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The Report: Nigeria 2013

As the single most populous nation in Africa, Nigeria is widely expected to overtake South Africa as the largest economy on the continent within a matter of years. Natural resources, oil and gas in particular, comprise one of the country’s key assets. Hydrocarbons reserves have traditionally attracted the vast majority of domestic and foreign investment. Oil production capacity has remained at roughly 2.5m barrels per day (bpd) since the start of 2000, although output fell to 2.2m bpd on average in 2012. Nigeria has long been both a regional and international diplomatic force, and is a member of the Economic Community Of West African States, the African Union, the Organisation of the Petroleum Exporting Countries and the UN.

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Sections

  • Country Profile
  • Economy
  • Banking
  • Capital Markets
  • Insurance
  • Energy
  • Utilities
  • Agriculture
  • Industry
  • Retail
  • IT & Telecoms
  • Transport
  • Real Estate & Construction
  • Media & Advertising
  • Oyo State
  • Tourism
  • Education
  • Health
  • Tax
  • Legal Framework
  • The Guide
  • Table of Contents

Country Profile

One of Africa’s most culturally and ethnically diverse as well as resource-rich countries, Nigeria’s very existence is in many ways an impressive accomplishment, testament to the ability of both its citizens and institutions to find ways – often unconventional – to balance the need for local empowerment and diversity with broader national unity. Political cohesion has not come without a price, and the country has long faced a variety of complex economic and security challenges at both local and federal levels. Nigeria has a dynamic multiparty political system, with 25 registered political parties of varying ideological stripes, however, the People’s Democratic Party has held the presidency and dominated the legislature since the first elections in 1999. The country is currently engaged in several important conflict resolution efforts, some of which have seen promising turns. This chapter contains interviews with President Goodluck Ebele Jonathan; Shri Salman Khurshid, Minister of External Affairs for India; Luiz Inácio Lula da Silva, Former President of Brazil and Honorary President, Lula Institute; and Mo Ibrahim, Founder and Chair, Ibrahim Foundation.

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Economy

Nigeria has achieved consistently high growth over the past decade, including 7.4% in 2011 and 6.6% in 2012, according to the African Development Bank. This expansion makes Nigeria one of the continent’s most consistent performers, with over twice South Africa’s average growth. The IMF forecasts economic growth of 7.2% in 2013 and 7% in 2014. Non-oil GDP is expected to rise 8.5% in 2013, according to the Nigerian Economic Summit group. The reforms being enacted – establishing a gas-to-power value chain, expanding the industrial base and leveraging agricultural potential to reduce imports – have been applauded by investors and development partners. Ensuring full implementation of the federal government’s economic diversification strategy in the run-up to the 2015 presidential and state governor elections will be key to accelerating and broadening growth. This chapter contains a viewpoint from Ngozi Okonjo-Iweala, Coordinating Minister for the Economy and Minister of Finance, and interviews with Frank Nweke II, Director-General, Nigerian Economic Summit Group; Mustafa Bello, CEO, Nigerian Investment Promotion Commission; and Ed Fast, Canadian Minister of International Trade.

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Banking

Following a significant overhaul of the sector in 2012, Nigerian banks recorded their strongest performance since the onset of the banking crisis in 2009. The central bank has seized on recent bank restructuring to implement broader structural reforms aimed at safeguarding against future crises. Nigeria boasts a diverse financial sector. In contrast to most other sub-Saharan markets, foreign banks controlled only 13.6% of sector assets in 2012, according to the IMF. With the cleaning of balance sheets over the past two years, a consolidated and restructured market has emerged, and competition and lending are set to increase over the coming years. This chapter contains a viewpoint from Lamido Sanusi, Governor, Central Bank of Nigeria, and a roundtable with Aigboje Aig-Imoukhuede, CEO, Access Bank; Bisi Onasanya, CEO, First Bank of Nigeria; Segun Agbaje, CEO, Guaranty Trust Bank; and Phillips Oduoza, CEO, United Bank for Africa.

