Nigeria´s business environment

Nigeria context

Nigeria is the most populous country in Africa, with 174.5m.  It is categorized as a lower-middle income economy and low human development country, as it ranks 142 out of 169 in the Human Development Index However, 70 % of the population in Nigeria below the poverty line.

Jonathan Goodluck is the current president, leading the PDP party. Elections in 2015 will be only a mere formality for the PDP, although the recent popular unrests at the beginning of 2012 in response to the removal of the fuel subsidy could be a setback in the elections.

The country operates a political structure of 36 states with a strong center. Nigeria is a Feferal Government with a high dependence of the central government politically and economically.

Political outlook

Tensions and unrests have been persistent during 2012. A wide range of political decisions have led to a tense environment that has tested the capacity of the president to face the years prior to the 2015 elections. On May 6th  2010 Jonathan Goodluck took the of office of  the President of the Federal Republic of Nigeria, becoming Nigeria´s 14th Head of State, due to the death of President Umaru Yar´adua,  and re-elected on April 16th 2011, followed by riots in the north by the Muslim opposition with the result of more than 500 people killed. The year in power can be summarized by his fight against corruption and the complex security issues, coming part from the insurgent militant of Boko Haram. In regards of next elections, a stronger opposition groups is starting to merge led by two groups, Action Congress of Nigeria and Congress for Progressive Change, gaining some spurs for next elections.

In the international sphere, Nigeria is a leading player in ECOWAS contributing to the effective deployment of AU-UN troops in Mali and assisting French troops in the neighboring country of Niger to promote stability in the region, although the domestic constraints Nigeria continues suffering.

Corruption, however, is widespread. The government has made concerted efforts to fight corruption, especially through the Economic and Financial Crimes Commission and Independent Corruption Practices and Other Related Offences Commission

Macroeconomic figures

Nigeria’s economic growth has averaged about 7.4% annually over the past decade and remained robust in 2011 at 6.9%, driven by the non-oil sector, particularly telecommunications, construction, wholesale and retail, trade, hotel and restaurant services, manufacturing and agriculture. Regarding agriculture, the government has launched a campaign to encourage Nigerian regions to produce to contribute to regional development.

However, economic growth has not been translated in poverty reduction and more social services.

A major challenge for the economy is the dilapidated state of infrastructure and the over-dependence on the oil and gas industry. These are on the government’s priority list. The authorities are trying to get the private sector involved in infrastructure development and to develop the non-oil sector.

Inflation rate is projected to maintain the downward tendency after finishing 2012 at 12%. This is due to a promotion of a moderate monetary policy and domestic fuel price stability to maintain low inflation and economic growth. However, several facts contributed to raising the inflation figures such as the removal of fuel subsidies at the beginning of 2012 and floods occurred in the third and fourth quarters of 2012 and seasonal effects which increased the prices of agricultural products.

A favorable balance in trade by nearly half of exports over imports is steady over the last years. Import trend has continuously gone downward. The total trade and balance reached their peak in the fourth quarter of 2011 due to a decline in value of manufactured goods, machinery and transport equipment, mineral fuels, crude inedible materials, oil fats and waxes, chemicals and related products and food and live animals, and an increase in crude oil and non- crude oil exports.

Macroeconomic indicators

Real GDP growth:  7.3%

Real GDP per capita growth

CPI Inflation: 12% (2012) (Nigerian government)

Budget balance % GDP

Current account balance: US$ 20.1 billion (2010 estimate) (IMF-World economic outlook 2012)

Current account balance % GDP: 7.3% GDP  (IMF-World economic outlook 2012)

GDP by sector:  agriculture: 35.5%

Industry: 33.6%

Services: 31%

Total exports: US$76.33 billion (CIA World factbook)

Total imports: US$46.36 billion(CIA World factbook)

Export commodities: petroleum and petroleum products 95%, cocoa, rubber (CIA World factbook)

Import commodities: machinery, chemicals, transport equipment, manufactured goods, food and live animals (CIA World factbook)

Fiscal policy

The Government’s Transformation Agenda. Government spending up to 2015 will be focused on priority sectors, including security, infrastructure, agriculture, manufacturing, housing and construction, entertainment, education, health, and information technology, being 2012 a reflect of the agenda with an increase in GDP percentage in housing, agriculture and infrastructure. For this purpose capital expenditure will be increased almost 5 percent points until 2015.

