Nigeria’s economy – Africa’s largest – exited recession with a 3.4% GDP growth rate in 2021 following a contraction of 1.9% the previous year. The IMF forecasts growth rates of under 3% in 2022 and 2023 while the Nigerian National Bureau of Statistics predicts a more robust 4.2% growth rate in 2022. President Muhammadu Buhari’s administration has prioritized diversification of Nigeria’s economy beyond oil and gas, with the stated goals of building a competitive manufacturing sector, expanding agricultural output, and capitalizing on Nigeria’s technological and innovative advantages. With the largest population in Africa, Nigeria is an attractive consumer market for investors and traders, and offering abundant natural resources and a low-cost labor pool.
The government has undertaken reforms to help improve the business environment, including by facilitating faster business start-up by allowing electronic stamping of registration documents and making it easier to obtain construction permits, register property, obtain credit, and pay taxes. Foreign direct investment (FDI) inflows nevertheless declined from roughly $1 billion in 2020 to $699 million in 2021 as persistent challenges remain.
Corruption is a serious obstacle to Nigeria’s economic growth and is often cited by domestic and foreign investors as a significant barrier to doing business. Nigeria’s ranking in Transparency International’s 2021 Corruption Perception Index fell slightly from its 2020 score of 149 out of 175 countries to154 of 180 in 2021. Businesses report that corruption by customs and port officials often leads to extended delays in port clearance processes and to other issues importing goods.
Nigeria’s trade regime is protectionist in key areas. High tariffs, restricted foreign exchange availability for 44 categories of imports, and prohibitions on many other import items have the aim of spurring domestic agricultural and manufacturing sector growth. The government provides tax incentives and customs duty exemptions for pioneer industries including renewable energy. A decline in oil exports, rising prices for imported goods, an overvalued currency, and Nigeria’s expensive fuel subsidy regime continued to exert pressure on the country’s foreign exchange reserves in 2021. Domestic and foreign businesses frequently cite lack of access to foreign currency as a significant impediment to doing business.
Nigeria’s underdeveloped power sector is a bottleneck to broad-based economic development and forces most businesses to generate a significant portion of their own electricity. Reform of Nigeria’s power sector is ongoing, but investor confidence continues to be weakened by regulatory uncertainty and limited domestic natural gas supply.
Security remains a concern to investors in Nigeria due to violent crime, kidnappings for ransom, and terrorism in certain parts of the country. The ongoing Boko Haram and Islamic State in West Africa (ISIS-WA) insurgencies have included attacks against civilian and military targets in the northeast of the country. Nigeria has experienced a rise in kidnappings for ransom and attacks on villages by armed gangs in the North West and North Central regions. Criminal attacks on oil and gas infrastructure in the Niger Delta region that restricted oil production in 2016 have eased, but a significant rise in illegal bunkering and oil theft has left the sector in a similar state of decreased output.