The recent underperformance of the oil and gas industry has left oil-producing countries scrambling to develop alternative revenue sources. Nigeria, Africa’s largest oil exporter, has begun to place greater emphasis on economic diversification by promoting investment in other sectors of the economy. This article seeks a short but highly informative overview of the Nigerian economic scene, focusing on opportunities and challenges for intending investors. Subsequent articles delve deeply into different sectors of the economy.
A short economic picture of Nigeria
With a GDP of about $481.1 billion in 2016 and a population of almost 182 million, Nigeria is Africa’s largest economy and has the continent’s largest population. The country’s major export products include crude oil, cash crops, and mineral resources among others. Although oil export revenues make up less than 20% of total GDP, this resource makes up about 75% of government revenues as well as a large portion of the country’s foreign currency source. Major imports into Nigeria include machineries, refined petroleum, and food products such as rice, wheat and tomatoes among others. In 2016, the country spent an estimated $22 billion on food imports.
Nigeria has long been a destination for foreign investment. It presents a near market for products produced in Nigeria, especially for the rising middle class. In addition, the country has launched numerous incentives for foreign and local investors administered by the Nigerian Investment Promotion Council. These include 5-7 year tax breaks, 0% import duties on machineries as well as guarantees of capital repatriation. While the country is popular for its oil and gas industry, other lesser known sectors also present attractive opportunities for investment. These include the gold fields of the north-western region of the country as well as iron ore and coal deposits in central Nigeria. Others include huge deposits of bitumen in southwest Nigeria and other valuable mineral resources.
Beyond mining, opportunities abound in residential and commercial real estate, especially in major cities across the country. Healthcare investments (multi-specialty hospitals) present potential investments considering the huge size of the country’s population and the visa-free agreements signed with 15 West African countries and neighboring Central African countries. Finally, Agriculture remains an underutilized sector. Considering the huge size of the country’s food import bill ($22 billion), investments in rice, wheat and tomato cultivation and processing could generate huge internal revenues for investors. This is in addition to cash crop investments, especially cotton, cocoa, and tropical fruits among others.
Insecurity remains a major issue in the country. Terrorism in the northern part of the country and militancy in the south has made investors quite wary of further commitments. However, violence in these parts has gradually decreased over the past two years compared to 2013 levels. Increased defense spending and battle experience has led to greater coordination of defense forces. However, periodic attacks do occur.
In addition to insecurity, macroeconomic instability remains an issue. Inflation has risen over the past three years. This is in direct response to the falling power of the country’s currency amidst relatively stable import spending. With decreasing foreign exchange reserves, the currency has lost almost half its pre-crisis value. Nonetheless, companies have responded accordingly by adjusting prices.
Notwithstanding the current challenges in the country, the opportunities for investment remain highly attractive if approached carefully. There is the need to develop a deep understanding of the country as a whole but also understand subnational factors across different regions. Investors stand to benefit by engaging local partners or seeking advice from highly experienced professionals on navigating the Nigerian market.
Nugwa is Nigeria’s premier Investment and Intelligence consulting firm. Corporations and Investors leverage our deep knowledge of Nigeria and the West Africa region in making intelligent investment decisions. Contact us today, or read more of our Insights.