FEDERAL REPUBLIC OF NIGERIA

A member of Standard Bank Group

Location: Nigeria is located in West Africa.

Chambers/Associations: The Nigerian

Association of Chambers of Commerce,

Industry, Mines and Agriculture (NACCIMA) is

the umbrella organisation for all city, state and

bilateral chambers of commerce in the Federal

Republic of Nigeria. It has various working

groups, such as the Agriculture Trade Group,

the Syndicated Metals Industries Limited and

Industrial Trade Group, the Export Action

Group, the Businesswomen Group and the

Oil and Gas Trade Group.

However, the Lagos Chamber of Commerce

and Industry (LCCI), headed by Muda Yusuf,

is the most influential institution for businesses

within the greater economy.

INTRODUCINGCOUNTRY PROFILE –

FACTS AND FINDINGS

• Nigeria is a federal republic with executive

power exercised by the president,

Mr Muhammadu Buhari.

• The ruling, All Progressive Congress,

which was formed in 2013, took power in

the March 2015 election.

There are three distinct systems of law in Nigeria:

• Common law (from the country’s British colonial past);

• Customary law (from indigenous, traditional norms and

practice); and trade within the Africa continent, as well as with

Europe and the Americas, will be beneficial.

• Sharia law (used only in the northern states of the country,

which are mostly Muslim).

ECONOMICS• Nigeria is the largest economy in Africa and the 26th largest

in the world, with a gross domestic product (GDP) of

US$510 billion and growth of 6.3% in 2014.

• Nigeria has the potential to achieve annual GDP growth of

7.1%. If this is supported by rapid infrastructure expansion

through investment, Nigeria could be a top-20 economy in

2030, with GDP of more than US$1.6 trillion.

• Its young and fast-growing population is an advantage.

So is the country’s geographic location in West Africa, which

enables trade within the continent as well as with Europe and

the Americas.

• In terms of international relations, Nigeria is a member of,

or affiliated with, several international organisations. These

include the following:

– African Union (AU)

– Commonwealth of Nations

PESTEL ANALYSIS

POLITICAL:

COMPOSITION OF THE ECONOMY

Other, 20% Agriculture, 21%

Oil & Gas, 16%

Manufacturing, 7%Trade, 17%

Telecoms, 11%

Real estate, 8%

– Economic Community of West African States (ECOWAS)

– G-15

– G-77

– International Monetary Fund (IMF)

– Organization of the Petroleum Exporting Countries (OPEC)

– United Nations (UN)

– United Nations Educational, Scientific and Cultural

Organization (UNESCO)

– United Nations High Commissioner for Refugees (UNHCR)

– World Health Organization (WHO).

• Nigeria is a member of the MINT group of countries –

Mexico, Indonesia, Nigeria and Turkey. These countries are

widely seen as the next “BRIC-like” economies or emerging

economic giants.

• It is also listed as a Next Eleven (N-11) economy. These

countries, with large populations and economic promise, are

set to become some of the biggest economies in the world.

The N-11 includes: Bangladesh, Egypt, Indonesia, Iran, Korea,

Mexico, Nigeria, Pakistan, Philippines, Turkey and Vietnam.

• A statistical rebasing of Nigeria’s GDP in April 2014

showed a much larger, restructured and more diversified

economy. The primary sectors, oil and agriculture, make

smaller contributions than previously assumed. Secondary

and tertiary industries actually play a far greater role in

economic output. The chart below shows the contributions of

the different sectors of Nigeria’s economy.

PROSPECTS FOR ECONOMIC GROWTH

• The economy has had strong, continued growth of about 7%

a year in the last 10 years (6.3% in 2014). Non-oil sectors are

the main drivers of growth.

• The country relies heavily on imports.

Nominal GDP, 2013 $ billion

Rebased (Source: McKinsey Global Institute: Nigeria’s renewal: Delivering inclusive growth in Africa’s largest economy, July 2014)

Compound annual growth rate, 2010 – 13 (%)

1 Information and communications technology.2 Resources do not include oil refining, which is included in manufacturing.3 For pre-rebased real compound annual growth rate, we use 2010-12, since real 2013 was unavailable.

NOTE: Numbers may not sum due to rounding.

SOURCE: National Bureau of Statistics, data accurate as of April 2013 GDP release; McKinsey Global Institute analysis.

Nominal 7.7

Real 7.03

13.8

6.4

Rebased

• Nigeria’s dependence on oil needs to change. Oil makes

up about 70% – 75% of fiscal revenues and over 90% of

exports. It is seen as the main objective for foreign

direct investment.

