Fresh from a rebasing exercise in April 2014 that boosted 2013 GDP by 89% to $509.97bn, Nigeria now ranks not only as Africa’s most populous country, but also its largest economy. It has long played an outsized regional role, making up 76% of West Africa’s GDP and around 60% of its population. Despite concerns linked to short-term and cyclical risks, including unequal development, policy uncertainty, declining oil prices and localised unrest, the longer-term growth fundamentals are clear. As the world’s seventh-most-populous country, at over 170m strong, and its 26th-largest economy, Nigeria boasts a medium-sized middle class in absolute, if not relative, terms, and benefits from having had its first peaceful handover of power since 1999 following the presidential electoral victory in March 2015 of Muhammadu Buhari over incumbent Goodluck Jonathan.

Although it is on track to become one of the world’s 20 largest economies by 2020, with average annual growth of 7% in the past decade, Nigeria requires significant private, and specifically foreign, investment to attain its economic and human development goals. As part of the Jonathan administration’s Transformation Agenda efforts have been underway to ease bottlenecks to growth, ranging from power generation and distribution to the agricultural value chain, premised on total infrastructure spending of $2.9trn in the next 30 years.

More Diversified

One of the key lessons from the GDP rebasing exercise is that Nigeria’s economy, although still heavily reliant on hydrocarbons, is more diversified than expected (see analysis). While hydrocarbons comprise the majority of exports – crude oil accounted for an estimated 74.4% of total exports in 2014, according to the National Bureau of Statistics (NBS) – and 75-80% of the government’s revenues, the oil and gas segment accounted for only around 14.4% of rebased GDP in 2014 and employs just 500,000 Nigerians. Slower growth in labour-intensive sectors like agriculture and industry, which accounted for 22.9% and 24.9% of GDP, respectively, provides some explanation for broadening inequality (see analysis). Yet higher hydrocarbons proceeds during the past decade’s commodity super-cycle have spawned an outsized services sector, accounting for 52% of GDP – an unusual trait for a lower-middle-income market like Nigeria.

The consumer base is expanding rapidly even if the emerging middle class remains vulnerable to shocks. Nigeria’s annual consumer market was valued at nearly $400bn in May 2014, according to McKinsey, and could reach $1.4trn by 2030. The country boasts nearly 16,000 millionaires in dollar terms, and 8m households earn over $7500 per year, though growth is concentrated in certain areas. “While consumption of the urban, formally employed middle class continues to grow, workers in the agricultural space in particular are hurting, even if they do depend more on barter,” Christos Giannopoulos, CEO of PZ Cussons Nigeria, told OBG.

Partly due to long-ongoing discussions related to an overhaul of the industry’s regulatory framework, the oil sector saw average daily output in the range of 2m barrels per day in 2014, roughly flat since the 1970s (see Energy chapter). As a result, non-oil growth has been the key driver in the past decade, with average expansion of 7.8% and 7.7% in 2012 and 2013, respectively, according to the International Monetary Fund (IMF). The first three quarters of 2014 saw average non-oil growth of 7.24%, as per figures from the NBS. GDP growth slowed from 6.6% in 2012 to 6.4% in 2013, according to the Ministry of Finance (MoF).

In 2014 real GDP growth year-on-year (y-o-y) was 6.21% in the first quarter and 6.54%, 6.23% and 5.94%, respectively, in the following quarters, NBS figures show. GDP growth estimate for 2015 was lowered from 6.4% to 5.5%, given the declining oil prices, before being lowered again in February 2015 to 4.8%. Growth will likely again be driven by non-oil sectors, even as growing indigenous participation in upstream hydrocarbons catalyses new brownfield investment in energy.

On the Agenda

Despite delays in passing the comprehensive Petroleum Industry Bill, the federal government’s 2011-15 Transformation Agenda has been an ambitious economic diversification plan focused on infrastructure constraints to private sector growth. In part a result of the need to tighten current expenditures, the focus on public-private partnerships (PPPs) in power, infrastructure and agriculture – the sector with the highest job-creating potential – seeks to address chronic challenges that have kept Nigeria ranked 135th of 148 countries in terms of infrastructure in the World Economic Forum’s “Global Competitiveness Report 2013-14” and 75th of 160 in the World Bank’s 2014 Logistics Performance Index.