Reforms to improve diversity in tax collection, focusing from direct to indirect taxes have been a breakthrough, with the approval of the National Tax Policy in 2011, not to depend completely on oil and gas´ revenues which accounted 75% and 80% of total tax receipts[1].

Monetary policy

Nigeria´s Monetary Policy Committee[2] has maintained monetary policy rate to 12% for the sixth time in order to create economic growth and stability, since the national GDP and agricultural GDP growth suffered a slowdown, and the overall inability of SMEs to borrow money. The implications of this decision clearly contained the upside risk of inflation alongside the central bank monetary policy to contain food prices.

Regional Integration and Trade

Nigeria is one of the 15 members of ECOWAS, being one of the most powerful economies in the region.  In 2005, Nigeria adopted the Common External Tariff, a common trading rate applied by a market union, in this case ECOWAS. Likewise, the Most Favoured Nation tariff was brought down until 10.7 % as per World Bank indicators[3].

Regarding imports, during 2012 Nigerian Government banned the importation of a range of products, medicines, industrial products such as glass bottles and textile fabrics, and consumer products such as furniture and footwear. This policy can differently affect domestic economy, boosting national production, but also increasing prices and inflation.

The Current Account Balance is favorable to exports, accounting 37% of GDP against 17.4% of imports.  However, these figures if they are compared with those from 2008 the surplus has been steadily decreasing from 29 to 8 billion dollars[4], being the number 19th in world´s average.  This is due to the high prices that have been affected the exportation of crude and related products. Experts and analysts forecast that the balance decline will continue during 2013.

Foreign Investment

The uncertainty over the petroleum industry bill has reduced the influx of foreign investment, declining from 2010 to 2012 to US$6.8 billion. However, the dependence of oil and gas sector is not the only cause of repelling investors. Security and political instability between north and south is another downside for investments. Commitment to developing other sectors, as infrastructure, will improve nigeria´s macroeconomic outlook and receive foreign investment inflow.  The list of countries on top of the list is basically formed by the home countries of the biggest oil companies. USA invested USD5.2 billion in 2010 (which is the latest data available)[5], UK accounts 20% of the total FDI, and China accounts nearly 75% in the oil sector, being three key partners in FDI.

The Government of Nigeria enacted the Nigeria Content Act (NCA) in 2010, at the same time the prohibition to import some goods to foster domestic production. The NCA also required the use of local resources to the companies of oil and gas, and services sectors.

In the oil and gas sector the joint venture, or production sharing agreement, is a requirement to invest in the country as per The Nigerian Investment Promotion Commission Decree of 1995. Sector which concerns national security and military are restricted to domestic investors.

Nigerian laws which regulate foreign investment are the Nigerian Content Act of 2010, Nigerian Minerals and Mining Act of 2007, Nigeria Extractive Industries Transparency Initiative (NEITI) Act of 2007, Central Bank of Nigeria Act of 2007, Electric Power Sector Reform Act of 2005, Money Laundering Act of 2003, Securities and Exchange Act of 1999, Foreign Exchange Act of 1995,Banking and Other Financial Institutions Act of 1991, and National Office of Technology Acquisition and Promotion Act of 1979.

Private enterprise and competition

Microeconomic reforms have been put into effect over the years alongside the macroeconomic stabilization to reach those economic growth figures.  Resources such as loans, trade credits and other financial resources to private sector have been reduced from 2009, reporting 21.9% of GDP[6].

Entrepreneurship in Nigeria encounters several barriers to overcome such as Nigerian infrastructure, high cost of doing business and lack of electricity and basic needs, cumbersome government procedures to star up a business, and lack of enforcement of patent law. Nigeria´s rank is 131 out of 185 economies[7] in 2013, after being ranked in 137 in 2011.

The power sector is one of the sectors which suffered more reforms during 2012. Inefficient energy generation is significantly low for a country which is envisaged to overtake South Africa in 2018. Power sector policies have been sifting to attract foreign investors and public tenders have been released to yield the exploitation of public enterprises and resources. Canada´s Manitoba Hydro International was awarded a contract to manage the Transmission Company of Nigeria for three years. Companies, such as Siemens and top oil refining companies, have made their step into the country. Under the power sector the Petroleum Industry Bill has played a significant role, seeking to introduce a new tax, a rationalized fiscal framework, and remove sector barriers for domestic oil firms.