• The economy faces some tough times. Macroeconomic

challenges such as exchange rate volatility and falling global

oil prices will affect public-sector spending.

• Nigeria will have to attract private capital to improve its

infrastructure, for example for power and energy supply,

and this will take time

WHAT DOES NIGERIA HAVE TO BOOST GROWTH?

• A vast amount of resources.

• A huge population and fast-growing consumer class.

• Rapidly growing trade and consumer-related sectors.

THE POTENTIAL OF THE MAJOR SECTORS IN THE

NIGERIAN ECONOMY

1. Agriculture

Nigeria was once self-sufficient in food production but now

relies on food imports as agriculture did not keep up with

rapid population growth. However, agriculture is still a major

contributor to the country’s GDP, with remarkable potential.

The country has:

• over 80 million hectares of arable land (23% of all arable land

in West Africa);

• the lowest levels of irrigation in the world; and

• some of the fastest-growing yields in the world.

The biggest opportunity is believed to be in improving

crop yields.

Current situation

• Crop production: food crops are cultivated for consumption

and cash crops are cultivated for sale locally or for exporting,

to earn foreign exchange.

• Major crops include: beans, sesame, cashew nuts, cassava,

cocoa beans, groundnuts, gum Arabic, kola nut, maize

(corn), melon, millet, palm kernels, palm oil, plantains, rice,

rubber, sorghum, soybeans and yams.

• Some crops are cultivated for both domestic use and

exports. These include cocoa, rubber, cotton, palm oil,

palm kernel, peanut oil and groundnuts.

Future prospects

Agriculture can play a significant role in the country in:

• providing food;

• promoting industrialisation (adding value to primary

economic activity);

• earning foreign exchange;

• generating employment, especially youth employment; and

• socio-economic advancement.

The economic value of agriculture, which is about 22% of

the country’s economy, could more than double from 2013

(US$112 billion a year) to 2030 (US$263 billion a year).

In Nigeria, the growing role of agriculture has resulted in the

sector being called the country’s “new oil”.

2. Trade

Retail trade and wholesale trade makes up 17% of Nigeria’s

GDP and 25% of employment. Trade has been a big driver of

growth in Nigeria over the past decade.

Current situation

Although the retail sector has been very informal and

fragmented, dominated by street vendors, small shops and

open markets, chains of modern stores are being established.

Future prospects

Rapid growth in the number of consuming households will be

the main driver of growth in the trade sector. Consumption

could more than triple because of the growing consumer class.

It could rise to almost US$1.4 trillion a year in 2030, an annual

increase of about 8%, which will make the trade sector the

largest in the Nigerian economy.

The sector will provide opportunities for makers of packaged

foods and fast-moving consumer goods (FMCG) such as paper

goods, which could grow by more than 10% a year.

Factors that limit the productivity of the trade sector:

• Securing land for developing new, modern-format stores can

be expensive and time-consuming.

• There are challenges in supply chain management.

• The high costs of manufacturing are bound to present

challenges when catering for a nation of value-conscious

consumers.

3. Infrastructure

Productivity is held back by poor infrastructure, which

increases the cost of doing business in Nigeria.

According to a McKinsey Global Institute report, investments

in core infrastructure and real estate in Nigeria could

reach US$1.5 trillion by 2030. This would make building

infrastructure both a major contributor to GDP and an enabler

of economic growth.

4. Oil and gas

This sector is a much smaller contributor to the country’s

economy than before but is still an important one. It makes

up the biggest portion of fiscal and export revenues (more

than 95% of Nigeria’s export earnings). This sector is

therefore important to Nigeria’s currency, pricing and

economic stability.

Future prospects

While the country’s proven oil reserves were estimated at

37.2 billion barrels (the second-highest in Africa, after Libya’s

48.0 billion barrels) in 2013, BMI Research anticipates the

sector will be limited by a difficult business environment.

The oil and gas sector is expected to grow by 2.3% a year at

best but it will remain vital to Nigeria’s economy.

McKinsey believes that, with the right reforms, liquids

production could increase from an estimated average of 2.35

million barrels a day in 2013 to 3.13 million barrels by 2030.

Oil and gas could then contribute US$108 billion a year to the

economy, compared with US$73 billion in 2013.

5. Manufacturing

Current situation

Poor infrastructure and power supply constraints are hindering

growth and development in the manufacturing sector.