Central to this strategy has been one of the world’s most extensive privatisation efforts in the power sector: selling successor generation and distribution companies to private, primarily domestic, investors, while retaining state control of grid transmission. The 17 companies were to be sold for a combined $2.5bn, with 15 successfully transferred in 2013 and the remaining two still in progress as of early 2015. The new investors are expanding capacity, while the most pressing priority is to rehabilitate transmission and build upstream gas pipeline infrastructure. The aim is to boost effective generating capacity from 4400 MW in 2012 to 20,000 MW by 2020; however, refurbishments of successor power plants and delays in new gas supply saw output drop to around 3700 MW in October 2014 (see Utilities chapter). The sector requires a combined $50bn of investment by 2019, according to the Ministry of Trade and Investment (MTI) – the lion’s share of the $80bn expected under the Transformation Agenda.

Under the National Integrated Infrastructure Master Plan, published in 2013, the state expects to catalyse some $2.9trn over 30 years to expand the stock of core infrastructure from around 35-40% of GDP in 2013 to 70% by 2043. This will require significant growth in infrastructure spending, up from the current combined 3-5% of GDP to 9% per year, funded both through the normal federal budget, for roads in particular, and through PPPs. Examples of PPPs already launched include the Lagos Rail Mass Transit, the Second Niger Bridge and the Abuja-Kaduna rail modernisation, all co-financed by China’s Export-Import Bank. While some $800bn is to be spent on transport infrastructure, the plan also earmarks $300bn for housing, $900bn for energy, $300bn for ICT and $150bn for social infrastructure, such as education and health care.

Another $121bn is due to be invested in agriculture and is aimed at reducing Nigeria’s annual $11bn food import bill. It builds on the early successes of the Agricultural Transformation Agenda, launched in 2011. Focusing on key supply-chain constraints and imposing tariffs on imported wheat, rice and sugar, the plan seeks to expand domestic food production to 20m tonnes per year by 2015 and make Nigeria self-sufficient in rice production, creating 3.5m new jobs.

The Nigeria Industrial Revolution Plan, launched in 2013, seeks to jumpstart other labour-intensive industries and expand manufacturing’s share of GDP from around 4% in 2013 to 10% by 2020. While easing power constraints will prove a determining factor in Nigeria’s industrialisation drive, which focuses on segments as diverse as cement, textiles and automotive assembly, the government has also unveiled incentives to attract investment. These include single-digit interest loans from the Bank of Industry, buy-local campaigns for government agencies, new market-protecting import tariffs and export processing zones. In parallel the National Enterprise Development Programme will support small and medium-sized enterprises and create supply-chain linkages with larger firms, thereby generating 17m new jobs by 2020 (see Industry chapter).


Nigeria has attracted a growing share of foreign direct investment (FDI) due to these ambitious reforms and its extensive consumer base. In fact, Nigeria overtook South Africa as the continent’s largest recipient of FDI in 2009, with inflows of $8.65bn, and more interestingly, as its largest destination for portfolio inflows in 2012, according to Deutsche Bank.

FDI and portfolio investment more than doubled as a share of GDP between 2010 and 2012, from a total of 3.4% to 7.9%, according to the IMF. “Significant FDI inflows into sectors like power are already reflected in the foreign exchange market,” Moses Tule, director of monetary policy at the Central Bank of Nigeria (CBN), told OBG. “This more stable source of funding than portfolio investment testifies to the level of confidence in the Nigerian economy.” Greenfield FDI projects in Nigeria have grown by an average of 20% per year since 2007, according to EY. However, inflows have trended downwards from a peak of $8.92bn in 2011 to $7.13bn in 2012 and $5.61bn in 2013, driven mainly by asset disposals by international oil companies, according to the UN Conference on Trade and Development (UNCTAD).

Highlighting the role of the tertiary sector in driving growth, 48% of new FDI projects since 2007 have taken place in the services sector, according to EY. While the average value of new FDI projects has declined, this reflects the growing diversification of investment to non-oil sectors, according to UNCTAD. “Nigeria’s inflows are expected to rise sharply on the back of recent efforts to attract industrial and manufacturing investments and its market growth prospects,” UNCTAD noted in 2013. While relative newcomers like Nissan, General Electric and Procter & Gamble are making their first investments, established foreign investors, particularly those in consumer goods like Nestlé, Unilever, Heineken and SABM iller, are expanding their facilities.

