Nigeria has the largest market in Africa with a population of over 200 million. As such, Nigeria has an abundance of labor at rates well below high-income and some middle-income countries.  The country also has an abundance of natural resources including oil, minerals, and precious stones. It is one of Africa’s key oil producers, producing high-value, low-sulfur crude oil. The economy’s heavy dependence on oil has decreased somewhat in the last few years. In the third quarter of 2022, oil accounted for about 5.6% of Nigeria’s gross domestic product (GDP), down from 7.5% recorded in the third quarter of 2021. Oil revenue remains a crucial source of government revenue, constituting 29% of total government revenues in the first half of 2022. Oil continues to account for the bulk of Nigeria’s export earnings. Total GDP grew by 3.11% (year-over-year) in the first quarter of 2022, compared to 3.98% in the second quarter of 2022.

The Nigerian economy is broadly classified into formal and informal sectors. Business analysts estimate that the informal sector accounts for as much as 65% of the total economy, although the sector is not included in GDP calculations due to lack of credible data on the mostly cash-based activities.

Under President Muhammadu Buhari, Nigeria has prioritized self-sufficiency as key to economic growth and national security, promoting backward integration, import substitution, and local content laws. In addition to oil and gas, Nigeria’s formal sector economic activities are conducted across several sectors including the agricultural, services, and industrial sectors. The services sector - consisting of telecommunications, financial, and other services - is the largest sector in Nigeria and accounted for 52% of GDP in the third quarter of 2022. The information and communications technology (ICT) sector contributed 16.2% to GDP in Q1 2022.The agricultural and industrial sectors accounted for 30% and 18%, respectively, during the same period. The services sector grew by 7%, while agriculture and industry grew by 1.3% and 8%, respectively.

Nigeria ranks 58th among the United States’ trade partners. In 2022, trade between both countries was valued at $4.45 billion. According to a WorldCity analysis of the U.S. Census Bureau data, during the first five months of 2021, Nigeria’s trade with the United States amounted to $1.43 billion. This is 25% below its total trade during the same time the previous year. According to the National Bureau of Statistics, 6.5% of all of Nigeria’s imports came from the United States in the third quarter of 2022, making it Nigeria’s fifth largest import partner. Nigeria’s major imports from the United States include durum wheat valued at over $173 million and used vehicles at $158 million. Other key Nigerian imports from the United States included spare parts, machinery, refined petroleum products, and military hardware. The United States was Nigeria’s sixth largest export partner with 5.7% of Nigeria’s $747 million (337 billion naira) exports going to the United States. Crude oil exports accounted for 87% of these exports, while agricultural products such as cashew nuts and frozen shrimp accounted for much of the balance.

The United States 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). Nigeria receives development assistance from many U.S. government agencies, including USAID.

Nigeria’s economy and commercial activities have been affected by several global economic shocks including COVID-19 and Russia’s invasion of Ukraine. Several domestic headwinds are also impacting the economy, including decline in crude export volume, a costly petroleum subsidy, rising inflation, and rapid currency devaluation. Other significant impediments to development and trade include inadequate power supply, deficient transportation infrastructure, a slow and ineffective judicial system, endemic public sector corruption, non-inclusive growth, poverty, poor maternal and infant mortality indices, under resourced education and healthcare sectors, and poor distribution of wealth amongst its citizens.  

In December 2021, the government of Nigeria passed a $41.80 billion (17.13 trillion naira) budget for 2022. This 25% year-on-year rise is predicated on several assumptions such as a crude oil production level of 1.86 million barrels per day (mbpd), a global oil price average of $57, an exchange rate of 410.15 naira to the dollar, GDP growth rate of 4.2%, and a 13% inflation rate. The government approved an additional supplementary budget of $2.39 billion (2.56 trillion naira) in June 2022 to fund the petroleum subsidy from June to December 2022, among other expenditures. According to the National Bureau of Statistics, inflation eased slightly to 21.34% in December 2022, from a 17-year high of 21.47% in November.

As a result of stagnant revenue, the Nigerian government has increased borrowings from the international capital market to offset its budget crunch caused by revenue shortfalls. In August 2022, OPEC raised Nigeria’s crude production quota from 1.77 mbpd to 1.83 mbpd for September. However, Nigeria has recorded significant economic losses and decreased oil output due to oil theft, aging infrastructure, and a decline in new investments, Nigeria has been unable to meet this quota and boost oil revenues. The government’s Strategic Revenue Growth Initiative which aims to improve revenues to 15% of GDP by 2025 has resulted in some growth in non-oil revenues. Plans to implement a 5% excise duty on telecommunication services and beverages in 2023, a move that will increase the total telecom services tax paid by consumers to 12.5%, may improve overall revenues.

The combination of middling revenues and rising interest rates globally have worsened Nigeria’s ability to service its debts. According to the Ministry of Finance, the country spent about 80% of its revenues servicing debt between January and November 2022. The World Bank projected that Nigeria’s debt-to-revenue ratio will rise to 123% in 2023 and 160% by 2027.

