Economy and Trade
Nigeria is the most populous country in Africa, with an ethnically and religiously diverse population of 140 million. Nigeria has the second-highest GDP in Africa (US$166.78 billion in 2007), reflecting the country’s substantial oil reserves. However, oil has proved a mixed blessing for the country. Much of the oil revenue has been squandered through corruption, while Nigeria neglected its strong agricultural and light manufacturing bases during the 1970s oil price boom. Few Nigerians, including those in oil producing areas, have benefited from the oil wealth. Nigeria is keen to attract foreign investment but it is hindered in this quest by security concerns, as well as by a shaky infrastructure troubled by power cuts. The United States is Nigeria’s largest trading partner after the United Kingdom. Nigeria supplies around 11% of US oil imports. Crude oil and liquefied natural gas (LNG) account for around 98% of exports and around 80% of government revenues.
Economic Policy over 12 Months
In February 2010, parliament voted to transfer power to Vice President Goodluck Jonathan, while President Yar’Adua recovered from a heart condition. The acting president swore in a new cabinet in April.
The government’s finances benefited from the boom in oil prices that began in 2003 and only ended in the second half of 2008, helped by a program of reforms introduced during President Olusegun Obasanjo’s second term (2003–07). These included an oil price-based fiscal rule under which government expenditure is based on a conservative oil price benchmark. Any revenues that accumulate above the reference price are saved in a special excess crude account.
The 2010 budget presented in April 2010 increased spending by about 50%, and is based on the premise that a truce with militants will hold and allow crude production to increase. Spending will increase to US$30.6 billion, up from US$19.1 billion in 2009, as the government steps up investment in infrastructure. The government estimates it will register a budget deficit of between 5% and 6%. The budget estimates oil production will amount to 2.35 million barrels per day (bpd), with each barrel selling at an average of US$67. Militants began a campaign of pipeline bombings and kidnappings in 2006, which cut production by as much as 1 million bpd.
The central bank reacted to falling share prices and the problems in the banking sector by seeking to boost liquidity. By April 2010, the key interest rate had fallen to 6%, from 10.25% in September 2008.
In 2009, Nigeria undertook measures that strengthened the banking sector. The central bank carried out financial audits of all 24 national banks, finding 10 of them to be undercapitalized or suffering from illiquidity. The authorities replaced many of the failing banks’ management teams and pumped nearly US$6 billion into the sector. In addition, the central bank published the names of significant loan defaulters, which included many prominent political and business figures. These reforms followed on from a major banking overhaul in 2006 that reduced the number of banks from 89 to 24, increased a bank’s minimal capital requirement to US$190 million, and required banks to hold 40% of their deposits as liquid assets.
Economic Performance over 12 Months
The strong performance of Nigeria’s non-oil economy allowed the country to avoid a substantial slowdown in 2009, and it expanded by 4.9%, compared to the 6.4% growth rate seen in 2008. In April 2010, the International Monetary Fund (IMF) forecasted growth of 7% and 7.3% for Nigeria in 2010 and 2011 respectively, and said that the economy was recovering faster than it had earlier anticipated. These forecasts are predicated on the belief that oil prices will remain relatively stable as the global economy recovers, and on the assumption that the truce with militants in the Niger Delta holds. Attacks by militants on oil infrastructure and kidnappings of oil workers cut exports sharply in previous years.
Inflation has moderated from a peak of 15.1% in December 2008 to 11.8% in March 2010. The fall in inflation is partly due to the lack of liquidity in the economy. In order to encourage the banks to resume lending, the Central Bank of Nigeria kept its key interest rate at 6% in March 2010, while the borrowing rate was reduced to 1% from 2%. The central bank also promised to guarantee all foreign credit lines and interbank transactions until the end of 2010.
Nigeria’s foreign exchange reserves had fallen to US$40.67 billion at the end of March 2010, down from US$42.4 billion at the end of 2009, and from US$52.7 billion at the end of 2008. Nigeria disbursed about US$3 billion from its oil windfall savings to the three tiers of government in February and March 2010, which contributed to the depletion of its foreign exchange reserves.
Support for Inward Investment and Imports
The Nigerian Investment Promotion Commission (NIPC) is a one-stop federal government agency that aims to encourage, promote, and coordinate investments in Nigeria. The agency provides a number of services, including business entry permits and licenses, as well as general information on the investment environment.
Certain types of income are exempt from income tax. These include:
profits of any company engaged in ecclesiastical, charitable, or educational activities of a public character, in so far as such profits are not derived from a trade or business carried on by such company;
profits of any company formed for the purpose of promoting sporting activities, where such profits are wholly expendable for such purpose.
GDP growth: 4.9% (official, 2009)
GDP per capita: US$2,400 (2009 est.)
CPI: 11.5% (2009 est.)
Key interest rate: 6% (central bank, April 2010)
Exchange rate versus US dollar: N150.48 (2009)*
Unemployment: 4.9% (2007 est.)
FDI: US$71.59 billion (December 31, 2009 est.)
Current account deficit/surplus: −US$9.394 billion (2009 est.)
Population: 152,217,341 (July 2010 est.)
* Nigerian naira
Source: CIA World Factbook except where stated