Nigeria: Economic Outlook

Last Updated: 16 November 2018
Article by Strachan Partners

The crash in crude oil prices and fall in crude oil production due to the sabotage of oil terminals in the Niger Delta, among other factors led to Nigeria's fall into economic recession in the second quarter of 2016. As a result of this, the Federal Government deployed various interventions with the aim of reviving the Nigerian economy and drastically shifting the country's over-reliance on oil-generated revenue.

The Presidential Enabling Business Environment Council ("PEBEC") was inaugurated in 2016 to address bottlenecks affecting the ease of doing business in Nigeria following Nigeria's ranking by the World Bank at 169th out of 190 economies on the ease of doing business. Also, in 2017, the Ministry of Budget and National Planning launched the Economic and Growth Recovery Plan 2017 – 2020 to restore Nigeria's economic growth especially by way of diversification of the country's source of revenue. The ongoing success of these interventions has resulted in the following:

  1. Nigeria's exit from economic recession in 2017;
  2. Nigeria presently ranks 145th out of 190 economies on the World Bank's Ease of Doing Business rankings and PEBEC's goal is to promote Nigeria to the top 100 by 2020 and the top 20 by 2025 ;
  3. Nigeria's GDP grew by 1.95% (year-on-year) in real terms in the first quarter of 2018 compared to the growth of -0.91% in the first quarter of 2017 ;
  4. The non-oil sector contributed 90.39% to the GDP in the first quarter of 2018 while the oil sector contributed 9.61% ;
  5. A daily average oil production of 2.0 million barrels per day (mbpd) was recorded in the first quarter of 2018 ;
  6. The total value of capital imported in the first quarter of 2018 (Q1 2018) stood at USD$6,303.63 million, which is a year on year increase of 594.03% and a 17.11% growth over the figure reported in the previous quarter; and
  7. According to Bloomberg reports in January 2018, Nigerian stocks were one of the best four performers in the World in the last quarter of 2017, having been a preferred choice for international investors. In Q1 2018, portfolio investment grew from USD$3,477.53 million in the first quarter of the previous year to USD$4,565.09 million.

These are clear indicators of the continuous and positive growth in Nigeria's economy and the country's reduced dependence on oil proceeds.

It is noteworthy that the following attributes also make Nigeria a viable and attractive destination for investors:

  1. Democratic Government: The country has a stable democratic government and has had democratic elections every 4 years since 1999.
  2. Large Population: With a population of over 198 million people, Nigeria has a large workforce and a huge domestic market. 
  3. Abundant Natural Resources:  The country has abundant mineral and agricultural resources and a highly skilled workforce that is yet to be fully utilized. It is noteworthy that Nigeria is the biggest oil exporter in Africa, with large natural gas reserves which are under-exploited. Also, the cultivation of cash crops like cocoa, peanut, palm oil, and rubber among others for domestic consumption and export is grossly under-exploited.
  4. Investment Incentives: The country provides attractive incentives to encourage foreign investment. There are income tax reliefs granted to companies with pioneer status. There are also export promotion incentives aimed at encouraging and assisting manufacturing exporters to increase and diversify the total value and volume of non-oil exports from the country. The incentives are designed to address the major problems of supply, demand and price competitiveness of Nigeria's export and include the Export Development Fund, the Export Expansion Grant Fund, the Export Adjustment Scheme Fund, the Duty-Draw-back Scheme, the Duty Suspension Scheme, and the Manufacture-in-Bond Scheme.

    Other incentives include the creation of export processing zones for special development purposes, where manufacturing can be undertaken under conditions that exempt entities operating within a zone from all Federal, State and Local Government taxes, levies and rates.
  5. Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI): Nigeria receives the largest amount of Foreign Direct Investment (FDI) in comparison to other African countries. Between 2001 and 2004, Nigeria's FDI grew from USD 1.14 billion to USD 2.1 billion. In 2009, Nigeria's FDI reached USD 11 billion according to UNCTAD. The Central Bank of Nigeria also reported that Nigeria's FDI averaged about $1.4 Billion USD from 2007 to 2015, increasing by $1.2 Billion USD in the third quarter of 2015 and making Nigeria one of the top three destinations for FDI in Africa.

    However, in the first quarter of 2018, Foreign Direct Investment stood at $246.62 million, falling by 34.83% from the figure reported in the previous quarter, and growing by 16.67% on a year-on-year basis. Portfolio Investment remained the largest component of total capital inflow into Nigeria in the first quarter of 2018. The total value of Portfolio Investment was $4,565.1 million, which is a 1,355.66% growth compared to Q1, 2017 and a 31.27% growth compared to the figure reported in Q4 2017.
  6. Infrastructure: Government infrastructure spending has increased in recent times and the federal government and state governments are developing their infrastructure using public and private partnership mechanisms.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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