If the focus of new investments is becoming broader, the sources of capital have stayed relatively constant. The top-three direct investors remain the US, South Africa and the UK, accounting for 14%, 12% and 11% of total FDI, respectively, between 2007 and 2013, according to EY – ahead of India’s 9% and France’s 5%. Despite declining US oil imports from Nigeria and lower investment in upstream oil, the stock of American FDI in Nigeria is growing, rising 53.6% y-o-y in 2012 to $8.2bn, according to the US Trade Representative. The stock of South African investments is even greater, having risen from $11m in 1994 to over $20bn, according to investment firm Meristem, in a range of sectors, including retail (Shoprite), banking (Standard Bank and FirstRand), telecoms (MTN) and media (DSTV). Lastly, UK investment is expected to top $12.9bn in 2014, according to Meristem. Despite being relative newcomers, India and China are also playing a growing role, accounting for $10bn and $15bn in FDI stock in 2013.

Redirecting Trade

With exports overwhelmingly dominated by oil, Nigeria’s trade patterns have traditionally proven relatively static, the rise in Asian export volumes aside. However, as US oil import requirements have fallen in line with its growing domestic shale oil output, which is of similar quality as Nigerian crude, the direction of Nigeria’s trade patterns has shifted markedly towards Europe and Asia. As US imports of Nigerian oil dropped from 413.9m barrels in 2007 to 102.6m in 2013, according to the US Energy Information Administration, the US fell from the largest importer of Nigerian crude as recently as 2012 to the 10th largest in 2013, with crude oil exports to North America dropping 91.3% in 2013 alone. By July 2014, the US had replaced all Nigerian imports with local production. While European refineries have filled some of this gap, purchasing 52.6% of Nigeria’s oil exports in 2013, Asia has become the second-largest market with 24% of the total, according to the Nigerian National Petroleum Corporation. In 2013 India became the largest buyer with 18.1% of oil exports. India’s imports rose 37% y-o-y in the first eight months of 2014 to 367,000 barrels, according to Platts, a provider of energy information. All told, 42% of Nigeria’s crude oil output was exported to China, India, Japan and South Korea between January and August 2014.

While still marginal to Nigeria’s overall trade position, growth in non-oil exports has outpaced that of oil, with 16% y-o-y growth to $2.97bn in 2013, according to Nigerian Export Promotion Council figures. Of this, cocoa alone accounted for 26% ($758.6m). Recovering from a 2011 spike driven by higher subsidised fuel imports, the value of imports declined from 35.6% of GDP in 2011 to 29.7% in 2012, before rebounding to an estimated 30.7% in 2013, according to the IMF. As Nigeria’s imports continue to rise in line with resilient domestic consumption, the current account surplus has come under pressure from lower crude oil output, with exports declining from 39.6% of GDP in 2011 to 37.6% in 2012 and 33.4% in 2013. The value of exports declined 36.5% y-o-y in 2013, to N14.25trn ($86.9bn), while imports rose 24.7% y-o-y to N7.02trn ($42.8bn), according to figures from NBS. The current account surplus thus halved from 7.8% of GDP in 2012 to 3.1% in 2013, the IMF noted. In 2014 exports grew again, jumping 20.8% y-o-y to N17.2trn ($104.9bn), while imports increased 3% to N7.23trn ($44.1bn).


The narrowing current account surplus, coupled with the rise in portfolio investment, has increased pressure on the delicate macroeconomic balance that has been maintained since 2011. For most of 2014 the CBN maintained its peg of +/-3% of the N155:$1 exchange rate, despite growing balance of payment pressures, a position that required significant open-market operations in conjunction with tight monetary policy. The bank sold $5.3bn in October 2014 to defend the naira, despite declining foreign exchange inflows due to falling oil prices. By November, the pressure had become too much, and the naira was devalued to N168:$1. Confidence continued to weaken, with the exchange rate sliding to a record low of N206.32:$1 in February 2015, costing the CBN roughly $1bn over the course of that month to slow depreciation. February also saw the CBN close the retail Dutch auction system foreign exchange window.