Private sector competition is mainly regulated by sector, existing certain sector-specific laws, for instance in Telecommunication sector. The lack of a competition law only hinders the development of a fairly efficient business environment. Power and Telecommunications sectors are the one to open the market by issuing licenses to Independent producers. ICT and civil aviation sector have also suffered some regulatory modifications authorizing foreign companies to operate within the mentioned sectors.

The policy making body is the National Council on Privatization, established by the Privatization and Commercialization Act of 1999, which oversees the privatization of state-owned enterprises and the Bureau of Public Enterprises (BPE), which has focused on the privatization of key sectors, such as telecommunications and power sectors.

Labour Market

Labour force  53.8 million in 2012[8], accounting agriculture 70%, industry 10% and services 20%. Agriculture, Forestry and Fishing constituted 21% for males and nearly 10% for women, in the industry sector males account 4% and women 6%[9]

The unemployment rate has been increasing since 2009 reaching 23% in 2011[10]. The unemployment rate for men in rural areas is 16.9% while for women it is 17.2%. In rural areas, the rate is 25% for men and 26% for women[11].

Minimum wage negotiations became imperative for the Nigerian Labour Congress and Trade Union Congress in 2009, since last reviews were done below expectations and through unstructured negotiations. Twenty state governments submitted the suggested amount of minimum wage that could be paid. The minimum wage was set in N18,000 (US$110) after tough negotiations between NLC and government.

At the beginning of 2013 strikes due to the end of subsidies and the subsequent hike of fuel prices, increasing the cost of living. Protests turned into a general strike called by the Trade Unions, emerging clashes between protesters and police.

Financial System

The Nigerian financial system is composed by banks, accounting 78% of the total assets and dominated by 6 out of 20, followed by pension funds, as institutional investors, and non-banks financial institutions. The financial system operates under a complex set of regulations.

Some audits discovered that most of the national Nigerian banks were insolvent and some assistance was requested to The World Bank for a disbursing loan, as the aftermath of the widespread financial crisis, injecting liquidity through the banking system. A new agency was created with a temporary status, Asset Management Company of Nigeria (AMCON), to help banking sector to increase their profit.  As a result, authorities have undertaken a set of reforms and policies, mostly by the Central Bank of Nigeria, in order to stimulate sustainable growth. Bank supervision has improved markedly with higher standards of corporate governance, which was a requirement to receive the disbursement of the World Bank, and strengthened regulations and supervising measures.


Nigeria is the largest economy and second largest democratic state. It is one of the N-11countries and a member of the Commonwealth. The country is rich in oil resources and is the 8th largest producer of petroleum in the world. It possesses great potential of becoming the world’s largest economy by exploiting the unexploited resources. Fiscal and economic reforms have led to the designation of BB- rating by Standard and Poor´s.

However, the country has, unfortunately, become a victim to the mismanagement, corruption, inadequate and dysfunctional infrastructure, weak leadership, and the lack of cohesion. Its dependence of the oil & gas sector, generating nearly 75% of the revenue, could shake the related sectors and the whole economy if the oil prices descend, leading to an increase of public debt.   Entrepreneurship in Nigeria has been seen as risky business with minor support from the central government, and national security issues only hinder foreign investment which is extremely necessary in order to start taking off as an emerging potency.

[1] Nigeria country note pdf

[2] The Committee, which consists of the Governor of the Bank, the four Deputy Governors of the Bank, two members of the Board of Directors of the Bank, three members appointed by the President; and two members appointed by the Governor





[8] CIA World Factbook

[9] Household and Microenterprise, Nigerian National Bureau of Statistics

[10] IMF

[11] African Economic Outlook 2012


Diego Lopez, born in Spain ,has recently started working for Dianova as Project Officer, formulating and designing EU funded projects. He worked for public and private institutions, such as the Spanish Embassy in Senegal and UNICEF. He graduated in 2005 earning the Bachelor in Political Science from Complutense University of Madrid, Spain. He also studied at the Diplomatic School, earning a Master Degree in International Relations and African Studies, and also a MBA from the Centre of Economic Studies in Madrid. He has collaborated on a voluntary basis with international and national associations in wide range of projects and events. He has lived in USA, Senegal and Denmark.

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