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Capital Markets

Strong growth in both equities and bonds in 2012, driven by foreign portfolio inflows that more than tripled from $5bn in 2011 to $17bn in 2012, according to the World Bank, cast off the long shadow of the 2008 financial downturn. With liquidity returning, authorities are planning to deepen and diversify the markets through reforms and the launch of new products. While Nigeria remains exposed to international investors’ risk-on, risk-off switches, a growing pool of domestic investors is returning to the equity market for the first time since 2008. With relatively new management enacting key structural reforms to deepen the markets, the private sector should find more alternatives to meet its growing need for capital. This chapter contains an interview with Oscar Onyema, CEO, Nigerian Stock Exchange, and a viewpoint from Wale Agbeyangi, Managing Director, Cordros Capital.

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Insurance

With a total premium value of $1.6bn in 2011, Nigeria’s insurance market is the biggest in West Africa, but in a wider context the market remains relatively undeveloped and coverage in the retail market is mostly limited to motor insurance. Issues including prohibitive costs, inconsistent enforcement of mandatory coverage, fake insurers and policies damaging the sector’s reputation, and a fragmented market of small and undercapitalised providers have presented impediments to the sector’s growth. Although top-line expansion has not fulfilled expectations for the overall value of the market, insurers and the regulator are continuing to explore avenues for growth while removing obstacles. A leap in market size is expected in the current decade thanks to continued policy efforts and steady growth in disposable incomes for middle-class Nigerians. This chapter contains an interview with Fola Daniel, Commissioner for Insurance, National Insurance Commission.

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Energy

In 2011 Nigeria had the world’s 10th-largest oil reserves, at 37.2bn barrels, and the ninth-largest reserves of associated gas, at 182trn standard cu feet. Yet as the country’s proven reserves of both oil and gas start to decline, the imperative will be to clarify the industry’s long-term legal and fiscal outlooks to encourage more investment in exploration and production. Despite legislative delays, Nigeria is making progress in expanding local firms’ share of production and oil services while also catalysing significant investment in gas-to-power projects. The sector’s positive outlook is contingent on progress in the key areas of energy production and the expansion of investment in more sophisticated offshore projects. Alongside implementation of the Gas Master Plan, enacting the long-awaited Petroleum Industry Bill before the 2015 elections would prove a significant help. This chapter contains a viewpoint from Diezani Alison Madueke, Minister of Petroleum, and interviews with Austin Avuru, Managing Director, Seplat Petroleum Development Company; and Emeka Ene, Chairman, Petroleum Technology Association of Nigeria.

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Utilities

Electricity is regularly cited as Nigeria’s chief obstacle to economic growth, but 2013 may mark a turning point for what is often referred to as the country’s Achilles heel. For more than a decade, the lack of reliable power has cut into profit margins and increased operating overheads. Under-investment and mismanagement are generally accepted as being among several primary causes of the power problem. The leadership hopes a privatisation process – now under way for power generation and distribution companies – will remove these obstacles. Despite some last-minute hiccups in the privatisation schedule and challenges still to come, Nigeria’s business community is convinced that a tipping point has been reached in the sector’s reform process, and that the privatisation effort will pay off. This chapter contains interviews with Chinedu Nebo, Minister of Power; and Ute Menikheim, CEO for Africa, Siemens Energy.

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Agriculture

The largest contributor to Nigeria’s GDP, the agriculture sector accounted for a 40.1% share as of mid-2013, according to the National Bureau of Statistics. It is also the main source of employment in the country, responsible for more than 60% of jobs, as per figures from the International Fund for Agricultural Development. Increases in the amount of cultivated land have led to a rise in production, but yields remain low and the sector is performing below its potential. Formerly responsible for 18% of world cocoa production, Nigeria’s market share is now less than half of that. The country remains a world leader is cassava, but has also lost significant ground in crops such as groundnuts and palm oil. The Agricultural Transformation Action Plan, a state-backed market-oriented reform effort, is in the early stages of implementation and is expected to pave the way for the sector’s development going forward. This chapter contains interviews with Akinwumi Adesina, Minister of Agriculture and Rural Development; and Sunny Verghese, Group Managing Director and CEO, Olam International.