The drop in revenues has exacerbated dwindling foreign currency reserves, making access to foreign exchange an ongoing problem for businesses. The Central Bank of Nigeria (CBN) has not harmonized multiple exchange rates, causing uncertain and dynamic market conditions for international businesses. The CBN made initial steps in 2020 toward harmonizing these multiple exchange rate regimes alongside measures to stabilize the naira. However, significant devaluation occurred in 2022 while official and unofficial rates continued to diverge.

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 Nigeria’s capital of Abuja. Nigeria represents roughly 70% of the 15-country ECOWAS GDP and over half of the ECOWAS region’s population. Nigeria had for some time been largely responsible for the decades-long delays in developing the ECOWAS Common External Tariff (CET). In 2019, Nigeria signed the African Continental Free Trade Agreement (AfCFTA) aimed at creating intra-African trade and a $3.4 trillion economic bloc across Sub-Saharan Africa. However, the country still has a long way to go in implementation of the agreement.

Nigeria can be a lucrative market for companies that can learn to navigate a complex and evolving business environment. However, key issues such as profit repatriation have stunted investment in recent years. Many established multinationals have deciphered operating in this challenging regulatory environment and make substantial profits despite the country’s low level of income and logistical difficulties. For those that do succeed, repatriation of profits due to the lack of foreign currency reserves remains a significant problem. Despite this, 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, South Africa, and China as the main sources. 

Oil and Gas

Nigeria has some of the largest natural gas deposits in the world with over 206.5 trillion cubic feet of proven reserves. However, the country has been unable to significantly mobilize that gas for the domestic market.  Political interference, delays in legislating key issues, and an inconsistent approach to regulating the price of gas has deterred the necessary investment to capture and deliver gas to domestic markets. In July 2021, the long-awaited Petroleum Industry Act (PIA) was signed into law. Although the PIA may facilitate increased investment in Nigeria’s oil and gas industry, several international oil companies are in the process of divesting onshore, shallow, and land assets, typically selling them to Nigerian companies.

In 2021, Nigeria was the world’s sixth-largest exporter of liquefied natural gas (LNG). The country’s exports of natural gas rose by 14% and accounted for 9.24% of total exports in the first quarter of 2022. The country recorded an average daily oil production of 1.49 mbpd in the first quarter of 2022, lower than its daily average production of 1.72 mbpd in Q1 2021 and 1.50 mbpd in Q4 2021.

In Q1 2022, the oil sector accounted for 6.63% of total GDP down from 9.25% in Q1 2021 and 5.19% in Q4 2021. In Q4 2020, the petroleum sector contributed 5.87% to Nigeria’s GDP and accounted for approximately 90% of GON income.

The oil and gas sector is the largest contributor to government revenues and accounts for the bulk of Nigeria’s exports. However, the country has been unable to benefit for increasing global prices as a result of Russia’s invasion of Ukraine due to theft, vandalism, and insecurity in supply chains. As a member of OPEC, Nigeria’s daily production of oil is regulated by the organization. Despite its declining contributions to the economy, the oil and gas sector continues to account for a significant number of capital projects in the country. In May 2021, the now privatized Nigerian National Petroleum Company Limited (NNPC) awarded 57 marginal fields to 161 successful bidders. These marginal fields are located on land, swamp, and shallow offshore terrains.

Failure to protect contract sanctity, a lack of regulatory clarity, and costly operational risks constrain 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 are 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.

Power Sector

The power sector neither meets the existing demand nor delivers uninterrupted reliable electricity. Nigeria’s electricity system operator calculates the nation’s 23 grid-connected generating plants with a total installed generation capacity at 12,910 megawatts (MW), an available capacity at 7,652 MW, and an average available generation of about 4,000 MW. This is grossly insufficient for its population of over 200 million with an electricity demand of about 40,000 MW.  About 20% of the grid-connected electricity generation in Nigeria is from large hydro projects. The Nigerian government plans to improve access to electricity from 45% to about 90% by 2030. The government is implementing different initiatives targeted at achieving at least 30,000MW generation by 2030, with 30% from renewable energy sources. Through a series of reforms and policy initiatives, the government is focused on promoting efficiency in the sector to attract private investment, increase generation, reduce transmission losses, and improve revenue collection.

Nigeria has a great abundance of untapped renewable energy resources, which includes hydro, biomass, wind, biogas, solar, and geothermal resources. The Renewable Electrification Action Program (REAP), identified solar, wind and biomass as key resources to enhance green energy supply.

The Nigerian Electricity Regulatory Commission (NERC) developed the renewable energy feed-in tariffs for wind, solar, small hydro, and biomass/biodiesel which are widely seen as attractive. In addition, the government issued the Sustainable Energy for All Action Agenda (SEforAll) targets which aimed to achieve a 20% and 19% contribution of solar energy (photovoltaic and solar thermal) to Nigeria’s electricity generation mix by 2020 and 2030 respectively.

