The economic context of Nigeria

Economic Indicators

Africa’s leading economy, Nigeria - in close competition with South Africa - has a population of more than 230.8 million people (CIA). Worldwide, it is the 39th-largest economy by GDP volume. However, Nigeria's economy is highly dependent on oil and is therefore very vulnerable to fluctuations in crude oil prices and production. If over the past decade economic growth reached 2.5% on average, the Covid-19 pandemic and the fall in oil prices caused the economy to contract in 2020. Nevertheless, economic growth rebounded in 2021 (+3.3%) and 2022 (+2.9%) supported by a buoyant services sector and increased revenues from oil and gas exports. According to the IMF, GDP growth reached 2.8% in 2023, slightly below population growth dynamics. Improved oil production and anticipated better harvest in the second half of the year are positive indicators for 2024 GDP growth, projected at 3.2%. However, challenges such as high inflation, naira weakness, and policy tightening are expected to pose obstacles.

The new government assumed office amid a challenging economic landscape characterized by sluggish growth, low revenue collection, escalating inflation, and persistent external imbalances accumulated over years. Encouragingly, recent enhancements in revenue collection and oil production have been observed. However, Nigeria's limited revenue mobilization continues to hinder the government's capacity to address shocks effectively and foster sustainable long-term development. Non-oil revenue collection saw a modest improvement of 0.8 percent of GDP in 2023, partly attributed to the depreciation of the naira. Fitch forecasted that the budget deficit narrowed by 0.2pp in 2023, reaching 5.2% of GDP, as robust non-oil revenue growth and the removal of fuel subsidies were counteracted by elevated capital spending and lower-than-expected oil profits from the Nigerian National Petroleum Corporation Limited. A 1.1% pp increase in government revenue was projected for 2023-2025, totaling 8.5% of GDP, supported by heightened government initiatives to boost non-oil tax revenue. This supported the forecast for the budget deficit/GDP to contract to 5.0% and 4.6% in 2024 and 2025, respectively. The debt-to-GDP ratio was estimated at 38.8% in 2023 by the IMF, with a relatively stable outlook over the forecast horizon. Nigeria's public debt (excluding CBN loans) maintained a relatively long average maturity of 9.7 years. The securitization of NGN23 trillion of CBN loans at a reduced interest rate of 9% contributed to managing general government interest expenses. However, with interest expenditure reaching nearly 42% of revenues, the overall interest burden remains elevated (Fitch Ratings). Nigeria's inherently high inflation surged further, averaging 25.5% year-on-year in the third quarter of 2023, up from 20.3% in the corresponding period of 2022. This increase was partly attributed to the removal of fuel subsidies and naira devaluation. Fitch anticipates inflation to ease to 21.1% in 2024 from an average of 24.8% in 2023, supported by reduced deficit monetization. Overall, fiscal consolidation, economic diversification, inclusive growth and security issues are the main priorities. The main obstacles to development in Nigeria are the inappropriate energy supply, deficient transport infrastructures, inefficient judiciary system, widespread corruption, together with high inflation. The gap between the official value of the naira and its value on the black market is substantial and the banking system is fragilized by the deteriorating quality of assets.

Despite the country's dynamism, the real challenge for Nigeria is the risk of a demographic explosion: according to the United Nations, the population of Nigeria could reach 730 million inhabitants in 2100. Concerns regarding this potential boom are exacerbated by the fact that half of the inhabitants live below the poverty line; pandemics are rampant (HIV, tuberculosis), infant mortality is high and the country struggles with significant levels of inequalities. According to the Nigerian Bureau of Statistics, unemployment stood at 5% in 2023; however, a high proportion of the active workforce is under-employed or employed in the informal sector. The overall GDP per capita was estimated at USD 5,884 in 2022 by the World Bank, but about 8% of Nigerians are deemed food insecure (IMF).

Main Sectors of Industry

The Nigerian economy is dominated by crude oil, which accounts for half of the government revenue and more than 75% of the country's total export earnings (Coface). Nigeria is among the first ten oil exporters, and its oil reserves are estimated at 37 billion barrels (OPEC). The country also has become one of the lead exporters of liquefied natural gas, which accounts for an additional 13% of exports (ITC). The country also extracts tin ore and coal for domestic use. Other natural resources include iron ore, limestone, niobium, lead, zinc and arable land.
Another key sector of the Nigerian economy is agriculture, which employs 38% of the workforce and contributes to about 23.7% of the GDP (World Bank). Crop production in Nigeria is dominated by food crops such as cassava, yams, maize, rice, sorghum, and millet, which are mainly grown by small-scale farmers. Other important crops grown in the country include cocoa, palm oil, rubber, groundnut, and cotton. Nigeria is the world's largest producer of cassava and the third-largest producer of tomatoes and groundnuts. The livestock sub-sector in Nigeria includes the production of cattle, sheep, goats, pigs, and poultry. The sector is also characterized by small-scale farmers, and the production is mainly for subsistence and commercial purposes. Nigerian agriculture is mainly centred on subsistence farming. According to the National Bureau of Statistics (NBS), the agricultural sector grew by 1.13% in 2023 in real terms compared to the 1.88% growth rate recorded in 2022.

The industrial sector makes up 30.8% of the GDP and employs 15% of the workforce. The largest subsector in the country is the petroleum industry, which currently suffers from oil theft that is believed to cost the country potential revenues valued as much as USD 11 billion. Significant oil losses are also recorded due to oil spills. The total annual contribution of oil to aggregate GDP as of Q3/2023 2022 was 5.48% (data NBS). The manufacturing sub-sector is the largest component of Nigeria's industrial sector and includes the production of textiles, food and beverages, chemicals, cement, paper, and automobiles. However, the sector has been facing challenges such as inadequate infrastructure, high production costs, and limited access to finance and raw materials. Overall, the manufacturing sector is estimated to account for 14% of GDP (World Bank). The construction industry in Nigeria is also a significant contributor to the industrial sector, driven by the demand for new infrastructure, housing, and commercial buildings. The sector has been growing rapidly in recent years, and the government has been investing in infrastructure projects such as roads, airports, and railways to support its development.

Services represent 44% of the GDP and employ 47% of the population. Financial sectors, telecommunications and retail especially, are very dynamic. The finance sub-sector is a significant component of Nigeria's services sector, driven by the growth of the banking industry, insurance, and capital markets. Nigeria's banking industry is one of the largest and most sophisticated in Africa, with local and international banks operating in the country. Tourism is also a significant sector, but it struggles due to the country's poor power supply, insufficient road infrastructure, and poor water quality. To address the challenges facing the services sector, the Nigerian government has implemented various policies and initiatives such as the National Digital Economy Policy and Strategy, the Nigerian Tourism Development Master Plan, and the Nigerian Postal Service Reform. These initiatives aim to promote digitalization, improve infrastructure, increase productivity, and create employment opportunities.

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	35.2	12.7	52.1
Value Added (in % of GDP)	23.7	30.8	44.0
Value Added (Annual % Change)	1.9	-4.6	6.7

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

Find more information about your business sector on our service Market reports.

 

 

Find out all the exchange rates daily on our service International currency converter.

 

Indicator of Economic Freedom

Definition

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:

58,7/100

World Rank:

105

Regional Rank:

13

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:

3.86/10

World Rank:

78/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Sources of General Economic Information

Ministries

Ministry of Finance
Ministry of Industry, Trade & Investment

Statistical Office

National Bureau of Statistics

Central Bank

Central Bank

Stock Exchange

Nigerian Stock Exchange

Economic Portals

Proshare Nigeria
Nigeria Galleria