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Industry

As manufacturers scour the globe for new growth opportunities, few markets offer greater long-term potential than Nigeria, which boasts an enormous domestic population, plentiful feedstock and limited market penetration. The total value of Nigeria’s manufacturing sector increased 7.55% in 2012, reaching N761bn ($4.8bn) at current base prices, up from N634bn ($3.9bn) in 2011. A globally competitive manufacturing sector is integral to Vision 20:2020, which aims to transform the country into one of the world’s top 20 economies by 2020. With production under capacity, Nigerian industry is operating well beneath its potential, increasing the challenge of competing with cheap foreign goods. However, the success of some local producers shows plenty of room for optimism about the sector’s long-term potential. This chapter contains interviews with Olusegun Aganga, Federal Minister of Industry, Trade and Investment; and Laurent L Philippe, Group President of Central and Eastern Europe, Middle East and Africa region, Procter & Gamble.

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Retail

With the largest population in Africa and one of the continent’s fastest-growing economies, Nigeria has emerged as a prime market. According to the Central Bank of Nigeria, retail and wholesale trade totalled $45.55bn in 2012, or 17% of GDP. Retailers have found it expensive to operate locally given the need to generate power independently, which necessitates the purchase of both generators and diesel fuel. Online shopping sites offer international retailers the opportunity to outsource the challenges of operating in Nigeria to local companies while still accessing the market. As such changes take root and the middle class continues to grow, the marketplace offers significant opportunities.

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IT & Telecoms

Over the past decade Nigeria’s ICT industry has grown to become one of the largest and most dynamic in Africa, with total mobile internet subscribers topping 30.9m at the end of the second quarter of 2012, accounting for the majority of the country’s 48.4m internet users. While the government has taken a prominent position on driving basic penetration, private operators have been influential in expanding local content and buttressing demand, particularly on the corporate side. Mobile phones dominate the telecoms sector, with four GSM operators providing services for more than 114m subscribers as of July 2013. Data services are considered a key driver of future growth in the sector, though insufficient bandwidth and low data speeds are challenges. To this end, local operators have been investing in infrastructure to improve quality of service and expand coverage areas. This chapter contains interviews with Omobola Johnson, Minister of Communication Technology; Pfungwa Serima, CEO, SAP Africa; and Manoj Kohli, Managing Director and CEO International, Bharti Airtel.

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Transport

Underinvestment has led to a shortage of capacity for a country of nearly 170m people, and as GDP growth continues to surpass 7%, the resulting increase in both consumption and production means there is sizeable scope for investment in roads, ports, bridges, airports and other facilities. The government has thus embarked on the process of eliminating institutional obstacles and incentivising private investment, with the hope for steady improvement for the long term. Concessioning at the ports has been a successful early step, for example, as is a revitalised railway system. This chapter contains an interview with Peter Kieran, President, CPCS.

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Real Estate & Construction

Rapid population growth, steadily increasing urbanisation and rising incomes – particularly among the middle class – have fuelled expansion in Nigeria’s real estate sector over the past decade, and are expected to continue to drive growth in the industry. While most segments have seen increased investment in recent years, the country remains undersupplied in virtually every area, particularly affordable housing, high-quality retail space and grade-A office space. Activity in Nigeria’s construction industry is expected to continue to rise for the foreseeable future, despite softening demand in a handful of segments due to exogenous factors. The supply and demand differential in the power generation and housing segments alone is expected to result in trillions of naira worth of federal- and state-led investments through 2020. At the same time, the industry faces a number of challenges, notably construction costs and security issues. This chapter contains an interview with Nick Lambert, Head of Complex and Emerging Markets, CBRE.