Budget Balance

Lower oil revenues due to a drop in prices in late 2014 have also had a knock-on effect on fiscal policy space, reducing already thin buffers despite concerted efforts at fiscal consolidation since 2011. The MoF has sought to halt significant increases in recurrent expenditure and cut its share of total spending from 74.4% in 2011 to 67.5% by 2013, redirecting the budget towards more productive investment. The Jonathan administration sought to avoid the 17% y-o-y growth in spending that occurred in the 2011 election year in advance of the 2015 polls, cutting capital spending by $2bn in December 2014 – an unusual move in West African polling cycles. In successive budgets, growth in recurrent spending was kept at 8.99% in 2011, 1.52% in 2012, and projected at 3.67% in 2013 and 1% in 2014, while total spending rose by around 2% per year, with the exception of 2013, when it was projected to rise 8.1% y-o-y, according to IMF data. The MoF has also worked to improve accountability and efficiency of spending, by transferring accounts held by all state entities to the Treasury Single Account. According to the IMF, this was 60% complete by mid-2014.

Yet while the recurrent share of spending trended down to 71.5% of the budget in 2012 and 67.5% in 2013, helped in part by subsidy cuts, it surged to 76% in the 2014 budget on the back of higher personnel costs, which accounted for 60.23% of recurrent spending. Finally passed by the National Assembly in May 2014, the N4.96trn ($30.26bn) budget devoted around 20% of spending to defence, in light of the insurgency in the north, but also increased education spending by 15.41% to N493.46bn ($3.01bn), while reducing capital expenditures by 30% to N1.12trn ($6.83bn). However, the budget was revised due to the fall in oil prices, which forced the government to adjust the benchmark price for the 2015 budget from $78 to $73, then to $65 and finally to $53 per barrel in February 2015. Bonny light prices remained below $60 for most of first-quarter 2015, constraining fiscal manoeuvrability.

Presented to the National Assembly in December 2014, the 2015 budget proposes an aggregate expenditure of N4.358trn ($26.6bn), around 8% less than the previous budget. According to local press, the budget more than halved capital expenditure to less than 10% of spending, cutting infrastructure investment, while recurrent expenditure increased by 6.5%. As of March 2015 the budget had not been passed.


While the 2014 budget forecasts a marginal increase in the fiscal deficit, expected to rise from 1.85% of GDP in 2013 to 1.9% in 2014, the government is looking to stimulate revenue performance to narrow this gap. It has had some success, with an increase of $600m worth of non-oil tax revenues collected in 2014, but the scope for improvement is certainly sizeable. With tax revenue of 12% of GDP (down from 20% before the rebasing) and only 4% from non-oil, Nigeria performs worse than most peer economies like Ghana and Kenya, with 18% and 20%, respectively, in 2013, according to World Bank figures.

The government’s push to improve revenue collection, including new levies on luxury items and other goods, is particularly crucial given the budget’s modest cushions. Savings in the Excess Crude Account (ECA), a rainy-day fund that stores revenue in excess of that budgeted, stood at $2.45bn in January 2015, down from $3.1bn in November 2014 and $4.1bn the month before, according to the Federation Account Allocation Committee. Amidst revenue shortfalls, the federal government withdrew N1.9trn ($11.59bn) from the ECA in 2013, down 3.86% from the N2.07trn ($12.63bn) withdrawn in 2012. While Nigeria is rebalancing its debt mix gradually towards cheaper foreign sources, such eurobond issues are dedicated to funding capital expenditure (see analysis). The MoF’s priority is reducing the reliance on oil to 60% of government revenues in the near term and 33% eventually.

“We think 75% of registered businesses do not pay taxes,” Ngozi Okonjo-Iweala, the coordinating minister for the economy and finance minister, told local press in December 2013. “We are not increasing taxes, but we are going to improve collection of taxes.” The Federal Inland Revenue Service has called on consultants to help expand tax collection, as new transfer pricing rules enacted in 2013 aim to reduce tax evasion.

