the procurement process and public-sector infrastructure funding shortages.  The Lagos-Abuja line, the Kaduna-Abuja passenger line and the Kaduna-Abuja line are the only operational lines currently, and an American company supplied 25 locomotives for the Lagos-Abuja line.  In April 2018, the Government of Nigeria and General Electric (GE) signed a USD 45 million interim rail concession (while negotiating a $2 billion concession to supply and operate locomotives) to refurbish the Lagos to Kano rail line.  The interim concession may grow to include the Port Harcourt to Maiduguri line.  Nigeria has plans to participate in the AfricaRail project by upgrading the gauge of the rail lines consistent with neighboring rail systems.  AfricaRail is a project to rehabilitate and construct twelve hundred new miles of railway linking Cote d’Ivoire, Burkina Faso, Niger, Benin, Togo, and Nigeria at an estimated cost of $2 billion. 

Services
Nigeria’s services output ranks as the 63rd largest worldwide and fifth largest in Africa.  The potential of the Nigerian financial services sector remains enormous, and foreign banks are becoming increasingly attracted to the market.  However, most of Nigeria's population has only limited access to financial services – a problem compounded by high levels of bureaucracy required to complete even simple transactions.  The Nigerian Government aims to push ahead with reforms of the insurance and pension industries.

Consumer Hardware

Nigeria is an increasingly important market and manufacturing center for the African consumer product sector.  Nigeria is currently home to a growing middle class now estimated to be about 50 million, and it is a clear leader in the regional economic grouping ECOWAS and regionalization efforts.  There is a wide range of U.S. products in the Nigerian market from both large and small companies.  The promise of this market supported several U.S. companies’ manufacturing plants in Nigeria.  Major challenges to companies in the consumer products sector in Nigeria include protectionist policies and lack of adequate intellectual property rights protection.

Information and Communications’ Technology (ICT)​​​​​​​
There are four main GSM networks in Nigeria:  Airtel, MTN, Globacom, and 9mobile.  Other operators providing code division multiple access (CDMA) include Visafone and Multilinks. Nigeria is Africa’s largest ICT market, accounting for 29% of Internet usage in Africa.  In June 2018, the Nigerian Communications Commission reported that, Nigeria had more than 160 million active mobile telecoms subscribers of GSM and CDMA.  Mobile GSM subscribers account for 98.37% of the total number of telecom subscribers.  Fiber optic expansion is currently taking place in Lagos and Abuja; however, expansion in rural areas continues to be hampered as telecom providers await pending legislation on “right of way” protection for telecom infrastructure.

Agriculture

Nigeria’s agricultural sector employs nearly 70% of the population and contributes nearly 22% of GDP.  Nigeria possesses an abundance of arable land and a favorable climate to produce nuts, fruits and grains.  Most of farming in Nigeria is subsistence based, utilizing manual labor and relatively little agricultural machinery. 
Nigeria continues to maintain import restrictions (high duties, levies, quotas and import bans) on several agricultural products, including poultry, beef and pork products, and have added new restrictions on others.  Absent any organized and concerted public and/or private sector efforts to modernize the sector and access regional and global commodity markets, growth opportunities for U.S. products serving Nigeria’s agribusiness sector are relatively few at present.  Land ownership, transport, and lack of infrastructure issues weigh into starting agro-farming businesses in Nigeria.  Many multi-national companies have instead engaged in agro-processing business, which are in large demand.  GoN’s foreign exchange restrictions on major agricultural items, however, create challenges for importing the needed raw items to process.

Healthcare
The Nigerian healthcare system has few modern facilities.  As a result, the country loses millions every year to medical tourism with Nigerians travelling abroad for medical procedures.  Prospects exist for investment in hospitals and clinics with treatment capabilities and cutting edge medical technologies.

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.


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