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Media & Advertising

Over the past few decades Nigeria’s media and entertainment industry has developed into one of the liveliest in Africa. The country has one of the largest television markets in Africa and the film industry – nicknamed “Nollywood” – is one of the largest in the world by number of films released. Nigeria’s media, entertainment and advertising industries continue to face a number of interrelated challenges, including underdeveloped transport infrastructure and the unreliable electricity grid. Despite these issues, media firms, advertising agencies, and film and music production companies are broadly optimistic and Nigeria is uniquely situated to become a key international player in many of these areas. This chapter contains an interview with Alex Okosi, Senior Vice-President and Managing Director, Viacom International Media Networks Africa.

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Oyo State

Known as the “pace setter state”, Oyo borders the states of Ogun, Osun and Kwara, as well as Benin in south-west Nigeria. Oyo’s natural resources are most suited to agriculture production and processing with an abundance of uncultivated arable land and reserves of gold, marble, clay and granite, among others. While economic indicators compare favourably to other states, the government is working to strengthen output in the secondary and tertiary sectors, as well as attract new investments. Businesses in the state face challenges posed by infrastructure bottlenecks, but new policies, developed in conjunction with federal programmes, are helping to incentivise investment by strengthening Oyo’s competitive advantages. This chapter contains an interview with Abiola Ajimobi, Governor of Oyo State.

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Tourism

With the global tourism industry hit hard during the financial crisis and growth slowing in larger markets, international hotels and tourism experts are looking at new opportunities for expansion. Capital investment is set to rise by 7.6% in 2013 to $1.89bn. Internationally branded hotels dominate the market, with several new projects in the pipeline for Lagos and Abuja in particular. Business travellers and visitors working in the oil and gas sector or supporting services are key contributors to the travel industry. While the Nigerian market has its share of challenges, including security concerns, limited infrastructure and a complex visa process, tourism has strong growth potential. This chapter contains an interview with Hassan Ahdab, Vice-President, Regional Director Africa and Indian Ocean Island, Starwood Hotels and Resorts Worldwide.

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Education

The education sector was allocated $2.69bn in the 2013 federal budget, making it the highest recipient of government spending. A large youth population –estimated at 75m people – points to rapidly expanding demand for education and training of all types for years to come. Boosting private sector activity, particularly at the primary level, continues to be a fundamental objective of the government’s long-term plans for the sector. Other key focus areas include information and communications technology and the TVET segment, both of which will likely benefit from more private sector investment in the coming years. This chapter contains a viewpoint from Enase Okonedo, Dean, Lagos Business Schools, and Chairperson, Association of African Business Schools.

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Health

In the six decades since independence, the national health care network has improved on a piecemeal basis, driven primarily by a handful of international organisations and, more recently, government entities at the federal, state and local levels. The sector is guided by the National Strategic Health Development Plan (2010-15), which runs alongside the wider aims outlined in the Vision 20:2020 strategy. With a new federal health bill in the works and steadily increasing private sector participation in many areas, Nigeria’s health care sector is potentially on the brink of a period of sustained expansion.

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Tax

In conjunction with PwC Nigeria, OBG explores the taxation system, examining Nigeria’s investor-friendly environment. OBG talks to Taiwo Oyedele, Partner & Head of Tax, PwC Nigeria.

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Legal Framework

OBG introduces the reader to the different aspects of the legal system in Nigeria, in partnership with Ajumogobia & Okeke. OBG talks to Ovie Ukiri, Managing Partner, Ajumogobia & Okeke, on transfer pricing regulations.

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The Guide

This section includes an article about festivals as well as information on hotels, contact details for government agencies and other listings, alongside useful tips for visitors on topics like currency, visas, language, communications, dress, business hours and electricity.

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Table of Contents

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