In 2013, manufacturing showed rapid growth but still

contributed only US$35 billion, or about 7% of GDP, to

the economy.

Future prospects

McKinsey believes that Nigeria could match the performance

of nations such as Malaysia and Thailand when their

manufacturing sectors were expanding rapidly. Manufacturing

output could then reach US$144 billion a year in 2030.

Economic growth (%)

2014 2015(f) 2016(f) 2017(f) 2018(f) 2019(f)

Economic Intelligence Unit (EIU)(1) 6.3 4.1 5.2 6.1 6.7 6.3

- Agriculture 4.3 3.0 3.2 3.9 4.1 3.6

- Industry 6.8 0.8 3.2 4.3 4.8 4.6

- Services 6.8 6.1 7.0 7.8 8.5 8.0

BMI Research 6.3 3.6 3.9 4.5 4.7 4.6

Inflation (%)

EIU (year on year average) 8.1 9.7 9.4 7.8 8.1 8.4

BMI Research (year on year) 8.1 9.5 9.7 8.5 8.3 8.0

Central bank policy rate

BMI Research (End of period) 13.00 13.50 12.00 12.00 10.00 10.00

(f) forecasted Sources: (1) EIU: Country Report, 10 September 2015; (2)BMI Research: Nigeria Country Risk Report, 1 October 2015; World Bank

SOCIALNigeria has a rapidly growing and very young population:

the UN’s 2014 mid-year population estimate was 178.5 million.

The population is estimated to reach 227.6 million by 2023.

This will create huge challenges in providing education and

employment, with the risk that masses of unemployed people,

especially young men, could be drawn into crime or militancy.

Poverty is significant, despite the country’s strong economic

track record. Reducing poverty will require strong growth in

non-oil sectors and a focus on human development.

Religion plays an important role in everyday life. The

religious make-up of the country continues to be a source

of tension.

Sectarian tensions and militancy: frustrations with the lack of

opportunities and poor living standards often take shape along

sectarian and/or religious lines.

TECHNOLOGYTechnology development is still far too slow. Investment in

technology infrastructure is insufficient.

The country’s inadequate and unreliable telecommunication

infrastructure rules it out as a leading call-centre location.

Nigeria has yet to catch on to and take advantage of the

digital economy:

– While entry into the digital economy is becoming far easier

for consumers, very few businesses in Nigeria have taken

full advantage of digital technology to improve operations

and connect with customers and suppliers. Only 49% of

registered businesses in the country have a website.

– Limited access to capital, lack of advanced IT skills, and the

poor power infrastructure have slowed down the move to

the digital economy.

– Internet and broadband access are limited in Nigeria, as

there is limited access to high-speed data services.

Nigeria is the largest mobile phone market in Africa. Mobile

phones are the main form of Internet access in the country.

This can create opportunities for new, mobile compatible

IT solutions but also pose a considerable risk to the PC and

laptop market in Nigeria.

Nigeria has developed a national ICT policy which should give

clarity to investors and other stakeholders in the sector.

ENVIRONMENTALMajor environmental issues and challenges include:

• oil spills, mainly because of pipeline and tanker accidents

(old pipelines and tankers are susceptible to corrosion), the

nature of oil operations, and inadequate or non-functional

production equipment;

• theft and sabotage through oil siphoning, with the stolen oil

making its way onto the black market;

• rapid urbanisation and waste management, including

sewage treatment;

• rapid urbanisation contributing to air and water pollution;

• the linked processes of rapid deforestation and

soil degradation;

• loss of natural habitat; and

• climate change or global warming.

CHALLENGES TO DOING BUSINESSPOLITICAL CHALLENGES:

– High levels of corruption make policy implementation

difficult. (Nigeria is ranked 136th out of 175 countries

by Transparency International in its 2014 Corruption

Perceptions Index.)

– The judiciary system is slow and ineffective, and detrimental

to doing business in the country.

– The new administration will have to determine how it will

tackle the complicated and ongoing Islamist insurgency,

as this remains a source of instability.

– Indications are that policy reform will be slow initially as

President Buhari attempts to tackle corruption before

forming a new economic team. From then on, moderate

progress is expected.

– The president has delayed selecting his cabinet, apparently

to ensure that the best people are chosen, but probably

also to allow time for the complex negotiations between

the various factions in the ruling party. This, however, could

create a degree of uncertainty amongst investors as to the

direction economic policy will take under Buhari.

ECONOMIC CHALLENGES

– The economy is slowing down as it adjusts to the harsh

reality of lower oil prices and the country’s debilitating

lack of infrastructure.