Infrastructure

Nigeria’s publicly-owned and operated transportation infrastructure is a major constraint to economic development.  The principal ports are Lagos (Apapa and Tin Can Island), Port Harcourt, and Calabar. Of the 50,000 kilometers of roads, only a little more than 10,000 kilometers are paved, with many in poor condition. Due to budgetary funding shortages, the Ministry of Finance has developed alternative means of funding Nigeria’s major roads and highways. The Road Infrastructure Tax Credit Scheme allows the private sector to build or rehabilitate roads identified by the federal government in exchange for tax credits. The Ministry also issues Islamic finance bonds (sukuk) specifically aimed at developing road projects.

Five of Nigeria’s twenty-two airports (Lagos, Kano, Port Harcourt, Enugu, and Abuja) currently receive international commercial flights. 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.

China has emerged as a major development, trade, and investment partner of the Nigerian government and is Nigeria’s largest contractor and partner in infrastructure projects, with its total volume of projects estimated at over $77 billion. These projects include several infrastructure sectors – road, rail, power, and construction.

In August 2022, the government of Nigeria announced the concession of the Badagry Deep Sea Port under a build-own-operate-transfer public-private partnership at the cost of $2.59 billion In 2020, the government approved $87 million (35.94 billion naira) in funding for the construction and rehabilitation of major roads in six states. Also, the Nigerian government announced approval for the Lagos Lekki-Epe International airport, expected to handle over five million air passengers. The project will be executed under a Public Private Partnership (PPP) model and will be sited on 3,500 hectares, with the first phase estimated to cost $900 million.

In February 2022, the Government approved the establishment of a $2 billion (1 trillion naira) infrastructure company, InfraCredit, to focus on critical infrastructural investments. The initial seed capital is expected to be sourced from the CBN, Nigerian Sovereign Investment Authority (NSIA), and Africa Finance Corporation.

Services

Nigeria’s services output ranks as the 63rd largest worldwide and fifth largest in Africa.  The Nigerian financial services sector is substantial, and some foreign banks are in market as a hub for West Africa despite the rising macroeconomic headwinds. However, only about half of Nigeria’s adult population has access to formal 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. The insurance sector in Nigeria has low penetration but has grown over the past decade.

Private equity (PE) in Nigeria is a growing aspect of the financial sector with over 20 firms operating in the country with funds ranging from $100 million to over $1 billion in size. Over the past five years, Nigeria has accounted for more than half of the PE deals in West Africa. Nigeria has an active capital market with over 161 companies listed on the exchange and a market capitalization of $64.177 billion as of March 2023. Market capitalization accounted for $68.81 billion in May 2022. By the end of the first half of 2022, the market appreciated $12.5 billion (5.64 trillion naira), a 25.3% increase from 22.29 trillion that it opened for trading activities in January 2021.

Consumer Products

Nigeria is an increasingly important market and manufacturing center for the African consumer product sector.  Nigeria is currently home to a middle class, estimated to be just below 50 million people. However, rising inflation is affecting the growth of this band. Major challenges to companies in the consumer products sector in Nigeria include protectionist policies, substandard intellectual property rights protection, and foreign exchange limitations making imported products or inputs uncompetitive on price.

Information and Communication Technology (ICT)

According to the Nigerian Communication Commission (NCC), Nigeria is Africa’s largest ICT market, accounting for 82% of Africa’s ICT market and 29% of internet usage in Africa. The African Development Bank lists Nigeria as one of four biggest African tech hubs that continues to attract the most fintech funding in the continent. In December 2021, the Nigerian Communications Commission completed auctions for the 3.5GHz, 5G spectrum and subsequently awarded operational licenses to MTN, MAFAB Communications. In a second licensing round in December 2022, NCC awarded a spectrum to Airtel. MTN rolled out 5G services in September, while MAFAB announced plans to launch in January 2023.

In August 2022, NCC reported that Nigeria had more than 210 million active mobile telecoms subscribers of GSM. Fiberoptic 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 (ROW) protection for telecom infrastructure. To boost investments in telecom infrastructure within local districts, some states have provided discounted costs for ROW charges. The Nigerian government still maintains an ambitious plan of attaining 90% broadband penetration by 2025. Penetration is slightly above 40% according to government figures.  The ICT sector remains an important driver of growth in Nigeria and maintained a healthy trajectory during the pandemic.

Agriculture

Nigeria’s agricultural sector employed nearly 70% of the population and comprised nearly 22% of GDP in the Q1 of 2022, slightly higher than the 21.42% in Q4 2021. Nigeria possesses an abundance of arable land and a favorable climate for production of nuts and seeds fruits, tubers, and grains. Most farming in Nigeria is subsistence based, utilizing manual labor and relatively little agricultural machinery.

Nigeria continues to maintain import restrictions such as high duties, quotas, and import bans. Agricultural products on the government’s banned items list include poultry, beef, pork, and rice.

Political & Economic Environment:  State Department’s website for background on the country’s political environment.