New instruments have also been rolled out to help build Nigeria’s resilience. Over a year after the Nigeria Sovereign Investment Authority (NSIA) Act was passed in May 2011, the new sovereign wealth fund started operations in October 2012 with seed capital of $1bn from the ECA. The NSIA is split into three funds: a stabilisation fund with 20% of capital, which serves a similar purpose as the ECA, to smooth over shortfalls in budgeted revenue; a future generation fund aimed at long-term investments offshore with 32.5%; and an infrastructure fund, also with 32.5%. Following concerns from state governments over the impact of allocations, a compromise was struck allowing the ECA to continue accumulating savings of up to $10bn before the NSIA starts receiving funds. An initial $200m from the first fund was allocated to banks, including UBS, Credit Suisse and Goldman Sachs, in September 2013 to manage offshore, mostly in US corporate bonds.

Easing Bottlenecks

While channelling more public investment towards infrastructure and key sectors like agriculture was a priority until the 2014 budget, the Transformation Agenda will require significant private sector investment. As such, easing key soft infrastructure bottlenecks will be as crucial as developing the country’s hard infrastructure. Ranked 147th of 189 by the World Bank in 2014 for its ease of doing business and 120th of 148 in the World Economic Forum’s “Global Competitiveness Report 2013-14”, the implementation of new regulatory reforms has been accelerated in light of declines in Nigeria’s rankings since 2013.

Policies to expedite cargo clearance within 48 hours and to automate Customs payments, unveiled in 2010, as well as plans to halve the number of agencies involved in port clearance, to seven, are ongoing, according to a US report on Nigeria’s investment climate. The Customs Service launched a national single window online in March 2013 and centralised the public procurements and tendering process through the Bureau of Public Enterprise (BPE). The BPE’s successful power privatisation process in 2013 was also an important watershed for its transparency, with 22 of Nigeria’s 36 states having switched to centralised public procurement. Through a new National Competitiveness Council established in 2013, the Jonathan administration has sought to incorporate recommendations from public and private-sector council members to address the low-hanging fruit in terms of policy reforms.

Trade Policy

As an exporter, Nigeria acts as a key supplier to the region, particularly for crude oil. Nigeria also meets approximately 70% of the cereal needs of neighbouring Niger and Chad, according to the IMF.

Yet still limited regional trade could receive further impetus with freer trade arrangements – a challenge facing most West African economies. After long delays, the ECOWAS region implemented its common external tariff from January 2015, a tiered structure of 0-5% duty on raw materials and capital goods, 10% on intermediate goods, 20% on final consumer goods and 35% on protected items. Lower non-tariff barriers and improved hard infrastructure in neighbouring countries could also allow Nigerian exporters to tap into a broader regional market of roughly 130m people.

In spite of a shift towards more Asian markets, the EU remains one of Nigeria’s largest trade partners, with wider Europe accounting for 33.5% of trade, according to MIT’s Observatory of Economic Complexity. After a decade of negotiations on an economic partnership agreement with the EU, ECOWAS finalised a draft agreement in March 2014, meant to replace the Cotonou agreement. Under the draft, ECOWAS would phase in liberalisation for 75% of goods and services over the next 20 years, down from the originally proposed 80% in 15 years, while the common market would grant duty-free access and provide €6.5bn in development programmes between 2015 and 2019 to support capacity development. While both sides are preparing to sign and ratify the agreement, Nigeria’s concerns that the deal would jeopardise efforts at industrialisation and protection for local industries has garnered support from African peers, endangering the deal’s prospects.

To support key industrialisation and agricultural policies Nigeria has also become more assertive in its trade policy, with a set of market-protecting agricultural quotas implemented from 2012 covering rice, wheat and sugar. Under its automotive policy, announced in October 2013, Nigeria introduced a 70% tariff on imported assembled cars and 5% on semi-knocked-down units.


The outcome of presidential elections in March 2015 gave Nigeria not only its first peaceful handover of power in more than 16 years, but also a boost of momentum that, along with its economic fundamentals, place it at the cusp of potentially long-term, broad-based growth. While the economic policy of the incoming Buhari administration had yet to be clarified at the time of printing, investors expect the structural changes that have already been launched – ranging from power-sector restructuring to streamlining rules for doing business – to be seen through. Further efforts to crack down on corruption and improve the accountability of state agencies will be key, as will the development of much-needed transportation infrastructure.