– Inflation is rising because of higher food prices (as a

result of late rainfall), high transport costs resulting from

continual petrol shortages, and currency weakness.

– High levels of corruption and insecurity, and a poor

power supply that limits Nigeria’s productive capacity,

will probably keep investors cautious for now. This

means growth in foreign direct investment will not

be enough to finance Nigeria’s current-account

deficit.

TECHNOLOGY CHALLENGES

– Possible cuts in public spending, to

prevent a fiscal crisis, will probably hit

the IT sector hard, as government is

the biggest buyer of IT products

and solution.

– The weakening of the Nigerian currency will make imported

IT-related products more expensive.

– The threat of insecurity in certain parts of Nigeria may affect

the delivery of government projects and hinder the expansion

of the telecoms infrastructure the country so badly needs.

– The grey market also poses a risk to the IT market, as

counterfeit products and piracy remain major threats.

– Since the majority of Internet users in Nigeria access the

Web via mobile phones, there are opportunities for new

mobile-compatible IT solutions, but also pose a considerable

downside risk to the PC and laptop market

in Nigeria.

OPERATIONAL RISKS/BARRIERS TO DOING BUSINESS

The following issues have been identified as huge risks to the

operational environment:

• The poor state of infrastructure, especially power-generation

capacity, telecommunications and the logistics network, is a

threat to business operations and costs

• The deteriorating domestic security situation, characterised

by criminal and frequent terrorist attacks (from groups such

as by Boko Haram), and severe fuel shortages as a result of

theft and sabotage.

• Endemic corruption in both the public and private sector,

which is tied to the weak rule of law, complicates government

bureaucracy and deters foreign direct investment. This

increases the risk of higher costs for incoming businesses.

• There is a lot of red tape and high levels of bureaucracy in the

trade and investment environment.

• The country has one of the highest costs for acquiring

construction permits.

• Dispute resolution mechanisms are slow and unreliable.

• Businesses also face risks relating to the weak enforcement

of intellectual property (IP) protection laws and the slow

development of e-governance policies and projects. The poor

enforcement of IP laws in the country increases the risk of

businesses being undercut by counterfeit products

in different product categories.

• There are high labour costs and skills are scarce.

• An expatriate quota limits the number of international

workers a company can employ.

• Trade policies are restrictive, which affects both imports

and export.

• Payment policies are poor and debt collection may

be difficult.

• Nigeria underperforms in sub Saharan Africa in respect of

openness to foreign direct investment:

– Investment Freedom Index: Nigeria: 40/100; sub-Saharan

Africa average: 48.6/100

– Time taken to pay taxes: 907.6 hours; regional

average: 310.4

– Time to open a business: 30.8 days versus average of 27.3

– Corruption perception index: 27 versus 32.6 average

(0 is highly corrupt while 100 is very clean)

– Contract enforceability: ranked 140; regional

average: 120.7.

OPPORTUNITIES FOR DOING BUSINESS

– Agriculture, which is already 22% of the Nigeria’s economy,

could double in value from US$112 billion a year in 2013 to

US$263 billion a year by 2030.

– The rapid growth in the number of consuming households

will be the main driver of growth in the trade sector.

Consumption could more than triple because of the

expansion of the middle class. It could rise to almost

US$1.4 trillion a year in 2030, an annual increase of about

8%, which will make the trade sector the largest in the

Nigerian economy

– The trade sector will provide opportunities for makers of

packaged foods and fast-moving consumer goods (FMCG),

such as paper goods, which could grow by more than 10%

a year

– Nigeria is the largest mobile-phone market in Africa.

Mobile phones are the main form of Internet access in

the country. This could create opportunities for new,

mobile-compatible IT solutions.

Sources:

• African Development Group: West Africa Monitor Quarterly, Issue 7, July 2015

• BMI Research: Nigeria Country Risk Report Q4 2015, 1 October 2015

• BMI Research: Nigeria Country Risk Report Q3 2015, 12 May 2015

• BMI Research: Ghana, Kenya & Nigeria Information Technology Report Q3 2015,

June 2015

• Transparency International: Corruption Perceptions Index 2014

• Economic Intelligence Unit (EIU): Nigeria Country Report, 10 September 2015

• McKinsey Global Institute: Nigeria’s renewal: Delivering inclusive growth in

Africa’s largest economy, July 2014

• World Bank Group: Doing Business 2015 – Going Beyond Efficiency –

Nigeria Economic Profile.

SBSA 222205 – 10/15